8

chapter 3 The Accounting Information System

Problems: Set C
P3-1C New Dawn Window Washing Inc. was started on May 1. Here is a summary of
the May transactions.

Analyze transactions and

compute net income.

(LO 1), AP

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Stockholders invested $20,000 cash in the company in exchange for common stock.
Purchased equipment for $9,000 cash.
Paid $700 cash for May office rent.
Paid $300 cash for supplies.
Purchased $750 of advertising in the Beacon News on account.
Received $7,200 in cash from customers for service.
Paid a $500 cash dividend.
Paid part-time employee salaries $1,700.
Paid utility bills $140.
Provided service on account to customers $1,000.
Collected cash of $650 for services billed in transaction (10).

Instructions
(a) Prepare a tabular analysis of the transactions using these column headings: Cash,
Accounts Receivable, Supplies, Equipment, Accounts Payable, Common Stock, and
Retained Earnings (with separate columns for Revenues, Expenses, and Dividends).
Revenue is called Service Revenue. Include margin explanations for any changes in
Retained Earnings.
(b) From an analysis of the Retained Earnings columns, compute the net income or net
loss for May.

(b) Net income $4,910

Analyze transactions and
prepare financial statements.

P3-2C Samuel Aldrich started his own delivery service, Aldrich Service Inc., on June 1,
2014. The following transactions occurred during the month of June.

(LO 1), AP

June

1
2
3
5
9
12
15
17
20
23
26
29
30

Stockholders invested $15,000 cash in the business in exchange

for common stock.
Purchased a used van for deliveries for $15,000. Samuel paid
$2,000 cash and signed a note payable for the remaining balance.
Paid $600 for office rent for the month.
Performed $2,400 of services on account.
Paid $300 in cash dividends.
Purchased supplies for $240 on account.
Received a cash payment of $750 for services provided on June 5.
Received a bill for $200 to cover advertisements in Tri-State News.
Received a cash payment of $1,500 for services provided.
Made a cash payment of $500 on the note payable.
Paid $180 for utilities.
Paid for the supplies purchased on account on June 12.
Paid $750 for employee salaries.

Instructions
(a) Show the effects of the previous transactions on the accounting equation using the
following format. Assume the note payable is to be repaid within the year.

(a) Cash $12,680

Assets

Liabilities

Stockholders
Equity

Accounts
Notes
Accounts
Common
Retained Earnings
Date Cash Receivable Supplies Equipment Payable Payable Stock Revenues Expenses Dividends

(b) Net income $2,170

Analyze transactions and
prepare an income statement,
retained earnings statement,
and balance sheet.

(LO 1), AP

Include margin explanations for any changes in Retained Earnings.

(b) Prepare an income statement for the month of June.
(c) Prepare a classified balance sheet at June 30, 2012.
P3-3C Joy Tiede opened Tiede Company, a veterinary business in Neosho, Wisconsin,
on August 1, 2014. On August 31, the balance sheet showed: Cash $9,000; Accounts Receivable $1,700; Supplies $600; Equipment $5,000; Accounts Payable $3,600; Common

Problems: Set C

Stock $12,000; and Retained Earnings $700. During September, the following transactions occurred.
Sept.

2
5
8
13
17
22
26
30

Paid $3,400 cash for accounts payable due.

Received $1,200 from customers in payment of accounts receivable.
Purchased additional office equipment for $5,100, paying $1,000
in cash and the balance on account.
Performed services worth $10,600, of which $2,300 is paid in
cash and the balance is due in October.
Paid a $600 cash dividend.
Paid salaries $900, rent for September $1,100, and advertising
expense $250.
Incurred utility expenses for the month on account $220.
Received $5,000 from Hilldale Bank on a 6-month note payable.

Instructions
(a) Prepare a tabular analysis of the September transactions beginning with August 31
balances. The column headings should be: Cash Accounts Receivable Supplies
Equipment Notes Payable Accounts Payable Common Stock Retained Earnings Revenues Expenses Dividends. Include margin explanations for any
changes in Retained Earnings.
(b) Prepare an income statement for September, a retained earnings statement for
September, and a classified balance sheet at September 30, 2014.
P3-4C RV Oasis was started on April 1 by Taras Dankert. These selected events and
transactions occurred during April.
Apr.

1
4
8
11
12
13
17
20
25

30
30

Stockholders invested $70,000 cash in the business in exchange for

common stock.
Purchased land costing $50,000 for cash.
Purchased advertising in local newspaper for $1,200 on account.
Paid salaries to employees $2,700.
Hired park manager at a salary of $3,600 per month, effective May 1.
Paid $7,200 for a 1-year insurance policy.
Paid $600 cash dividends.
Received $6,000 in cash from customers for admission fees.
Sold 100 coupon books for $90 each. Each book contains ten coupons
that entitle the holder to one admission to the park. (Hint: The revenue should not be recognized until the coupons are used.)
Received $7,900 in cash from customers for admission fees.
Paid $400 of the balance owed for the advertising purchased on account on April 8.

(a) Cash

$10,250

(b) Ret. earnings

$ 8,230

Journalize a series of
transactions.

(LO 3, 5), AP

The company uses the following accounts: Cash, Prepaid Insurance, Land, Accounts Payable,
Unearned Service Revenue, Common Stock, Dividends, Service Revenue, Advertising Expense, and Salaries and Wages Expense.
Instructions
Journalize the April transactions, including explanations. RV Oasis records admission
fees as service revenue.
P3-5C Troy Ridgell incorporated Ridgell Consulting, an accounting practice, on May 1,
2014. During the first month of operations, these events and transactions occurred.
May

1
2
3
7
11
12
17
31
31

Stockholders invested $40,000 cash in exchange for common stock of

the corporation.
Hired a secretary-receptionist at a salary of $2,000 per month.
Purchased $800 of supplies on account from Fleming Supply Company.
Paid office rent of $1,400 for the month.
Completed a tax assignment and billed client $1,500 for services.
Received $4,200 advance on a management consulting engagement.
Received cash of $3,300 for services completed for Goodman Co.
Paid secretary-receptionist $2,000 salary for the month.
Paid 50% of balance due Fleming Supply Company.

Journalize transactions, post,

and prepare a trial balance.

(LO 3, 5, 6, 7, 8), AP

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chapter 3 The Accounting Information System

The company uses the following chart of accounts: Cash, Accounts Receivable, Supplies,
Accounts Payable, Unearned Service Revenue, Common Stock, Service Revenue, Salaries
and Wages Expense, and Rent Expense.

(c) Cash
Tot. trial
balance

$43,700
$49,400

Journalize transactions, post,

and prepare a trial balance.

Instructions
(a) Journalize the transactions, including explanations.
(b) Post to the ledger T accounts.
(c) Prepare a trial balance on May 31, 2014.
P3-6C

The trial balance of Kinnear Dry Cleaners on June 30 is given here.

KINNEAR DRY CLEANERS
Trial Balance
June 30, 2014

(LO 3, 5, 6, 7, 8), AP

Debit
Cash
Accounts Receivable
Supplies
Equipment
Accounts Payable
Unearned Service Revenue
Common Stock
Retained Earnings

Credit

$24,532
10,536
3,592
25,950
$15,800
1,810
35,000
$12,000
$64,610

$64,610

The July transactions were as follows.

July

(d) Cash
Tot. trial
balance

$ 7,464
$67,540

Prepare a correct trial

balance.

(LO 8), AN

8
9
11
14
17
22
30
31

Received $5,189 in cash on June 30 accounts receivable.

Paid employee salaries $2,100.
Received $7,320 in cash for services provided.
Paid creditors $9,810 of accounts payable.
Purchased supplies on account $720.
Billed customers for services provided $4,700.
Paid employee salaries $3,114, utilities $1,767, and repairs $386.
Paid $400 cash dividend.

Instructions
(a) Prepare a general ledger using T accounts. Enter the opening balances in the ledger
accounts as of July 1. Provision should be made for the following additional accounts:
Dividends, Service Revenue, Maintenance and Repairs Expense, Salaries and Wages
Expense, and Utilities Expense.
(b) Journalize the transactions, including explanations.
(c) Post to the ledger accounts.
(d) Prepare a trial balance on July 31, 2014.
P3-7C

This trial balance of Lagerstrom Company does not balance.

LAGERSTROM COMPANY
Trial Balance
May 31, 2014
Debit
Cash
Accounts Receivable
Prepaid Insurance
Equipment
Accounts Payable
Income Taxes Payable
Common Stock
Retained Earnings
Service Revenue
Salaries and Wages Expense
Advertising Expense
Income Tax Expense

Credit

$ 6,340
$ 2,750
700
8,000
4,100
850
5,700
6,000
7,690
4,200
1,100
900
$28,680

$19,650

Problems: Set C

11

Your review of the ledger reveals that each account has a normal balance. You also discover the following errors.
1. The totals of the debit sides of Prepaid Insurance, Accounts Payable, and Income Tax
Expense were each understated $100.
2. Transposition errors were made in Accounts Receivable and Service Revenue. Based
on postings made, the correct balances were $2,570 and $7,960, respectively.
3. A debit posting to Salaries and Wages Expense of $500 was omitted.
4. A $600 cash dividend was debited to Common Stock for $600 and credited to Cash
for $600.
5. A $350 purchase of supplies on account was debited to Equipment for $350 and credited to Cash for $350.
6. A cash payment of $490 for advertising was debited to Advertising Expense for $49
and credited to Cash for $49.
7. A collection from a customer for $240 was debited to Cash for $240 and credited to
Accounts Payable for $240.
Instructions
Prepare the correct trial balance, assuming all accounts have normal balances. (Note: The
chart of accounts also includes the following: Dividends and Supplies.)

Cash
Tot. trial balance

P3-8C Riviera Theater Inc. was recently formed. All facilities were completed on March
31. On April 1, the ledger showed: Cash $6,300; Land $10,000; Buildings (concession stand,
projection room, ticket booth, and screen) $8,000; Equipment $6,000; Accounts Payable
$2,300; Mortgage Payable $8,000; and Common Stock $20,000. During April, the following events and transactions occurred.

Journalize transactions, post,

and prepare a trial balance.

Apr.

2
3
9
10
11

12
20
25
29
30

30

$ 6,249
$25,220

(LO 3, 5, 6, 7, 8), AP

Paid film rental fee of $800 on first movie.

Ordered two additional films at $750 each.
Received $4,700 cash from admissions.
Paid $2,000 of mortgage payable and $1,200 of accounts payable.
Hired M. Gavin to operate the concession stand. Gavin agrees to pay
Riviera Theater 17% of gross receipts, payable monthly, for the rental
of the concession stand.
Paid advertising expenses $410.
Received one of the films ordered on April 3 and was billed $750. The
film will be shown in April.
Received $3,000 cash from customers for admissions.
Paid salaries $1,900.
Received statement from M. Gavin showing gross receipts from concessions of $2,000 and the balance due to Riviera Theater of $340 for
April. Gavin paid half of the balance due and will remit the remainder on May 5.
Prepaid $1,200 rental fee on special film to be run in May.

In addition to the accounts identified above, the chart of accounts shows: Accounts Receivable, Prepaid Rent, Service Revenue, Rent Revenue, Advertising Expense, Rent Expense, Salaries and Wages Expense.
Instructions
(a) Enter the beginning balances in the ledger T accounts as of April 1.
(b) Journalize the April transactions, including explanations. (Note: Riviera records admission revenue as service revenue, concession revenue as rent revenue, and film
rental expense as rent expense.)
(c) Post the April journal entries to the ledger T accounts.
(d) Prepare a trial balance on April 30, 2014.
P3-9C A first year co-op student working for Solutions.com recorded the transactions
for the month. He wasnt exactly sure how to journalize and post, but he did the best he
could. He had a few questions, however, about the following transactions.
1. Cash received from a customer on account was recorded as a debit to Cash of $360
and a credit to Accounts Receivable of $630, instead of $360.

(d) Cash
Tot. trial
balance

$ 6,660
$35,890

Analyze errors and their

effects on the trial balance.

(LO 8), AN

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chapter 3 The Accounting Information System

2. A service provided for cash was posted as a debit to Cash of $2,000 and a credit to
Service Revenue of $2,000.
3. A debit of $880 for services provided on account was neither recorded nor posted.
The credit was recorded correctly.
4. The debit to record $1,000 of cash dividends was posted to the Salaries and Wages Expense account.
5. The purchase, on account, of a computer that cost $2,500 was recorded as a debit
to Supplies and a credit to Accounts Payable.
6. A cash payment of $495 for salaries was recorded as a debit to Dividends and a credit
to Cash.
7. Payment of months rent was debited to Rent Expense and credited to Cash, $850.
8. Issue of $5,000 of common shares was credited to the Common Stock account, but
no debit was recorded.
Instructions
(a) Indicate which of the above transactions are correct, and which are incorrect.
(b) For each error identified in (a), indicate (1) whether the trial balance will balance;
(2) the amount of the difference if the trial balance will not balance; and (3) the trial
balance column that will have the larger total. Consider each error separately. Use
the following form, in which transaction 1 is given as an example.

Error

(1)
In Balance

(2)
Difference

(3)
Larger Column

1.

No

$270

Credit