4-6
ITHACA SERVICES CO. Income Statement
For the Year Ended January 31, 2006
Fees earned ........................................................................ Expenses: Wages expense ........................................................... Rent expense .............................................................. Insurance expense ..................................................... Utilities expense ......................................................... Depreciation expense ................................................. Supplies expense ....................................................... Miscellaneous expense .............................................. Total expenses ........................................................ 49 Net income .........................................................................
$67
$17 8 6 6 5 5 2
$18 ITHACA SERVICES CO. Statement of Owner’s Equity For the Year Ended January 31, 2006
Terry Dagley, capital, February 1, 2005 ............................ Net income for the year ..................................................... Less withdrawals ............................................................... Increase in owner’s equity ................................................ 10 Terry Dagley, capital, January 31, 2006 ...........................
$112 $18 8 $122 ITHACA SERVICES CO.
Balance Sheet January 31, 2006
Assets Liabilities Current assets:
Cash ............................. $ 8 Accounts receivable ... 57 Supplies ....................... 3 Prepaid insurance ....... 6 Total current assets . $ 74 Property, plant, and equipment: Land ............................. $50 Equipment ................... $32
Less accum. depr........ 7 25 Current liabilities:
Accounts payable ....... $26 Wages payable ............ 1 Total liabilities ......... $ 27
Owner’s Equity Terry Dagley, capital .......
122 Total property, plant, and equipment Total assets .....................
75 $149 Total liabilities and
owner’s equity ..........
$149 4-7
2006
Jan. 31
31
31
31
31
4-8
2006
Jan. 31
31
31
31 4-9
Accounts Receivable .......................................... Fees Earned ....................................................
Supplies Expense ................................................ Supplies .......................................................... Insurance Expense .............................................. Prepaid Insurance .......................................... Depreciation Expense ......................................... Accumulated Depreciation—Equipment ...... Wages Expense ................................................... Wages Payable ...............................................
Fees Earned ......................................................... Income Summary ...........................................
Income Summary................................................. Wages Expense .............................................. Rent Expense ................................................. Insurance Expense ........................................ Utilities Expense ............................................ Depreciation Expense .................................... Supplies Expense .......................................... Miscellaneous Expense .................................
Income Summary................................................. Terry Dagley, Capital .....................................
Terry Dagley, Capital ...........................................
Terry Dagley, Drawing ................................... SIROCCO SERVICES CO.
Income Statement
For the Year Ended March 31, 2006
7
7 5 5 6 6 5 5 1
1
67
67 49 17 8 6 6 5 5 2 18 18 8
8
Service revenue ................................................................. $103,850
Operating expenses: Wages expense ........................................................... Rent expense .............................................................. Utilities expense ......................................................... Depreciation expense ................................................. Insurance expense ..................................................... Supplies expense ....................................................... Miscellaneous expense .............................................. Total operating expenses ............................ Net loss ..............................................................................
$56,800 21,270 11,500 8,000 4,100 3,100 2,250 107,020 $ (3,170) 4-10
SYNTHESIS SYSTEMS CO. Statement of Owner’s Equity For the Year Ended October 31, 2006
Suzanne Jacob, capital, November 1, 2005 ..................... Net income for year ........................................................... Less withdrawals ............................................................... Increase in owner’s equity ................................................ 32,250 Suzanne Jacob, capital, October 31, 2006 .......................
$173,750 $44,250 12,000
$206,000
4-11
a. Current asset: 1, 3, 5, 6
b. Property, plant, and equipment: 2, 4
4-12
Since current liabilities are usually due within one year, $165,000 ($13,750 × 12 months) would be reported as a current liability on the balance sheet. The remainder of $335,000 ($500,000 – $165,000) would be reported as a long-term liability on the balance sheet. 4-13
TUDOR CO. Balance Sheet
April 30, 2006
Assets Liabilities Current assets Current liabilities: Cash $31,500 Accounts payable Accounts receivable ....................... 21,850
Salaries payable
$9,500
1,750
Supplies................................................. 1,800 Unearned fees 1,200 Prepaid insurance ................................ 7,200 Total liabilities
$12,450
Prepaid rent ........................................... 4,800 Total current assets $67,150 Owner’s Equity
Property, plant, and equipment:
Vernon Posey, capital
Equipment ......................................... $80,600
Less accumulated depreciation 21,100 59,500 Total liabilities and
Total assets
$126,650 owner’s equity
$126,650 4-14
Accounts Receivable ............................................................ 4,100
Fees Earned ....................................................
Supplies Expense ................................................ 1,300
Supplies ..........................................................
Insurance Expense .............................................. 2,000
Prepaid Insurance ..........................................
Depreciation Expense ......................................... 2,800
Accumulated Depreciation—Equipment ......
Wages Expense ................................................... 1,000
Wages Payable ...............................................
Unearned Rent ..................................................... 2,500
Rent Revenue .................................................
4-15
c. Depreciation Expense—Equipment g. Fees Earned i. Salaries Expense l. Supplies Expense 4-16
114,200 4,100 1,300 2,000 2,800 1,000 2,500
The income summary account is used to close the revenue and expense accounts, and it aids in detecting and correcting errors. The $450,750 represents expense account balances, and the $712,500 represents revenue account balances that have been closed. 4-17
a.Income Summary ............................................................... 167,550 Sue Alewine, Capital ........................................... 167,550
Sue Alewine, Capital ............................................................. Sue Alewine, Drawing .........................................
b. $284,900 ($142,350 + $167,550 – $25,000) 4-18
a. Accounts Receivable b. Accumulated Depreciation c. Cash e. Equipment
f. Estella Hall, Capital i. Supplies k. Wages Payable 4-19 a.
25,000
25,000
2002 2001 0.81
($143,034) 0.80
($159,453)
Working capital Current ratio
b. 7 Eleven has negative working capital as of December 31, 2002 and
2001. In addition, the current ratio is below one at the end of both years. While the working capital and current ratios have improved from 2001 to 2002, creditors would likely be concerned about the ability of 7 Eleven to meet its short-term credit obligations. This concern would warrant further investigation to determine whether this is a temporary issue (for example, an end-of-the-period phenomenon) and the company’s plans to address its working capital shortcomings.
4-20
a. (1) Sales Salaries Expense ............................................. Salaries Payable ...................................................
6,480
10,250
6,480
(2) Accounts Receivable .................................................