The following is selected information from Monty Corporation for the fiscal year ending October

31, 2016.
Cash received from customers $300,000
Revenue recognized 378,000
Cash paid for expenses 180,000
Cash paid for computers on November 1, 2015 that will be used
for 3 years (annual depreciation is $15,000) 45,000
Expenses incurred, including interest, but excluding any depreciation 230,000
Proceeds from a bank loan, part of which was used to pay for
the computers 100,000
Based on the accrual basis of accounting, what is Monty Corporation’s net income for
the year ending October 31, 2016?
a. $75,000.
b. $105,000.
c. $133,000.
d. $148,000.
Ans: c, LO 1, BT: AP, Difficulty: Hard, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

Solution: $378,000  $230,000  $15,000 = $133,000

73. Toole Company had the following transactions during 2016:

 Sales of $4,200 on account
 Collected $2,500 for services to be performed in 2017
 Paid $1,580 cash in salaries
 Purchased airline tickets for $350 in December for a trip to take place in 2017

What is Toole’s 2016 net income using accrual accounting?

a. $2,370.
b. $2,620.
c. $4,770.
d. $5,120.
Ans: b, LO 1, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

Solution: $4,200  $1,580 = $2,620

99. Mullins Real Estate received a check for $30,000 on July 1 which represents a 6 month
advance payment of rent on a building it rents to a client. Unearned Rent Revenue was
credited for the full $30,000. Financial statements will be prepared on July 31. Mullins
Real Estate should make the following adjusting entry on July 31:
a. Debit Unearned Rent Revenue, $5,000; Credit Rent Revenue, $5,000.
b. Debit Rent Revenue, $5,000; Credit Unearned Rent Revenue, $5,000.
c. Debit Unearned Rent Revenue, $30,000; Credit Rent Revenue, $30,000.
d. Debit Cash, $30,000; Credit Rent Revenue, $30,000.
Ans: a, LO 2, BT: AN, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Solution: $30,000  6  $5,000

106. A new accountant working for Brady Company records $700 Depreciation Expense on
store equipment as follows:
Dr. Depreciation Expense ............................................. 700
Cr. Cash ............................................................... 700
 The effect of this entry is to
a. adjust the accounts to their proper amounts on December 31.
b. understate total assets on the balance sheet as of December 31.
c. overstate the book value of the depreciable assets at December 31.
d. understate the book value of the depreciable assets as of December 31.
Ans: c, LO 2, BT: AN, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
121. At March 1, 2016, Milo Corp. had supplies on hand of $600. During the month, Milo
purchased supplies of $1,300 and used supplies of $1,400. The March 31 adjusting
journal entry should include a
a. debit to the supplies account for $1,400.
b. credit to the supplies account for $600.
c. debit to the supplies account for $1,300.
d. credit to the supplies account for $1,400.
Ans: d, LO 2, BT: AN, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
132. Salem Corporation purchased a one-year insurance policy in January 2016 for $51,000.
The insurance policy is in effect from April 2016 through March 2017. If the company
neglects to make the proper year-end adjustment for the expired insurance
a. net income and assets will be understated by $38,250.
b. net income and assets will be overstated by $38,250.
c. net income and assets will be understated by $8,500.
d. net income and assets will be overstated by $8,500.
Ans: b, LO 2, BT: AN, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Solution: $51,000  9/12  $38,250 overstated

142. Truffle Candies paid employee wages on and through Friday, January 26, and the next
payroll will be paid in February. There are three more working days in January (29–31).
Employees work 5 days a week and the company pays $1,800 a day in wages. What will
be the adjusting entry to accrue wages expense at the end of January?
a. Salaries and Wages Expense.............................................. 1,800
Salaries and Wages Payable...................................... 1,800
b. Salaries and Wages Expense.............................................. 9,000
Salaries and Wages Payable...................................... 9,000
c. Salaries and Wages Expense.............................................. 5,400
Salaries and Wages Payable...................................... 5,400
d. No adjusting entry is required.
Ans: c, LO 3, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Solution: $1,800  3  $5,400

185.Bob Bundy, an employee of Jumbo Corp., will not receive her paycheck until April 2. Based
on services performed from March 15 to March 31, his salary was $1,500. The adjusting
entry for Jumbo Corp. on March 31 is
a. Salaries and Wages Expense............................................... 1,500
Salaries and Wages Payable......................................... 1,500
b. No entry is required.
c. Salaries and Wages Expense............................................... 1,500
Cash.............................................................................. 1,500
d. Salaries and Wages Payable................................................ 1,500
Cash.............................................................................. 1,500
Ans: a, LO 3, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
BE 199
Prepare adjusting entries for the following transactions. Omit explanations.
1. Depreciation on equipment is $600 for the accounting period.
2. There was no beginning balance of supplies and purchased $600 of supplies during the
period. At the end of the period $150 of supplies were on hand.
3. Prepaid rent had a $1,200 normal balance prior to adjustment. By year end $400 was
unexpired.

Solution 199 (6 min.)

1. Depreciation Expense..................................................................... 600
Accumulated Depreciation—Equipment................................. 600

2. Supplies Expense............................................................................ 450

Supplies.................................................................................. 450
($600 – $150)

3. Rent Expense.................................................................................. 800

Prepaid Rent........................................................................... 800
($1,200 – $400)
LO 2, BT: AP, Difficulty: Medium, TOT: 6 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

BE 212
The adjusted trial balance of Old 97 Automotive Service Company on June 30, 2016 includes
the following accounts: Supplies, $300; Accumulated Depreciation, $9,500; Salaries Payable,
$1,550, Notes Payable $6,750; Service Revenue, $22,100; Salaries and Wages Expense,
$8,750; Depreciation Expense, $3,250; Supplies Expense, $1,000; Rent Expense, $400;
Utilities Expense, $350; and Interest Expense $250. Prepare an income statement for the month
of June.

Solution 212 (10 min.)

Old 97 Automotive Service Company
Income Statement
For the Month Ended June 30, 2016

Service Revenue $22,100

Expenses:
Salaries and wages expense $8,750
Depreciation expense 3,250
Supplies expense 1,000
Rent expense 400
Utilities expense 350
Interest expense 250 14,000
Net Income $8,100
LO 4, BT: AP, Difficulty: Hard, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
Ex. 225
The Monks, a minor league baseball team, prepare financial statements on a monthly basis.
Their season begins in April, but in March the team engaged in the following transactions:
(a) Paid $240,000 to San Diego as advance rent for use of San Diego Stadium for the six
month period April 1 through September 30.
(b) Collected $480,000 cash from sales of season tickets for the team’s 20 home games. This
amount was credited to Unearned Ticket Revenue.

During the month of April, the Monks played five home games and four road games.

Instructions
Prepare the adjusting entries required at April 30 for the transactions above.
Solution 225 (5 min.)
(a) Rent Expense................................................................................ 40,000
Prepaid Rent........................................................................ 40,000
($240,000 ÷ 6 = $40,000)

(b) Unearned Ticket Revenue............................................................. 120,000

Ticket Revenue.................................................................... 120,000
($480,000 ÷ 20 = $24,000; $24,000 × 5 = $120,000)
LO 2, BT: AN, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Mother Hips Garment Company purchased equipment on June 1 for $90,000, paying $20,000
cash and signing a 9%, 2-month note for the remaining balance. The equipment is expected to
depreciate $18,000 each year. Mother Hips Garment Company prepares monthly financial
statements.

Instructions
(a) Prepare the general journal entry to record the acquisition of the equipment on June 1st.
(b) Prepare any adjusting journal entries that should be made on June 30th.
(c) Show how the equipment will be reflected on Mother Hips Garment Company’s balance
sheet on June 30th.

Solution 228 (10 min.)

(a) June 1 Equipment...................................................................... 90,000
Cash...................................................................... 20,000
Notes Payable....................................................... 70,000
(To record acquisition of equipment and signing
of a 2-month, 12% note)

(b) June 30 Depreciation Expense.................................................... 1,500

Accumulated Depreciation—Equipment................ 1,500
(To record monthly depreciation)
$18,000 ÷ 12 = $1,500/month
30 Interest Expense............................................................ 525
Interest Payable.................................................... 525
(To accrue interest on notes payable)
$70,000 × 9% × 1/12 = $525

(c) Assets
Equipment $90,000
Less: Accumulated Depreciation—Equipment 1,500 $88,500
LO 2 and 3, BT: AN, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Ex. 231
Business Insurance Agency prepares monthly financial statements. Presented below is an
income statement for the month of June that is correct on the basis of information considered.
 BUSINESS INSURANCE AGENCY
Income Statement
For the Month Ended June 30
——————————————————————————————————————————
—
Revenues
Sales revenue.............................................................................. $36,000
Expenses
Salaries and wages expense........................................................ $6,500
Rent expense............................................................................... 4,200
Depreciation expense................................................................... 2,800
Advertising expense..................................................................... 900
Total expenses............................................................................. 14,400
Net income............................................................................................ $21,600
Additional Data: When the income statement was prepared, the company accountant neglected
to take into consideration the following information:
1. A utility bill for $2,800 was received on the last day of the month for electric and gas service
for the month of June.
2. A company insurance salesman sold a life insurance policy to a client for a premium of
$24,000. The agency billed the client for the policy and is entitled to a commission of 25%.
3. Supplies on hand at the beginning of the month were $3,000. The agency purchased
additional supplies during the month for $4,000 in cash and $2,600 of supplies were on
hand at June 30.
4. The agency purchased a new car at the beginning of the month for $31,000 cash. The car
will depreciate $9,000 per year.
5. Salaries owed to employees at the end of the month total $6,100. The salaries will be paid
on July 5.
Instructions
Prepare a correct income statement.

Solution 231 (15 min.)

BUSINESS INSURANCE AGENCY
Income Statement
For the Month Ended June 30
——————————————————————————————————————————
—
Revenues
Sales revenue ($36,000 + $6,000)............................................... $42,000
Expenses
Salaries and wages expense ($6,500 + $6,100)........................... $12,600
Supplies expense ($0 + $4,400)................................................... 4,400
Rent expense............................................................................... 4,200
Depreciation expense ($2,800 + $750)......................................... 3,550
Utilities expense ($0 + $2,800)..................................................... 2,800
Advertising expense..................................................................... 900
Total expenses.................................................................... 28,450
Net income............................................................................................ $13,550
LO 2 and 3, BT: AN, Difficulty: Hard, TOT: 15 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving