Chapter 3 - The Accounting Cycle: End of the Period

Chapter 3
The Accounting Cycle: End of the Period

REVIEW QUESTIONS

Question 3-1 (LO 3-1)

The revenue recognition principle states that we record revenue in the period in which we
provide products or services to customers. If a company sells products or provides services to a
customer in the current year, then the company should report the revenue in its current income
statement. If the company sells products or provides services to a customer in the following year,
then it should report the revenue in the following year’s income statement, and so on.

Question 3-2 (LO 3-1)

The concept of expense recognition suggests that we recognize expenses in the same period as
costs are used for providing goods and services to customers. In other words, we report expenses
with the revenues they help to generate. There is a cause-and-effect relationship between revenue
and expense recognition implicit in this principle. Some costs are more difficult to match with
revenue and are expensed in the period in which they occur or are used in business operations.

Question 3-3 (LO 3-1)

Net income is an important profitability measure used by investors, creditors, and others in
assessing the performance of the company. Net income equals revenues minus expenses. Therefore,
to accurately assess profitability, it is important that revenues and the expenses that helped to
generate those revenues be reported in the same period. Otherwise, it would be difficult to tell from
period to period the company’s profit-generating ability.

Question 3-4 (LO 3-2)

Under cash-basis accounting, revenues are recorded when cash is received and expenses are
recorded when cash is paid. In contrast, under accrual-basis accounting, revenues are recorded when
goods and services are provided to customers (revenue recognition principle) and expenses are
recorded when used to generate revenues.

Question 3-5 (LO 3-2)

(1) April 10th.
(2) April 10th.
(3) April 10th.

Question 3-6 (LO 3-2)

(1) March 28th.
(2) April 10th.
(3) May 2nd.

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 Chapter 3 - The Accounting Cycle: End of the Period

Answers to Review Questions (continued)

Question 3-7 (LO 3-2)
(1) April 10th.
(2) April 10th.
(3) April 10th.

Question 3-8 (LO 3-2)

(1) March 28th.
(2) April 10th.
(3) May 2nd.

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3-2 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Question 3-9 (LO 3-3)

One of the primary purposes of adjusting entries is to allow for proper application of the revenue
recognition principle (revenues) and expense recognition (expenses). The revenue recognition
principle and expense recognition concept are key components of accrual-basis accounting.

Question 3-10 (LO 3-3)

Prepayments are cases where cash is received before revenue is recognized or where cash is paid
before the expense is recognized. Accruals are cases where cash is received after revenue is
recognized or where cash is paid after the expense is recognized.

Question 3-11 (LO 3-3)

A prepaid expense includes the purchase of supplies, prepaid insurance, and prepaid rent. At the
time of purchase, the purchase is recorded as an asset. When that asset is used (or expires), an
adjusting entry is needed to reduce the asset to its remaining amount and to recognize an expense.

Question 3-12 (LO 3-3)

Deferred revenue includes a customer paying cash before receiving the related product or
service, such as a magazine subscription. At the time the cash is received, a liability is recorded.
When those products and services are provided to customers, an adjusting entry is needed to reduce
the liability to its remaining amount and to recognize revenue.

Question 3-13 (LO 3-3)

An accrued expense includes incurring an expense before the related cash outflow, such as when
the cost of employees’ salaries, utilities, taxes, and interest are incurred but not paid until a later
time. In the period the cost occurs, an adjusting entry is needed to record the liability for the amount
to be paid and to recognize an expense.

Question 3-14 (LO 3-3)

An accrued revenue includes recording a revenue before the related cash inflow, such as
providing products or services to customers on account. In the period the goods and services are
provided to customers, an adjusting entry is needed to record an asset for the amount to be received
and to recognize revenue.

Answers to Review Questions (continued)

Question 3-15 (LO 3-3)
October 31 Debit Credit
Supplies Expense ($75 − $25) 50
Supplies 50
(Consume supplies during the current period)

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 Chapter 3 - The Accounting Cycle: End of the Period

Question 3-16 (LO 3-3)

Yes. Utilities expense and utilities payable will be understated at the end of September. Utilities
expense should be recorded during the period incurred (that is, in the period it helps to produce
revenues), regardless of whether it is paid. Utilities payable should be recorded in the period the
obligation (debt) arises.

Question 3-17 (LO 3-3)

November 30 Debit Credit
Deferred Revenues 20,000
Service Revenue 20,000
(Provide services to customers who paid in advance)

Question 3-18 (LO 3-3)

Yes. Accounts receivable and service revenue will be understated at the end of May. Accounts
receivable should be recorded in the period the right to receive cash arises. Service revenue should
be recorded in the period the service is provided to the customer, regardless of whether cash is
received.

Question 3-19 (LO 3-3)

(a) Prepaid expense: Debit Supplies Expense; credit Supplies.
(b) Deferred revenue: Debit Deferred Revenue; credit Service Revenue.
(c) Accrued expense: Debit Salaries Expense; credit Salaries Payable.
(d) Accrued revenue: Debit Accounts Receivable; credit Service Revenue.

Question 3-20 (LO 3-4)

The purpose of the adjusted trial balance is to list all accounts and their balances after updating
account balances for adjusting entries and check the equality of total debits and total credits.
Account balances reported on the (unadjusted) trial balance do not include the effects of adjusting
entries. Account balances reported on the adjusted trial balance do include the effects of adjusting
entries.

Question 3-21 (LO 3-5)

Classified indicates that assets are separated into those that provide a benefit over the next year
(current assets) and those that provide a benefit for more than one year (long-term assets) from the
date of the balance sheet. Similarly, liabilities are divided into those due over the next year (current
liabilities) and those due in more than one year (long-term liabilities) from the date of the balance
sheet.

Answers to Review Questions (continued)

Question 3-22 (LO 3-5)

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 Chapter 3 - The Accounting Cycle: End of the Period

Stockholders’
Assets = Liabilities + equity
$12,000 = $8,000 + $X
$12,000 − $8,000 = $4,000

Question 3-23 (LO 3-6)

The two purposes of closing entries are (1) to transfer the balances of temporary accounts
(revenues, expenses, and dividends) to the retained earnings account and (2) to reduce the balances
of these temporary accounts to zero to prepare them for measuring activity in the next period.

Question 3-24 (LO 3-6)

To “close” temporary accounts indicates that temporary account balances should be reduced to zero
at the end of the accounting period. The reason is that temporary accounts measure activity over a
single period only and therefore need to start each period at zero. To start a period at zero, it is
necessary to end the previous period with a zero balance. Dividends, revenues, and expenses are
closed.

Question 3-25 (LO 3-6)

The first closing entry transfers revenue transactions to retained earnings by debiting all
revenue accounts (reducing their balances to zero) and crediting retained earnings. The second
closing entry transfers expense transactions to retained earnings by crediting all expense accounts
(reducing their balance to zero) and debiting retained earnings. The third closing entry transfers
dividend transactions to retained earnings by crediting the dividends account (reducing its balance to
zero) and debiting retained earnings.

Question 3-26 (LO 3-6)

Net Income Dividends Retained
Earnings*
Year 1 $ 300 $200 $ 100
Year 2 900 200 800
Year 3 1,500 200 2,100
Year 4 2,400 200 4,300

* Retained earnings = Previous year’s retained earnings + Net income − Dividends

Answers to Review Questions (continued)

Question 3-27 (LO 3-6)
It is important to understand that transactions are recorded from the company’s perspective. The
company is paying dividends to its stockholders. From the company’s perspective, there is a
reduction in total assets of the company (generally cash) and total stockholders’ equity when

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Solutions Manual, Chapter 3 3-5
 Chapter 3 - The Accounting Cycle: End of the Period

dividends are paid. [The personal accounting records of the stockholder would show an increase in
cash and stockholders’ equity when the dividend is received from the company.]

Question 3-28 (LO 3-7)

The adjusted trial balance does not include the effect of closing entries while the post-closing
trial balance does. This means that revenues, expenses, and dividends will be reported in the
adjusted trial balance but not in the post-closing trial balance. The balance of retained earnings will
differ in the two trial balances. In the post-closing trial balance, all balances for revenue, expense,
and dividends accounts will have been transferred to the balance of retained earnings.

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 Chapter 3 - The Accounting Cycle: End of the Period

BRIEF EXERCISES
Brief Exercise 3-1 (LO 3-1)
Assets Liabilities Revenues
(a) Increase Increase No Effect
(b) Increase No Effect Increase
(c) Increase No Effect Increase

Brief Exercise 3-2 (LO 3-1)

Assets Liabilities Expenses
(a) Decrease No Effect Increase
(b) No Effect Increase Increase
(c) Decrease Decrease No Effect

Brief Exercise 3-3 (LO 3-1)

Revenues − Expenses = Net Income
$17,000 − $12,000 = $5,000

Brief Exercise 3-4 (LO 3-1, 3-2)

Cash Cash-basis Accrual-basis
Impact on:
Balance Net Income Net Income
(a) Receive $1,500 from
customers who were billed +$1,500 +$1,500 $0
for services in April.
(b) Provide $3,200 of consulting $0 $0 +$3,200
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 Chapter 3 - The Accounting Cycle: End of the Period

services to a local business.

Payment is not expected until
June.
(c) Purchase office supplies for
$400 on account. All
$0 $0 −$400
supplies are used by the end
of May.
(d) Pay $600 to workers. $400 is
for work in May and $200 is −$600 −$600 −$400
for work in April.
(e) Pay $200 to advertise in a
−$200 −$200 −$200
local newspaper in May.
Total +$700 +$700 +$2,200

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 Chapter 3 - The Accounting Cycle: End of the Period

Brief Exercise 3-5 (LO 3-1, 3-2)

Cash-basis Accrual Accrual-basis
net income adjustments net income
Cash inflows $50,000 +$6,900* $56,900
Cash outflows 21,900 −$3,000** 18,900
$28,100 $38,000
* The increase in accounts receivable ($6,900) represents accrual-basis revenues with no
corresponding cash inflows.
** The decrease in salaries owed ($3,000) represents cash outflows for salaries of the prior year
and would not be expensed in the current year.

Brief Exercise 3-6 (LO 3-3)

(1)
During the year Debit Credit
Supplies 3,300
Cash 3,300
(Purchase supplies for cash)

(2)
End of the year Debit Credit
Supplies Expense 3,500
Supplies 3,500
(Adjust supplies)

(3) Supplies
Supplies Expense
Beginning balance $ 500 $ 0
Purchases during the year 3,300
Supplies used during the year (3,500) 3,500
Ending balance $ 300 $3,500
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Solutions Manual, Chapter 3 3-9
 Chapter 3 - The Accounting Cycle: End of the Period

Brief Exercise 3-7 (LO 3-3)

(1)
Oct. 1 Debit Credit
Prepaid Rent 25,200
Cash 25,200
(Pay for rent in advance)

(2)
Dec. 31 Debit Credit
Rent Expense 6,300
Prepaid Rent 6,300
(Adjust prepaid rent)
= $2,100 per month x 3 months (Oct., Nov., and Dec.)

(3) Prepaid Rent

Rent Expense
Jan. 1 Beginning balance $ 0 $ 0
Oct. 1 Payment 25,200
Adjustment Prepaid rent expired during year (6,300) 6,300
Dec. 31 Ending balance $18,900 $6,300

Brief Exercise 3-8 (LO 3-3)

(1)
Mar. 1 Debit Credit
Prepaid Insurance 36,000
Cash 36,000
(Purchase insurance in advance)

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 Chapter 3 - The Accounting Cycle: End of the Period

(2)
Dec. 31 Debit Credit
Insurance Expense 30,000
Prepaid Insurance 30,000
(Adjust prepaid insurance)
= $3,000 per month x 10 months (Mar. – Dec.)

(3) Prepaid Insurance

Insurance Expense
Jan. 1 Beginning balance $ 0 $ 0
Mar. 1 Payment 36,000
Adjustment Insurance expired during year (30,000) 30,000
Dec. 31 Ending balance $ 6,000 $30,000

Brief Exercise 3-9 (LO 3-3)

(1)
Apr. 1 Debit Credit
Equipment 50,400
Cash 50,400
(Purchase equipment)

(2)
Dec. 31 Debit Credit
Depreciation Expense 5,400
Accumulated Depreciation 5,400
(Adjust accumulated depreciation)
= $600 per month x 9 months (Apr. – Dec.)

(3) Accumulated Depreciation

Depreciation Expense
Jan. 1 Beginning balance $ 0 $ 0
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 Chapter 3 - The Accounting Cycle: End of the Period

Adjustment Depreciation during year 5,400 5,400

Dec. 31 Ending balance $5,400 $5,400

Brief Exercise 3-10 (LO 3-3)

(1)
Nov. 1 Debit Credit
Cash 6,000
Deferred Revenue 6,000
(Receive cash in advance from customer)

(2)
Dec. 31 Debit Credit
Deferred Revenue 4,000
Service Revenue 4,000
(Adjust deferred revenue)
= $2,000 per month x 2 months (Nov. and Dec.)

(3) Deferred Service

Revenue Revenue
Jan. 1 Beginning balance $ 0 $ 0
Nov. 1 Cash received 6,000
Adjustment Revenue recognized during (4,000) 4,000
year
Dec. 31 Ending balance $2,000 $4,000

Brief Exercise 3-11 (LO 3-3)

(1)
Dec. 31, 2024 Debit Credit
Salaries Expense 1,200
Salaries Payable 1,200
(Record salaries owed at December 31;
$400 per day x 3 days [Dec. 29 – 31] = $1,200)
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 Chapter 3 - The Accounting Cycle: End of the Period

(2) Salaries
Payable
Jan. 1, 2024 Beginning balance $ 0
Adjustment Salaries incurred but not paid 1,200
Dec. 31, 2024 Ending balance $1,200

Brief Exercise 3-12 (LO 3-3)

(1)
Jul. 1, 2024 Debit Credit
Cash 15,000
Notes Payable 15,000
(Borrow cash)

(2)
Dec. 31, 2024 Debit Credit
Interest Expense 900
Interest Payable 900
(Record interest payable)
= $150 (or 1% of $15,000) per month x 6 months (Jul. – Dec.)

(3) Interest Interest

Payable Expense
Jan. 1, 2024 Beginning balance $ 0 $ 0
Adjustment Interest incurred but not paid 900 900
Dec. 31, 2024 Ending balance $900 $900

Brief Exercise 3-13 (LO 3-3)

(1)
Jul. 1, 2024 Debit Credit
Notes Receivable 15,000
Cash 15,000
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 Chapter 3 - The Accounting Cycle: End of the Period

(Lend cash)

(2)
Dec. 31, 2024 Debit Credit
Interest Receivable 900
Interest Revenue 900
(Record interest receivable)
= $150 (or 1% of $15,000) per month x 6 months (Jul. – Dec.)

(3) Interest Interest

Receivable Revenue
Jan. 1, 2024 Beginning balance $ 0 $ 0
Adjustment Interest earned but not received 900 900
Dec. 31, 2024 Ending balance $900 $900

Brief Exercise 3-14 (LO 3-5)

Account Financial Statement
1 Accounts Receivable Balance Sheet
.
2 Deferred Revenue Balance Sheet
.
3 Supplies Expense Income Statement
.
4 Salaries Payable Balance Sheet
.
5 Rent Expense Income Statement
.
6 Service Revenue Income Statement
.

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 Chapter 3 - The Accounting Cycle: End of the Period

Brief Exercise 3-15 (LO 3-5)

1 (b)
.
2 (d)
.
3 (a)
.
4 (c)
.

Brief Exercise 3-16 (LO 3-5)

Beavers Corporation
Income Statement
For the year ended December 31, 2024
Service revenue $275,000
Expenses:
Salaries 110,000
Supplies 20,000
Rent 26,000
Advertising 44,000
Delivery 18,000
Total expenses 218,000
Net income $ 57,000

Brief Exercise 3-17 (LO 3-5)

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 Chapter 3 - The Accounting Cycle: End of the Period

Spiders Corporation
Statement of Stockholders’ Equity
For the year ended December 31, 2024
Total
Common Retained Stockholders’
Stock Earnings Equity

Balance at January 1 $30,000 $ 8,000 $38,000

Issuance of common stock 0 0
Add: Net income for 2024 3,000 * 3,000
Less: Dividends (1,000) (1,000)
Balance at December 31 $30,000 $10,000 $40,000

* $3,000 is calculated as total revenues ($28,000) less total expenses ($25,000) for the year.

Brief Exercise 3-18 (LO 3-5)

Blue Devils Corporation
Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $ 5,000 Accounts payable $ 26,000
Accounts receivable 9,000 Salaries payable 16,000
Supplies 19,000 Total current liabilities 42,000
Total current assets 33,000
Stockholders’ Equity
Long-term assets: Common stock 60,000
Land 75,000 Retained earnings 6,000 *
Total stockholders’ equity 66,000
Total liabilities and
Total assets $108,000 stockholders’ equity $108,000

* Assets = Liabilities + Stockholders’ equity

$108,000 = $42,000 + ($60,000 + Retained earnings)
$108,000 − $42,000 − $60,000 + Retained earnings
$6,000 = Retained earnings

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 Chapter 3 - The Accounting Cycle: End of the Period

Brief Exercise 3-19 (LO 3-6)

December 31 Debit Credit
Service Revenue 900,000
Retained Earnings 900,000
(Close revenue accounts)

Retained Earnings 625,000

Salaries Expense 390,000
Rent Expense 150,000
Interest Expense 85,000
(Close expense accounts)

Retained Earnings 60,000

Dividends 60,000
(Close dividends account)

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 Chapter 3 - The Accounting Cycle: End of the Period

Brief Exercise 3-20 (LO 3-7)

Hilltoppers Corporation
Post-Closing Trial Balance

Accounts Debit Credit

Cash $ 5,000
Equipment 17,000
Accounts Payable $ 3,000
Common Stock 11,000
Retained Earnings 8,000 *
Totals $22,000 $22,000

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3-18 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Income
Statement: Revenues − Expenses = Net Income

Balance
Sheet: Assets = Liabilities + Stockholders’ Equity
+15,000
Notes Receivable
−15,000
Cash

(2)
Income
Statement: Revenues − Expenses = Net Income
+900 +900
Interest Revenue
↓
Balance
Sheet: Assets = Liabilities + Stockholders’ Equity
+900 +900
Interest Receivable

EXERCISES
Exercise 3-1 (LO 3-1)

1. August 16.
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 Chapter 3 - The Accounting Cycle: End of the Period

2. January 27.
3. April 2.
4. Revenue would be recognized as each magazine is delivered.

Exercise 3-2 (LO 3-1)

1. August 16.
2. January 27.
3. One month’s worth of insurance expense is recorded each month.
4. February 4.

Exercise 3-3 (LO 3-2)

1. June 12.
2. February 2.
3. April 2.
4. July 1.

Exercise 3-4 (LO 3-2)

1. September 2.
2. January 6.
3. January 1.
4. February 23.

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 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-5 (LO 3-1)

Net income (unadjusted) $100,000

1. Record insurance expense of $2,000 per month (6,000)
2. Reclassify service revenue as deferred revenue (liability) (4,000)
3. Reclassify supplies expense as supplies (asset) 2,750
4. Record interest expense of $525 per month (9%/12 of $70,000) (2,100)
Net income (adjusted) $ 90,650

Exercise 3-6 (LO 3-3, 3-4, 3-5, 3-6, 3-7)

(i) Use source documents to identify accounts affected by external
transactions.
(g) Analyze the impact of the transaction on the accounting
equation.
(h) Assess whether the transaction results in a debit or a credit to
the account balance.
(c) Record the transaction.
(b) Post the transaction to the T-account in the general ledger.
(f) Prepare a trial balance.
(a) Record and post adjusting entries.
(d) Prepare financial statements (income statement, statement of
stockholders’ equity, balance sheet, and statement of cash
flows).
(e) Record and post-closing entries.

Exercise 3-7 (LO 3-3)

(1a) Debit Credit
Supplies 4,500
Cash 4,500

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 Chapter 3 - The Accounting Cycle: End of the Period

(Purchase supplies during December)

(1b) Debit Credit
Supplies Expense 3,000
Supplies 3,000
(Supplies used during December)

(2a) Debit Credit

No journal entry required

(2b) Debit Credit

Insurance Expense 2,000
Prepaid Insurance 2,000
(Reduce prepaid insurance due to passage of
time)

(3a) Debit Credit

Salaries Payable 11,000
Cash 11,000
(Pay November salaries)
(3b) Debit Credit
Salaries Expense 16,000
Salaries Payable 16,000
(Record salaries owed at December 31)

(4a) Debit Credit

Cash 4,500
Deferred Revenue 4,500
(Receive cash in advance from customer)
(4b) Debit Credit
Deferred Revenue 1,500
Service Revenue 1,500
(Reduce deferred revenue for rental space
used by the customer during December)

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 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-8 (LO 3-3)

(1) Debit Credit
Income Tax Expense 42,000
Income Tax Payable 42,000
(Income taxes owed for the year)

(2) Debit Credit

Interest Receivable 1,750
Interest Revenue 1,750
(Interest revenue = $50,000 × 0.07 × 6/12)

(3) Debit Credit

Deferred Revenue 4,000
Service Revenue 4,000
(Recognize revenue for three months of
twelve months received in advance; $16,000
× 3/12)

Exercise 3-9 (LO 3-3)

If the adjusting entry is NOT made:
Revenues − Expenses = Net Income
(1) $0 − −$42,000 = +$42,000
(2) −$1,750 − $0 = −$1,750
(3) −$4,000 − $0 = −$4,000
Total +$36,250

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 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-10 (LO 3-3)

(1) Debit Credit
Deferred Revenue 1,500
Service Revenue 1,500
(Recognize revenue for one month = $4,500
÷ 3 = $1,500)

(2) Debit Credit

Advertising Expense 900
Prepaid Advertising 900
(Recognize advertising expense for one
month; 10 ads used ÷ 30 prepaid = $2,700 ×
1/3 = $900 )

(3) Debit Credit

Salaries Expense 8,000
Salaries Payable 8,000
(Record salaries payable)

(4) Debit Credit

Interest Expense 2,100
Interest Payable 2,100
(Record interest payable; $70,000 × 0.09 ×
4/12)

Exercise 3-11 (LO 3-3, 3-4)

If the adjusting entry is NOT made:
Assets = Liabilities + Stockholders’
Equity
(1) $0 = +$1,500 + −$1,500
(2) +$900 = $0 + +$900
(3) $0 = −$8,000 + +$8,000
(4) $0 = −$2,100 + +$2,100
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 Chapter 3 - The Accounting Cycle: End of the Period

Total +$900 −$8,600 +$9,500

Exercise 3-12 (LO 3-3)

(1) Debit Credit
Deferred Revenue 2,000
Service Revenue 2,000
(Recognize revenue for one month = $4,000
÷ 2 months received = $2,000)

(2) Debit Credit

Insurance Expense 6,600
Prepaid Insurance 6,600
(Recognize insurance expense for 6 months)

(3) Debit Credit

Salaries Expense 3,000
Salaries Payable 3,000
(Record salaries owed at December 31)

(4) Debit Credit

Interest Expense 250
Interest Payable 250
(Record interest expense; $15,000 × 0.10 ×
2/12 = $250)

(5) Debit Credit

Supplies Expense 3,900
Supplies 3,900
(Office supplies used during year; $1,000 +
$3,400 – $500 = $3,900)

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Solutions Manual, Chapter 3 3-25
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-13 (LO 3-3)

(1) Debit Credit
Interest Receivable 270
Interest Revenue 270
(Record interest revenue not received;
$9,000 × 0.12 × 3/12 = $270)

(2) Debit Credit

Rent Expense 3,000
Prepaid Rent 3,000
(Reduce prepaid rent for two months used of
three months prepaid; $4,500 × 2/3 =$3,000 )

(3) Debit Credit

Deferred Revenue 5,500
Service Revenue 5,500
(Recognize revenue for five months of 12
months collected in advance; $13,200 × 5/12 )

(4) Debit Credit

Utilities Expense 5,500
Utilities Payable 5,500
(Utilities owed at December 31)

(5) Debit Credit

Salaries Expense 5,000
Salaries Payable 5,000
(Record salaries owed at December 31)

(6) Debit Credit

Supplies Expense 3,500
Supplies 3,500
(Supplies used during year; $1,500 + $5,500
– $3,500 = $3,500)

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3-26 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-14 (LO 3-3, 3-4)

Requirement 1
(1) Debit Credit
Rent Expense 2,400
Prepaid Rent 2,400
(Adjust prepaid rent to recognize two
months used of six months prepaid = $7,200
× 2/6 = $2,400)

(2) Debit Credit

Deferred Revenue 750
Service Revenue 750
(Adjust deferred revenue for service
provided)

(3) Debit Credit

Salaries Expense 700
Salaries Payable 700
(Record salaries owed at December 31)

(4) Debit Credit

Supplies Expense 3,200
Supplies 3,200
(Supplies used during year; $1,700 + $2,300
– $800 = $3,200)

Exercise 3-14 (concluded)

Requirement 2
Demon Deacons Corporation
Adjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 10,000
Accounts Receivable 15,000

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Solutions Manual, Chapter 3 3-27
 Chapter 3 - The Accounting Cycle: End of the Period

Prepaid Rent 4,800

Supplies 800
Deferred Revenue $ 2,250
Salaries Payable 700
Common Stock 11,000
Retained Earnings 6,000
Service Revenue 51,950
Salaries Expense 35,700
Rent Expense 2,400
Supplies Expense 3,200
Totals $71,900 $71,900

Exercise 3-15 (LO 3-5)

Volunteers Inc. Raiders Inc.

(in millions) (in millions)
Net Retained Net Retained
Year Income (Loss) Earnings Income (Loss) Earnings
2015 — $ 0 $ 35 $ 11
2016 $ 30 30 (43) (32)
2017 (7) 23 63 31
2018 41 64 63 94
2019 135 199 102 196
2020 30 229 135 331
2021 (131) 98 (42) 289
2022 577 675 74 363
2023 359 1,034 110 473
2024 360 1,394 162 635

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3-28 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-16 (LO 3-5)

Requirement 1
Fightin’ Blue Hens Corporation
Income Statement
For the year ended December 31, 2024
Service revenue $500,000
Expenses:
Salaries 400,000
Rent 20,000
Utilities 40,000
Interest 5,000
Total expenses 465,000
Net income $ 35,000

Requirement 2
Fightin’ Blue Hens Corporation
Statement of Stockholders’ Equity
For the period ended December 31, 2024
Total
Common Retained Stockholders’
Stock Earnings Equity

Balance at July 1 $300,000 $60,000 $360,000

Issuance of common stock 0 0
Add: Net income for 2024 35,000 35,000

Balance at December 31 $300,000 $95,000 $395,000

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Solutions Manual, Chapter 3 3-29
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-16 (concluded)

Requirement 3
Fightin’ Blue Hens Corporation
Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $ 12,000 Accounts payable $ 12,000
Accounts receivable 150,000 Salaries payable 11,000
Prepaid rent 6,000 Interest payable 5,000
Supplies 30,000 Total current liabilities 28,000
Total current assets 198,000 Long-term liabilities:
Notes payable 40,000
Total liabilities 68,000
Stockholders’ Equity
Long-term assets: Common stock 300,000
Land 265,000 Retained earnings 95,000 *
Total stockholders’ equity 395,000
Total liabilities and
Total assets $463,000 stockholders’ equity $463,000

* Retained earnings = Beginning retained earnings + Net income − Dividends

= $60,000 + $35,000 − $0
= $95,000

Exercise 3-17 (LO 3-6)

Requirement 1

December 31, 2024 Debit Credit

Service Revenue 50,000
Interest Revenue 6,000
Retained Earnings 56,000
(Close revenue accounts)

Retained Earnings 40,000

Salaries Expense 15,000
Rent Expense 6,000
Advertising Expense 3,000
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3-30 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Insurance Expense 11,000

Interest Expense 5,000
(Close expense accounts)

Retained Earnings 3,000

Dividends 3,000
(Close dividends account)

Requirement 2
Retained Earnings
30,000
40,000 56,000
3,000
43,000 End. Bal.

Exercise 3-18 (LO 3-6)

Requirement 1

December 31, 2024 Debit Credit

Service Revenue 54,000
Retained Earnings 54,000
(Close revenue accounts)

Retained Earnings 51,000

Salaries Expense 20,000
Advertising Expense 13,000
Rent Expense 10,000
Utilities Expense 8,000
(Close expense accounts)

Retained Earnings 4,000

Dividends 4,000
(Close dividends account)

Requirement 2
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Solutions Manual, Chapter 3 3-31
 Chapter 3 - The Accounting Cycle: End of the Period

Retained Earnings
9000
51,000 54,000
4,000
8,000 End. Bal.

Exercise 3-18 (concluded)

Requirement 3

Laker Incorporated
Post-Closing Trial Balance
December 31, 2024

Accounts Debit Credit

Cash $12,000
Supplies 39,000
Prepaid Rent 30,000
Accounts Payable $ 3,000
Notes Payable 30,000
Common Stock 40,000
Retained Earnings 8,000
Totals $81,000 $81,000

Exercise 3-19 (LO 3-6, 3-7)

Requirement 1
December 31, 2024 Debit Credit
Service Revenue 500,000
Retained Earnings 500,000
(Close revenue accounts)

Retained Earnings 465,000

Salaries Expense 400,000
Rent Expense 20,000
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3-32 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Utilities Expense 40,000

Interest Expense 5,000
(Close expense accounts)

Requirement 2
Fightin’ Blue Hens Corporation
Post-Closing Trial Balance
December 31, 2024

Accounts Debit Credit

Cash $ 12,000
Accounts Receivable 150,000
Prepaid Rent 6,000
Supplies 30,000
Land 265,000
Accounts Payable $
12,000
Salaries Payable 11,000
Interest Payable 5,000
Notes Payable 40,000
Common Stock 300,000
Retained Earnings 95,000
Totals $463,000 $463,000

Exercise 3-20 (LO 3-3, 3-4, 3-5, 3-6, 3-7)

Requirement 1
February 15 Debit Credit
1. Cash 20,000
Common Stock 20,000
(Issue shares of common stock)
May 20
2. Cash 35,000
Accounts Receivable 30,000
Service Revenue 65,000
(Provide services to customers for
cash and on account)
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Solutions Manual, Chapter 3 3-33
 Chapter 3 - The Accounting Cycle: End of the Period

August 31
3. Salaries Expense 23,000
Cash 23,000
(Pay salaries to employees)
October 1
4. Prepaid Rent 12,000
Cash 12,000
(Pay for one-year of rental space)
November 17
5. Supplies 22,000
Accounts Payable 22,000
(Purchase supplies on account)
December 30
6. Dividends 2,000
Cash 2,000
(Pay dividends)

Exercise 3-20 (continued)

Requirement 2

December 31 Debit Credit

1. Salaries Expense 4,000
Salaries Payable 4,000
(Record salaries owed at December 31)

2. Rent Expense 3,000

Prepaid Rent 3,000
(Reduce prepaid rent for three months used
= $12,000 × 3/12 = $3,000)

3. Supplies Expense 25,000

Supplies 25,000
(Supplies used during year = $8,000 +
$22,000 – $5,000 = $25,000)

4. Deferred Revenue 5,000

Service Revenue 5,000
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3-34 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

(Reduce deferred revenue for

services performed)
Exercise 3-20 (continued)
Requirement 3
Red Flash Photography
Adjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 30,000
Accounts Receivable 30,000
Supplies 5,000
Prepaid Rent 9,000
Land 60,000
Accounts Payable $ 22,000
Salaries Payable 4,000
Common Stock 70,000
Retained Earnings 25,000
Dividends 2,000
Service Revenue 70,000
Salaries Expense 27,000
Rent Expense 3,000
Supplies Expense 25,000
Total $191,000 $191,000

Exercise 3-20 (continued)

Requirement 4
Red Flash Photography
Income Statement
For the year ended December 31, 2024
Service revenue $70,000
Expenses:
Salaries 27,000
Rent 3,000
Supplies 25,000

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Solutions Manual, Chapter 3 3-35
 Chapter 3 - The Accounting Cycle: End of the Period

Total expenses 55,000

Net income $15,000

Red Flash Photography

Statement of Stockholders’ Equity
For the period ended December 31, 2024
Total
Common Retained Stockholders’
Stock Earnings Equity

Balance at January 1 $50,000 $25,000 $ 75,000

Issuance of common stock 20,000 20,000
Add: Net income for 2024 15,000 15,000
Less: Dividends (2,000) (2,000)
Balance at December 31 $70,000 $38,000 $108,000

Exercise 3-20 (continued)

Requirement 4 (continued)

Red Flash Photography

Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $ 30,000 Accounts payable $ 22,000
Accounts receivable 30,000 Salaries payable 4,000
Supplies 5,000 Total current liabilities 26,000
Prepaid rent 9,000 Stockholders’ Equity
Total current assets 74,000 Common stock 70,000
Long-term assets: Retained earnings 38,000
Land 60,000 Total stockholders’ equity 108,000
Total liabilities and
Total assets $134,000 stockholders’ equity $134,000

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3-36 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-20 (concluded)

Requirement 5

December 31, 2024 Debit Credit

Service Revenue 70,000
Retained Earnings 70,000
(Close revenue accounts)

Retained Earnings 55,000

Salaries Expense 27,000
Rent Expense 3,000
Supplies Expense 25,000
(Close expense accounts)

Retained Earnings 2,000

Dividends 2,000
(Close dividends account)

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Solutions Manual, Chapter 3 3-37
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-21
Requirement 1

January 2 Debit Credit

Prepaid Rent 6,000
Cash 6,000
(Pay for one year of rent in advance)

January 9 Debit Credit

Supplies 3,500
Accounts Payable 3,500
(Purchase supplies on account)

January 13 Debit Credit

Accounts Receivable 25,500
Service Revenue 25,500
(Provide services on account)

January 17 Debit Credit

Cash 3,700
Deferred Revenue 3,700
(Receive cash in advance from customers)

January 20 Debit Credit

Salaries Expense 11,500
Cash 11,500
(Pay cash for salaries)

January 22 Debit Credit

Cash 24,100
Accounts Receivable 24,100
(Receive cash on account)

January 29 Debit Credit

Accounts Payable 4,000
Cash 4,000
(Pay cash on account)

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3-38 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-21 (continued)

Requirement 2

(a) January 31 Debit Credit

Rent Expense 500
Prepaid Rent 500
(Reduce prepaid rent for one month used of
twelve months prepaid)

(b) January 31 Debit Credit

Supplies Expense 3,800
Supplies 3,800
(Supplies used during January; $3,100+
$3,500−$2,800 = $3,800)

(c) January 31 Debit Credit

Deferred Revenue 3,200
Service Revenue 3,200
(Reduce deferred revenue for services rendered)

(d) January 31 Debit Credit

Salaries Expense 5,800
Salaries Payable 5,800
(Record salaries owed at January 31)

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Solutions Manual, Chapter 3 3-39
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-21 (continued)

Requirement 3

Dynamite Fireworks
Adjusted Trial Balance
January 31, 2024
Accounts Debit Credit
Cash $ 30,100
Accounts Receivable 6,600
Supplies 2,800
Prepaid Rent 5,500
Land 50,000
Accounts Payable $ 2,700
Deferred Revenue 500
Salaries Payable 5,800
Common Stock 65,000
Retained Earnings 13,900
Service Revenue 28,700
Salaries Expense 17,300
Rent Expense 500
Supplies Expense 3,800
Totals $116,600 $116,600

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3-40 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-21 (continued)

Requirement 3 (continued)

Ending Beginning balance in bold, entries during

Accounts Balance January in blue, and adjusting entries in red.
Cash 30,100 = 23,800−6,000+3,700−11,500+24,100−4,000
Accounts Receivable 6,600 = 5,200+25,500−24,100
Supplies 2,800 = 3,100+3,500−3,800
Prepaid Rent 5,500 = 6,000−500
Land 50,000 = 50,000
Accounts Payable 2,700 = 3,200+3,500−4,000
Deferred Revenue 500 = 3,700−3,200
Salaries Payable 5,800 = 5,800
Common Stock 65,000 = 65,000
Retained Earnings 13,900 = 13,900
Service Revenue 28,700 = 25,500+3,200
Salaries Expense 17,300 = 11,500+5,800
Rent Expense 500 = 500
Supplies Expense 3,800 = 3,800

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Solutions Manual, Chapter 3 3-41
 Chapter 3 - The Accounting Cycle: End of the Period

Exercise 3-21 (continued)

Requirement 4
Dynamite Fireworks
Income Statement
For the year ended January 31, 2024
Revenues:
Service revenue $28,700
Expenses:
Salaries Expense 17,300
Rent Expense 500
Supplies Expense 3,800
Total expenses 21,600
Net income $ 7,100

Requirement 5
Dynamite Fireworks
Balance Sheet
January 31, 2024
Assets Liabilities
Current assets: Current liabilities
Cash $30,100 Accounts payable $ 2,700
Accounts Receivable 6,600 Deferred revenue 500
Supplies 2,800 Salaries payable 5,800
Prepaid Rent 5,500 Total current liabilities 9,000
Total current assets 45,000
Stockholders’ Equity
Common stock 65,000
Long-term assets: Retained earnings 21,000 *
Land 50,000 Total stockholders’ equity 86,000
Total liabilities and
Total assets $95,000 stockholders’ equity $95,000

* Retained earnings = Beginning retained earnings + Net income −

Dividends
= $13,900 + $7,100 − $0
= $21,000

Exercise 3-21 (concluded)

Requirement 6
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3-42 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

January 31, 2024 Debit Credit

Service Revenue 28,700
Retained Earnings 28,700
(Close revenue accounts)

Retained Earnings 21,600

Salaries Expense 17,300
Rent Expense 500
Supplies Expense 3,800
(Close expense accounts)

Requirement 7
(a) Profit is the amount of net income reported in the income statement = $7,100.

(b) Currents assets ($45,000) divided by current liabilities ($9,000) = 5.00.

(c) Profits greater than zero indicate a company’s ability to generate revenues from its
customers in excess of the costs of providing services to those customers and
operating the business. For the month of January, Dynamite Fireworks recognizes
revenues from customers of $28,700, while costs (or expenses) associated with
those revenues are only $21,600. The difference is a profit of $7,100. A positive
amount for profit generally is a sign of the company’s success.

Current assets represent cash, items expected to be converted to cash within one
year (accounts receivable), or items that benefit the company within the next year
(supplies and prepaid rent). Current liabilities are amounts due within the next
year. At the end of January, Dynamite Fireworks’ current assets are five times its
current liabilities (5.00), which would suggest that the company will be able to pay
obligations as they come due.

Based on its profit and its ratio of current assets to current liabilities, Dynamite
Fireworks appears to be in good financial condition.

PROBLEMS: SET A
Problem 3-1A (LO 3-1, 3-2)
Accrual-Basis Cash-Basis
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Solutions Manual, Chapter 3 3-43
 Chapter 3 - The Accounting Cycle: End of the Period

Transaction Revenue Expense Revenue Expense

1. Receive cash from customers in
advance of services to be provided,
$600. $0 $0 $600 $0
2. Pay utilities bill for the previous
period, $150. $0 $0 $0 $150
3. Pay for insurance one year in
advance of period to be covered,
$2,000. $0 $0 $0 $2,000
4. Pay workers’ salaries for the current
period, $800. $0 $800 $0 $800
5. Incur costs for employee salaries in
the current period but do not pay,
$1,000. $0 $1,000 $0 $0
6. Receive cash from customers at the
time of service, $1,700. $1,700 $0 $1,700 $0
7. Purchase office supplies on account,
$330. $0 $0 $0 $0
8. Borrow cash from the bank, $4,000. $0 $0 $0 $0
9. Receive cash from customers for
services performed in the previous
period, $750. $0 $0 $750 $0
10. Pay for advertising to appear in the
current period, $450. $0 $450 $0 $450

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3-44 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-2A (LO 3-1, 3-2)

Minutemen Law Services

Income Statement
For the year ended December 31, 2024
Service revenue $73,000a
Expenses:
Salaries 37,700b
Supplies 7,000c
Rent 5,000d
Insurance 3,300e
Utilities 3,000f
Total expenses 56,000
Net income $17,000

a
$70,000 (cash from customers) + $3,000 (increase in accounts receivable) = $73,000
b
$36,000 (cash paid for salaries) + $1,700 (increase in salaries payable) = $37,700
c
$4,000 (cash paid for supplies) + $3,000 (decrease in supplies) = $7,000
d
$5,000 (cash paid for rent) +/− $0 (decrease/increase in prepaid rent) = $5,000
e
$7,000 (cash paid for insurance) − $3,700 (increase in prepaid insurance) = $3,300
f
$3,000 (cash paid for utilities) +/− $0 (increase/decrease in utilities payable) = $3,000

Problem 3-3A (LO 3-3)

(1) Debit Credit
Deferred Revenue 3,600
Service Revenue 3,600
(Reduce deferred revenue for six months
provided of ten months revenue received in
advance; $6,000 × 6/10 = $3,600)

(2) Debit Credit

Income Tax Expense 7,000
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Solutions Manual, Chapter 3 3-45
 Chapter 3 - The Accounting Cycle: End of the Period

Income Tax Payable 7,000

(Income taxes owed at the end of the year)

(3) Debit Credit

Insurance Expense 1,600
Prepaid Insurance 1,600
(Reduce prepaid insurance for eight months
used of twenty-four months prepaid; $4,800
× 8/24 = $1,600)

(4) Debit Credit

Interest Expense 800
Interest Payable 800
(Record interest expense for four months not
yet paid; $20,000 × 0.12 × 4/12 = $800)

(5) Debit Credit

Supplies Expense 1,700
Supplies 1,700
(Supplies used during year; $2,700 – $1,000
= $1,700)

Problem 3-4A (LO 3-3)

(1) Debit Credit
Insurance Expense 3,000
Prepaid Insurance 3,000
(Reduce prepaid insurance for six months
used of thirty-six months paid in advance;
$18,000 × 6/36 = $3,000)

(2) Debit Credit

Salaries Expense 25,000
Salaries Payable 25,000
(Record salaries owed at December 31)

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3-46 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

(3) Debit Credit

Deferred Revenue 4,000
Service Revenue 4,000
(Reduce deferred revenue for completion of
four custom bikes of six custom bikes paid
for in advance; $6,000 × 4/6 = $4,000)

(4) Debit Credit

Supplies Expense 16,000
Supplies 16,000
(Supplies used during year; $2,000 + $18,000 − $4,000
= $16,000)

(5) Debit Credit

Advertising Expense 3,000
Prepaid Advertising 3,000
(Reduce prepaid advertising for one month used of four
months prepaid; $12,000 × ¼ = $3,000)

(6) Debit Credit

Interest Expense 3,000
Interest Payable 3,000
(Record ten months interest expense not yet paid;
$36,000 × 10% × 10/12 = $3,000)

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Solutions Manual, Chapter 3 3-47
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-5A (LO 3-5)

Boilermaker Unlimited
Income Statement
For the year ended December 31, 2024
Service revenues:
New construction $450,000
Remodeling 280,000
Total revenues 730,000
Expenses:
Salaries 160,000
Supplies 285,000
Rent 50,000
Insurance 25,000
Utilities 42,000
Interest 9,000
Service fee 73,000
Total expenses 644,000
Net income $ 86,000

Problem 3-5A (concluded)

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3-48 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Boilermaker Unlimited
Statement of Stockholders’ Equity
For the year ended December 31, 2024
Total
Common Retained Stockholders’
Stock Earnings Equity

Balance at January 1 $170,000 $ 31,000 $201,000

Issuance of common stock 30,000 30,000
Add: Net income for 2024 86,000 86,000
Less: Dividends (26,000) (26,000)
Balance at December 31 $200,000 $91,000 $291,000

Boilermaker Unlimited
Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $ 16,000 Accounts payable $ 31,000
Accounts receivable 25,000 Salaries payable 28,000
Supplies 32,000 Utilities payable 5,000
Prepaid insurance 7,000 Total current liabilities 64,000
Total current assets 80,000 Long-term liabilities:
Notes payable 150,000
Total Liabilities 214,000
Long-term assets: Stockholders’ Equity
Investments 425,000 Common stock 200,000
Retained earnings 91,000
Total stockholders’ equity 291,000
Total liabilities and stockholders’
Total assets $505,000 equity $505,000

Problem 3-6A (LO 3-6, 3-7)

Requirement 1

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Solutions Manual, Chapter 3 3-49
 Chapter 3 - The Accounting Cycle: End of the Period

December 31 Debit Credit

Service Revenue 77,500
Retained Earnings 77,500
(Close revenue accounts)

Retained Earnings 62,100

Salaries Expense 46,000
Utilities Expense 8,200
Insurance Expense 5,800
Supplies Expense 2,100
(Close expense accounts)

Retained Earnings 6,000

Dividends 6,000
(Close dividends account)

Requirement 2
Rattlers Tax Services
Post-Closing Trial Balance

Accounts Debit Credit

Cash $ 4,700
Accounts Receivable 7,200
Land 115,000
Accounts Payable $ 3,000
Common Stock 90,000
Retained Earnings 33,900
Totals $126,900 $126,900

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3-50 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-7A (LO 3-4, 3-5, 3-6, 3-7)

Requirements 1 and 2 (adjusting entries posted in red)
Cash Accounts Receivable Supplies
10,300 9,500 2,000
(c) 1,300
10,300 9,500 700

Interest Receivable Prepaid Rent Land

0 7,200 78,000
(b) 800 (e) 5,400
800 1,800 78,000

Notes Receivable Accounts Payable Salaries Payable

20,000 7,700 0
(a) 2,100
20,000 7,700 2,100

Utilities Payable Deferred Revenue Common Stock

0 5,300 79,000
(f) 200 (d) 3,300
200 2,000 79,000

Retained Earnings Service Revenue Interest Revenue

19,700 42,200 0
(d) 3,300 (b) 800
19,700 45,500 800

Salaries Expense Utilities Expense Rent Expense

24,500 2,400 0
(a) 2,100 (f) 200 (e) 5,400
26,600 2,600 5,400

Supplies Expense
0
(c) 1,300
1,300
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Solutions Manual, Chapter 3 3-51
Requirement 3
 Chapter 3 - The Accounting Cycle: End of the Period

Crimson Tide Music Academy

Adjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 10,300
Accounts Receivable 9,500
Interest Receivable 800
Supplies 700
Prepaid Rent 1,800
Land 78,000
Notes Receivable 20,000
Accounts Payable $ 7,700
Salaries Payable 2,100
Deferred Revenue 2,000
Utilities Payable 200
Common Stock 79,000
Retained Earnings 19,700
Service Revenue 45,500
Interest Revenue 800
Salaries Expense 26,600
Rent Expense 5,400
Supplies Expense 1,300
Utilities Expense 2,600
Total $157,000 $157,000

Problem 3-7A (continued)

Requirement 4
Crimson Tide Music Academy
Income Statement
For the year ended December 31, 2024
Revenues:
Service $45,500
Interest 800
Total revenues 46,300
Expenses:

Salaries 26,600
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3-52 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Rent 5,400
Supplies 1,300
Utilities 2,600
Total expenses 35,900
Net income (Loss) $10,400

Crimson Tide Music Academy

Statement of Stockholders’ Equity
For the year ended December 31, 2024
Total
Common Retained Stockholders’
Stock Earnings Equity

Balance at January 1 $79,000 $19,700 $ 98,700

Issuance of common stock 0 0
Add: Net income for 2024 10,400 10,400
Balance at December 31 $79,000 $30,100 $109,100

Problem 3-7A (continued)

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Solutions Manual, Chapter 3 3-53
 Chapter 3 - The Accounting Cycle: End of the Period

Crimson Tide Music Academy

Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $ 10,300 Accounts payable $ 7,700
Accounts receivable 9,500 Salaries payable 2,100
Interest receivable 800 Deferred revenue 2,000
Supplies 700 Utilities payable 200
Prepaid rent 1,800 Total current liabilities 12,000
Total current assets 23,100

Long-term assets: Stockholders’ Equity

Land 78,000 Common stock 79,000
Notes receivable 20,000 Retained earnings 30,100
98,000 Total stockholders’ equity 109,100
Total liabilities and
Total assets $121,100 stockholders’ equity $121,100

Problem 3-7A (continued)

Requirement 5

December 31, Debit Credit

2024
Service Revenue 45,500
Interest Revenue 800
Retained Earnings 46,300
(Close revenue accounts)

Retained Earnings 35,900

Salaries Expense 26,600
Rent Expense 5,400
Supplies Expense 1,300
Utilities Expense 2,600
(Close expense accounts)

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3-54 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-7A (concluded)

Requirement 6 (closing entries posted in red)
Retained Earnings Service Revenue Interest Revenue
19,700 42,200
35,900 46,300 45,500 3,300 800 800
30,100 0 0

Salaries Expense Rent Expense

24,500 0
2,100 26,600 5,400
5,400
0 0

Supplies Expense Utilities Expense

0 2,400
1,300 1,300 200 2,600
0 0

Requirement 7
Crimson Tide Music Academy
Post-Closing Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 10,300
Accounts Receivable 9,500
Interest Receivable 800
Supplies 700
Prepaid Rent 1,800
Land 78,000
Notes Receivable 20,000
Accounts Payable $ 7,700
Salaries Payable 2,100
Deferred Revenue 2,000
Utilities Payable 200
Common Stock 79,000
Retained Earnings 30,100

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Solutions Manual, Chapter 3 3-55
 Chapter 3 - The Accounting Cycle: End of the Period

Total $121,100 $121,100

Problem 3-8A (LO 3-3, 3-4, 3-5, 3-6, 3-7)

Requirement 1
Cash Accounts Receivable Supplies
20,000 8,000 4,000
20,000 8,000 4,000

Equipment Accumulated Depr. Salaries Payable

15,000 5,000 7,500
15,000 5,000 7,500

Common Stock Retained Earnings Service Revenue

25,000 9,500 0
25,000 9,500 0

Dividends Salaries Expense R&M Expense

0 0 0
0 0 0

Depr. Expense Supplies Expense

0 0
0 0

Problem 3-8A (continued)

Requirement 2
(1) March 12 Debit Credit
Accounts Receivable 21,000
Cash 39,000
Service Revenue 60,000
(Service revenue on account and for cash)
(2) May 2 Debit Credit
Cash 18,000
Accounts Receivable 18,000
(Collect on account)
(3) June 30 Debit Credit
Cash 6,000
Common Stock 6,000
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3-56 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

(Issue common stock)

(4) August 1 Debit Credit
Salaries Payable 7,500
Cash 7,500
(Pay for past salaries)
(5) September 25 Debit Credit
Repairs and Maintenance Expense 13,000
Cash 13,000
(Pay repairs and maintenance expenses)
(6) October 19 Debit Credit
Equipment 8,000
Cash 8,000
(Purchase equipment)
(7) December 30 Debit Credit
Dividends 1,100
Cash 1,100
(Pay dividends)

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Solutions Manual, Chapter 3 3-57
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-8A (continued)

Requirement 3 (entries posted in red)
Cash Accounts Receivable Supplies
20,000 7,500 8,000 4,000
39,000 13,000 21,000 18,000
18,000 8,000
6,000 1,100
53,400 11,000 4,000

Equipment Accumulated Depr. Salaries Payable

15,000 5,000 7,500
8,000 7,500
23,000 5,000 0

Common Stock Retained Earnings Service Revenue

25,000 9,500 0
6,000 60,000
31,000 9,500 60,000

Dividends Salaries Expense R&M Expense

0 0 0
1,100 13,000
1,100 0 13,000

Depr. Expense Supplies Expense

0 0
0 0

Problem 3-8A (continued)

Requirement 4
Red Storm Cleaners
Unadjusted Trial Balance
December 31, 2024

Accounts Debit Credit

Cash $ 53,400
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3-58 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Accounts Receivable 11,000

Supplies 4,000
Equipment 23,000
Accumulated Depreciation $ 5,000
Salaries Payable 0
Common Stock 31,000
Retained Earnings 9,500
Dividends 1,100
Service Revenue 60,000
Salaries Expense 0
Repairs and Main. Expense 13,000
Depreciation Expense 0
Supplies Expense 0
Total $105,500 $105,500

Requirement 5
December 31 Debit Credit
Salaries Expense 19,600
Salaries Payable 19,600
(Record salaries owed at December 31)

Depreciation Expense 5,000

Accumulated Depreciation 5,000
(Record depreciation expense for the year)

Supplies Expense 2,800

Supplies 2,800
(Supplies used during year; $4,000 – $1,200
= $2,800)

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Solutions Manual, Chapter 3 3-59
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-8A (continued)

Requirement 6 (adjusting entries posted in red)
Cash Accounts Receivable Supplies
20,000 7,500 8,000 4,000
39,000 13,000 2,800
21,000 18,000
18,000 8,000
6,000 1,100
53,400 11,000 1,200

Equipment Accumulated Depr. Salaries Payable

15,000 5,000 7,500
8,000 5,000 7,500 19,600
23,000 10,000 19,600

Common Stock Retained Earnings Service Revenue

25,000 9,500 0
6,000 60,000
31,000 9,500 60,000

Dividends Salaries Expense R&M Expense

0 0 0
1,100 13,000
19,600
1,100 19,600 13,000

Depr. Expense Supplies Expense

0 0
5,000 2,800
5,000 2,800

Problem 3-8A (continued)

Requirement 7

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3-60 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Red Storm Cleaners

Adjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 53,400
Accounts Receivable 11,000
Supplies 1,200
Equipment 23,000
Accumulated Depreciation $ 10,000
Salaries Payable 19,600
Common Stock 31,000
Retained Earnings 9,500
Dividends 1,100
Service Revenue 60,000
Salaries Expense 19,600
Repairs and Main. Expense 13,000
Depreciation Expense 5,000
Supplies expense 2,800
Total $130,100 $130,100

Problem 3-8A (continued)

Requirement 8
Red Storm Cleaners
Income Statement
For the year ended December 31, 2024
Service revenue $60,000
Expenses:

Salaries 19,600
Repairs and main. 13,000
Depreciation 5,000
Supplies 2,800

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Solutions Manual, Chapter 3 3-61
 Chapter 3 - The Accounting Cycle: End of the Period

Total expenses 40,400

Net income $19,600

Red Storm Cleaners

Balance Sheet
December 31, 2024
Assets Liabilities
Current assets Current liabilities.
Cash $53,400 Salaries payable $19,600
Accounts receivable 11,000
Supplies 1,200
Total current assets 65,600 Stockholders’ Equity
Long-term assets: Common stock 31,000
Equipment 23,000 Retained earnings 28,000 *
Accumulated depr. (10,000) Total stockholders’ equity 59,000
Total liabilities and
Total assets $78,600 stockholders’ equity $78,600

* Retained earnings = Beginning retained earnings + Net income − Dividends

= $9,500 + $19,600 − $1,100
= $28,000

Problem 3-8A (continued)

Requirement 9

December 31 Debit Credit

Service Revenue 60,000
Retained Earnings 60,000
(Close revenue accounts)

Retained Earnings 40,400

Salaries Expense 19,600
Repairs and Main. Expense 13,000
Depreciation Expense 5,000
Supplies Expense 2,800
(Close expense accounts)

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3-62 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Retained Earnings 1,100

Dividends 1,100
(Close dividends account)

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Solutions Manual, Chapter 3 3-63
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-8A (continued)

Requirement 10 (closing entries posted in red)

Cash Accounts Receivable Supplies

20,000 7,500 8,000 4,000
39,000 13,000 2,800
21,000 18,000
18,000 8,000
6,000 1,100
53,400 11,000 1,200

Equipment Accumulated Depr. Salaries Payable

15,000 5,000 7,500
8,000 5,000 7,500 19,600
23,000 10,000 19,900

Common Stock Retained Earnings Service Revenue

25,000 9,500 0
6,000 40,400 60,000 60,000 60,000
1,100
31,000 28,000 0

Dividends Salaries Expense R&M Expense

0 0 0
1,100 1,100 19,600 19,600 13,000
13,000
0 0 0

Depr. Expense Supplies Expense

0 0
5,000 2,800
5,000 2,800
0 0

Problem
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Requirement
3-64 11 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Red Storm Cleaners

Post-Closing Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $53,400
Accounts Receivable 11,000
Supplies 1,200
Equipment 23,000
Accumulated Depreciation $10,000
Salaries Payable 19,600
Common Stock 31,000
Retained Earnings 28,000
Total $88,600 $88,600

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Solutions Manual, Chapter 3 3-65
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-9A (LO 3-3, 3-4, 3-5, 3-6, 3-7)

Requirement 1
Cash Accounts Receivable Prepaid Insurance
24,600 15,400 12,000
24,600 15,400 12,000

Supplies Land Accounts Payable

0 148,000 6,700
0 148,000 6,700

Deferred Revenue Common Stock Retained Earnings

5,800 143,000 44,500
5,800 143,000 44,500

Service Revenue Dividends Property Tax Expense

0 0 0
0 0 0

Salaries Expense Insurance Expense Supplies Expense

0 0 0
0 0 0

Problem 3-9A (continued)

Requirement 2
(1) January 9 Debit Credit
Cash 134,100
Accounts Receivable 52,200
Service Revenue 186,300
(Provide services for cash and on account)
(2) February 12 Debit Credit
Cash 51,500
Accounts Receivable 51,500
(Collect on account)
(3) April 25 Debit Credit
Cash 12,900
Deferred Revenue 12,900
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3-66 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

(Receive cash in advance from customers)

(4) May 6 Debit Credit
Supplies 9,200
Accounts Payable 9,200
(Purchase supplies on account)
(5) July 15 Debit Credit
Property Tax Expense 8,500
Cash 8,500
(Pay property taxes)
(6) September 10 Debit Credit
Accounts Payable 11,400
Cash 11,400
(Pay on account)
(7) October 31 Debit Credit
Salaries Expense 123,600
Cash 123,600
(Pay salaries for the current year)
(8) November 20 Debit Credit
Cash 27,000
Common Stock 27,000
(Issue shares of common stock)
(9) December 30 Debit Credit
Dividends 2,800
Cash 2,800
(Pay dividends)

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Solutions Manual, Chapter 3 3-67
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-9A (continued)

Requirement 3 (entries posted in red)
Cash Accounts Receivable Prepaid Insurance
24,600 15,400 12,000
134,100 8,500 52,200 51,500
51,500 11,400
12,900 123,600
27,000 2,800
103,800 16,100 12,000

Supplies Land Accounts Payable

0 148,000 6,700
9,200 11,400 9,200
9,200 148,000 4,500

Deferred Revenue Common Stock Retained Earnings

5,800 143,000 44,500
12,900 27,000
18,700 170,000 44,500

Dividends Service Revenue Property Tax Expense

0 0 0
2,800 186,300 8,500
2,800 186,300 8,500

Salaries Expense Insurance Expense Supplies Expense

0 0 0
123,600
123,600 0 0

Problem 3-9A (continued)

Requirement 4

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3-68 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Zips Storage
Unadjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $103,800
Accounts Receivable 16,100
Prepaid Insurance 12,000
Supplies 9,200
Land 148,000
Accounts Payable $ 4,500
Deferred Revenue 18,700
Common Stock 170,000
Retained Earnings 44,500
Dividends 2,800
Service Revenue 186,300
Property Tax Expense 8,500
Salaries Expense 123,600
Insurance Expense 0
Supplies Expense 0
Total $424,000 $424,000

Requirement 5
December 31 Debit Credit
Insurance Expense 7,000
Prepaid Insurance 7,000
(Reduce prepaid insurance due to passage of time)

Supplies Expense 6,300

Supplies 6,300
(Supplies used during the year; $0 + $9,200
− $2,900 = $6,300)

Deferred Revenue 11,800

Service Revenue 11,800
(Provide services to customers who paid in advance)

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Solutions Manual, Chapter 3 3-69
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-9A (continued)

Requirement 6 (adjusting entries posted in red)
Cash Accounts Receivable Prepaid Insurance
24,600 15,400 12,000
134,100 8,500 52,200 51,500 7,000
51,500 11,400
12,900 123,600
27,000 2,800
103,800 16,100 5,000

Supplies Land Accounts Payable

0 148,000 6,700
9,200 6,300 11,400 9,200
2,900 148,000 4,500

Deferred Revenue Common Stock Retained Earnings

5,800 143,000 44,500
11,800 12,900 27,000
6,900 170,000 44,500

Dividends Service Revenue Property Tax Expense

0 0 0
2,800 186,300 8,500
11,800
2,800 198,100 8,500

Salaries Expense Insurance Expense Supplies Expense

0 0 0
123,600 7,000 6,300
123,600 7,000 6,300

Problem 3-9A (continued)

Requirement 7

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3-70 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Zips Storage
Adjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $103,800
Accounts Receivable 16,100
Prepaid Insurance 5,000
Supplies 2,900
Land 148,000
Accounts Payable $ 4,500
Deferred Revenue 6,900
Common Stock 170,000
Retained Earnings 44,500
Dividends 2,800
Service Revenue 198,100
Property Tax Expense 8,500
Salaries Expense 123,600
Insurance Expense 7,000
Supplies Expense 6,300
Total $424,000 $424,000

Problem 3-9A (continued)

Requirement 8
Zips Storage
Income Statement
For the year ended December 31, 2024
Service revenue $198,100
Expenses:

Property tax 8,500

Salaries 123,600
Insurance 7,000
Supplies 6,300

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Solutions Manual, Chapter 3 3-71
 Chapter 3 - The Accounting Cycle: End of the Period

Total expenses 145,400

Net income $ 52,700

Zips Storage
Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $103,800 Accounts Payable $ 4,500
Accounts receivable 16,100 Deferred Revenue 6,900
Prepaid Insurance 5,000 Total current liabilities 11,400
Supplies 2,900 Stockholders’ Equity
Total current assets 127,800 Common stock 170,000
Long-term assets: Retained earnings 94,400 *
Land 148,000 Total stockholders’ equity 264,400
Total liabilities and
Total assets $275,800 stockholders’ equity $275,800

* Retained earnings = Beginning retained earnings + Net income − Dividends

= $44,500 + $52,700 − $2,800
= $94,400

Problem 3-9A (continued)

Requirement 9

December 31 Debit Credit

Service Revenue 198,100
Retained Earnings 198,100
(Close revenue accounts)

Retained Earnings 145,400

Property Tax Expense 8,500
Salaries Expense 123,600
Insurance Expense 7,000
Supplies Expense 6,300
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3-72 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

(Close expense accounts)

Retained Earnings 2,800

Dividends 2,800
(Close dividends account)

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Solutions Manual, Chapter 3 3-73
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-9A (continued)

Requirement 10 (closing entries posted in red)

Cash Accounts Receivable Prepaid Insurance

24,600 15,400 12,000
134,100 8,500 52,200 51,500 7,000
51,500 11,400
12,900 123,600
27,000 2,800
103,800 16,100 5,000

Supplies Land Accounts Payable

0 148,000 6,700
9,200 6,300 11,400 9,200
2,900 148,000 4,500

Deferred Revenue Common Stock Retained Earnings

5,800 143,000 44,500
11,800 12,900 27,000 145,400 198,100
2,800
6,900 170,000 94,400

Dividends Service Revenue Property Tax Expense

0 0 0
2,800 2,800 186,300 8,500 8,500
198,100 11,800
0 0 0

Salaries Expense Insurance Expense Supplies Expense

0 0 0
123,600 123,600 7,000 7,000 6,300 6,300
0 0 0

Problem 3-9A (concluded)

Requirement
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3-74 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Zips Storage
Post-Closing Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $103,800
Accounts Receivable 16,100
Prepaid Insurance 5,000
Supplies 2,900
Land 148,000
Accounts Payable $ 4,500
Deferred Revenue 6,900
Common Stock 170,000
Retained Earnings 94,400
Total $275,800 $275,800

PROBLEMS: SET B
Problem 3-1B (LO 3-1, 3-2)
Accrual-Basis Cash-Basis
Transaction Revenue Expense Revenue Expense
1. Receive cash from customers at the
time of service, $3,700 $3,700 $0 $3,700 $0
2. Issue common stock for cash,
$6,000. $0 $0 $0 $0
3. Receive cash from customers who
were billed in the previous period,
$1,700 $0 $0 $1,700 $0
4. Incur utilities cost in the current
period but do not pay, $600. $0 $600 $0 $0
5. Pay workers’ salaries for the current
period, $700. $0 $700 $0 $700
6. Pay for rent in advance of the period
to be covered, $3,600 $0 $0 $0 $3,600
7. Repay a long-term note to the bank,
$3,000. $0 $0 $0 $0
8. Pay workers’ salaries for the
previous period, $850. $0 $0 $0 $850
9. Pay dividends to stockholders, $500. $0 $0 $0 $0
10. Purchase office supplies for cash,
$540. $0 $0 $0 $540

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 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-2B (LO 3-1, 3-2)

Horned Frogs Fine Cooking

Income Statement
For the year ended December 31, 2024
Service revenue $60,000a
Expenses:
Salaries 21,600b
Supplies 7,000c

Repairs and maintenance 8,000d

Insurance 1,500e
Advertising 6,000f
Total expenses 44,100
Net income $15,900

a
$65,000 (cash from customers) − $5,000 (decrease in accounts receivable) = $60,000
b
$23,000 (cash paid for salaries) − $1,400 (decrease in salaries payable) = $21,600
c
$9,000 (cash paid for supplies) − $2,000 (increase in supplies) = $7,000
d
$8,000 (cash paid for maintenance) +/− $0 (increase/decrease in maintenance payable) = $8,000
e
$4,000 (cash paid for insurance) − $2,500 (increase in prepaid insurance) = $1,500
f
$6,000 (cash paid for advertising) +/− $0 (decrease/increase in prepaid advertising) = $6,000

Problem 3-3B (LO 3-3)

(1) Debit Credit
Income Tax Expense 24,000
Income Tax Payable 24,000
(Record income tax expense for year)
(2) Debit Credit
Salaries Expense 4,000
Salaries Payable 4,000
(Record salaries owed at December 31)
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 Chapter 3 - The Accounting Cycle: End of the Period

(3) Debit Credit

Interest Receivable 1,500
Interest Revenue 1,500
(Record interest revenue for ten months not
yet received; $20,000 × 0.09 × 10/12 =
$1,500)
(4) Debit Credit
Insurance Expense 4,950
Prepaid Insurance 4,950
(Reduce prepaid insurance for nine months
used of twenty-four months paid in advance;
$13,200 × 9/24 = $4,950)
(5) Debit Credit
Supplies Expense 1,700
Supplies 1,700
(Supplies used during year)
(6) Debit Credit
Deferred Revenue 1,800
Service Revenue 1,800
(Reduce deferred revenue for two months
provided of three months revenue received
in advance; $2,700 × 2/3 = $1,800)
(7) Debit Credit
Rent Expense 2,000
Prepaid Rent 2,000
(Reduce prepaid rent for one month used of
three months paid in advance)

Problem 3-4B (LO 3-3)

(1) Debit Credit
Interest Receivable 1,200
Interest Revenue 1,200
(Record interest expense for three months not yet
paid; $60,000 × 8% × 3/12)

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 Chapter 3 - The Accounting Cycle: End of the Period

(2) Debit Credit

Rent Expense 5,000
Prepaid Rent 5,000
(Reduce prepaid rent for two months used of three months
prepaid; $7,500 × 2/3 = $5,000)

(3) Debit Credit

Deferred Revenue 5,000
Service Revenue 5,000
(Reduce deferred revenue for five months
provided of twelve months received in
advance; $12,000 × 5/12 = $5,000)

(4) Debit Credit

Depreciation Expense 18,000
Accumulated Depreciation 18,000
(Record depreciation expense for year)

(5) Debit Credit

Salaries Expense 8,000
Salaries Payable 8,000
(Record salaries owed at December 31)

(6) Debit Credit

Supplies Expense 57,000
Supplies 57,000
(Supplies used during year; $17,000 + $62,000 −
$22,000 = $57,000)

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3-78 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-5B (LO 3-5)

Orange Designs
Income Statement
For the year ended December 31, 2024
Service revenue $112,000
Expenses:

Salaries 43,000
Rent 19,000
Depreciation 8,000
Supplies 9,000
Advertising 14,000
Utilities 13,000
Interest 3,000
Total expenses 109,000
Net income $ 3,000

Problem 3-5B (concluded)

Orange Designs
Statement of Stockholders’ Equity
For the year ended December 31, 2024
Total
Common Retained Stockholders’
Stock Earnings Equity

Balance at January 1 $49,000 $16,000 $65,000

Issuance of common stock 11,000 11,000
Add: Net income for 2024 3,000 3,000
Less: Dividends (0) (0)
Balance at December 31 $60,000 $19,000 $79,000

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Solutions Manual, Chapter 3 3-79
 Chapter 3 - The Accounting Cycle: End of the Period

Orange Designs
Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $ 6,000 Accounts payable $ 4,000
Accounts receivable 5,000 Salaries payable 5,000
Supplies 3,000 Utilities payable 1,000
Prepaid rent 7,000 Total current liabilities 10,000
Total current assets 21,000 Long-term liabilities:
Notes payable 30,000
Total liabilities 40,000
Long-term assets: Stockholders’ Equity
Buildings 120,000 Common stock 60,000
Accum. depr. (22,000) Retained earnings 19,000
Total stockholders’ equity 79,000
Total liabilities and
Total assets $119,000 stockholders’ equity $119,000

Problem 3-6B (LO 3-6, 3-7)

December 31 Debit Credit
Service Revenue 89,700
Retained Earnings 89,700
(Close revenue accounts)

Retained Earnings 73,300

Salaries Expense 50,000
Supplies Expense 10,100
Rent Expense 8,500
Delivery Expense 4,700
(Close expense accounts)

Retained Earnings 7,000

Dividends 7,000
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3-80 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

(Close dividends account)

Fighting Illini
Post-Closing Trial Balance

Accounts Debit Credit

Cash $ 7,600
Accounts Receivable 10,200
Land 120,000
Accounts Payable $ 5,100
Common Stock 90,000
Retained Earnings 42,700
Totals $137,800 $137,800

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Solutions Manual, Chapter 3 3-81
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-7B (LO 3-4, 3-5, 3-6, 3-7)

Requirements 1 and 2 (adjusting entries posted in red)
Cash Accounts Receivable Supplies
76,000 15,000 27,000
(e) 22,000
76,000 15,000 5,000

Prepaid Insurance Equipment Accumulated Depr.

24,000 95,000 37,000
(d) (a) 10,000
20,000
4,000 95,000 47,000

Accounts Payable Salaries Payable Deferred Revenue

12,000 0 (f) 15,000 60,000
(b) 4,000
12,000 4,000 45,000

Interest Payable Notes Payable Common Stock

0 35,000 35,000
(c) 1,000
1,000 35,000 35,000

Retained Earnings Dividends Service Revenue

10,000 3,000 227,000
(f) 15,000
10,000 3,000 242,000

Salaries Expense Depreciation Expense Insurance Expense

164,000 0 0
(b) 4,000 (a) 10,000 (d) 20,000
168,000 10,000 20,000

Supplies Expense Utilities Expense Interest Expense

0 12,000 0
(e) 22,000 (c) 1,000
22,000 12,000 1,000
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Problem
3-82 3-7B (continued) Financial Accounting, 6e

Requirement 3
 Chapter 3 - The Accounting Cycle: End of the Period

Jaguar Auto Company

Adjusted Trial Balance
December 31, 2024

Accounts Debit Credit

Cash $ 76,000
Accounts Receivable 15,000
Supplies 5,000
Prepaid Insurance 4,000
Equipment 95,000
Accumulated Depreciation $ 47,000
Accounts Payable 12,000
Salaries Payable 4,000
Deferred Revenue 45,000
Interest Payable 1,000
Notes Payable 35,000
Common Stock 35,000
Retained Earnings 10,000
Dividends 3,000
Service Revenue 242,000
Salaries Expense 168,000
Depreciation Expense 10,000
Insurance Expense 20,000
Supplies Expense 22,000
Utilities Expense 12,000
Interest Expense 1,000
Total $431,000 $431,000

Problem 3-7B (continued)

Requirement 4
Jaguar Auto Company
Income Statement
For the year ended December 31, 2024
Service revenue $242,000
Expenses:

Salaries 168,000
Depreciation 10,000
Insurance 20,000
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Solutions Manual, Chapter 3 3-83
 Chapter 3 - The Accounting Cycle: End of the Period

Supplies 22,000
Utilities 12,000
Interest 1,000
Total expenses 233,000
Net income $ 9,000

Jaguar Auto Company

Statement of Stockholders’ Equity
For the year ended December 31, 2024
Total
Common Retained Stockholders’
Stock Earnings Equity

Balance at January 1 $35,000 $10,000 $45,000

Issuance of common stock 0 0
Less: Net income for 2024 9,000 9,000
Less: Dividends (3,000) (3,000)
Balance at December 31 $35,000 $16,000 $51,000

Problem 3-7B (continued)

Jaguar Auto Company

Balance Sheet
December 31, 2024
Assets Liabilities
Current assets Current liabilities
Cash $ 76,000 Accounts payable $12,000
Accounts receivable 15,000 Salaries payable 4,000
Supplies 5,000 Deferred revenue 45,000
Prepaid insurance 4,000 Interest payable 1,000
Total current assets 100,000 Total current liabilities 62,000

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3-84 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Long-term liabilities:
Notes payable 35,000
Long-term assets: Total liabilities 97,000
Equipment 95,000 Stockholders’ Equity
Accumulated depr. (47,000) Common stock 35,000
Retained earnings 16,000
Total stockholders’ equity 51,000
Total liabilities and
Total assets $148,000 stockholders’ equity $148,000

Problem 3-7B (continued)

Requirement 5

December 31, 2024 Debit Credit

Service Revenue 242,000
Retained Earnings 242,000
(Close revenue accounts)

Retained Earnings 233,000

Salaries Expense 168,000
Depreciation Expense 10,000
Insurance Expense 20,000
Supplies Expense 22,000
Utilities Expense 12,000
Interest Expense 1,000
(Close expense accounts)

Retained Earnings 3,000

Dividends 3,000
(Close dividends account)

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Solutions Manual, Chapter 3 3-85
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-7B (concluded)

Requirement 6 (closing entries posted in red)
Retained Earnings Dividends Service Revenue
10,000 3,000 242,000
233,000 242,000
3,000 3,000 242,000
16,000 0 0

Salaries Expense Depreciation Expense Insurance Expense

164,000 0 0
4,000 168,000 10,000 10,000 20,000 20,000
0 0 0

Supplies Expense Utilities Expense Interest Expense

0 12,000 0
22,000 22,000 12,000 1,000 1,000
0 0 0

Requirement 7
Jaguar Auto Company
Post-Closing Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 76,000
Accounts Receivable 15,000
Supplies 5,000
Prepaid Insurance 4,000
Equipment 95,000
Accumulated Depreciation $ 47,000
Accounts Payable 12,000
Salaries Payable 4,000
Deferred Revenue 45,000
Interest Payable 1,000
Notes Payable 35,000
Common Stock 35,000
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3-86 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Retained Earnings 16,000

Total $195,000 $195,000

Problem 3-8B (LO 3-3, 3-4, 3-5, 3-6, 3-7)

Requirement 1
Cash Accounts Receivable Supplies
4,500 9,500 3,500
4,500 9,500 3,500

Equipment Accumulated Depr. Accounts Payable

36,000 8,000 6,000
36,000 8,000 6,000

Utilities Payable Deferred Revenue Common Stock

7,000 0 23,000
7,000 0 23,000

Retained Earnings Dividends Service Revenue

9,500 0 0
9,500 0 0

Salaries Expense Utilities Expense Supplies Expense

0 0 0
0 0 0

Depr. Expense
0
0

Problem 3-8B (continued)

Requirement 2
(1) January 24 Debit Credit
Accounts Receivable 65,000
Cash 20,000
Service Revenue 85,000
(Provide services on account and for cash)

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 Chapter 3 - The Accounting Cycle: End of the Period

(2) March 13 Debit Credit

Cash 53,000
Accounts Receivable 53,000
(Collect on account)
(3) May 6 Debit Credit
Cash 11,000
Common Stock 11,000
(Issue common stock)
(4) June 30 Debit Credit
Salaries Expense 33,000
Cash 33,000
(Pay current salaries)
(5) September 15 Debit Credit
Utilities Payable 7,000
Cash 7,000
(Pay for past utilities)
(6) November 24 Debit Credit
Cash 10,000
Deferred Revenue 10,000
(Receive cash in advance)
(7) December 30 Debit Credit
Dividends 3,000
Cash 3,000
(Pay dividends)

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 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-8B (continued)

Requirement 3 (entries posted in red)
Cash Accounts Receivable Supplies
4,500 9,500 3,500
20,000 33,000 65,000 53,000
53,000 7,000
11,000 3,000
10,000
55,500 21,500 3,500

Equipment Accumulated Depr. Accounts Payable

36,000 8,000 6,000
36,000 8,000 6,000

Utilities Payable Deferred Revenue Common Stock

7,000 0 23,000
7,000 10,000 11,000
0 10,000 34,000

Retained Earnings Dividends Service Revenue

9,500 0 0
3,000 85,000
9,500 3,000 85,000

Salaries Expense Utilities Expense Supplies Expense

0 0 0
33,000
33,000 0 0

Depr. Expense
0
0

Problem 3-8B (continued)

Requirement 4

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 Chapter 3 - The Accounting Cycle: End of the Period

Pipers Plumbing
Unadjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 55,500
Accounts Receivable 21,500
Supplies 3,500
Equipment 36,000
Accumulated Depreciation $ 8,000
Accounts Payable 6,000
Utilities Payable 0
Deferred Revenue 10,000
Common Stock 34,000
Retained Earnings 9,500
Dividends 3,000
Service Revenue 85,000
Salaries Expense 33,000
Utilities Expense 0
Supplies Expense 0
Depreciation Expense 0
Total $152,500 $152,500
Requirement 5
December 31 Debit Credit
Depreciation Expense 8,000
Accumulated Depreciation 8,000
(Record depreciation expense for year)
Supplies Expense 2,400
Supplies 2,400
(Supplies used during year; $3,500 – $1,100 =
$2,400)
Deferred Revenue 7,000
Service Revenue 7,000
(Reduce deferred revenue for services completed)
Utilities Expense 6,000
Utilities Payable 6,000
(Record utilities owed at December 31)

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 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-8B (continued)

Requirement 6 (adjusting entries posted in red)
Cash Accounts Receivable Supplies
4,500 9,500 3,500
20,000 33,000 2,400
65,000 53,000
53,000 7,000
11,000 3,000
10,000
55,500 21,500 1,100

Equipment Accumulated Depr. Accounts Payable

36,000 8,000 6,000
8,000
36,000 16,000 6,000

Utilities Payable Deferred Revenue Common Stock

7,000 0 23,000
7,000 6,000 7,000 10,000 11,000
6,000 3,000 34,000

Retained Earnings Dividends Service Revenue

9,500 0 0
3,000 85,000
7,000
9,500 3,000 92,000

Salaries Expense Utilities Expense Supplies Expense

0 0 0
33,000 6,000 2,400
33,000 6,000 2,400

Depr. Expense
0
8,000
8,000

Problem 3-8B (continued)

Requirement 7
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Solutions Manual, Chapter 3 3-91
 Chapter 3 - The Accounting Cycle: End of the Period

Pipers Plumbing
Adjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 55,500
Accounts Receivable 21,500
Supplies 1,100
Equipment 36,000
Accumulated Depreciation $ 16,000
Accounts Payable 6,000
Utilities Payable 6,000
Deferred Revenue 3,000
Common Stock 34,000
Retained Earnings 9,500
Dividends 3,000
Service Revenue 92,000
Salaries Expense 33,000
Utilities Expense 6,000
Supplies Expense 2,400
Depreciation Expense 8,000
Total $166,500 $166,500

Problem 3-8B (continued)

Requirement 8
Pipers Plumbing
Income Statement
For the year ended December 31, 2024
Service revenue $92,000
Expenses:

Salaries 33,000
Utilities 6,000
Supplies 2,400
Depreciation 8,000

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3-92 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Total expenses 49,400

Net income $42,600

Pipers Plumbing
Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $55,500 Accounts payable $ 6,000
Accounts receivable 21,500 Utilities payable 6,000
Supplies 1,100 Deferred revenue 3,000
Total current assets 78,100 Total current liabilities 15,000

Stockholders’ Equity
Long-term assets: Common stock 34,000
Equipment 36,000 Retained earnings 49,100 *
Accumulated depr. (16,000) Total stockholders’ equity 83,100
Total liabilities and
Total assets $98,100 stockholders’ equity $98,100

* Retained earnings = Beginning retained earnings + Net income − Dividends

= $9,500 + $42,600 − $3,000
= $49,100

Problem 3-8B (continued)

Requirement 9

December 31 Debit Credit

Service Revenue 92,000
Retained Earnings 92,000
(Close revenue accounts)

Retained Earnings 49,400

Salaries Expense 33,000
Utilities Expense 6,000
Supplies Expense 2,400
Depreciation Expense 8,000
(Close expense accounts)

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Solutions Manual, Chapter 3 3-93
 Chapter 3 - The Accounting Cycle: End of the Period

Retained Earnings 3,000

Dividends 3,000
(Close dividends account)

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 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-8B (continued)

Requirement 10 (closing entries posted in red)
Cash Accounts Receivable Supplies
4,500 9,500 3,500
20,000 33,000 2,400
65,000 53,000
53,000 7,000
11,000 3,000
10,000
55,500 21,500 1,100

Equipment Accumulated Depr. Accounts Payable

36,000 8,000 6,000
8,000
36,000 16,000 6,000

Utilities Payable Deferred Revenue Common Stock

7,000 0 23,000
7,000 6,000 7,000 10,000 11,000
6,000 3,000 34,000

Retained Earnings Dividends Service Revenue

9,500 0 0
49,400 92,000 3,000 3,000 85,000
3,000 92,000 7,000
49,100 0 0

Salaries Expense Utilities Expense Supplies Expense

0 0 0
33,000 33,000 6,000 6,000 2,400 2,400
0 0 0

Depr. Expense
0
8,000 8,000
0
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Solutions Manual, Chapter 3 3-95
Requirement 11
 Chapter 3 - The Accounting Cycle: End of the Period

Pipers Plumbing
Post-Closing Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 55,500
Accounts Receivable 21,500
Supplies 1,100
Equipment 36,000
Accumulated Depreciation $ 16,000
Accounts Payable 6,000
Utilities Payable 6,000
Deferred Revenue 3,000
Common Stock 34,000
Retained Earnings 49,100
Total $114,100 $114,100

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3-96 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-9B (LO 3-3, 3-4, 3-5, 3-6, 3-7)

Requirement 1
Cash Accounts Receivable Supplies
41,500 25,700 0
41,500 25,700 0

Land Accounts Payable Salaries Payable

110,800 15,300 0
110,800 15,300 0

Interest Payable Notes Payable Common Stock

0 30,000 100,000
0 30,000 100,000

Retained Earnings Dividends Service Revenue

32,700 0 0
32,700 0 0

Salaries Expense Advertising Expense Interest Expense

0 0 0
0 0 0

Supplies Expense
0
0

Problem 3-9B (continued)

Requirement 2
(1) January 12 Debit Credit
Accounts Receivable 62,400
Service Revenue 62,400
(Provide services on account)
(2) February 25 Debit Credit
Cash 75,300
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 Chapter 3 - The Accounting Cycle: End of the Period

Service Revenue 75,300

(Provide services for cash)
(3) March 19 Debit Credit
Cash 45,700
Accounts Receivable 45,700
(Receive cash on account)
(4) April 30 Debit Credit
Cash 30,000
Common Stock 30,000
(Issue common stock)
(5) June 16 Debit Credit
Supplies 12,100
Accounts Payable 12,100
(Purchase supplies on account)
(6) July 7 Debit Credit
Accounts Payable 11,300
Cash 11,300
(Pay cash on account)
(7) September 30 Debit Credit
Salaries Expense 64,200
Cash 64,200
(Pay salaries for work in the current period)
(8) November 22 Debit Credit
Advertising Expense 22,500
Cash 22,500
(Pay advertising for the current period)
(9) December 30 Debit Credit
Dividends 2,900
Cash 2,900
(Pay dividends)

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 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-9B (continued)

Requirement 3 (entries posted in red)
Cash Accounts Receivable Supplies
41,500 11,300 25,700 0
75,300 64,200 62,400 45,700 12,100
45,700 22,500
30,000 2,900
91,600 42,400 12,100

Land Accounts Payable Salaries Payable

110,800 15,300 0
11,300 12,100
110,800 16,100 0

Interest Payable Notes Payable Common Stock

0 30,000 100,000
30,000
0 30,000 130,000

Retained Earnings Dividends Service Revenue

32,700 0 0
2,900 62,400
75,300
32,700 2,900 137,700

Salaries Expense Advertising Expense Interest Expense

0 0 0
64,200 22,500
64,200 22,500 0

Supplies Expense
0
0

Problem 3-9B (continued)

Requirement
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 Chapter 3 - The Accounting Cycle: End of the Period

Jackrabbit Rentals
Unadjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 91,600
Accounts Receivable 42,400
Supplies 12,100
Land 110,800
Accounts Payable $ 16,100
Salaries Payable 0
Interest Payable 0
Notes Payable 30,000
Common Stock 130,000
Retained Earnings 32,700
Dividends 2,900
Service Revenue 137,700
Salaries Expense 64,200
Advertising Expense 22,500
Interest Expense 0
Supplies Expense 0
Total $346,500 $346,500

Requirement 5
December 31 Debit Credit
Interest Expense 2,500
Interest Payable 2,500
(Accrue interest on notes payable)

Salaries Expense 1,500

Salaries Payable 1,500
(Record salaries owed at December 31)

Supplies Expense 9,800

Supplies 9,800
(Supplies used during the year; $0 +
$12,100 − $2,300 = $9,800)

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3-100 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-9B (continued)

Requirement 6 (adjusting entries posted in red)
Cash Accounts Receivable Supplies
41,500 11,300 25,700 0
75,300 64,200 62,400 45,700 12,100
45,700 22,500 9,800
30,000 2,900
91,600 42,400 2,300

Land Accounts Payable Salaries Payable

110,800 15,300 0
11,300 12,100 1,500
110,800 16,100 1,500

Interest Payable Notes Payable Common Stock

0 30,000 100,000
2,500 30,000
2,500 30,000 130,000

Retained Earnings Dividends Service Revenue

32,700 0 0
2,900 62,400
75,300
32,700 2,900 137,700

Salaries Expense Advertising Expense Interest Expense

0 0 0
64,200 22,500 2,500
1,500
65,700 22,500 2,500

Supplies Expense
0
9,800
9,800

Problem 3-9B (continued)

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Solutions Manual, Chapter 3 3-101
 Chapter 3 - The Accounting Cycle: End of the Period

Jackrabbit Rentals
Adjusted Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 91,600
Accounts Receivable 42,400
Supplies 2,300
Land 110,800
Accounts Payable $ 16,100
Salaries Payable 1,500
Interest Payable 2,500
Notes Payable 30,000
Common Stock 130,000
Retained Earnings 32,700
Dividends 2,900
Service Revenue 137,700
Salaries Expense 65,700
Advertising Expense 22,500
Interest Expense 2,500
Supplies Expense 9,800
Total $350,500 $350,500

Problem 3-9B (continued)

Requirement 8
Jackrabbit Rentals
Income Statement
For the year ended December 31, 2024
Service revenue $137,700
Expenses:

Salaries 65,700
Advertising 22,500
Interest 2,500
Supplies 9,800

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3-102 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Total expenses 100,500

Net income $ 37,200

Jackrabbit Rentals
Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $ 91,600 Accounts Payable $ 16,100
Accounts Receivable 42,400 Salaries Payable 1,500
Supplies 2,300 Interest Payable 2,500
Total current assets 136,300 Total current liabilities 20,100
Long-term liabilities:
Notes Payable 30,000
Total liabilities 50,100
Long-term assets: Stockholders’ Equity
Land 110,800 Common stock 130,000
Retained earnings 67,000 *
Total stockholders’ equity 197,000
Total liabilities and
Total assets $247,100 stockholders’ equity $247,100

* Retained earnings = Beginning retained earnings + Net income − Dividends

= $32,700 + $37,200 − $2,900
= $67,000

Problem 3-9B (continued)

Requirement 9

December 31 Debit Credit

Service Revenue 137,700
Retained Earnings 137,700
(Close revenue accounts)

Retained Earnings 100,500

Salaries Expense 65,700
Advertising Expense 22,500
Interest Expense 2,500

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Solutions Manual, Chapter 3 3-103
 Chapter 3 - The Accounting Cycle: End of the Period

Supplies Expense 9,800

(Close expense accounts)

Retained Earnings 2,900

Dividends 2,900
(Close dividends account)

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3-104 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Problem 3-9B (continued)

Requirement 10 (closing entries posted in red)
Cash Accounts Receivable Supplies
41,500 11,300 25,700 0
75,300 64,200 62,400 45,700 12,100
45,700 22,500 9,800
30,000 2,900
91,600 42,400 2,300

Land Accounts Payable Salaries Payable

110,800 15,300 0
11,300 12,100 1,500
110,800 16,100 1,500

Interest Payable Notes Payable Common Stock

0 30,000 100,000
2,500 30,000
2,500 30,000 130,000

Retained Earnings Dividends Service Revenue

32,700 0 0
100,500 137,700 2,900 2,900 62,400
2,900 137,700 75,300
67,000 0 0

Salaries Expense Advertising Expense Interest Expense

0 0 0
64,200 22,500 22,500 2,500 2,500
1,500 65,700
0 0 0

Supplies Expense
0
9,800 9,800
0

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Problem 3-9BChapter
Solutions Manual, (concluded)
3 3-105
Requirement 11
 Chapter 3 - The Accounting Cycle: End of the Period

Jackrabbit Rentals
Post-Closing Trial Balance
December 31, 2024
Accounts Debit Credit
Cash $ 91,600
Accounts Receivable 42,400
Supplies 2,300
Land 110,800
Accounts Payable $ 16,100
Salaries Payable 1,500
Interest Payable 2,500
Notes Payable 30,000
Common Stock 130,000
Retained Earnings 67,000
Total $247,100 $247,100

REAL-WORLD PERSPECTIVES
Real-World Perspective 3-1
Requirement 1

July 1, 2024 Debit Credit

Cash 10,000
Common Stock 10,000
(Issue common stock to Suzie)
July 1, 2024
Cash 10,000
Common Stock 10,000
(Issue common stock to Tony)
July 1, 2024
Prepaid Insurance 4,800
Cash 4,800
(Purchase one-year insurance policy)
July 2, 2024
Legal Fees Expense 1,500
Cash 1,500
(Pay legal fees for incorporation)
July 4, 2024
Supplies (Office) 1,800
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3-106 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Accounts Payable 1,800

(Purchase office supplies on account)
July 7, 2024
Advertising Expense 300
Cash 300
(Pay cash for advertising)
July 8, 2024
Equipment (Bikes) 12,000
Cash 12,000
(Pay cash for mountain bikes)
July 15, 2024
Cash 2,000
Service Revenue (Clinic) 2,000
(Receive cash for mountain bike clinic)

Real-World Perspective 3-1 (continued)

Requirement 1 (continued)

July 22, 2024

Cash 2,300
Service Revenue (Clinic) 2,300
(Receive cash for mountain bike clinic)
July 24, 2024
Advertising Expense 700
Cash 700
(Pay cash for advertising)
July 30, 2024
Cash 4,000
Deferred Revenue 4,000
(Receive cash in advance for kayak clinic)
Aug. 1, 2024 Debit Credit
Cash 30,000
Notes Payable 30,000
(Obtain loan from city council)
Aug. 4, 2024
Equipment (Kayaks) 28,000
Cash 28,000
(Pay cash for kayaks)
Aug. 10, 2024
Cash 3,000
Deferred Revenue 4,000
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Solutions Manual, Chapter 3 3-107
 Chapter 3 - The Accounting Cycle: End of the Period

Service Revenue (Clinic) 7,000

(Receive cash and hold kayak clinic)
Aug. 17, 2024
Cash 10,500
Service Revenue (Clinic) 10,500
(Receive cash and hold kayak clinic)
Aug. 24, 2024
Accounts Payable 1,800
Cash 1,800
(Pay cash on account)
Real-World Perspective 3-1 (continued)
Requirement 1 (concluded)
Sep. 1, 2024
Prepaid Rent 2,400
Cash 2,400
(Pay cash for one-year rental policy)
Sep. 21, 2024
Cash 13,200
Service Revenue (Clinic) 13,200
(Receive cash for rock climbing clinic)
Oct. 17, 2024
Cash 17,900
Service Revenue (Clinic) 17,900
(Receive cash for orienteering clinic)

Dec. 8, 2024
Miscellaneous Expense 1,200
Cash 1,200
(Pay cash for race permit)
Dec. 12, 2024
Supplies (Racing) 2,800
Accounts Payable 2,800
(Purchase racing supplies on account)
Dec. 15, 2024
Cash 20,000
Service Revenue (Racing) 20,000
(Receive cash for adventure race)
Dec. 16, 2024
Salaries Expense 2,000
Cash 2,000
(Pay cash for salary)
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3-108 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Dec. 31, 2024

Dividends 4,000
Cash 4,000
(Pay cash for dividend)

Real-World Perspective 3-1 (continued)

Requirement 2
Dec. 31, 2024 Debit Credit
Depreciation Expense 8,000
Accumulated Depreciation 8,000
(Record depreciation expense)
Dec. 31, 2024
Insurance Expense 2,400
Prepaid Insurance 2,400
(Reduce prepaid insurance for six months
used of twelve months paid in advance)
Dec. 31, 2024
Rent Expense 800
Prepaid Rent 800
(Reduce prepaid rent for four months used
of twelve months paid in advance)
Dec. 31, 2024
Supplies Expense (Office) 1,500
Supplies (Office) 1,500
(Office supplies used; $1,800 – $300 =
$1,500)
Dec. 31, 2024
Interest Expense 750
Interest Payable 750
(Accrue five months interest not yet paid;
$30,000 × 0.06 × 5/12 = $750)
Dec. 31, 2024
Supplies Expense (Racing) 2,600
Supplies (Racing) 2,600
(Racing supplies used; $2,800 – $200 =
$2,600)

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Solutions Manual, Chapter 3 3-109
 Chapter 3 - The Accounting Cycle: End of the Period

Dec. 31, 2024

Income Tax Expense 14,000
Income Tax Payable 14,000
(Accrue income tax payable)

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3-110 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Real-World Perspective 3-1 (continued)

Requirement 3 (Note: adjusting entries in italics)

Prepaid Prepaid Supplies

Cash Insurance4,8002,400 Rent2,4008001,600 (Office)1,8001,50030
10,000 4,800 2,400 0
10,000 1,500
2,000 300
2,300 12,000
Supplies Equipment Equipment
4,000 700
(Racing)2,8002,6002 (Bikes)12,00012,000 (Kayaks)28,00028,000
30,000 28,000
00
3,000 1,800
10,500 2,400
13,200 1,200
17,900 2,000 Accum. Accounts Deferred
20,000 4,000 Depr.8,0008,000 Payable1,8001,800 Revenue4,0004,0000
64,200 2,8002,800

Interest Income Tax Notes Common

Payable750750 Payable14,00014,00 Payable30,00030,00 Stock10,000
0 0 10,00020,000

Dividends4,0004,00 Service Revenue Service Revenue Legal Fees

0 (Clinic)2,000 (Racing)20,00020,000
2,300 Expense1,5001,500
7,000
10,500
13,200
Advertising 17,90052,900
Expense300 Rent Salaries
7001,000 Expense800800 Expense2,0002,000

Supplies Expense Supplies Expense

Depr. Insurance
(Office)1,5001,500 (Racing)2,6002,600
Expense8,0008,000 Expense2,4002,400

Interest Income Tax Miscellaneous

Expense750750 Expense14,00014,000 Expense1,2001,200

Real-World Perspective 3-1 (continued)

Requirement
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Solutions Manual, Chapter 3 3-111
 Chapter 3 - The Accounting Cycle: End of the Period

Great Adventures, Inc.

Adjusted Trial Balance
December 31, 2024

Accounts Debit Credit

Cash $ 64,200
Prepaid Insurance 2,400
Prepaid Rent 1,600
Supplies (Office) 300
Supplies (Racing) 200
Equipment (Bikes) 12,000
Equipment (Kayaks) 28,000
Accumulated Depreciation $ 8,000
Accounts Payable 2,800
Income Tax Payable 14,000
Interest Payable 750
Notes Payable 30,000
Common Stock 20,000
Dividends 4,000
Service Revenue (Clinic) 52,900
Service Revenue (Racing) 20,000
Advertising Expense 1,000
Depreciation Expense 8,000
Income Tax Expense 14,000
Insurance Expense 2,400
Interest Expense 750
Legal Fees Expense 1,500
Miscellaneous Expense 1,200
Rent Expense 800
Salaries Expense 2,000
Supplies Expense (Office) 1,500
Supplies Expense (Racing) 2,600
Totals $148,450 $148,450

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3-112 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Real-World Perspective 3-1 (continued)

Requirement 5

Great Adventures, Inc.

Income Statement
For the period ended December 31, 2024
Revenues:
Service revenue (clinic) $52,900
Service revenue (racing) 20,000
Total revenues $72,900
Expenses:

Advertising expense 1,000

Depreciation expense 8,000
Income tax expense 14,000
Insurance expense 2,400
Interest expense 750
Legal fees expense 1,500
Miscellaneous expense 1,200
Rent expense 800
Salaries expense 2,000
Supplies expense (office) 1,500
Supplies expense (racing) 2,600
Total expenses 35,750
Net income $37,150

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Solutions Manual, Chapter 3 3-113
 Chapter 3 - The Accounting Cycle: End of the Period

Great Adventures, Inc.

Statement of Stockholders’ Equity
For the period ended December 31, 2024
Total
Common Retained Stockholders’
Stock Earnings Equity

Balance at July 1 $ 0 $ 0 $ 0
Issuance of common stock 20,000 20,000
Add: Net income for 2024 37,150 37,150
Less: Dividends (4,000) (4,000)
Balance at December 31 $20,000 $33,150 $53,150

Real-World Perspective 3-1 (continued)

Requirement 5 (concluded)

Great Adventures, Inc.

Balance Sheet
December 31, 2024
Assets Liabilities
Current assets: Current liabilities:
Cash $ 64,200 Accounts payable $ 2,800
Prepaid insurance 2,400 Interest payable 750
Prepaid rent 1,600 Income tax payable 14,000
Supplies (office) 300 Total current liabilities 17,550
Supplies (racing) 200 Long-term liabilities:
Notes payable 30,000
Total current assets 68,700 Total liabilities 47,550
Long-term assets: Stockholders’ Equity
Equipment (bikes) 12,000 Common stock 20,000
Equipment (kayaks) 28,000 Retained earnings 33,150
Accumulated depr. (8,000) Total stockholders’ equity 53,150
Total liabilities and
Total assets $100,700 stockholders’ equity $100,700
Real-World Perspective 3-1 (continued)
Requirement 6
Dec. 31, 2024 Debit Credit
Service Revenue (Clinic) 52,900
Service Revenue (Racing) 20,000
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3-114 Financial Accounting, 6e
 Chapter 3 - The Accounting Cycle: End of the Period

Retained Earnings 72,900

(Close revenue accounts)
Dec. 31, 2024
Retained Earnings 35,750
Advertising Expense 1,000
Depreciation Expense 8,000
Income Tax Expense 14,000
Insurance Expense 2,400
Interest Expense 750
Legal Fees Expense 1,500
Miscellaneous Expense 1,200
Rent Expense 800
Salaries Expense 2,000
Supplies Expense (Office) 1,500
Supplies Expense (Racing) 2,600
(Close expense accounts)
Dec. 31, 2024
Retained Earnings 4,000
Dividends 4,000
(Close dividends account)

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Solutions Manual, Chapter 3 3-115
 Chapter 3 - The Accounting Cycle: End of the Period

Real-World Perspective 3-1 (continued)

Requirement 7 (Note: closing entries in italics)

Prepaid Prepaid Supplies

Cash Insurance4,8002,400 Rent2,4008001,600 (Office)1,8001,50030
10,000 4,800 2,400 0
10,000 1,500
2,000 300
2,300 12,000
Supplies Equipment Equipment
4,000 700
(Racing)2,8002,6002 (Bikes)12,00012,000 (Kayaks)28,00028,0
30,000 28,000
00 00
3,000 1,800
10,500 2,400
13,200 1,200
17,900 2,000 Accum. Accounts Deferred
20,000 4,000 Depr.8,0008,000 Payable18001,800 Revenue4,0004,0000
64,200 2,8002,800

Interest Income Tax Notes Common

Payable750750 Payable14,00014,00 Payable30,00030,00 Stock10,000
0 0 10,00020,000

Dividends4,0004,00 Service Revenue Service Revenue Legal Fees

00 (Clinic)52,9002,000 (Racing)20,00020,000
2,300 Expense1,5001,5000
0
7,000
10,500
13,200
Advertising 17,9000 Rent Salaries
Expense300 Expense8008000 Expense2,0002,0000
7001,0000

Supplies Expense Supplies Expense

Depr. Insurance (Racing)2,6002,6000 (Office)1,5001,5000
Expense8,0008,0000 Expense2,4002,4000

Interest Income Tax Miscellaneous Retained

Expense7507500 Expense14,00014,000 Expense1,2001,2000 Earnings35,750
0 4,00072,90033,150

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Real-World
3-116 Perspective 3-1 (concluded) Financial Accounting, 6e
Requirement 8
 Chapter 3 - The Accounting Cycle: End of the Period

Great Adventures, Inc.

Post-closing Trial Balance
December 31, 2024

Accounts Debit Credit

Cash $ 64,200
Prepaid Insurance 2,400
Prepaid Rent 1,600
Supplies (Office) 300
Supplies (Racing) 200
Equipment (Bikes) 12,000
Equipment (Kayaks) 28,000
Accumulated Depreciation $ 8,000
Accounts Payable 2,800
Income Tax Payable 14,000
Interest Payable 750
Notes Payable 30,000
Common Stock 20,000
Retained Earnings 33,150
Totals $108,700 $108,700

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Solutions Manual, Chapter 3 3-117
 Real-World Perspective 3-2
Chapter 3 - The Accounting Cycle: End of the Period
American Eagle
($ in thousands)

Requirement 1
Current assets equal $1,047,930. The ratio of current assets to total assets is 0.31 (=
$1,047,930 / $3,328,679).

Requirement 2
Current liabilities equal $751,756. The ratio of current liabilities to total liabilities is
0.36 (= $751,756 / $2,080,826).

Requirement 3
The change in retained earnings is $53,638 (= $2,108,292 − $2,054,654).

Requirement 4
The amount of net income is $191,257.

Real-World Perspective 3-3

Buckle
($ in thousands)

Requirement 1
Current assets equal $378,830. The ratio of current assets to total assets is 0.44 (=
$378,830 / $867,890).

Requirement 2
Current liabilities equal $172,641. The ratio of current liabilities to total liabilities is
0.36 (= $172,641 / $478,742).

Requirement 3
The change in retained earnings is $(8,425) (= $236,398 − $244,823).

Requirement 4
The amount of net income is $104,429.

Requirement 5
The
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dividends. If the change in retained earnings is $(8,425) and net income
3-118 equals
Financial Accounting, 6e
$104,429, then dividends should be $112,854. This is verified looking at the retained
earnings column in the statement of stockholders’ equity which shows dividends of
 Chapter 3 - The Accounting Cycle: End of the Period

($ in millions.)

Requirement 1
Yes. Revenues exceed expenses because the company reports net income of $6,025.4.

Requirement 2
Yes. Net income increased from $5,924.3 to $6,025.4.

Requirement 3
Current assets = $3,557.9. Total assets = $47,510.8.

Requirement 4
Current liabilities = $3,621.0. Yes, the company has long-term liabilities.

Requirement 5
Retained earnings increased $2,443.5, from $50,487.0 to $52,930.5.

Requirement 6
The amount of dividends paid equals $3,581.9.

Requirement 7
Yes. Net income in requirement 1 ($6,025.4) minus dividends in requirement 6
($3,581.9) equals $2,443.5, which equals the change in retained earnings in
requirement 5 ($2,443.5).

Real-World Perspective 3-6

1. Profits are overstated.
By reporting the $80,000 as Service Revenue instead of Deferred Revenue, pretax
profit will increase from $280,000 to $360,000, giving a false appearance that this
year’s profit is higher than last year’s.

2. Liability.
Cash received from customers in advance of performing services is a liability,
representing an obligation to customers.

3. Yes.
Next year the $80,000 cannot be counted again in pretax profits, likely causing a big
decline in reported performance. When this occurs, investors and other employees,
who bought the company’s stock when the price was high and who thought that
profitability was increasing, may sustain large losses as the stock price falls.
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Solutions Manual, Chapter 3 3-119
 Chapter 3 - The Accounting Cycle: End of the Period

4. No.
As the assistant controller (accountant), you should understand that your
responsibilities include accurately recording and reporting the company’s activities.
By falsely reporting activities this year, you mislead people (investors and other
employees) who are relying on your financial reports.
Because you are new to the position, you might not be sure that it’s right for you to
question any decision of the company’s president. You have just been hired and don’t
want to lose your job. If you do make the adjustment, then the company’s president
will know he can count on you, and this could be your fast track to the top.

Real-World Perspective 3-7

Requirement 1
Prepaid revenues occur when cash is received before the related revenues are reported.
Prepaid expenses occur when cash (or an obligation to pay cash) is paid before the
related expenses are reported. Accrued revenues occur when cash is received after the
related revenues are reported. Accrued expenses occur when cash is paid after the
related expenses and liabilities are reported.

Requirement 2
The adjusting entry for prepaid expenses includes a debit to an expense and a credit to
an asset. The adjusting entry for deferred revenue includes a debit to deferred revenue
(liability) and a credit to a revenue. By not recording an adjusting entry for a prepaid
expense, expenses will be understated and assets will be overstated. By not recording
an adjusting entry for deferred revenue, liabilities will be overstated and revenues will
be understated.

Requirement 3
The adjusting entry for accrued expenses includes a debit to an expense and a credit to
a liability. The adjusting entry for accrued revenues includes a debit to an asset and a
credit to a revenue. By not recording an adjusting entry for an accrued expense,
expenses will be understated and liabilities will be understated. By not recording an
adjusting entry for an accrued revenue, assets will be understated and revenues will be
understated.

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3-120 Financial Accounting, 6e