Cole Designs Inc.
Income Statement
For the Year Ended December 31, 20Y3
Fees earned	$69,400
Wages expense	(44,900)
Net income	$24,500

 

Cole Designs Inc.
Balance Sheet
December 31, 20Y3
Assets
Cash			$5,000
Accounts receivable			31,200
Supplies			3,525
Prepaid insurance			3,600
Office equipment			11,000
Total assets			$54,325
Liabilities
Unearned fees			$9,500
Stockholders’ Equity
Common stock	$12,000
Retained earnings	32,825		44,825
Total liabilities and stockholders’ equity			$54,325

 

Adjusted Financial Statements

These financial statements were prepared from the adjusted trial balance.

Cole Designs Inc.
Income Statement
For the Year Ended December 31, 20Y3
Fees earned			$75,400
Expenses:
Wages expense	$47,200
Supplies expense	3,425
Insurance expense	1,900
Depreciation expense	1,300
Total expenses			(53,825)
Net income			$21,575

 

Cole Designs Inc.
Balance Sheet
December 31, 20Y3
Assets
Cash			$5,000
Accounts receivable			31,650
Supplies			100
Prepaid insurance			1,700
Office equipment	$11,000
Accumulated depreciation-office equipment	(1,300)		9,700
Total assets			$48,150
Liabilities
Wages payable			$2,300
Unearned fees			3,950
Total liabilities			$6,250
Stockholders’ Equity
Common stock	$12,000
Retained earnings	29,900		41,900
Total liabilities and stockholders’ equity			$48,150

Accounting Bases

Under which basis of accounting would adjusting entries never be recorded?

 

Which accounts would most likely not be used under the cash basis of accounting?

a.	Supplies Expense
b.	Unearned Fees
c.	Accounts Payable
d.	Revenue
e.	Accounts Receivable
f.	Cash

 

Matching Principle/Revenue Recognition

Under the accrual basis of accounting, many of the account balances in the ledger at the end of the accounting period are reported on the financial statements without change. Some accounts require updating, though. When preparing financial statements, the economic life of the business is divided into time periods. The matching principle states that

 

Under the accrual basis of accounting, the revenue recognition principle states that

 

Review the following selected transaction data of a business for April. Keeping the matching principle in mind, indicate which of the following would be used to compute net income for the month of April.

a.	Cash paid in April for expenses incurred in May.
b.	Cash paid in April for expenses incurred in April.
c.	Cash received in April from customers for services performed in May.
d.	Expenses incurred in April but not paid until June.
e.	Services provided to customers on account during April.
f.	Cash received from cash customers for services performed in April.

 

Overstated, Understated

Assume that the Cole Designs Inc. financial statements in the Unadjusted Financial Statements panel were prepared from the unadjusted trial balance and the financial statements in the Adjusted Financial Statements panel were prepared from the adjusted trial balance.

For the following financial statement items, indicate Yes or No if the item was overstated, understated or neither on the financial statements prepared using the unadjusted trial balance.

	Overstated	Understated	Neither
Net income
Stockholders’ equity
Revenues
Total assets
Total expenses
Total liabilities

Adjusting Entries

Journalize the six December 31 adjusting entries for Cole Designs Inc. that adjusted the accounts to arrive at the financial statements in the Adjusted Financial Statements panel. If an amount box does not require an entry, leave it blank.

Dec. 31		fill in the blank 08e87101f000073_2	fill in the blank 08e87101f000073_3
		fill in the blank 08e87101f000073_5	fill in the blank 08e87101f000073_6
Dec. 31		fill in the blank 08e87101f000073_8	fill in the blank 08e87101f000073_9
		fill in the blank 08e87101f000073_11	fill in the blank 08e87101f000073_12
Dec. 31		fill in the blank 08e87101f000073_14	fill in the blank 08e87101f000073_15
		fill in the blank 08e87101f000073_17	fill in the blank 08e87101f000073_18
Dec. 31		fill in the blank 08e87101f000073_20	fill in the blank 08e87101f000073_21
		fill in the blank 08e87101f000073_23	fill in the blank 08e87101f000073_24
Dec. 31		fill in the blank 08e87101f000073_26	fill in the blank 08e87101f000073_27
		fill in the blank 08e87101f000073_29	fill in the blank 08e87101f000073_30
Dec. 31		fill in the blank 08e87101f000073_32	fill in the blank 08e87101f000073_33
		fill in the blank 08e87101f000073_35	fill in the blank 08e87101f000073_36