Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 3 Accrual Accounting Concepts 125

Assume that the December transactions for Family Health Care are as follows:

a. Received cash of $1,900 from patients for services provided on account during November.

b. Provided services of $10,800 on account.

c. Received $6,500 for services provided for patients who paid cash.

d. Purchased supplies on account, $400.

e. Received $6,900 from insurance companies that paid on patients’ accounts for services

that had been previously billed.

f. Paid $310 on account for supplies that had been purchased.

g. Expenses paid during December were as follows: wages, $4,200, including $220 accrued at

the end of November; rent, $800; utilities, $610; interest, $100; and miscellaneous, $520.

h. Paid dividends of $1,200 to stockholders (Dr. Landry).

Instructions

1. Record the December transactions, using the integrated financial statement framework as
   shown below. The beginning balances of December 1 have already been entered. After each
   transaction, you should enter a balance for each item. The transactions are recorded simi-
   larly to those for November. You should note that in transaction (g), the $4,200 of wages
   paid includes wages of $220 that were accrued at the end of November. Thus, only $3,980
   ($4,200$220) should be recorded as wages expense for December. The remaining $220
   reduces the wages payable. You should also note that the balance of retained earnings on
   December 1, $8,510, is the balance on November 30.

Liabilities Amounts owed to creditors.

Long-term liabilities Liabilities that will not be due for a
long time (usually more than one year).

Notes receivable Written claims against debtors who
promise to pay the amount of the note plus interest at an
agreed-upon rate.

Prepaid expenses Items that are initially recorded as as-
sets but are expected to become expenses over time or through

the normal operations of the business; often called deferred

expenses.

Stockholders’ equity The stockholders’ rights to the as-

sets of a business.

Unearned revenues Items that are initially recorded as

liabilities but are expected to become revenues over time or

through the normal operation of the business; often called

deferred revenues.

ILLUSTRATIVE ACCOUNTING APPLICATION PROBLEM

Balance Sheet

Assets  Liabilities Stockholders’ Equity

Accts. Prepaid Office Acc. Notes Accts. Wages Unearned Capital Retained

CashRec.Insur.Supp.Equip.Dep.LandPay.Pay.Pay.RevenueStockEarnings

7,730 2,650 7,300 90 8 ,500  160 12,000 16, 800 140 220 1,440 11,000 8 ,510

Statement of Cash Flows

Statement of

Cash Flows

Income

Statement

Income Statement

2. The adjustment data for December are as follows:

Deferred expenses:

1. Prepaid insurance expired, $1,100.


2. Supplies used, $275.


3. Depreciation on office equipment, $160.

Balances, Dec. 1