PB3-1 Recording Nonquantitative Journal Entries
Abercrombie & Fitch Co. is a specialty retailer of casual apparel. The following is a series of accounts for Abercrombie. The accounts are listed alphabetically and numbered for identifi ca- tion. Following the accounts is a series of transactions. For each transaction, indicate the account(s) that should be debited and credited by entering the appropriate account number(s) to the right of each transaction. If no journal entry is needed, write none after the transaction. The fi rst transaction is given as an example.
LO 3–3, 3–5 LEVEL
UP
LO 3-1, 3–2, 3–3
Account No. Account Title Account No. Account Title
1 Accounts Payable 7 Prepaid Rent
2 Accounts Receivable 8 Rent Expense
3 Cash 9 Supplies Expense
4 Contributed Capital 10 Supplies
5 Equipment 11 Unearned Revenue
6 Interest Revenue 12 Wages Expense
Transactions Debit Credit
a. Example: Incurred wages expense; paid cash. b. Collected cash on account.
c. Used up supplies (cash register tapes, etc.) this period. d. Sold gift certificates to customers; none redeemed this period. e. Purchased equipment, paying part in cash and charging the
balance on account.
f. Paid cash to suppliers on account. g. Issued additional stock for cash.
h. Paid rent to landlords for next month’s use of mall space. i. Earned and received cash for interest on investments.
PB3-2 Recording Journal Entries
Robin Harrington established Time Defi nite Delivery on January 1, 2013. The following transac- tions occurred during the company’s most recent quarter.
a. Issued stock for $80,000.
b. Provided delivery service to customers, receiving $72,000 in accounts receivable and $16,000 in cash.
c. Purchased equipment costing $82,000 and signed a long-term note for the full amount.
d. Incurred repair costs of $3,000 on account.
e. Collected $65,000 from customers on account.
f. Borrowed $90,000 by signing a long-term note. g. Prepaid $74,400 cash to rent equipment next quarter.
h. Paid employees $38,000 for work done during the quarter.
i. Purchased (with cash) and used $49,000 in fuel for delivery equipment. j. Paid $2,000 on accounts payable.
k. Ordered, but haven’t yet received, $700 in supplies.
Required:
For each of the transactions, prepare journal entries. Be sure to categorize each account as an asset (A), liability (L), stockholders’ equity (SE), revenue (R), or expense (E).
PB3-3 Analyzing the Effects of Transactions Using T-Accounts and Preparing an Unadjusted Trial Balance
Jessica Pothier opened FunFlatables on June 1, 2013. The company rents out moon walks and infl atable slides for parties and corporate events. The company also has obtained the use of an abandoned ice rink located in a local shopping mall, where its rental products are displayed and available for casual hourly rental by mall patrons. The following transactions occurred during the fi rst month of operations.
a. Jessica contributed $50,000 cash to the company in exchange for its stock. b. Purchased inflatable rides and inflation equipment, paying $20,000 cash.
c. Received $5,000 cash from casual hourly rentals at the mall.
d. Rented rides and equipment to customers for $10,000. Received cash of $2,000 and the rest is due from customers.
e. Received $2,500 from a large corporate customer as a deposit on a party booking for July 4.
f. Began to prepare for the July 4 party by purchasing various party supplies on account for
$600.
g. Paid $6,000 in cash for renting the mall space this month.
h. Prepaid next month’s mall space rental charge of $6,000. LO 3–2, 3–3
LO 3–1, 3–2, 3–3, 3–4
i. Received $1,000 from customers on accounts receivable.
j. Paid $4,000 in wages to employees for work done during the month. k. Paid $1,000 for running a television ad this month.
Required:
1. Set up appropriate T-accounts. All accounts begin with zero balances.
2. Record in the T-accounts the effects of each transaction for FunFlatables in June, referencing
each transaction in the accounts with the transaction letter. Show the unadjusted ending balances in the T-accounts.
3. Prepare an unadjusted trial balance for the end of June 2013.
4. Refer to the revenues and expenses shown on the unadjusted trial balance to calculate pre-
liminary net income and write a short memo to Jessica offering your opinion on the results of operations during the first month of business.
PB3-4 Analyzing, Journalizing, and Interpreting Business Activities
The following items present a sample of business activities involving Dry Cleaner Corporation (DCC) for the year ended December 31, 2013. DCC provides cleaning services for individual customers and for employees of several large companies in the city.
Dec 1: DCC’s owner paid $10,000 cash to acquire 200 DCC shares directly from DCC. Dec 7: DCC ordered cleaning supplies at a total cost of $2,000. The supplies are
expected to be received in early January 2014.
Dec 17: Customers paid $200 cash to DCC to obtain DCC gift cards that they could use to obtain future cleaning services at no additional cost.
Dec 21: DCC ran advertising in the local newspaper today at a total cost of $500. DCC is not required to pay for the advertising until January 21, 2014.
Dec 22: DCC paid $1,000 to the landlord for January 2014 rent.
Dec 23: DCC’s owner sold 20 of his own DSS shares to a private investor, at a selling price of $1,200.
Dec 28: DCC paid in full for the advertising run in the local newspaper on December 21. Dec 29: The cleaning supplies ordered on December 7 were received today. DCC does
not have to pay for these supplies until January 29.
Dec 31: Today, DCC completed cleaning services for several large companies at a total price of $2,000. The companies are expected to pay for the services by January 31, 2014.
Required:
1. Indicate the accounting equation effects of each item, using a table similar to the one shown
for Demonstration Case B on page 114. Reference each item by date.
2. Prepare journal entries to record each item. Reference each item by date. If a journal entry is
not required, explain.
3. Identify at least two adjustments that DCC will be required to make before it can prepare a
final income statement for December.
COMPREHENSIVE PROBLEM
C3-1 Analyzing, Recording, and Posting, and
Preparing and Evaluating Financial Statements (Chapters 1–3)
Vanishing Games Corporation (VGC) operates a massively multiplayer online game, charging players a monthly subscription of $15. At the start of 2013, VGC’s income statement accounts had zero balances and its balance sheet account balances were as follows:
Cash $1,500,000 Accounts Payable $ 108,000
Accounts Receivable 150,000 Unearned Revenue 73,500
Supplies 14,700 Notes Payable (due 2016) 60,000
Equipment 874,500 Contributed Capital 2,500,000
Land 1,200,000 Retained Earnings 1,419,700
Building 422,000
LO 3–3, 3–5 LEVEL
UP
In addition to the above accounts, VGC’s chart of accounts includes the following: Subscrip- tion Revenue, Licensing Revenue, Wages Expense, Advertising Expense, and Utilities Expense.
Required:
1. Analyze the effect of the January 2013 transactions (shown below) on the accounting equa-
tion, using the format shown in this chapter’s Demonstration Case B.
a. Received $50,000 cash from customers for subscriptions that had already been earned in 2012. b. Received $25,000 cash from Electronic Arts, Inc., for licensing revenue earned in the
month of January 2013.
c. Purchased 10 new computer servers for $33,500; paid $10,000 cash and signed a three-
year note for the remainder owed.
d. Paid $10,000 for an Internet advertisement run on Yahoo! in January 2013.
e. Sold 15,000 monthly subscriptions at $15 each for services provided during the month of
January 2013. Half was collected in cash and half was sold on account.
f. Received an electric and gas utility bill for $5,350 for January 2013 utility services. The
bill will be paid in February.
g. Paid $378,000 in wages to employees for work done in January 2013. h. Purchased $3,000 of supplies on account.
i. Paid $3,000 cash to the supplier in (h).
2. Prepare journal entries for the January 2013 transactions listed in requirement 1, using the
letter of each transaction as a reference.
3. Create T-accounts, enter the beginning balances shown above, post the journal entries to the
T-accounts, and show the unadjusted ending balances in the T-accounts.
4. Prepare an unadjusted trial balance as of January 31, 2013.
5. Prepare an Income Statement for the month ended January 31, 2013, using unadjusted bal-
ances from requirement 4.
6. Prepare a Statement of Retained Earnings for the month ended January 31, 2013, using the begin-
ning balance given above and the net income from requirement 5. Assume VGC has no dividends.
7. Prepare a classified Balance Sheet at January 31, 2013, using your response to requirement 6. 8. Why does the income statement total not equal the change in cash?