11 Ex. 3–12 a. Salary expense (or expenses) will be understated. Net income will be over-stated. b. Salaries payable (or liabilities) will be understated. Stockholders’ equity (re-tained earnings) will be overstated. Ex. 3–13 a. Salary expense (or expenses) will be overstated. Net income will be under-stated. b. The balance sheet will be correct. This is because wages payable has been sat-isfied, and the net income errors have offset each other. Thus, stockholders’ equity (retained earnings) is correct. Ex. 3–15 $195,816,000 ($128,776,000 + $67,040,000) Ex. 3–18 $175,840 ($172,680 + $6,900 – $3,740) Ex. 3–19 a. Accounts Receivable..................................................... 11,500 Fees Earned.............................................................. 11,500 b. No. If the cash basis of accounting is used, revenues are recognized only when the cash is received. Therefore, earned but unbilled revenues would not be recognized in the accounts, and no adjusting entry would be necessary.22 Ex. 3–20 a. Unearned Fees............................................................... 8,100 Fees Earned.............................................................. 8,100 b. Accounts Receivable..................................................... 6,450 Fees Earned.............................................................. 6,450 Ex. 3–21 a. Fees earned (or revenues) will be understated. Net income will be understated. b. Accounts (fees) receivable (or assets) will be understated. Stockholders’ equity (retained earnings) will be understated. Ex. 3–22 Depreciation Expense................................................... 5,200 Accumulated Depreciation...................................... 5,200 Ex. 3–23 a. $204,600 ($318,500 – $113,900) b. No. Depreciation is an allocation of the cost of the equipment to the periods benefiting from its use. It does not necessarily relate to value or loss of value. Ex. 3–24 a. $2,268,000,000 ($5,891,000,000 – $3,623,000,000) b. No. Depreciation is an allocation method, not a valuation method. That is, de-preciation allocates the cost of a fixed asset over its useful life. Depreciation does not attempt to measure market values, which may vary significantly from year to year.33 Ex. 3–25 a. Depreciation Expense................................................... 7,500 Accumulated Depreciation...................................... 7,500 b. (1) Depreciation expense would be understated. Net income would be over-stated. (2) Accumulated depreciation would be understated, and total assets would be overstated. Stockholders’ equity (retained earnings) would be overstated. Ex. 3–26 1. Accounts Receivable..................................................... 4 Fees Earned.............................................................. 4 2. Supplies Expense.......................................................... 3 Supplies .................................................................... 3 3. Insurance Expense........................................................ 8 Prepaid Insurance.................................................... 8 4. Depreciation Expense................................................... 5 Accumulated Depreciation—Equipment................ 5 5. Wages Expense ............................................................. 1 Wages Payable......................................................... 144 Ex. 3–27 1. The accountant debited Accounts Receivable for $2,000 but did not credit Laundry Revenue. This adjusting entry represents accrued laundry revenue. 2. The accountant credited Laundry Equipment for the depreciation expense of $5,600, instead of crediting the accumulated depreciation account. 3. The accountant credited the prepaid insurance account for $1,700 but only debited the insurance expense account for $700. 4. The accountant did not debit Wages Expense for $850. 5. The accountant debited rather than credited Laundry Supplies for $1,100. The corrected adjusted trial balance is shown below. Minaret Laundry Adjusted Trial Balance May 31, 2006 Cash ............................................................................ 2,500 ............... Accounts Receivable ................................................. 9,500 ............... Laundry Supplies ....................................................... 650 ............... Prepaid Insurance...................................................... 1,125 ............... Laundry Equipment.................................................... 85,600 ............... Accumulated Depreciation........................................ ............... 61,300 Accounts Payable ...................................................... ............... 4,950 Wages Payable ........................................................... ............... 850 Capital Stock .............................................................. ............... 18,000 Retained Earnings...................................................... ............... 14,450 Dividends.................................................................... 10,000 ............... Laundry Revenue ....................................................... ............... 68,900 Wages Expense.......................................................... 25,350 ............... Rent Expense ............................................................. 15,575 ............... Utilities Expense ........................................................ 8,500 ............... Depreciation Expense................................................ 5,600 ............... Laundry Supplies Expense ....................................... 1,100 ............... Insurance Expense .................................................... 1,700 ............... Miscellaneous Expense............................................. 1,250 ............... 168,450 168,45055 Ex. 3–28 a. (1) $620 million increase ($3,664 million – $3,044 million) 20.4% increase ($620 million ÷ $3,044 million) (2) 2003: 6.3% ($3,644 million ÷ $58,247 million) 2002: 5.7% ($3,044 million ÷ $53,553 million)