1. E 3-1 July 1 Expense $ 0 5 (800) 9 Revenue 2,600 14 23 1,600 31$ 5
(800) 9
Revenue
2,600 14 23
1,600 31
Expense ($3,000  3)
(1,000)
(900)
Amount of Revenue (Expense) for July
Date
Revenue (Expense)
Accrual Basis Amount
E 3-1

2. a. Accrual accounting; matching principle
b. Revenue principle; no revenue to record because no transaction occurred
c. Time-period concept
d. Matching principle
E 3-2

3. 1.
A liability was created.
The liability is called Unearned Service Revenue. 2.
You earned the revenue after filming the parties.
Your service earned the revenue.
You did not earn this revenue when you received the cash.
E 3-3

4. ACCOUNTS AND EXPLANATIONS
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT a.
May 31
Accounts Receivable
($7,600 – $4,500)
3,100
Service revenue
($12,700 – $9,600)
To accrue service revenue. b.
Supplies Expense ($200 – $0)
200
Supplies ($1,000 – $800)
To record supplies expense. c.
Depreciation Expense ($400 – $0)
400
Accumulated Depreciation
($14,400 – $14,000)
To record depreciation expense. d.
Salary Expense ($3,600 – $2,700)
900
Salary Payable ($900 – $0)
To accrue salary expense.

5. Stephen Perdue, Craftsman
Income Statement
Month Ended May 31, 20X8
Revenues:
Service revenue
$12,700
Expenses:
Salary expense
$3,600
Rent expense
1,400
Depreciation expense
400
Supplies expense
200
Total expenses
5,600
$ 7,100
Net income

6. Stephen Perdue, Craftsman Statement of Owner’s Equity
Month Ended May 31, 20X8
S. Perdue, capital, May 1, 20X8*
$26,400
7,100
33,500
Less: Withdrawals
(5,100)
$28,400
Add: Net income
S. Perdue, capital, May 31, 20X8

7. Stephen Perdue, Craftsman
Balance Sheet
May 31, 20X8
ASSETS
LIABILITIES
Cash
$3,000
Salary payable $
Accounts receivable
7,600
Supplies
800
Equipment
$32,300
OWNER’S EQUITY
S. Perdue, capital
28,400
Less: Deprec.
(14,400)
17,900
Total liabilities and
             
Total assets
$29,300
owner’s equity
E3-11

8. E3-12
Bill Glaze, Attorney
Income Statement
Year Ended December 31, 20X6
Revenues:
Service revenue ($105,000 + $1,000)
$106,000
Expenses:
Salary expense ($28,000 + $1,500)
$29,500
Depreciation expense—building
5,000
Depreciation expense—equipment
2,000
Supplies expense
1,000
Total expenses
37,500
Net income
$ 68,500
Operations were successful, as shown by the $68,500 of net income the business earned during the year.

9. Blackhawk Data Processing Statement of Owner’s Equity
Year Ended December 31, 20X5
Kent Black, capital, December 31, 20X4
$ 90,000
Add: Investments by owner
($12,000 + $70,000)
82,000
172,000
Less: Net loss
$28,000
Withdrawals ($1,500  12)
18,000
(46,000)
Kent Black, capital, December 31, 20X5
$126,000
Owner’s equity increased from $90,000 to $126,000. The increase came from the owner’s additional investments.

10. E3-14
One mechanism for solving this exercise is to prepare the relevant T-accounts, insert the given information, and solve for the unknown amounts, shown in italics.
Supplies
Beg. Bal ,500
Cash payment ,400
Supplies expense 7,800
End bal ,100

11. E3-14
Salary Payable
Beg. Bal ,700
Cash payment ,600
Salary expense ,000
End. Bal ,100

12. E3-14
Unearned Service Revenue
Beg. Bal ,300
Cash receipts ,200
Service revenue ,300
End. Bal ,200

13. ACCOUNTS AND EXPLANATIONS
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
RE.
DEBIT
CREDIT
Dec. 2
Cash
14,000
Marsha Walker, Capital
Rent Expense
500 3
Equipment
2,000 4
Furniture
3,600
Accounts Payable

14. E3-15 5 Supplies 300 Accounts Payable 9 Accounts Receivable 1,7005
Supplies
300
Accounts Payable 9
Accounts Receivable
1,700
Service Revenue 12
Utilities Expense
200
Cash 18
800

15. E3-15 Dec. 21 Cash 900 Unearned Service Revenue
900
Unearned Service Revenue
No entry; no transaction yet 26
Accounts Payable
300 28
600
Accounts Receivable 30
Marsha Walker, Withdrawals
1,600

16. E3-15
Post to the T-accounts

17. E3-14
Prepare the trial balance and enter the adjustments in the adjustments columns and prepare the adjusted trial balance.
Trial balance Adjustments Adjusted trial balance
Total Debits , , ,010

18. ACCOUNTS AND EXPLANATIONS
E3-14 req. 6
Journal
Adjusting Entries
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
(a)
Dec. 31
Accounts Receivable
400
Service Revenue
(b)
Unearned Service Revenue
300
Service Revenue ($900  10/30)
(c)
Supplies Expense ($300 – $100)
200
Supplies

19. E3-15 req. 6 31 Depreciation Expense—Equipment 5031
Depreciation Expense—Equipment 50
Accumulated Depreciation—
Equipment
(d2)
Depreciation Expense—Furniture 60
Furniture
(e)
Salary Expense ($1,500  10/30)
500
Salary Payable

20. E3-15 req. 7 Marsha Walker, Consultant Income Statement
Month Ended December 31, 20XX
Revenues:
Service revenue
$3,200
Expenses:
Rent expense
$500
Salary expense
500
Utilities expense
200
Supplies expense
Depreciation expense—furniture 60
Depreciation expense—equipment 50
Total expenses
1,510
$1,690

21. E3-15 req. 7 $14,090 Marsha Walker, Consultant
Statement of Owner’s Equity
Month Ended December 31, 20XX
Marsha Walker, capital, December 1, 20XX $
Add: Investment by owner
$14,000
Net income
1,690
15,690
Less: Withdrawals
(1,600)
Marsha Walker, capital, December 31, 20XX
$14,090

22. Marsha Walker, Consultant
E3-15 req. 7
Marsha Walker, Consultant
Balance Sheet
December 31, 20XX
ASSETS
LIABILITIES
Cash
$11,700
Accounts payable
$ 3,600
Accounts receivable
1,500
Salary payable
500
Supplies
100
Unearned service revenue
600
Equipment $2,000
Total liabilities
4,700
Less: Accum. depr. (50)
1,950
Furniture $3,600
OWNER’S EQUITY
3,540
Marsha Walker, capital
14,090
______
Total liabilities and
Total assets
$18,790
owner’s equity
Less: Accum. depr. (60)

23. P3-1A May 2 Expense $ 0 4 (550) 5 Revenue 3,000 9 12 7,400 14 28 29$ 4
(550) 5
Revenue
3,000 9 12
7,400 14 28 29
(1,100) 30 31
$900/ 3 = (300)
700
Amount of Revenue (Expense) for May
Date
Revenue (Expense)
Accrual-Basis Amount

24. Net income…………………………… $9,150
Req. 2
Net income…………………………… $9,150
Req. 3
The accrual basis of accounting is preferable because it accounts for revenues and expenses when they occur, not necessarily when they are received or paid in cash.

25. P3-2A
The cash basis of accounting treats all cash receipts as revenues and all cash payments as expenses. The accrual basis records revenues as they are earned and expenses as they are incurred, not when cash is received or paid. There is a difference in the timing of the recording of revenues and expenses under the cash basis and the accrual basis. Under the accrual basis, revenues are recorded based on the revenue principle and expenses are recorded by the matching principle.

26. ACCOUNTS AND EXPLANATIONS
P3-3A
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT a.
Dec. 31
Insurance Expense ($2,400  9/12)
1,800
Prepaid Insurance
To record insurance expense. b.
Salary Expense ($2,000  1/5)
400
Salary Payable
To accrue salary expense. c.
Interest Expense
600
Interest Payable
To accrue interest expense.

27. d. 31
Supplies Expense
($2,600 + $6,100 – $2,100)
6,600
Supplies
To record supplies expense. e.
Unearned Service Revenue
($12,000  ¼)
3,000
Service Revenue
To record revenue that was collected
in advance. f.
Depreciation Expense—
Canoe Equipment
3,850
Depreciation Expense—Trucks
1,300
Accumulated Depreciation—
Accumulated Depreciation—Trucks
To record depreciation expense.

28. ACCOUNTS AND EXPLANATIONS
P3-4A
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Apr. 30
Accounts Receivable ($6,700 – $6,000)
700
Rental Revenue ($10,200 – $9,500)
To accrue rental revenue.
Interest Receivable ($300 – $0)
300
Interest Revenue ($300 – $0)
To accrue interest revenue.
Supplies Expense ($700 – $0)
Supplies ($1,000 – $300)
To record supplies expense.

29. Depreciation Expense ($1,200 – $0) 1,20030
Rent Expense ($800 – $0)
800
Prepaid Rent ($2,400 – $1,600)
To record rent expense.
Depreciation Expense ($1,200 – $0)
1,200
Accumulated Depreciation
($17,200 – $16,000)
To record depreciation expense.
Wage Expense ($1,900 – $1,600)
300
Wages Payable ($300 – $0)
To accrue wage expense.

30. ACCOUNTS AND EXPLANATIONS
E3-5A
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Adjusting Entries at December 31, 20X5 a.
Insurance Expense ($3,100 – $600)
2,500
Prepaid Insurance b.
Supplies Expense
600
Supplies c.
Depreciation Expense
900
Accumulated Depreciation

31. E3-5A d. Advertising Expense 300 Accounts Payable e. Salary Expensed.
Advertising Expense
300
Accounts Payable e.
Salary Expense
100
Salary Payable f.
Unearned Service Revenue
($2,300 – $1,100)
1,200
Service Revenue

32. Adjusted Trial Balance
Smoky Mountain Lodge
Adjusted Trial Balance
December 31, 20X5
ACCOUNT
DEBIT
CREDIT
Cash
$ 12,200
Accounts receivable
14,100
Prepaid insurance
600
Supplies
200
Building
412,700
Accumulated depreciation
$312,500
Accounts payable
2,200
Salary payable
100
Unearned service revenue
1,100
Rocky Rivers, capital
125,000
Rocky Rivers, withdrawals
2,900
Service revenue
9,100
Salary expense
Insurance expense
2,500
Depreciation expense
900
Advertising expense
Supplies expense
_______
Total
$450,000

33. Adjusted Trial Balance
Lexington Inn
Adjusted Trial Balance
December 31, 2008
ACCOUNT
DEBIT
CREDIT
Cash
$ 12,200
Accounts receivable
14,100
Prepaid insurance
600
Supplies
200
Building
412,000
Accumulated depreciation
$311,900
Accounts payable
1,900
Salary payable
100
Unearned service revenue
1,100
Paul Revere, capital
115,000
Paul Revere, withdrawals
2,900
Service revenue
19,000
Salary expense
2,200
Insurance expense
2,500
Depreciation expense
900
Advertising expense
800
Supplies expense
_______
Total
$449,000

34. E3-5A
Req. 4
The company will use the adjusted trial balance to prepare its financial statements.

35. E3-6A Air & Sea Travel Income Statement Year Ended December 31, 20X6
Revenues:
Service revenue
$106,000
Expenses:
Salary expense
$39,900
Rent expense
17,400
Supplies expense
2,900
Utilities expense
2,600
Depreciation expense—office furniture
2,300  
Total expenses
65,100
$ 40,900

36. Statement of Owner’s Equity
E3-6A
Air & Sea Travel
Statement of Owner’s Equity
Year Ended December 31, 20X6
Cindy Sorrel, capital, December 31, 20X5
$ 26,000
40,900
66,900
Less: Withdrawals
(29,000)
Cindy Sorrel, capital, December 31, 20X6
Add: Net income
$ 37,900

37. E3-6A Air & Sea Travel Balance Sheet December 31, 20X6 ASSETS
LIABILITIES
Cash
$ 1,300
Accounts payable
$ 4,500
Accounts receivable
4,900
Unearned service
600
Supplies
2,300
revenue
             
Prepaid rent
1,600
Total liabilities
5,100
Office furniture
$37,700
OWNER’S EQUITY
Cindy Sorrel, capital
37,900
less: deprec.
(4,800)
32,900
Total liabilities and
Total assets
$43,000
owner’s equity
E3-6A

38. a. Results of operations: Income statement
E3-6A
Req. 2
a. Results of operations:
Income statement
Financial position:
Balance sheet
b. Results of operations were fairly successful, as shown by the fact that Air & Sea earned net income of $40,900 for the year.
Financial position looks strong, as shown by the fact that Air & Sea’s total assets ($43,000) far exceed total liabilities ($5,100). Air & Sea Travel should have no trouble paying its bills.

39. E3-7A Pat Patillo, CPA Income Statement Month Ended July 31, 20X6
Revenues:
Accounting service revenue
$15,900
Expenses:
Salary expense
$2,600
Rent expense
1,000
Depreciation expense
600
Utilities expense
500
Supplies expense
400
Total expenses
5,100
$10,800

40. Statement of Owner’s Equity
E3-7A
Pat Patillo, CPA
Statement of Owner’s Equity
Month Ended July 31, 20X6
Pat Patillo, capital, June 30, 20X6
$39,100
10,800
49,900
Less: Withdrawals
(4,000)
Pat Patillo, capital, July 31, 20X6
Add: Net income for the month
$45,900

41. E3-7A Pat Patillo, CPA Balance Sheet July 31, 20X6 ASSETS LIABILITIES
LIABILITIES
Cash
$ 8,900
Accounts payable
$ 3,400
Accounts receivable
12,500
Salary payable
200
Prepaid rent
3,000
Total liabilities
3,600
Supplies
400
Furniture
$28,800
OWNER’S EQUITY
Less: Accum.
Pat Patillo,
deprec.
(4,100)
24,700
capital
             
Total liabilities and
Total assets
$49,500
owner’s equity

42. 6th E3-15 Dec. 21 Cash 900 Unearned Service Revenue
No entry; no transaction yet 26
Accounts Payable
300 28
600
Accounts Receivable 30
Marsha Walker, Withdrawals
1,600

43. Marsha Walker, Consultant Preparation of Adjusted Trial Balance
December 31, 20XX
TRIAL BALANCE
ADJUSTMENTS
ADJUSTED TRIAL BALANCE
ACCOUNT TITLE
DEBIT
CREDIT
Cash
11,700
Accounts receivable
1,100
(a) 400
1,500
Supplies
300
(c) 200
100
Equipment
2,000
Accumulated depr.- equipment —
(d1) 50 50
Furniture
3,600
Accumulated depr.- furniture
(d2) 60 60
Accounts payable
Salary payable
(e) 500
500
Unearned service revenue
900
(b) 300
600
Marsha Walker, capital
14,000
Marsha Walker, withdrawals
1,600
Service revenue
2,500
3,200
Rent expense
Utilities expense
200
Salary expense
Depreciation expense - equipment
Depreciation expense - furniture
Supplies expense
           
         
          
21,000
1,510
22,010

44. ACCOUNTS AND EXPLANATIONS
Journal
Adjusting Entries
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
(a)
Dec. 31
Accounts Receivable
400
Service Revenue
(b)
Unearned Service Revenue
300
Service Revenue ($900  10/30)
(c)
Supplies Expense ($300 – $100)
200
Supplies
(d1)
Depreciation Expense—Equipment 50
Accumulated Depreciation—
Equipment
(d2)
Depreciation Expense—Furniture 60
Furniture
(e)
Salary Expense ($1,500  10/30)
500
Salary Payable

45. Marsha Walker, Consultant Month Ended December 31, 20XX
Income Statement
Month Ended December 31, 20XX
Revenues:
Service revenue
$3,200
Expenses:
Rent expense
$500
Salary expense
500
Utilities expense
200
Supplies expense
Depreciation expense—furniture 60
Depreciation expense—equipment 50
Total expenses
1,510
Net income
$1,690

46. Marsha Walker, Consultant Statement of Owner’s Equity
Month Ended December 31, 20XX
Marsha Walker, capital, December 1, 20XX $
Add: Investment by owner
$14,000
Net income
1,690
15,690
Less: Withdrawals
(1,600)
Marsha Walker, capital, December 31, 20XX
$14,090

47. Marsha Walker, Consultant
Balance Sheet
December 31, 20XX
ASSETS
LIABILITIES
Cash
$11,700
Accounts payable
$ 3,600
Accounts receivable
1,500
Salary payable
500
Supplies
100
Unearned service revenue
600
Equipment $2,000
Total liabilities
4,700
Less: Accum. depr. (50)
1,950
Furniture $3,600
OWNER’S EQUITY
Less: Accum. depr. (60)
3,540
Marsha Walker, capital
14,090
______
Total liabilities and
Total assets
$18,790
owner’s equity

48. 7th P3-44 Dec. 21 Cash 900 Unearned Service Revenue
No entry; no transaction yet 26
Accounts Payable
300 28
600
Accounts Receivable 30
Carl Redmon, Withdrawals
1,600

49. Carl Redmon Consulting Preparation of Adjusted Trial Balance
December 31, 2008
TRIAL BALANCE
ADJUSTMENTS
ADJUSTED TRIAL BALANCE
ACCOUNT TITLE
DEBIT
CREDIT
Cash
7,700
Accounts receivable
1,100
(a) 400
1,500
Supplies
300
(c)
100
Equipment
2,000
Accumulated depr.—equipment —
(d1) 50 50
Furniture
3,600
Accumulated depr.—furniture
(d2) 60 60
Accounts payable
Salary payable
(e)
500
Unearned service revenue
900
(b) 300
600
Carl Redmon, capital
10,000
Carl Redmon, withdrawals
1,600
Service revenue
2,500
(a)
3,200
(b)
Rent expense
Utilities expense
200
Salary expense
(e) 500
Depreciation expense—equipment
(d1) 50
Depreciation expense—furniture
(d2) 60
Supplies expense
           
(c) 200
         
          
Totals
17,000
1,510
18,010

50. ACCOUNTS AND EXPLANATIONS
Journal
Adjusting Entries
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
(a)
Dec. 31
Accounts Receivable
400
Service Revenue
(b)
Unearned Service Revenue
300
(c)
Supplies Expense ($300 − $100)
200
Supplies
(d1)
Depreciation Expense—Equipment 50
Accumulated Depreciation—
Equipment
(d2)
Depreciation Expense—Furniture 60
Furniture
(e)
Salary Expense
500
Salary Payable

51. Carl Redmon Consulting
Income Statement
Month Ended December 31, 2008
Revenues:
Service revenue
$3,200
Expenses:
Rent expense
$500
Salary expense
500
Utilities expense
200
Supplies expense
Depreciation expense—furniture 60
Depreciation expense—equipment 50
Total expenses
1,510
Net income
$1,690

52. Carl Redmon Consulting Statement of Owner’s Equity
Month Ended December 31, 2008
Carl Redmon, capital, December 1, 2008 $
Add: Investment by owner
$10,000
Net income
1,690
11,690
Less: Withdrawals
(1,600)
Carl Redmon, capital, December 31, 2008
$10,090

53. Carl Redmon Consulting
Balance Sheet
December 31, 2008
ASSETS
LIABILITIES
Cash
$7,700
Accounts payable
$ 3,600
Accounts receivable
1,500
Salary payable
500
Supplies
100
Unearned service revenue
600
Equipment $2,000
Total liabilities
4,700
Less: Accum. depr. (50)
1,950
Furniture $3,600
OWNER’S EQUITY
Less: Accum. depr. (60)
3,540
Carl Redmon, capital
10,090
            
Total liabilities and
             
Total assets
$14,790
owner’s equity

54. 6th Case 1 Your Name Income Statement Month Ended April 30, 20XX
Advertising revenue ($12, ,800)………..
$ 16,100
Expenses:
Salary…………………………………………….
$3,400
Utilities…………………………………………...
900
Other (unrecorded)…………………………….
1,100
Salary of your manager……………………….
4,000
9,400
Your expected monthly net income…………...
$ 6,700
Multiplier to compute price……………………..
 25
Your highest price………………………………..
$167,500

55. 7th Case 1 Your Name Income Statement Month Ended January 31, 2008
Service revenue ($12, ,800)……………..
$ 16,100
Expenses:
Salary expense…………………………………
$3,400
Utilities expense…………………………….....
900
Other expenses (unrecorded) ………………
1,100
Salary of your manager……………………….
5,000
10,400
Your expected monthly net income…………...
$ 5,700
Multiplier to compute price……………………..
× 20
Your highest price………………………………..
$114,000

56. Chance Wayne Advertising Statement of Owner’s Equity
Month Ended April 30, 20XX
Chance Wayne, capital, beginning
$137,400
Add: Net income
Revenue ($12,300 + $3,800)
$16,100
Less: Expenses ($3,400 + $ ,100)
(5,400)
10,700
148,100
Less: Withdrawals
(9,000)
Chance Wayne, capital, ending
$139,100

57. Statement of Owner’s Equity
World.com Advertising
Statement of Owner’s Equity
Month Ended January 31, 2008
Lee Nicholas, capital, beginning…………...
$110,400
Add: Net income
Revenue ($12,300 + $3,800)………...
$16,100
Less: Expenses ($3,400 + $ ,100)…
(5,400)
10,700
121,100
Less: Withdrawals…………………………...
(9,000)
Lee Nicholas, capital, ending……………….
$112,100

58. You should offer Wayne approximately $125,000 for the business because he is willing to take $139,100. If Wayne appears especially eager to sell out, you may be able to buy the firm for $125,000. However, if he is not so eager to sell and if you want the business badly enough, you may have to pay his asking price of $139,100. You can always raise your offer, but you cannot decrease it, so start the negotiating process with an offer of $125,000.

59. You should offer Nicholas approximately $100,000 for the business because he is willing to take $112,100. If Nicholas appears especially eager to sell out, you may be able to buy the firm for approximately $100,000 to $110,000. However, if he is not so eager to sell and if you want the business badly enough, you may have to pay his asking price of $112,100. You can always raise your offer from $100,000 to $110,000, but you cannot decrease it, so start the negotiating process with an offer of $100,000.

60. Total Restoration Service
6th Case 2
Total Restoration Service
Income Statement
Year Ended December 31, 20XX
Revenues:
Service revenue ($60,740 + $1,600 + $600).
$62,940
Expenses:
Salary expense ($17,000 + $1,200)…………
$18,200
Depreciation expense………………………..
5,900
Rent expense…………………………………..
2,400
Supplies expense……………………………..
2,100
Utilities expense………………………………
800
Total expenses……………………………..
29,400
Net income………………………………………...
$33,540

61. Advice:. Stay in business. You earned a profit the first year
Advice: Stay in business. You earned a profit the first year. Many companies lose money in the early going, so you are performing better than most start-up companies.

62. 7th Case 2 Swift Classified Ads Income Statement
Year Ended December 31, 2008
Revenues:
Service revenue ($59,500 + $1,600 + $900).
$62,000
Expenses:
Salary expense ($17,000 + $1,200)…………
$18,200
Depreciation expense………………………..
5,900
Rent expense…………………………………..
2,400
Supplies expense……………………………..
1,700
Utilities expense………………………………
800
Total expenses……………………………..
29,000
Net income………………………………………...
$33,000