Chapter 3

Adjusting Accounts and Preparing
Financial Statements
QUESTIONS
1.

The cash basis of accounting reports revenues when cash is received while the
accrual basis reports revenues when they are earned. The cash basis reports
expenses when cash is paid while the accrual basis reports expenses when they are
incurred (and matched with revenues they generated).

2.

The accrual basis of accounting generally provides a better indication of company
performance and financial condition than does the cash basis. Also, the accrual
basis increases the comparability of financial statements from one period to the
next. Thus, business decision makers generally prefer the accrual basis.

3.

Businesses that have major seasonal variations in sales are most likely to select the
natural business year as the fiscal year.

4.

A prepaid expense is reported as an asset on the balance sheet.

5.

Depreciable plant assets (such as equipment, buildings, and machinery) lead to
adjustments for depreciation.

6.

The Accumulated Depreciation contra account is used for depreciation. It provides
financial statement users with additional information about the relative age of the
assets. Without the contra account information, the reader would not be able to tell
whether the assets are new or in need of replacement.

7.

An unearned revenue is reported as a liability on the balance sheet.

8.

An accrued revenue is revenue that is earned but is not yet received in cash (and/or
other assets) and the customer has not been billed prior to the end of the period.
Therefore, end-of-period adjustments are made to record accrued revenue.
Examples are interest income that has been earned but not collected and revenues
from services performed that are neither collected nor billed.

9.

If prepaid expenses are initially recorded with debits to expense accounts, then the
prepaid expenses asset accounts are debited in the adjusting entries.

10. For Krispy Kreme, the two accounts of Prepaid Expenses and Property and
Equipment require adjusting entries. The expense account(s) related to the prepaid
account and the depreciation expense account would be understated on the income
statement if Krispy Kreme fails to adjust these two asset accounts. If the adjusting
entries are not made, net income would be overstated. Note: Students might also
correctly identify accounts receivable, deferred income taxes and intangible assets
as needing adjustment.
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119

11. In addition to prepayments, Tastykake must make adjusting entries to Property,
Plant and Equipment, Deferred Income Taxes, Accrued Payroll and Employee
Benefits, and possibly other assets and liabilities such as Receivables (for bad
debts).
12. The Accrued Wages Expense would be reported as part of “Accrued Expenses and
Other Liabilities” on Harley-Davidson’s balance sheet.

QUICK STUDIES
Quick Study 3-1 (10 minutes)
a.
b.
c.
d.
e.

UR
PE
AE
AR
PE

Unearned revenue
Prepaid expenses (Depreciation)
Accrued expenses
Accrued revenue
Prepaid expenses

Quick Study 3-2 (10 minutes)
a. Insurance Expense .......................................................
Prepaid Insurance .................................................

1,800
1,800

To record 6-month insurance coverage expired.

b. Supplies Expense .........................................................
Supplies ..................................................................

2,700
2,700

To record supplies used during the year.
($1,000 + $3,000 – [?] = $1,300)

Quick Study 3-3 (10 minutes)
a. Depreciation Expense—Equipment ............................
Accumulated Depreciation—Equipment .............

5,000
5,000

To record depreciation expense for the year.
($30,000 - $5,000) / 5 years = $5,000

b. No depreciation adjustments are made for land as it is expected to last
indefinitely.

©McGraw-Hill Companies, Inc., 2005
120

Fundamental Accounting Principles, 17th Edition

Quick Study 3-4 (15 minutes)
a. Unearned Revenue........................................................
Legal Revenue .......................................................

15,000
15,000

To recognize legal revenue earned (20,000 x 3/4).

b. Unearned Subscription Revenue ................................
Subscription Revenue ...........................................

2,400
2,400

To recognize subscription revenue earned.
[100 x ($48 / 12 month) x 6 months]

Quick Study 3-5 (10 minutes)
Salaries Expense...........................................................
Salaries Payable ....................................................

400
400

To record salaries incurred but not yet paid.
[One student earns, $100 x 4 days, M-R]

Quick Study 3-6 (15 minutes)
Accounts Debited and Credited
Debit
Unearned Revenue
Credit Revenue Earned

Financial Statement
Balance Sheet
Income Statement

b.

Debit
Credit

Depreciation Expense
Accumulated Depreciation

Income Statement
Balance Sheet

c.

Debit
Credit

Wages Expense
Wages Payable

Income Statement
Balance Sheet

d.

Debit
Credit

Accounts Receivable
Revenue Earned

Balance Sheet
Income Statement

e.

Debit
Credit

Insurance Expense
Prepaid Insurance

Income Statement
Balance Sheet

a.

Quick Study 3-7 (10 minutes)
Adjusting entry

Debit

Credit

1. Accrue salaries expense

f

d

2. Adjust the Unearned Services Revenue account
to recognize earned revenue

e

g

3. Record the earning of services revenue for which
cash will be received the following period

a

g

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121

....................... Net income ..................................... Accrued salaries error: Understates expenses (and understates liabilities) by ... Understates liabilities by ....... 2005 122 Fundamental Accounting Principles.......................000 24...................... Overstates assets by ..................600 1...................................................................... The credit balance in Interest Payable increased by $800.......................... Combination of errors: Understates expenses by ..........000 22............600 $1..7 cents in net income..500 ....................500 $16..600 $1........000 Accrual Accounting: Revenues (earned) ............ Expenses (incurred) .......7% Interpretation: For every one dollar that Yang Company records as revenue...250 + $3... Net income .................$2............... $33..925 / $390.. 17th Edition . it earns 9.. Inc..000 = 9.......... $39.........000 $ 9......... Explanation: Insurance premium error: Understates expenses (and overstates assets) by . Explanation: The debit balance in Prepaid Insurance was reduced by $400.... Expenses (cash payments: $22...............................................Quick Study 3-8 (10 minutes) The answer is c............... Quick Study 3-12A (5 minutes) The answer is d.......000 $2. ©McGraw-Hill Companies..7% is markedly lower than competitors’ average profit margin of 15%—it must improve performance............................. implying an $800 debit to Interest Expense.... Quick Study 3-9 (10 minutes) Cash Accounting: Revenues (cash receipts) ........ Yang’s 9............500 Quick Study 3-10 (15 minutes) The answer is 2................... $1....000 Quick Study 3-11 (10 minutes) Profit margin = $37.750) .................... implying a $400 debit to Insurance Expense.....

. 2..$2.. Fee Revenue ........ Office Supplies Expense .. Accumulated Depreciation—Equipment............$587)................ Prepaid Insurance* ...... Bal........ Interest Revenue .................................... 19..........EXERCISES Exercise 3-1 (15 minutes) 1..... 5....... Interest Expense ..........242 5............ c. Inc. Purch..349 ? 587 Used ©McGraw-Hill Companies........000 To record earned portion of fee received in advance.................................... E.... Wages Expense .....127 19........ g...............000 10.............. 5............ Chapter 3 123 ............000 ........ Notes: Prepaid Insurance* Beg...... Bal........ Exercise 3-2 (30 minutes) a...... F D A................. f.....800 To record insurance coverage expired ($5.... Unearned Fee Revenue ........ 2............ Bal..... 4.......000 To record wages accrued but not yet paid.500 3... 3...................................................000 9........ 10.. Used End...... 5................. 3..................242 To record office supplies used ($480 + $5...... e................................. Bal..800 2........... Wages Payable ........... 2......... 750 750 To record interest earned but not yet received.......................... 6. Office Supplies** 480 5........... B.................... 9...... Insurance Expense .............................. C........ Interest Receivable ..........349 .......... d..................... Office Supplies** .200)............500 To record interest incurred but not yet paid..........................000 ? End...... Depreciation Expense—Equipment ............................................. 2005 Solutions Manual.......127 To record depreciation expense for the year.............. b......................200 Beg.................. Interest Payable.

....................680 . Bal. 300 Purch.......... 2........... To record office supplies used ($300 + $2..............000 4............040)..........000 5........ 7........000 .. Wages Payable . 4...600 Wages Expense ......626 d....................................000 b...... 16.......................000 Notes: Prepaid Insurance* Bal................... To record depreciation expense for the year....................... Office Supplies Expense .............. 4............................................ Bal.............. Insurance Expense ......................... Bal.................. Depreciation Expense—Equipment ...$1........................ To record insurance coverage that expired ($7........... 17th Edition ....960 2...... To record earned portion of fee received in advance ($10........... To record wages accrued but not yet paid......000 e.....600 4.............. To record insurance coverage that expired.....................000 f......................626 5.... Accumulated Depreciation—Equipment.......Exercise 3-3 (25 minutes) a......... 5.... Unearned Fee Revenue ........... Prepaid Insurance .. 16.............680 ? End.....$354).... Bal.............. Office Supplies** .......... 1......040 Used Office Supplies** Beg...............000 ? End.... 2005 124 Fundamental Accounting Principles........ 5... Inc.............960 c....................... 354 Used ©McGraw-Hill Companies............... Prepaid Insurance* .................... 2...............000 x 1/2)........... Insurance Expense ..... Fee Revenue .........

... 2..500 Wages Payable ......500 Wages Payable .... 2............ Exercise 3-5 (15 minutes) a................ Chapter 3 125 ...650 $5...600 (800) $6..........................600 $ 1..........400 10. b.......080 $1. 2005 Solutions Manual.................................080 6...360 $1...........300 (1................100 5....650 (5... $1... c...... (5 workers x $100) b... d.......575 ©McGraw-Hill Companies.................. 31 Wages Expense.............375 Supplies purchased in current year ...500 Cash ...840) $ 9...... 500 To record accrued wages for one day....700 $10.. (750) $1.....Exercise 3-4 (15 minutes) a... $ 300 $1............................................. 2.....................400 7................... 4 Wages Expense......................... Inc.....000 Total supplies available ....... Adjusting entry: 2005 Dec.............440 7..... 1.... Payday entry: 2006 Jan.000 11........ Supplies expense for current year................375 Supplies available – current year-end ...000 To record accrued and current wages.700) $1......375 Proof: (a) (b) (c) (d) Supplies available – prior year-end ..

.......500 To record accrued legal fees............ 3..... 3.... 2........................ Cash ....................... 17th Edition ................240 x 10/30).................................. 30 Legal Fees Expense ............. Cash ................6% x $780..................... Interest Expense ............000 x 2/5 week)......... 2.... 2005 126 Fundamental Accounting Principles......... Apr.........500 2.........400 9.............. Salaries Payable. May 20 Interest Payable .......... ©McGraw-Hill Companies.................240 To record payment of accrued and current interest expense (9.......................000 x 10/360) or ($6............ Cash ..................... 30 Salaries Expense ............ Apr.080 2.....000 x 3/5 week).... Interest Payable ...... Salaries Expense . May 12 Legal Fees Payable ..........................................6% x $780.....600 To record accrued salaries ($9.............. Inc....080 4................................................160 6...................... 2.........Exercise 3-6 (25 minutes) a........ 2................. 30 Interest Expense ................600 3......... c.............. May 3 Salaries Payable ................. Apr......... b................... Legal Fees Payable ..........000 To record payment of accrued and current salaries ($9..........................600 5.........500 2...............................500 To pay accrued legal fees....................000 x 20/360)..080 To record accrued interest expense (9.................

.....Exercise 3-7 (20 minutes) Balance Sheet Insurance Asset using Accrual Cash * Basis Basis Dec.......... from $16.........300 12/31/2005 .....400 2005........................ 5..200 Dec.......... 5...... $11............... 31...................... 26 $11.......700 $0 Insurance Expense using Accrual Cash ** Basis Basis 2003 ............... 10 $ 4....... 2006 .................. 2003 ..... 31.. Chapter 3 127 .......400 0 Dec..... Months Left Balance 12/31/2003 ....... 900 0 2005 ..... 31............... 2005 ......... $ 4...... 2 900 12/31/2006 ....700 12/31/2004 ....................... 0 0 2006 ...... Inc.. 12 5................ Months Covered Expense 2003............200 ©McGraw-Hill Companies.............500 2004......... 2004 . 900 0 Total ...............400 0 Dec......... $16........................... 2005 Solutions Manual..... 14 6....... 12 5........ 0 0 **Accrual insurance expense equals months covered in the year x $450 per month......300 0 2004 ...200 EXPLANATIONS: *Accrual asset balance equals months left in the policy x $450 per month (monthly cost is computed as $450.... 6..500 $16...200 divided by 36 months)................ 2 900 $16.200 $16... 31..400 2006.......

.......... 2..... 1.............. 1............................... 70 1......... Fees Earned........300 480 70 ©McGraw-Hill Companies........... 1......... To record incurred and unpaid utility costs.... To record use of office supplies................................. To record accrued salaries............................................................... Fees Earned................. Utilities Payable ...............800 31 Unearned Fees................................... To record depreciation on office furniture. To record depreciation on computers..................450 31 Insurance Expense. 2005 128 Fundamental Accounting Principles... ........... To record earned fees collected in advance (70% x $6..................000). Salaries Payable........500 1..............800 4.............. 17th Edition .....750 Accumulated Depreciation—Office Furniture ........................ 4..................... 31 Accounts Receivable ...............750 31 Salaries Expense ..............200 31 Depreciation Expense—Computers ... Office Supplies ...............Exercise 3-8 (25 minutes) Dec........... To record earned but unbilled fees (30% x $6.............................. 1.......450 2...... To record expired prepaid insurance... Accumulated Depreciation—Computers ................500 31 Depreciation Expense—Office Furniture .... 480 31 Utilities Expense ...................................... 1..............000).......... Inc.......200 1............................. Prepaid Insurance ...........................300 31 Office Supplies Expense .........

...........$6.. 1 Supplies Expense . b..............830 $398..... b.. Dec. c. Company c earns 36...... Dec......................000 3.300 9........8% = 16...........600 3...... 1. 2 Insurance Expense ......000 + $3. d......234 $70......................000 Received fees for work to be done......925 = 12........... Cash ......082 $1...... Chapter 3 129 .... f...458.............. e. Exercise 3-10A (30 minutes) a..0% = 36....... Dec...... Dec..........920 Adjust expenses for unused supplies... Dec...1% Analysis and Interpretation: Company c has the highest profitability according to the profit margin ratio.......... d...200 1.....31 Remodeling Fees Earned ....15 Cash ... $5.. 12........ Inc. 3.... 2005 Solutions Manual..... Insurance Expense ......3 cents in net income for each one dollar of net sales recorded.$240).................. g......3% = 3...............954 $257.....Exercise 3-9 (10 minutes) a......... Remodeling Fees Earned ..385 $55........600 Received fees for work to be done.... e...... Dec... Dec...................................................... Supplies Expense ......28 Cash .............31 Supplies ......300 Adjusted revenues for unfinished projects ($12...999 $435..31 Prepaid Insurance ($1................... ©McGraw-Hill Companies........644 $93.....600 ........................................................200 Adjust expenses for unexpired coverage...000 Purchased supplies.440 1.....920 1.......390 $87.440 .................... 3. 1....158 / / / / / $44..... c..440 Paid insurance premiums......... 9................... 12... 1.. Cash ......................000 Remodeling Fees Earned .300)........0% = 22.... Unearned Remodeling Fees ......................

................................400 + $7....................................................000 + $8..... 12 18 No entry required... 18 Cash ...000 Received fees for work to be done............................. 7. 31 No adjusting entries required.500 ......... 8..............400 Completed work for customer...... b................................................... Inc........... 27 Unearned Fees .....500 Received fees for work to be done..000 2....................] ©McGraw-Hill Companies........... 8... Unearned Fees ...................000 Received fees for work to be done.......................... 2... 2........ 2...........400 Received fees for work to be done......... 12 Unearned Fees ...............................500 7.................. 17th Edition ......................... 6 Cash ..... 7..............400 [Note: Both procedures yield identical results in the financial statements................................................. c..............................................000 2.....................................$8...400 = $7................. Under the first method (and using entries from a): Unearned Fees = $2.... Unearned Fees ... Initial credit recorded in the Unearned Fees account: July 1 Cash ......... 2..................500 7................................. 8..000 + $8......000 Unearned Fees ..400 8.............................................................$7....400 8..................500 Fees Earned = $2..................................................... 6 Cash ........400 Under the second method (and using entries from b): Unearned Fees = $7.........400 = $10.. 2005 130 Fundamental Accounting Principles............................500 Adjusted to reflect unearned fees for unfinished job.... Cash .................................000 Completed work for customer...............500 ..500 = $10...... Fees Earned......Exercise 3-11A (25 minutes) a.................. 7.. Fees Earned....................................................000 + $7... Fees Earned...500 7.............. Unearned Fees ..................000 + $8........... Fees Earned.........400 8......400 Received fees for work to be done.. Fees Earned..... 27 31 No entry required.................. Initial credit recorded in the Fees Earned account: July 1 Cash ....$2..400 ...........500 Received fees for work to be done.500 Fees Earned = $2.. Fees Earned ..

.100) .267 1...200 To record accrued but unpaid wages. 12..... G.920 3...400 . Salaries Payable. 11.... H.........000 + $12. Inc.... 8.... C.... B..31 Office Supplies Expense ..700 /12 mo..760 12... 2005 Cost $ 7.. 3...........) 363 ($13. Chapter 3 131 .000 To record annual depreciation expense [($855.... D. 9..........312 To record annual insurance coverage cost. 4..... Prepaid Insurance . Problem 3-2A (35 minutes) Part 1 Adjustment (a) Dec... 7...... A.............125 $12... F........ 6..000) / 30 years = $27.. 31 Adjustment (b) Insurance Expense .. G.......$2..000] ©McGraw-Hill Companies.............840/24 mo. Office Supplies ... E...312 4...068/36 mo. 5....) 225 ($ 2..200 4.....) Months Active in 2005 12 9 5 Adjustment (c) Salaries Expense (2 days x $2. 10. Policy A B C Total 31 Cost per Month $660 ($15.312 12. 31 Adjustment (d) Depreciation Expense—Building ......000 -$45. 12.......760 To record cost of supplies used ($3.640)...000 27. D.. Accumulated Depreciation—Building 27..... E.. 2005 Solutions Manual.......... I....... 12.. 2..PROBLEM SET A Problem 3-1A (15 minutes) 1..

.................. 4... 17th Edition ............................ 6 Salaries Payable ...................400 2....................Problem 3-2A (Continued) Adjustment (e) Dec..... Adjustment (f) 31 Unearned Rent ......................175).............400 To record earned but unpaid Dec............................................. 2................ rent.................. ©McGraw-Hill Companies.500 To record payment of accrued and current salaries.300 10........................ Salaries Expense* ... *(3 days x $2............ 4..................... Inc.............................................. Rent Earned .800 2..... Cash ........400 2........400 To record past due rent for two months..........350 To record the amount of rent earned for November and December (2 x $2......... Part 2 Cash Payment for (c) Jan..... Rent Earned .....31 Rent Receivable ............350 4.....................100) 15 Cash Payment for (e) Cash ...... Rent Earned .200 6. 4.......... 2005 132 Fundamental Accounting Principles.......... Rent Receivable ...

Bal. Bal. Bal.000 Adj.000 (c) 12.000 Adj. Bal.000 Accumulated Depreciation— Professional Library Unadj. Watson.600 Equipment 70. Adj.000 (a) 12. Bal.400 Professional Library 30.000 (b) 2. Prepaid Rent 2.. 28.Problem 3-3A (90 minutes) Parts 1 and 2 Unadj.000 (d) 6. Teaching Supplies 10. Prepaid Insurance 15. 0 400 400 3. Bal.000 Unadj. Bal.000 (h) 0 36. Bal.000 Unadj. 6. Capital Bal.500 Adj. Bal.600 T.000 T.000 Accounts Receivable 0 (f) 7. Unadj. Bal. 16.600 2. Chapter 3 133 . 7. Inc. Bal. Bal. Bal. 63.000 (g) Adj. Accumulated Depreciation— Equipment Unadj. Bal. 9. Watson.000 ©McGraw-Hill Companies.000 4. Bal. Adj.000 Bal. Unadj. Bal. Bal. 15. Salaries Payable Unadj. Cash 26. Withdrawals 40. Bal.400 Adj. Bal.500 Unadj.000 Accounts Payable Bal. Unadj. Adj.000 7. 2005 Solutions Manual. Unearned Training Fees (e) 11.

000 (g) 400 Adj. Advertising Expense 7.Problem 3-3A (Continued) Tuition Fees Earned Unadj.600 Salaries Expense Unadj. 48. 102.400 Unadj.000 Bal.400 Adj. Bal.400 42. 3. (f) Adj. 0 (c) 12.000 ©McGraw-Hill Companies.000 4. Bal. Bal. (e) Adj. Depreciation Expense— Professional Library Unadj. Bal. Bal. Bal. 48.500 109.000 2.000 Adj. Bal.000 Bal. Bal. Rent Expense 22. Inc.400 Unadj.000 Depreciation Expense— Equipment Unadj.000 Teaching Supplies Expense 0 (b) 7. 17th Edition . 38. 12.000 Adj.400 Insurance Expense Unadj.000 7. Bal. 0 (a) 3.. 6. Bal. Bal. Bal. 0 (d) 6.000 24.500 Training Fees Earned Unadj. 7.000 Adj. Bal. Utilities Expense 5. Bal. Bal. Bal. 2005 134 Fundamental Accounting Principles. (h) Adj.

....... ©McGraw-Hill Companies......... Adjustment (g) 31 Salaries Expense ...000-$2........................................................... 7..... Library .... 31 Adjustment (a) Insurance Expense .... 6.....400 To record training fees earned that were collected in advance................000 To record expiration of prepaid rent..... Adjustment (f) 31 Accounts Receivable ...............................000 Prepaid Rent .. 400 To record accrued salaries (2 days x $100 x 2)...... 3.... To record equipment depreciation...........................000 To record the insurance expired.................000 6..... 2........ Adjustment (b) 31 Teaching Supplies Expense .......500 Tuition Fees Earned. Depreciation—Profess..............400 Salaries Payable............................. 2..... 4...... Chapter 3 135 ...................................................................400 Teaching Supplies ................. Adjustment (e) 31 Unearned Training Fees ... Adjustment (h) 31 Rent Expense ...........Problem 3-3A (Continued) Part 2 Dec................................... Adjustment (d) 31 Depreciation Expense—Profess........................... 12..000 x 2 1/2 months)..... Adjustment (c) 31 Depreciation Expense—Equipment ............................... 12.......................................................000 Prepaid Insurance ........... 4. 7.................600)..............000 Accumulated Depreciation—Equipment ......400 Training Fees Earned ..........000 To record professional library depreciation.................... Inc........ 3.........................................500 To record tuition earned ($3... 7.400 To record supplies used ($10...... Library ............ 2005 Solutions Manual.............................000 Accumul............ 7....

................................... 24..............................................500 2................................................... $301.. Equipment ...................................000 Accumulated depreciation—Equipment ............................. Salaries payable ........ Accounts receivable ...... 3............000 Salaries expense ....................600 63..................000 Tuition fees earned .... 12... 48.................................................... Watson...........000 Depreciation expense—Equipment ................................................................................ T................................................. Withdrawals ...........000 7...... 70....500 42............. Training fees earned ..........400 _______ $301....500 ©McGraw-Hill Companies............................. Unearned training fees .................................. 2005 Debit $ 26................................. Watson...000 0 30..............400 Insurance expense ............... 7.... 5....... 6.................................. 2005 136 Fundamental Accounting Principles.500 Credit $ 15.000 36....000 Rent expense....................................................000 400 6............................................ Accounts payable .............. Prepaid rent ..........................................................400 Advertising expense ..... 7......................... T............... 40..........................600 109......000 28....600 Totals ......000 Utilities expense..... 17th Edition .......................................000 Cash ......Problem 3-3A (Continued) Part 3 Watson Technical Institute Adjusted Trial Balance December 31.................. Professional library ......... Capital ... Teaching supplies .....000 Teaching supplies expense ............................... Depreciation expense—Professional library ..........................600 12......... Prepaid insurance ................................... Accumulated depreciation—Professional library .... Inc....................................................................

..............................400 Total revenues .400 Advertising expense .........900 113...500 Training fees earned ............... Plus: Net income ...... Net income .....600 Total expenses ... 2005 Solutions Manual.......... December 31... Expenses Depreciation expense—Professional library ................. $109........500 WATSON TECHNICAL INSTITUTE Statement of Owner’s Equity For Year Ended December 31.............................................. 48.... T........000 Depreciation expense—Equipment ........................... Less: Owner withdrawals .000 Teaching supplies expense........ Chapter 3 137 ......... $ 63...... 3......................................... 2005 T........ December 31................................. 2005 Revenues Tuition fees earned .400 Insurance expense .................... Capital...... 7.............................................................100 40..........400 $ 38............................ 24.. 6..................... Inc.........500 102..100 ©McGraw-Hill Companies..... Watson...... 5... Capital............ 7.................................................................... 2004 ..........000 Salaries expense .......................... 42............ 2005 ... 12......................600 38.........000 Utilities expense .... $151...Problem 3-3A (Continued) Part 4 WATSON TECHNICAL INSTITUTE Income Statement For Year Ended December 31....000 $ 62.....000 Rent expense ................... Watson..............

.............. (15................................. 2005 Assets Cash ................................. Total liabilities and equity ........000 $105..... (28........................600 12........... Accounts receivable ............................................ Liabilities Accounts payable ........................ Professional library ...100 ©McGraw-Hill Companies..............000 Accumulated depreciation—Equipment . Unearned training fees ...................100 $ 36.... Watson................. $ 26.......................... 2005 138 Fundamental Accounting Principles...............................600 43.................................................... Prepaid insurance .......... Inc....000 15................................. 70.....100 $105..............................................000 62...................................... 17th Edition ........... Capital ............ Equity T...................... $30.............................000 Accumulated depreciation—Professional library ..............................000) Total assets ...............000) Equipment ....Problem 3-3A (Concluded) WATSON TECHNICAL INSTITUTE Balance Sheet December 31..........................000 7...500 2.............000 400 6............................................... Total liabilities ..........000 42......................... Teaching supplies ......... Salaries payable ..................................................................................

....440 $ 27...... Incurred but unpaid advertising expense..... Incurred but unpaid salaries expense............000 2...... Interest expense...................000 Consulting fees earned .... 16.............000 (h) 44..600 10..........000 4..... Depreciation expense— Office equipment...480 $290.......800 _______ (e) Totals....320 92...200 2...........Problem 3-4A (45 minutes) — Part 1 Account Unadjusted Trial Balance Adjusted Trial Balance Adjustments Cash.....460 3...420 Long-term notes payable .....000 156.. Cost of consumed office supplies....000 900 $43....000 $ 18.......900 ______ Adjustment description: Earned but uncollected revenues.460 (b) (c) 15..900 $290..... Cost of expired insurance coverage..000 Accounts payable.............700 15..000 Accumulated depreciation —Office equipment .................720 (a) (b) (c) (d) (e) (f) (g) (h) 6...400 Advertising expense ..... 10... Salaries payable......000 1....000 22........ Unearned consulting fees.420 (a) (h) 10.......000 Accounts receivable....000 18...000 28.... 2005 Solutions Manual..... Incurred but unpaid interest expense.............. ©McGraw-Hill Companies.... 9..... Withdrawals............... 168.000 28....... Salaries expense ..000 (g) 6.880 92................................... Office supplies..600 800 2.. J..........000 (a) 10.... Office equipment......720 $265.000 71...200 800 6...160 (d) (f) (c) Insurance expense ......700 Interest payable........ Depreciation expense on office equipment.700 _______ $43.....460 1...............200 Office supplies expense..... J.440 77..200 15.. 6.... Winner........ Winner. $ 12.. Earned revenues previously received in advance... Inc. Chapter 3 139 .....440 13...................000 7..600 14.. 12....... Prepaid insurance. $265... Capital... Rent expense..600 2... $ 27.300 44........................ 1..000 14....000 (d) 6......... 10....000 13......480 (b) 13......300 (e) (f) (g) 900 800 6........

.. Salaries expense ... July 31...... Insurance expense ................200 15...... Capital.................................... Inc... $28...160 $ 6. Winner............................................ 2005 140 Fundamental Accounting Principles.................440 10.. Capital............... Interest expense ..000 $55. 2005 ................................ Net income ......... 2005 Revenues Consulting fees earned . Expenses Depreciation expense—Office equipment ...............................440 ©McGraw-Hill Companies....................... Advertising expense ...............600 2...... Winner... Rent expense .140 $ 37...020 65...........200 2..... Plus: Net income .................................. July 31......... $168.............. Total expenses ............... J.................................000 77.......420 37.000 14......Problem 3-4A Part 2 JJW COMPANY Income Statement For Year Ended July 31........................ 2005 J..........440 13.. Office supplies expense ....700 131.............020 JJW COMPANY Statement of Owner’s Equity For Year Ended July 31... Less: Owner withdrawals .................... 17th Edition ................ 2004 ...........

....460 3..........................................................................000 Accumulated depreciation—Office equipment ......340 ©McGraw-Hill Companies........... Prepaid insurance ... $92......................000 22.........................340 Liabilities Accounts payable ........600 14........000 4...900 Equity J....................................... Capital ............... $ 27.......................000 $131........ Unearned consulting fees ............... 55....... Long-term notes payable ........880 74................. $ 10........... 2005 Solutions Manual......... Inc..... Interest payable ..................... 2005 Assets Cash ........................................... Office supplies .......000 75..................200 800 6..... (18............................................................................................................440 $131.......................................... Total liabilities ........................Problem 3-4A (Concluded) Part 2 JJW COMPANY Balance Sheet July 31... Accounts receivable ..................................... Salaries payable ............................... Chapter 3 141 .....................................................000) Total assets ........................... Total liabilities and equity .......................... Winner..................... Office equipment ....300 44...........

.......................... December 31............. $436. $420.......800 79.......... Callahay. 16......... 50........ 180.......................... 18.................. 2005 ....... Capital...... Inc.....000 356........................................ Expenses Depreciation expense—Automobiles ..... 16..........000 Wages expense .... $247.. J............. 10..... Callahay..000 Office supplies expense ........ Net income .........200 327..000 38..... 17th Edition ............. 2004 ........... 2005 142 Fundamental Accounting Principles.. Capital... 2005 Revenues Fees earned ................... 32.............Problem 3-5A (50 minutes) Part 1 CALLAHAY COMPANY Income Statement For Year Ended December 31...............................000 Total revenues ..............000 Repairs expense—Automobiles ...........000 Depreciation expense—Equipment .. Plus: Net income .......... 2005 J.. 24......800 Total expenses ...........000 Interest expense .......... Less: Withdrawals by owner ....800 $ 79.........................000 Interest earned ....000 Salaries expense .................000 ©McGraw-Hill Companies.........000 Advertising expense ..................... 26.........200 CALLAHAY COMPANY Statement of Owner's Equity For Year Ended December 31................. December 31........000 $289....

................... Salaries payable ........... Total liabilities and equity ........000 = 18........................... 2005 Solutions Manual. Accounts receivable ...................000) 130........................................................000 70................. $ 22.. 2005 Assets Cash ..000 $552..000 44.......................................................... Office supplies ... Capital ..................................000 Liabilities Accounts payable ..................................................................000 160................. Chapter 3 143 .000 Part 2 Profit margin = $79......000 $160......Problem 3-5A (Concluded) CALLAHAY COMPANY Balance Sheet December 31.....000 22.........................000 130......................................................000 10.................................. Automobiles .. Long-term notes payable ....................... Total assets ............ Interest payable .......................... Unearned fees ......................... $ 88.....................000 (42..000 (10.....000 11..........................000 Equity J.......000 120............................................. Inc............................................000 263...200 / $436.......................000) 118.........2% ©McGraw-Hill Companies................................ Accumulated depreciation—Equipment .... Callahay......................................000 12... Interest receivable....................... Total liabilities ....................000 8......................... Equipment...... Accumulated depreciation—Automobiles ........... Land .............................000 $552....... 289... Notes receivable (due in 90 days) ....

..160 x 2/12)............. Prepaid Advertising ..................... 1.................. 3.............. ©McGraw-Hill Companies..... 31 Advertising Expense .........300 Received fees in advance.......................300-$1........................160 Paid insurance for one year......................... 2. 2............ Nov........................................................... Dec.......Problem 3-6AA (40 minutes) Part 1 Assume prepaid expenses are recorded as assets and unearned revenues as liabilities. Cash ............... 31 Unearned Service Fees ...700 2...700 Paid for future consulting... 360 360 To adjust prepaid insurance ($2..... Cash ........ 17th Edition ........ 31 Unearned Service Fees .......................... Service Fees Earned .. Unearned Service Fees ...............................................................................000 To adjust unearned service fees...... 1 Prepaid Insurance .................................................. 3.650 7.............................................500-$900)................ Inc.....100 To adjust unearned service fees ($3.... 31 Insurance Expense ..................650 Received fees in advance...................000 3................................ 600 600 To adjust prepaid advertising ($1.160 2.....................500 Paid for future advertising..........700 x 1/3).........500 1............ 1 Prepaid Advertising ......200)............................ 7.....................300 3.......................................... Prepaid Insurance ... 2005 144 Fundamental Accounting Principles.. 30 Cash ............. 900 900 To adjust prepaid consulting fees ($2....... 1 Prepaid Consulting Fees .. Service Fees Earned . 2...100 2..... 31 Consulting Fees Expense ....... Prepaid Consulting Fees .......... Unearned Service Fees ..... Cash .................... 15 Cash ....................................

............................. 31 Prepaid Consulting Fees ................................ Nov.................. 900 900 To adjust for prepaid advertising......................... 2. Dec.......... Cash .........800 To adjust for prepaid insurance..650 Received fees in advance............ Chapter 3 145 ....160 2.......................... 1........500 1.........................800 1......................... Insurance Expense ..... 15 Cash .........650 4.................. 1 Consulting Fees Expense ..... 1.. 1 Advertising Expense ......... 31 Service Fees Earned ...... Service Fees Earned ...........500 Paid for future advertising....... Cash ...............................................................................300 3........ 31 Prepaid Insurance ........ 1........... Unearned Service Fees ... Service Fees Earned ..............300 Received fees in advance............................650 To adjust for unearned service fees.... 3.................... 1....... 1 Insurance Expense ............................................700 Paid for future consulting........160 Paid insurance for one year.......................200 1...................................................... 30 Cash ....... 31 Prepaid Advertising .......... Cash .................. Consulting Fees Expense ............... ©McGraw-Hill Companies.............................................650 7............................. 7.........200 To adjust for unearned service fees...... 2....... Inc....800 To adjust for prepaid consulting fees...700 2..... Unearned Service Fees ..... 4.............. 31 Service Fees Earned .... Advertising Expense ........................Problem 3-6AA (Continued) Part 2 Assume prepaid expenses are recorded as expenses and unearned revenues as revenues.... 2005 Solutions Manual.............................800 1......

..100 5............... 17th Edition ..... Inc............. Prepaid consulting fees .......200 + $4..........850 When prepaid expenses and unearned revenues are recorded in balance sheet accounts.... Prepaid advertising as of December 31 ...... Consulting fees expense (1/3 of total paid) ...... When prepaid expenses and unearned revenues are recorded in income statement accounts...800 900 1...... Service fees earned for two months ($2....... and revenue account balances......................800 5. $ 600 900 360 1.............. In both cases....... ©McGraw-Hill Companies..............650) ........ expense.. Unearned service fees at 12/31 ($1. the related adjusting entries are designed to accomplish exactly the same result. the financial statements reflect the following: Advertising expense for two months .. the related adjusting entries are designed to generate the correct asset................................ Prepaid insurance as of December 31 ..............000) .................Problem 3-6AA (Concluded) Part 3 There are no differences between the two methods in terms of the amounts that appear on the financial statements.....100 + $3... Insurance expense for two months ........... liability........... 2005 146 Fundamental Accounting Principles......

.... Prepaid Insurance ........ 3... 8........... F.400 5........ 2.............. B...) 100 ($3........ 5...000) / 25 years = $5.....) 55 ( $660 / 12 mo..... 31 Office Supplies Expense .. I.... D.... Adjustment (d) 31 Depreciation Expense—Building ............400].........000/24 mo.......................... 9...365 2..450 3.......365 800 800 To record accrued but unpaid wages (1 day x $800).........$700).PROBLEM SET B Problem 3-1B (15 minutes) 1.) Months Active in 2005 12 7 3 Adjustment (c) 31 Salaries Expense .... Inc.. Adjustment (b) 31 Insurance Expense .. C................ 2005 Expense $1.400 To record annual depreciation [($155.............450 To record cost of supplies used ($500 + $3. H.365 To record annual insurance coverage cost.. G.. Accumulated Depreciation—Building ............ I.......650 . 3................... 12... Policy A B C Total Cost per Month $125 ($3.. F. Problem 3-2B (30 minutes) Part 1 Adjustment (a) Oct...... ©McGraw-Hill Companies...... 10...... 2... Office Supplies ....... 7..... Salaries Payable............. 5..... 2005 Solutions Manual...... B...... 4... 11.... 6. Chapter 3 147 ..............600/36 mo........500 700 165 $2.......000-$20.... A... E................

............................................................................................................... *(4 days x $800) Cash Payment for (e) 15 Cash .................................... Inc.000 To record payment of accrued and current salaries.................. 2005 148 Fundamental Accounting Principles............ Cash ............050 To record rent earned for September and October (2 x $525)... 17th Edition .................................................................. rent........................ 1.............. Salaries Expense* ........ 1..... 7 Salaries Payable ................................................................ Rent Receivable ........200 4........... 600 600 To record earned but unpaid Oct.................. 800 3........... Rent Earned ...............050 1....... ©McGraw-Hill Companies......... Part 2 Cash Payment for (c) Nov..Problem 3-2B (Concluded) Adjustment (e) Oct........ Adjustment (f) 31 Unearned Rent ............................. Rent Earned ........................................... Rent Earned ....200 600 600 To record past due rent for two months............................. 31 Rent Receivable .....

57. Bal.500 6. Bal. 20. Bal. Bal. Bal.Problem 3-3B (90 minutes) Parts 1 and 2 Cash 50. Bal.200 M.600 Prepaid Rent 2. Chapter 3 149 . (g) Adj. Adj.000 Adj. Bal. Bal. 2005 Solutions Manual. Bal. Bal.600 Professional Library 10.500 (d) 2. Prepaid Insurance 18. Accounts Payable Bal.600 (h) 0 Unadj. Unadj.600 Adj.000 Accumulated Depreciation— Equipment Unadj. Inc. Bal. Bal.000 2.000 (a) 11. Accounts Receivable Unadj. 3.000 Adj.000 Accumulated Depreciation— Professional Library Unadj.500 Salaries Payable Teaching Supplies Unadj. Alcorn. 1. Bal. Bal.200 0 540 540 Unadj. Adj. 18. Bal. Withdrawals 20..500 Adj. 60. 2.500 Unearned Training Fees Unadj. 5. Bal. Equipment 30.400 Bal. M. 27.000 (c) 4.500 (e) 12. 68.000 (b) Adj. 16.400 9. 0 (f) 5.500 Bal.000 ©McGraw-Hill Companies. Alcorn.000 Bal. Bal. Capital Bal.

500 Adj.500 Bal. 2005 150 Fundamental Accounting Principles. Bal. 57.200 540 43. Bal. (g) Adj.000 Depreciation Expense— Equipment Unadj.200 Teaching Supplies Expense Unadj.Problem 3-3B (Continued) Parts 1 and 2 Tuition Fees Earned Unadj. Bal.000 Unadj.000 Adj. Bal.600 31. 0 (b) 57. 62. Utilities Expense 12. Bal. 17th Edition .000 5. (a) Adj.000 Bal. 2.400 Training Fees Earned Unadj.600 2. (f) Adj.000 9. Bal. 0 (d) 2. Unadj. Bal. Bal. 4. Bal. Bal.. Unadj.500 110. Bal.500 ©McGraw-Hill Companies. Bal. 105. Advertising Expense 18. (h) Adj. (e) Adj.000 Adj. Bal.400 Rent Expense 28. Bal.400 6.200 71.740 Insurance Expense 0 6. Inc.200 Depreciation Expense— Professional Library Unadj. 0 (c) 4. Bal. Bal. Salaries Expense 43.

......... Adjustment (f) 31 Accounts Receivable .......... 540 540 To accrue salaries expense (3 days x $180)..........500 Teaching Supplies .... Accumulated Depreciation— Professional Library .. 31 Insurance Expense ......................................200 x 2 1/2 mo)....500 To record tuition earned ($2............... 4.......... Chapter 3 151 .............000-$2............ Tuition Fees Earned.............. 6.............................600 2.400 6....000 2........000 To record equipment depreciation........................... Adjustment (d) 31 Depreciation Expense—Professional Library ..............000 To record professional library depreciation.....000 4.................. 5... Adjustment (b) 31 Teaching Supplies Expense ......................200 To record training fees earned that were collected in advance............. Adjustment (e) 31 Unearned Training Fees ........... Salaries Payable....500)...........400 To record the insurance expired.... Adjustment (h) 31 Rent Expense .................................... 2...200 9.......................................600 To record expiration of prepaid rent................... 2.................... 57....... Prepaid Rent ...........Problem 3-3B (Continued) Part 2 Adjustment (a) Dec....... Adjustment (g) 31 Salaries Expense ............ Training Fees Earned ........... Accumulated Depreciation—Equipment .............. Adjustment (c) 31 Depreciation Expense—Equipment............................................. 2005 Solutions Manual.............................. Prepaid Insurance ................ Inc.... 57..........500 To record the cost of supplies used ($60. 9.500 5........... ©McGraw-Hill Companies...

..................................000 Salaries expense ............ Training fees earned .......... Inc.....................................................................400 Rent expense .....................200 540 18... Accounts payable ..............................................................000 Accounts receivable ......................000 Tuition fees earned ........ M......................................500 Advertising expense........ 4...............................000 Depreciation expense—Equipment ............................400 68....... Alcorn............... 12........................... 6......Problem 3-3B (Continued) Part 3 ALCORN INSTITUTE Adjusted Trial Balance December 31............................................................... Depreciation expense—Professional library .......................400 Totals ................... Alcorn............. 30..840 Credit $ 3..000 Utilities expense .500 71................................500 110........................................................................................000 12.......................... 5.......................................................................................................................................................... 2005 Debit Cash .200 _______ $304.500 20..........................000 Accumulated depreciation—Equipment ....... M........................... 10.. Equipment ............... 2............................... 17th Edition ................ Capital ...................................... 43..................................................................................... 31..............000 Accumulated depreciation—Professional library ......................... Withdrawals ....................................................... 2......................................... 18.... 11........................ Salaries payable ...............500 Teaching supplies ........................... 20.....740 Insurance expense. 57.....840 ©McGraw-Hill Companies......... 2005 152 Fundamental Accounting Principles...................... $304................................... $ 50..........................................................600 Prepaid rent ...........................200 Teaching supplies expense .........................................500 Prepaid insurance ............................. 0 Professional library........................................................... Unearned training fees .....

...................... Plus: Net income ............. Net income ...................... 2005 Solutions Manual.. Expenses Depreciation expense—Professional library ....................................000 Depreciation expense—Equipment .200 Teaching supplies expense..............700 175........ $68.........................960 20.............................. $110.......................... 2004 ......460 ALCORN INSTITUTE Statement of Owner’s Equity For Year Ended December 31..................................000 $54..200 Total revenues ........... Alcorn....... 2005 Revenues Tuition fees earned ................................ Chapter 3 153 .460 74....... 4...... December 31....... Less: Owner withdrawals ..........................................740 Insurance expense ......................... M.............. 57....... 18........... 2005 M... 43.960 ©McGraw-Hill Companies...................................400 Total expenses .......................... 12. Capital.000 Utilities expense .....................................................................500 Training fees earned ... Inc. 6..............000 Salaries expense ............Problem 3-3B (Continued) Part 4 ALCORN INSTITUTE Income Statement For Year Ended December 31........................... $181..500 6..................................................... Alcorn............240 $ 6............................. 2....... 71.. December 31.......... 31.... 2005 .................... Capital..........500 Advertising expense ..................400 Rent expense ......

..................140 54............................600 6.....500 2................... Capital ....................................................500 11....................500 10................... Accounts receivable ................................... 2005 154 Fundamental Accounting Principles............ Teaching supplies ............. Unearned training fees .............................. Equity M............................................................ Professional library ... $50........................... Total liabilities ............... Salaries payable ... (3........ (20................... Prepaid insurance .. Inc..........100 ©McGraw-Hill Companies.......................500) Equipment .................... Alcorn......................................... 17th Edition .............................000 Accumulated depreciation—Equipment .......................................................100 $12....... $10.. Total liabilities and equity .........................000) Total assets ...........000 5.. 2005 Assets Cash ..400 31................. Liabilities Accounts payable .............Problem 3-3B (Concluded) ALCORN INSTITUTE Balance Sheet December 31............... 30..................000 Accumulated depreciation—Professional library .....................200 540 18.........960 $86.......................................................000 $86....................................

...... (a) 6..000 1...............000 Consulting fees earned............000 36....... Incurred but unpaid advertising expense.......000 (h) 80.Problem 3-4B (45 minutes) — Part 1 Unadjusted Trial Balance Account Cash .............000 Office supplies expense .............. 30............... Chen.... Rent expense .200 17...200 30........400 Insurance expense.860 (d) 10...... Chapter 3 155 .800 8........000 1....000 23..800 80. ©McGraw-Hill Companies......... Earned revenues previously received in advance... Salaries payable .........600 11........660 $ 48.....000 (b) (c) 23... Cost of consumed office supplies..200 Office equipment....000 4......000 6 ...... Cost of expired insurance coverage.....000 (g) (f) (c) 11.000 Depreciation expense— Office equipment....... Inc....... Capital ...............000 264........200 1...000 $ 40...260 126..... $510........... 70....000 Office supplies ............. 24.000 10..000 _______ Totals. 6.000 70. D.....660 7.660 Adjustment Descriptions: Earned but uncollected revenues............$ 48..600 (b) (e) 23.....600 Interest expense .. Unearned consulting fees.200 (a) (h) 6....000 (e) (f) (g) 6................................. 13.....................000 _______ $75.. Withdrawals ..................000 (d) 10..... Depreciation expense on office equipment.........660 $545..... Chen....200 $510.200 12......... Incurred but unpaid salaries expense......260 $545. Accounts payable..200 10............... 2005 Solutions Manual.. Incurred but unpaid interest expense.......... 10............ D..........150.660 12.600 11..600 4.600 24.............. Long-term notes payable...600 $ 30.....000 8...000 70............200 42...................000 Accumulated depreciation— Office equipment..000 4...000 Prepaid insurance.......000 Accounts receivable .....200 (a) (b) (c) (d) (e) (f) (g) (h) Adjusted Trial Balance Adjustments 282.. 43.............000 76.. Advertising expense...........600 150.. Interest payable...000 $75......000 ______ 49...115..... Salaries expense.

................Problem 3-4B Part 2 DAXU CONSULTING COMPANY Income Statement For Year Ended December 31...........400 $ 37... $ 10... Expenses Depreciation expense—Office equipment ...........000 Total expenses ...... 8.....800 Interest expense ................................... 2005 ...........................000 Advertising expense ........660 ©McGraw-Hill Companies........ 23.............000 $ 97........................................................................ Chen...... December 31...................460 107.. Chen........ December 31.........200 37......... 2005 D.... Less: Owner withdrawals . 17th Edition ......... D......860 245..... 49........... Capital...... $282.............................. $ 70................... Net income ................. 24.000 Office supplies expense .660 10........600 Rent expense .................................................................. 126...................000 Insurance expense ...........000 Salaries expense ............ 4....... Inc. Capital..........460 DAXU CONSULTING COMPANY Statement of Owner’s Equity For Year Ended December 31... 2005 Revenues Consulting fees earned ..................................... 2005 156 Fundamental Accounting Principles. Plus: Net income .... 2004 .............

Problem 3-4B (Concluded)
Part 2
DAXU CONSULTING COMPANY
Balance Sheet
December 31, 2005
Assets
Cash ................................................................................
$ 48,000
Accounts receivable .....................................................
76,660
Office supplies ...............................................................
7,000
Prepaid insurance .........................................................
8,600
Office equipment ........................................................... $150,000
Accumulated depreciation—Office equipment .......... (40,000) 110,000
Total assets ....................................................................
$250,260
Liabilities
Accounts payable ..........................................................
Interest payable .............................................................
Salaries payable ............................................................
Unearned consulting fees ............................................
Long-term notes payable ..............................................
Total liabilities ...............................................................

$ 42,000
1,600
11,200
17,800
80,000
152,600

Equity
D. Chen, Capital .............................................................
Total liabilities and equity ............................................

97,660
$250,260

©McGraw-Hill Companies, Inc., 2005
Solutions Manual, Chapter 3

157

Problem 3-5B (50 minutes)
Part 1
LIGHTNING COURIER
Income Statement
For Year Ended December 31, 2005
Revenues
Delivery fees earned ..................................... $580,000
Interest earned ............................................... 24,000
Total revenues ...............................................
Expenses
Depreciation expense—Trucks .................... 24,000
Depreciation expense—Equipment ............. 46,000
Salaries expense ........................................... 64,000
Wages expense ............................................. 290,000
Interest expense ............................................ 25,000
Office supplies expense ............................... 33,000
Advertising expense ..................................... 26,400
Repairs expense—Trucks ............................ 34,600
Total expenses ..............................................
Net income .......................................................

$604,000

543,000
$ 61,000

LIGHTNING COURIER
Statement of Owner's Equity
For Year Ended December 31, 2005
J. Hallam, Capital, December 31, 2004 ..........
Plus : Net income ...........................................
Less: Withdrawals by owner .........................
J. Hallam, Capital, December 31, 2005 ..........

$115,000
61,000
176,000
40,000
$136,000

©McGraw-Hill Companies, Inc., 2005
158

Fundamental Accounting Principles, 17th Edition

Problem 3-5B (Concluded)
LIGHTNING COURIER
Balance Sheet
December 31, 2005
Assets
Cash ......................................................................
$ 48,000
Accounts receivable ............................................
110,000
Interest receivable ................................................
6,000
Notes receivable (due in 90 days).........................
200,000
Office supplies .....................................................
12,000
Trucks ................................................................... $ 124,000
Accumulated depreciation—Trucks ...................
(48,000)
76,000
Equipment .............................................................
260,000
Accumulated depreciation—Equipment ............ (190,000)
70,000
Land .......................................................................
90,000
Total assets ..........................................................
$612,000
Liabilities
Accounts payable ................................................
Interest payable ....................................................
Salaries payable ...................................................
Unearned delivery fees ........................................
Long-term notes payable ....................................
Total liabilities ......................................................

$124,000
22,000
30,000
110,000
190,000
476,000

Equity
J. Hallam, Capital .................................................
Total liabilities and equity ...................................

136,000
$612,000

Part 2
Profit margin = $61,000 / $604,000 = 10.1%

©McGraw-Hill Companies, Inc., 2005
Solutions Manual, Chapter 3

159

....................................................................500 Prepaid Consulting Fees ....... 31 Consulting Fees Expense ............. 31 Unearned Service Fees ..... 3............................................450 Paid for future advertising...... 4........ 3........................Problem 3-6BA (40 minutes) Part 1 Method that records prepaid expenses and unearned revenues in balance sheet accounts: Apr................ 31 Advertising Expense ... 23 Cash ......900 Service Fees Earned .............. May 1 Prepaid Advertising .......................................................450 Unearned Service Fees .....................450 Cash ..................................................... 2....... 3............ 4............. 30 Cash ..... 450 450 To adjust prepaid insurance...................450 Cash . 2............................. Inc............. 2005 160 Fundamental Accounting Principles..................................700 Paid insurance for one year............................................. 7.............. 2...... 9............................................. 17th Edition ............ 3. 2.................... ©McGraw-Hill Companies............... 3.............. 1 Prepaid Consulting Fees .500 Received fees in advance................ 1 Prepaid Insurance ......... 3.....................500 Service Fees Earned ...................700 Cash ........................ 31 Unearned Service Fees ... 1....500 Unearned Service Fees ..... 7........................400 Prepaid Advertising ........ Prepaid Insurance ..........500 To adjust unearned service fees..450 Received fees in advance................................................500 To adjust prepaid consulting fees............900 To adjust unearned service fees.............. 9...........450 Paid for future consulting services............ 1.... 31 Insurance Expense .......................400 To adjust prepaid advertising...........................

......... 7....................................................................................................... ©McGraw-Hill Companies..050 1.................. Cash ..450 Paid for future advertising............ 1 Consulting Fees Expense ........................................ 1.................250 To adjust for prepaid insurance........ Unearned Service Fees ................. 2...050 To adjust for prepaid advertising.....450 9....................450 Paid for future consulting services............................ 3...450 Received fees in advance............................ Unearned Service Fees .....950 1............... Insurance Expense ...700 Paid insurance for one year..................... Chapter 3 161 .................. Service Fees Earned ...........Problem 3-6BA (Continued) Part 2 Method that records prepaid expenses and unearned revenues in income statement accounts: Apr... Cash ..... 30 Cash ................600 3... Cash .............. 31 Prepaid Insurance ............. May 1 Advertising Expense ... Inc..................600 To adjust for unearned service fees.............. 3..................................... Consulting Fees Expense ........... 2. 1....... 23 Cash ......500 7. 2005 Solutions Manual...950 4..250 2..............500 Received fees in advance......................... Service Fees Earned ..............................450 3..... 1 Insurance Expense ..950 To adjust for prepaid consulting fees......... 31 Service Fees Earned ................................................... 4....... 3.450 3..................................................................................... Advertising Expense ............................. 31 Prepaid Consulting Fees .... 9....950 To adjust for unearned service fees................................ 31 Prepaid Advertising ....................................... 31 Service Fees Earned ...700 2........................

................ and revenue account balances... 17th Edition .. 1..... ©McGraw-Hill Companies. the financial statements reflect the following: Prepaid consulting fees as of May 31 ..............550 Service fees earned for two months ($3..... Inc.....400 When prepaid expenses and unearned revenues are recorded in balance sheet accounts.................. expense....... 8................ When prepaid expenses and unearned revenues are recorded in income statement accounts. $ 1.500 Insurance expense for two months .................. the related adjusting entries are designed to accomplish exactly the same result.....250 Unearned service fees as of May 31 ($3..900 + $4. 8........... liability..600 + $4............ 1....... the related adjusting entries are designed to generate the correct asset............ 2...400 Prepaid advertising as of May 31..............050 Advertising expense for two months .................................950 Consulting fees expense for two months ... 2... 450 Prepaid insurance as of May 31 ...............Problem 3-6BA (Concluded) Part 3 There are no differences between the two methods in terms of the amounts that appear on the financial statements..... 2005 162 Fundamental Accounting Principles....500) ....950) ............... In both cases.............

........................... 16 20 No entry recorded in the journal.....000 3.........100 Purchased supplies on credit........ 623 Cash ........... ©McGraw-Hill Companies..............106 3.............. 101 Computer Services Revenue ......950 3..................000 Collected accounts receivable...... 15 Computer Supplies ..... 302 Cash .. 126 Accounts Payable .... Success Systems (120 minutes) Part 1 Journal entries: Dec................... Inc........101 1............. 29 Mileage Expense .. 10 Wages Expense ................. Chapter 3 163 ...025 Paid share of mall advertising costs...101 1.......100 1...............................................................................................500 Owner withdraws cash.............................................................. 101 Accounts Receivable ....500 1...... 101 Unearned Computer Services Revenue ................... 14 Cash ............... 3 Repairs Expense—Computer .................... 28 Cash ................................625 5.............................................................625 Collected cash revenue from customer...............................403 5.................... Breeze.............................950 Collected accounts receivable............................................................Serial Problem Serial Problem.....................................................106 3.....101 750 750 Paid employee for part-time work.....101 192 192 Reimbursed Breeze for mileage.... Withdrawals ............ 101 Accounts Receivable ...... 2 Advertising Expense ....101 500 500 Repaired the computer...................................... Cash ..... 4 Cash ..........500 Received advance on work to be performed....... 655 Cash ........ 684 Cash ..500 1........ 676 Cash ...........236 1..... 31 K.. 2005 Solutions Manual.025 1.201 1..

................................... 31 Computer Supplies Expense ..652 Computer Supplies .... $8. $20.........000 Expense for three months ..........168 1..............164 400 400 Adjustment for office equipment depreciation: Cost ............................475 2..........................Serial Problem (Continued) Part 2 Adjusting entries: Dec........................ 31 Depreciation Exp—Computer Equip ................. 4 years Annual depreciation (cost/life) ....210 500 500 Adjustment for accrued wages....................640 Prepaid Rent .................250 31 Depreciation Expense—Office Equip .............250 1....................................................... Annual depreciation (cost/life) ..................475 Adjustment for expired rent (3/4 of original prepaid amount)..................... $1.....................131 2....................... ©McGraw-Hill Companies........................000 Predicted life .......... Inc....... 17th Edition ........623 Wages Payable .......600 $400 31 Rent Expense ......................................065 Adjustment for supplies used (supplies balance less cost of supplies available).126 3..........128 555 555 Adjustment for expired insurance (1/4 of original prepaid amount).612 Accumulated Depreciation— Office Equipment ...............250 Adjustment for computer equipment depreciation: Cost ....... 31 Insurance Expense ................................................ $5..637 Prepaid Insurance ....................065 3..............000 5 years $1............................................................................. Expense for three months .. Predicted life .........613 Accumulated Depreciation— Computer Equipment ........... 2005 164 Fundamental Accounting Principles............ 31 Wages Expense ......

060 52. Nov.027 500 46.125 50.052 1.500 58. Chapter 3 165 .Serial Problem (Continued) Parts 1 and 2 Posting to the accounts: Cash Date Oct.480 1.800 1.477 750 49. Dec.353 1.000 Acct.700 2. 2005 Solutions Manual.802 1.940 50.625 3.055 1.500 5..860 805 52.400 4.000 3.300 51.527 50.208 3.600 47.000 4.950 1.228 52. Inc.852 59.852 192 59.640 3. 101 Credit Balance 55.025 47.436 250 52.633 2.515 875 50.420 48.115 51.000 48.750 50. No.160 ©McGraw-Hill Companies.660 1.227 56.220 49.186 384 51.040 320 46.727 51. Explanation 1 2 5 8 15 17 20 22 31 31 1 2 5 18 22 28 30 30 2 3 4 10 14 20 28 29 31 PR Debit 55.720 51.052 2.

Inc.300 2. 131 Credit Balance 3.800 6.200 4.220 555 1.668 12.475 825 Office Equipment Explanation PR Debit 8.400 0 5. Dec.125 1.618 3. Nov.950 8. Date Oct. No. 128 Credit Balance 2.668 3.Serial Problem (Continued) Parts 1 and 2 Date Oct. 17th Edition .400 5. Dec. No.950 Computer Supplies Explanation PR Debit 1. 106 Credit Balance 4.000 5. No..220 Acct. No. Date Dec.668 3.208 8.420 2. Nov.668 Accumulated Depreciation—Office Equipment Explanation PR Debit 31 Acct. No. Dec.665 Prepaid Rent Explanation PR Debit 3.100 Acct. 2005 166 Fundamental Accounting Principles. 126 Credit Balance 1.800 1.300 Acct. Date Oct.876 2. 6 12 15 22 28 8 18 24 4 28 3 5 15 31 5 31 Accounts Receivable Explanation PR Debit 4. Date Oct. Dec.208 5.000 2 31 1 Acct.800 1.400 1.420 1.065 580 Prepaid Insurance Explanation PR Debit 2.545 3.208 10. Date Oct.000 Acct. 163 Credit Balance 8.645 3. No. 164 Credit Balance 400 400 ©McGraw-Hill Companies.

.000 1 Accumulated Depreciation—Computer Equipment Date Explanation PR Debit Dec. Date Dec. Capital Explanation PR Debit 1 31 30 31 K. Date Oct. No.100 1.000 1. 236 Credit Balance 1.100 Acct. Date Dec.420 0 1. 167 Credit Balance 20.600 2. No.500 1.420 Wages Payable Explanation PR Debit 31 Unearned Computer Services Revenue Explanation PR Debit 14 K. 302 Credit Balance 3. No. 31 Date Oct.600 5. 201 Credit Balance 1. Inc. 210 Credit Balance 500 500 Acct. 168 Credit Balance 1.Serial Problem (Continued) Parts 1 and 2 Date Oct.250 Acct. Dec.500 Acct. Accounts Payable Explanation PR Debit 3 8 15 1. Computer Equipment Explanation PR Debit 20. 2005 Solutions Manual.000 83.000 Acct. Breeze. Withdrawals Explanation PR Debit 3. No. Date Oct. No.250 1. 301 Credit Balance 83.600 7. No. Dec.420 1.000 Acct.500 Acct. Nov. No. Chapter 3 167 . Breeze.100 ©McGraw-Hill Companies.

400 6. No.668 21.659 5. 613 Credit Balance 1.475 Date Oct. Inc. 2005 168 Fundamental Accounting Principles. Nov. Computer Services Revenue Explanation PR Debit 6 12 28 2 8 24 20 Acct. 31 Depreciation Expense—Office Equipment Explanation PR Debit 400 Acct. 623 Credit Balance 875 2.709 3. 637 Credit Balance 555 Rent Expense Explanation PR Acct. 17th Edition .800 4.633 16.250 Wages Expense Explanation PR 31 30 10 31 Debit 875 1.041 5. No.. 403 Credit Balance 4. Date Dec. No.625 31.208 11.475 ©McGraw-Hill Companies. No. 612 Credit Balance 400 Date Dec. No.Serial Problem (Continued) Parts 1 and 2 Date Oct. Dec. 31 Debit 2.800 1.875 31 Insurance Expense Explanation PR Debit 555 Acct. Nov. Depreciation Expense—Computer Equipment Explanation PR Debit 31 1.250 Acct.284 Date Dec. 640 Credit Balance 2.408 4. No.625 3. Date Dec. Dec.950 25.200 5.375 3.750 750 500 Acct.

No.940 1. 655 Credit Balance 1. 31 Computer Supplies Expense Explanation PR Debit 3. Chapter 3 169 . Date Oct.Serial Problem (Continued) Parts 1 and 2 Date Dec. 676 Credit Balance 320 704 896 22 Miscellaneous Expenses Explanation PR Debit 250 Acct.025 Acct. 652 Credit Balance 3. Date Oct. No. No. Dec.065 20 2 Advertising Expense Explanation PR Debit 1. Dec. Date Nov. Dec. No. Inc.. 677 Credit Balance 250 17 3 Repairs Expense—Computer Explanation PR Debit 805 500 Acct.305 ©McGraw-Hill Companies.940 2. 2005 Solutions Manual. 684 Credit Balance 805 1.965 Mileage Expense Explanation PR 1 28 29 Debit 320 384 192 Acct. No. Date Nov.065 Acct.

... 250 Repairs expense—Computer .................... 1........................... 555 Rent expense ................................ 1.......................................475 Computer supplies expense ...................................... Depreciation expense—Office equipment .........100 Computer services revenue .305 Totals ......................................................................................284 _______ $119........................ Breeze....................... 896 Miscellaneous expenses ............. 7.........000 31... $ 58............250 1..........000 Accumulated depreciation—Office equipment ..... Capital ....................................... Withdrawals ..........965 Mileage expense ...........................................................034 ©McGraw-Hill Companies............. 2.......... K...................................500 83.....668 Computer supplies ............... 8....................665 Prepaid rent .. 1............. 580 Prepaid insurance ........................................... K............065 Advertising expense ................ 20.......875 Insurance expense . 825 Office equipment .................................. 400 Depreciation expense—Computer equipment ............. 5................................................ Computer equipment .....034 Credit $ 400 1. 3........... Breeze....... 2005 170 Fundamental Accounting Principles................. 2004 Debit Cash ..............................................................................................160 Accounts receivable .............. 3.......................................................... 2............................................................ Inc................................................ Unearned computer services revenue . 17th Edition .........Serial Problem (Continued) Part 3 SUCCESS SYSTEMS Adjusted Trial Balance December 31..........250 Wages expense .....000 Accumulated depreciation—Computer equipment Accounts payable .......................................................... Wages payable .. $119................100 500 1............

........................... 2005 Solutions Manual..148 ©McGraw-Hill Companies...........965 896 250 1.............. Insurance expense ........ Computer supplies expense ..........................................475 3...................... 2004 K........................................................................ Depreciation expense—Computer equipment ...... Repairs expense—Computer........................... Inc....................Serial Problem (Continued) Part 4 SUCCESS SYSTEMS Income Statement For Three Months Ended December 31............248 Part 5 SUCCESS SYSTEMS Statement of Owner’s Equity For Three Months Ended December 31..... Capital...000 14.. $ 0 83....... Breeze....100 $90..875 555 2...............248 97. Mileage expense .... Net income ..................... Advertising expense .........305 17............ Rent expense ...284 $ 400 1......... K.......................... Chapter 3 171 ............... Plus: Owner investment ...065 2......................... 2004 ............................ Net income ............................. Wages expense ................................. October 1............ 2004... Less: Owner withdrawals.................... Miscellaneous expenses ......................................................... 2004 Revenue Computer services revenue... $31....................... Expenses Depreciation expense—Office equipment ................................................. Total expenses ... Capital........250 3... Breeze............... December 31..............248 7.............................036 $14........

........................ $ 1......................................Serial Problem (Continued) Part 6 SUCCESS SYSTEMS Balance Sheet December 31.......100 Equity K...248 ©McGraw-Hill Companies........................ Total liabilities and equity ............................................... 20.. Breeze.......500 3......................250) Total assets ...........000 Accumulated depreciation—Computer equipment ....................... 2004 Assets Cash ....... Prepaid rent .............................148 $93......................... Prepaid insurance ..........668 580 1..... 90..................665 825 7............ Unearned computer services revenue ..........000 Accumulated depreciation—Office equipment ........................................ 2005 172 Fundamental Accounting Principles................................................... Computer supplies .............................................................. 17th Edition ...... Office equipment .........................160 5.................................. Inc...............248 Liabilities Accounts payable ...........................750 $93................ Accounts receivable ......... $58........................ Total liabilities ............................ Wages payable .......................... (1...................................................100 500 1........... Capital ............................. (400) Computer equipment .600 18....................................................... $ 8............

2. and (2) royalties charged to franchisees based on sales.  Franchise Operations revenue is derived from: (1) development and franchise fees from the opening of new stores. 2005 Solutions Manual.8% For fiscal year-end February 3. Revenue is recognized at the time the title and risk of loss pass to the customer.  KKM&D revenue is derived from the sale of doughnut-making equipment. Inc.378. not before and not after. 3. 2003..000 = 0. the profit margin is: $33.549. mix and other supplies needed to operate a doughnut store to Company-owned and franchised stores. For fiscal year-end February 2. Most companies earn revenue when they provide services and products to customers. Solution depends on the financial statements accessed.000 / $491. 2002.” A policy on revenue recognition is stated for each segment of the company.  Company Store operations revenue is derived from the sale of doughnuts and related items to on-premises and off-premises customers. ©McGraw-Hill Companies.068 = 6. Revenue is recognized at the time of sale for on-premises sales and at the time of delivery for off premises sales. the profit margin is: $26. Development and franchise fees are charged for certain new stores and are deferred until the store is opened.067 = 6. The royalties recognized in each period are based on the sales in that period. The revenue recognition principle requires that revenue be recorded when earned.354.000 = 0. Krispy Kreme provides information related to revenue recognition in footnote 2 discussing the “Nature of Business and Significant Accounting Policies. Chapter 3 173 .000 / $394.Reporting in Action — BTN 3-1 1.7% 4. generally upon delivery of the goods.478.

8% 2. and equipment along with its related accumulated depreciation are reported in the footnotes. GAAP requires that annual deprecation be accumulated in a contraasset account. Bergez is correct with her journal entry recommendation. Welch’s approach carries weaknesses in that financial statement users would not be able to ascertain the original cost of the equipment or be able to know how much of the original cost had been allocated to depreciation to date. profit margin = $8. Inc. plant. Krispy Kreme Current year.354 = 6.. 2005 174 Fundamental Accounting Principles. ©McGraw-Hill Companies.7 cents on the dollar compared to 4.Comparative Analysis — BTN 3-2 1. For the prior years.8 cents for Tastykake. 3.478 / $491. profit margin = $26. 17th Edition .2% Prior year. 2. Krispy Kreme earned an average of 6. called Accumulated Depreciation.048 / $166. While property. Bergez is required to uphold the standards of her profession and thus the decision is an ethical one for her. profit margin = $33. GAAP requires Bergez’s approach. The property. Ethics Challenge — BTN 3-3 1.378 / $394. plant. plant. Krispy Kreme earned 6. Krispy Kreme is more successful on the basis of profit margin.2 cents on the dollar. In the most current year.8 cents on the dollar while Tastykake earned 1. As a professional. Thus.549 = 6. and equipment is often shown at its net value on the balance sheet (as in Krispy Kreme’s balance sheet in Appendix A) the cost of property. One strength of Welch’s method would be the ease of preparing the balance sheet.7% Tastykake Current year. and equipment balance in the adjusted trial balance would be directly transferable to the balance sheet when the preparer desired to show the amount at net. While both approaches would lead to the same total assets on the balance sheet.000 / $162. profit margin = $2.263 = 1.8% Prior year.245 = 4.

©McGraw-Hill Companies.8% (or non-interpretable) 7. 2001 and July 1. but we cannot be certain. Profit margin is: $(15.655. is $15. Review 10-K. Cannondale’s fiscal year-end appears to (but does not necessarily) correspond to its natural business year. Management does discuss “seasonality” as a factor affecting business. 2. 4. Chapter 3 175 . The bottom line is Cannondale’s fiscal year-end appears to correspond to its natural business year. A class discussion of the ratios can be conducted with emphasis on (1) return and profitability by industries and (2) a contrast of debt financing between industries. 2002. 3. Cannondale’s primarily sells mountain bikes.440) / $156. While Cannondale labels these endings as “12 months ended” they appear to be reporting as of the end of the 52nd week.655 = -0.099 = -9. 5. 2005 Solutions Manual. The difficulty in reaching a definitive answer to this question is the lack of information in Cannondale’s statements. The quarterly sales data does reveal that the 3 months ending in June has reported the highest sales of the four quarters for the last two years reported. 2000. Net sales for the fiscal year ended June 29.Communicating in Practice — BTN 3-4 This communication activity has no set solution. 2002. 2002. 6.. Net loss for the fiscal year ended June 29. Inc.440. June 30.000. is $156. Recent fiscal years have ended on June 29. Taking It to the Net — BTN 3-5 1.000.

Liability Dr. Encourage students to take the opportunity to ask questions in the small group environment the learning team provides. one would Credit the Accumulated Depreciation contra account. ©McGraw-Hill Companies. Liability Cr. the presentation of each expert team should reflect the following summary points: Type Before Adjusting Balance Sheet Income Statement Account Account Prepaid expense Asset overstated Expense understated Unearned revenues Liability overstated Revenue understated Accrued Expenses Liability understated Expense understated Accrued Revenues Asset understated Revenue understated Adjusting Entry Dr.. Asset* Dr. Some implementation notes: This activity allows all students to be actively involved in the learning process. Revenue * For depreciation. The instructor’s observation of and reactions to expert teams’ development of presentation material as well as the delivery to learning teams will have a significant impact on the effectiveness of this activity. Revenue Dr. Asset Cr. Expense Cr. 17th Edition . Nevertheless. Expense Cr.Teamwork in Action — BTN 3-6 Note that there is no specific solution to this activity. Inc. Encourage the better students to serve as experts on unearned revenues. 2005 176 Fundamental Accounting Principles.

©McGraw-Hill Companies. Chapter 3 177 . Such accounting would be a move away from a lengthy list of rules and exceptions. 3. but it does not try to answer every question or provide a rule for every situation. 2005 Solutions Manual. It’s like when someone robs a bank: You can’t really say that the law against bank robbing was part of the problem. A principles-based system is one where the accounting standard simply lays out objectives of good reporting in an area. Herz believes that breaking the rules is at the core of most of the scandals. “I don’t trust people to do that. based on the objectives. It may include some rules. it is hard to say the standard is wrong.. Those who don’t like the principlesbased approach say. Inc. Herz personally favors a move toward what is known as “principlesbased accounting.” This type of accounting would require a vast simplification of accounting standards where professionals would be asked to comply with broad goals and objectives. So a typical standard would be more like 10-to-12 pages in length rather than 200 pages.Business Week Activity — BTN 3-7 1. When a person or company just outright violates standards and commits fraud.” They think people need rules to follow or they will try to find a way to make an objective fit almost any situation. Principles-based accounting requires the exercise of good judgment by both companies and auditors. 4. 2.

Many businesses find it cheaper to use outside collection agencies rather than hire in-house staff to handle past-due account collections. who responded. Profit margin would then equal: $3. what was the response time. and then compare and contrast them with the examples in the book.000 x 0.000. Although a 50% commission seems steep. This is computed as: (50% . Hitting the Road — BTN 3-9 There is no formal solution to this field activity. The instructor can also periodically ask students to bring in examples from their selected companies at certain times.000 to 80% of $800. Current commission expense = $40.360. ©McGraw-Hill Companies.000 higher since commission expense would be reduced by $160. 2005 178 Fundamental Accounting Principles.000 or $640.4%.000. 17th Edition .02 = $800.000 (also computed as $40.000 x 0.360.000 x 0. 4. The $160..200. Specifically. 3.000/$40.000 = 8. The instructor may wish to tally students’ findings to see what companies were selected.02 x (40%/50%)). it must be weighed against the possibility that zero collections may be realized if the account is not turned over. etc.000 to $640.Entrepreneurial Decision — BTN 3-8 1.000 + $160.200. Mellie’s net income = Income x Profit margin = $40.000 reduction from $800. Net income would change to $3. Inc. this will be a 20% reduction in commission expense.000.000. If the commission fee charged can be negotiated down from 50% to 40%. the commission expense would change from $800.000.000. 5. Net income would be $160. owners of collection agencies are usually experts in the art of collection and may be able to collect on accounts that the businesses themselves never would be able to.000]. 2.000 represents a 20% decline from $800. Additionally.000 [$3.000.08 = $3.40%) / 50% = 20%.000.

Buildings d. Vehicles Land. Grupo Bimbo states under its “Significant Accounting Policies” in its annual report that revenue is recognized when the product is shipped. Computer equipment c. The five types of assets that are depreciated by Grupo Bimbo are: a. and machinery-in-transit are not depreciated.025 / 34. Office equipment b.8% ©McGraw-Hill Companies. construction-in-progress. 2. Inc..Global Decision — BTN 3-10 1. 2005 Solutions Manual. 3. Manufacturing equipment e. Grupo Bimbo profit margin (in thousands of pesos): 2002 profit margin = 1.269 = 2. Chapter 3 179 .002.682.664 / 41.968.4% 2001 profit margin = 1.097 = 4.373.