CH 04

Chapter Four
Challenge Exercise 1
Expands on: E4-1
LO: 1
The trial balance columns of the worksheet for Lenny Company at June 30, 2020, are as follows.
LENNY COMPANY
Worksheet
For the Month Ended June 30, 2020
Trial Balance
Account Titles _ Dr. Cr. .

Cash $2,200
Accounts Receivable 2,900
Supplies 2,050
Accounts Payable $1,300
Unearned Service Revenue 300
Notes Payable 2,000
Common Stock 3,200
Service Revenue 2,100
Salaries and Wages Expense 1,200
Miscellaneous Expense 550 .
$8,900 _ $8,900
Other data:
1. A physical count reveals $440 of supplies on hand.
2. The unearned revenue was collected on June 1 and will be earned over the 4 months starting June 1
3. The 6-month note payable was signed June 1 and bears an annual interest rate of 12%.
4. Lenny has recognized $600 of revenue on account (which has not yet been recorded).
Instructions:
Enter the trial balance on a worksheet and complete the worksheet.
Copyright © 2018 WILEY Weygandt, Financial and Managerial Accounting, 3/e, Challenge Exercises
(For Instructor Use Only)
Page 4-1
Expands on: E4-7
LO: 2
Psyche Company had the following adjusted trial balance.
PSYCHE COMPANY
Adjusted Trial Balance
For the Month Ended June 30, 2020
Account Titles Debits _ Credits
Cash $4,000
Accounts Receivable 4,200
Supplies 700
Accounts Payable $1,900
Unearned Service Revenue 200
Common Stock 5,400
Retained Earnings 800
Dividends 350
Service Revenue 4,400
Salaries and Wages Expense 1,500
Miscellaneous Expense 300
Supplies Expense 2,400
Salaries and Wages Payable 750
$13,450 $13,450
Instructions:
(a) Prepare closing entries at June 30, 2020.
(b) Prepare a post-closing trial balance.
(c) Prepare the stockholders’ equity section of the June 30, 2020 balance sheet.
Page 4-2
Expands on: E4-9
SO: 4
The adjusted trial balance for Navajo Company is presented below.

NAVAJO COMPANY
July 31, 2020
No. Account Titles _ Debits _ Credits
101 Cash $ 16,000

112 Accounts Receivable 9,000
157 Equipment 25,000
167 Accumulated Depreciation – Equip. $ 8,000
201 Accounts Payable 4,500
208 Unearned Rent Revenue 2,000
311 Common Stock 22,000
320 Retained Earnings 27,500
332 Dividends 17,000
400 Service Revenue 64,000
429 Rent Revenue 11,000
711 Depreciation Expense 5,000
720 Salaries and Wages Expense 57,000
732 Utilities Expense 10,000 .
$139,000 $139,000
Navajo made an error during year when they debited Utilities Expense for $2,000 instead of Equipment for a
cash purchase of equipment. In addition, Navajo failed to accrue $4,000 of Service Revenue.
Instructions:
(a) Prepare an income statement and a retained earnings statement for the year.
(b) Prepare a classified balance sheet at July 31.
Page 4-3
Expands on: E4-12
LO: 3
Andy Richter Company discovered the following errors made in January 2020.
1. A payment of Salaries and Wages Expense of $1,000 was debited to Equipment and credited to Cash,
both for $1,000. Andy Richter recorded $200 of depreciation on this “equipment”.
2. A collection of $2,000 from a client on account was debited to Cash $200 and credited to Service
Revenue $200.
3. The purchase of equipment on account for $970 was debited to Supplies $790 and credited to
Accounts Payable $790.
4. The purchase of Inventory for $1,200 cash was debited to Prepaid Insurance and credited to Cash. At
yearend, $400 of the “prepaid insurance” was recorded as insurance expense.
Instructions:
(a) Correct the errors by reversing the incorrect entry and preparing the correct entry.
(b) Correct the errors without reversing the incorrect entry.
Page 4-4
Expands on: E4-15
LO: 4
The following are the major balance sheet classifications.
Current assets (CA) Current liabilities (CL)

Long-term investments (LTI) Long-term liabilities (LTL)
Property, plant, and equipment (PPE) Stockholders’ equity (SE)
Intangible assets (IA)
Instructions:
Classify each of the following accounts taken from Don Company’s balance sheet.
______ Accounts payable ______ Accumulated depreciation

______ Accounts receivable ______ Buildings
______ Cash ______ Land
______ Common stock ______ Long-term debt
______ Patents ______ Supplies
______ Salaries and wages payable ______ Equipment
______ Inventory ______ Prepaid insurance
______ Investments (to be sold in 6 months) ______ Notes receivable (due in 9 months)
______Land improvements ______Furniture
______Taxes payable ______Copyrights
______Interest payable ______Trademarks
______Mortgage payable ______Retained earnings
Page 4-5
Expands on: E4-16
LO: 4
The following items were taken from the financial statements of Yusuf Company. (All dollars are in thousands.)
Long-term debt $ 950 Accumulated depreciation - equip $ 5,600

Prepaid expenses 900 Accounts payable 1,444
Equipment 11,300 Notes payable (due after 2016) 1,024
Long-term investments 464 Common stock 10,000
Short-term investments 3,490 Retained earnings 2,800
Notes payable (due in 2016) 474 Accounts receivable 1,734
Cash 2,648 Inventory 1,456
Patents 600
2020 net income was $1,000 and dividends were $700.
Instructions:
Prepare a classified balance sheet in good form as of December 31, 2020.
Page 4-6
Expands on: E4-18
LO: 5
ConeZone Company pays salaries of $20,000 every Monday for the preceding 5-day week (Monday through
Friday). Assume December 31 falls on a Wednesday, so ConeZone’s employes have worked 3 days without
being paid. In addition, ConeZone has recognizeded $3,500 of revenue on account which has not yet been
recorded.
Instructions:
(a) Assume the company does not use reversing entries. Prepare the December 31 adjusting entry for salaries
and the
entry on Monday, January 5, when ConeZone pays the payroll.
(b) Assume the company does use reversing entries. Prepare the December 31 adjusting entry for salaries, the
January 1
reversing entry, and the entry on Monday, January 5, when ConeZone pays the payroll.
(c) Assume the company does not use reversing entries. Prepare the December 31 adjusting entry for service
revenue,
and the entry on Tuesday, January 6, when ConeZone receives the cash.
(d) Assume the company does use reversing entries. Prepare the December 31 adjusting entry for service
revenue, the
January 1 reversing entry, and the entry on Tuesday, January 6, when ConeZone receives the cash.
Page 4-7

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What are the key steps in completing a worksheet?

What are the key steps in preparing closing entries?

Chapter Four

Account Titles _ Dr. Cr. .

Psyche Company had the following adjusted trial balance.

The adjusted trial balance for Navajo Company is presented below.

No. Account Titles _ Debits _ Credits

101 Cash $ 16,000

The following are the major balance sheet classifications.

Current assets (CA) Current liabilities (CL)

Accounts payable Accumulated depreciation

Long-term debt $ 950 Accumulated depreciation - equip $ 5,600

2020 net income was $1,000 and dividends were $700.

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