E3-3 Conan Industries collected $100,000 from customers in 2008. Of the amount collected,
$25,000 was from revenue earned on account in 2007. In addition, Conan earned $40,000 of revenue
in 2008, which will not be collected until 2009.
Conan Industries also paid $70,000 for expenses in 2008. Of the amount paid, $30,000 was for
expenses incurred on account in 2007. In addition, Conan incurred $42,000 of expenses in 2008,
which will not be paid until 2009.
Instructions
(a) Compute 2008 cash-basis net income.
(b) Compute 2008 accrual-basis net income.
P3-3A Fernetti Advertising Agency, Inc. was founded by John Fernetti in January of 2007.
Presented below are both the adjusted and unadjusted trial balances as of December 31,
2008.
FERNETTI ADVERTISING AGENCY, INC.
Trial Balance
December 31, 2008
Unadjusted Adjusted
Dr. Cr. Dr. Cr.
Cash $ 11,000 $ 11,000
Accounts Receivable 20,000 22,500
Art Supplies 8,600 5,000
Prepaid Insurance 3,350 2,500
Printing Equipment 60,000 60,000
Accumulated Depreciation $ 28,000 $ 34,000
Accounts Payable 5,000 5,000
Interest Payable –0– 150
Notes Payable 5,000 5,000
Unearned Advertising Fees 7,200 5,600
Salaries Payable –0– 1,300
Common Stock 25,000 25,000
Retained Earnings 500 500
Dividends 12,000 12,000
Advertising Revenue 58,600 62,700
Salaries Expense 10,000 11,300
Insurance Expense 850
Interest Expense 350 500
Depreciation Expense 6,000
Art Supplies Expense 3,600
Rent Expense 4,000 4,000
$129,300 $129,300 $139,250 $139,250
Instructions
(a) Journalize the annual adjusting entries that were made.
(b) Prepare an income statement and a retained earnings statement for the year ending
December 31, 2008, and a balance sheet at December 31.
(c) Answer the following questions.
(1) If the note has been outstanding 6 months, what is the annual interest rate on that note?
(2) If the company paid $12,500 in salaries in 2008, what was the balance in Salaries Payable
on December 31, 2007?
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