Chapter 3 – Homework
Exercise 3-7 (LO 3-3)
(1) Debit Credit
Supplies Expense 3,000
Supplies 3,000
(Supplies used during December)
(2) Debit Credit
Insurance Expense 2,000
Prepaid Insurance 2,000
(Reduce prepaid insurance)
(3) Debit Credit
Salaries Expense 16,000
Salaries Payable 16,000
(Record salaries owed at December 31)
Note: The November salaries paid in December are not an adjusting entry in
December. When those salaries are paid, the Salaries Payable account is reduced
and cash is reduced. Thus, the Salaries Payable account is zero at December 31 until
the December unpaid salaries are accrued.
(4) Debit Credit
Deferred Revenue 1,500
Service Revenue 1,500
(Reduce deferred revenue for rental space
used by tenant during December)
Exercise 8-10
Requirement 1
November 30
Cash 21,000,000
Deferred Revenue 21,000,000
(Advance collection for gift cards)
Requirement 2
December 31
Deferred Revenue 14,000,000
Sales Revenue 14,000,000
(Revenue recognized when gift cards are redeemed)
Requirement 3
The ending balance in Deferred Revenue is $7,000,000.
Deferred Revenue
14,000,000 21,000,000
7,000,000 Ending balance
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, 2021
Accounts Debit Credit
Cash $ 10,000
Accounts Receivable 15,000
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 3-17 (LO 3-6)
Requirement 1
December 31, 2021 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
Depreciation 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
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)
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
(Reduce deferred revenue for
services performed)
Exercise 3-20 (continued)
Requirement 3
Red Flash Photography
Adjusted Trial Balance
December 31, 2021
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, 2021
Service revenue $70,000
Expenses:
Salaries 27,000
Rent 3,000
Supplies 25,000
Total expenses 55,000
Net income $15,000
Red Flash Photography
Statement of Stockholders’ Equity
For the period ended December 31, 2021
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 2021 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, 2021
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
Exercise 3-20 (concluded)
Requirement 5
December 31, 2021 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)
