ACCOUNTING PRINCIPLES 8TH CANADIAN EDITION (VOLUME 1) BY JERRY WEYGADNT DONALD KIESO PAUL KIMMEL BAR

ACCOUNTING PRINCIPLES 8TH CANADIAN EDITION (VOLUME 1) BY JERRY WEYGADNT DONALD KIESO PAUL KIMMEL BARBARA TRENHOLM VALERIE WARREN LORI NIVAK CHAPTER 1_10) SOLUTIONS MANUAL

CHAPTER 1 Accounting in Action Learning Objectives 1. Identify the use and users of accounting and the objective of financial reporting. 2. Compare the different forms of business organization. 3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. 4. Describe the components of the financial statements and explain the accounting equation. 5. Analyze the effects of business transactions on the accounting equation. 6. Prepare financial statements.

Solutions Manual .

1.1

Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

Summary of Questions by Learning Objectives and Bloom’s Taxonomy Item LO BT Item LO 1. 2. 3. 4.

1 1 1 2

C C C K

5. 6. 7. 8.

1. 2. 3. 4.

1 2 3 3

K C AN C

5. 6. 7. 8.

1. 2. 3. 4.

1 1 2 3

C C C C

5. 6. 7. 8.

1. 1 S 2. 2,3 AP 3. 4 AP

4. 5. 6.

Solutions Manual .

BT Item LO BT Item LO BT Item LO Questions 3 9. 3 4 C C 13. K 17. 5 3 K 10. 3 C 14. 4 K 18. 5 3 K 11. 3 C 15. 4 C 19. 6 3 C 12. 4 K 16. 4 K 20. 6 Brief Exercises 3 C 9. 4 AP 13. 5 AP 17. 6 C 10. AP 14. 4,5 AP 18. 6 3 4 4 C 11. 4 K 15. 4,6 AP 4 AP 12. 5 AP 16. 6 AP Exercises 1,3,5 K 9. 3,5,6 C 13. 4,5 AP 17. 6 4 AP 10. 5 C 14. 6 AP C 15. AP 4 AP 11. 5 6 5 C 12. 4,5 AP 16. 6 AP Problems 4 AP 7. 3,4,5,6 AP 10. 6 AN 3,5 C 8. 4,5,6 AP 11. 3,4,5,6 AP 4,6 AP 9. 6 AP

1.2

BT C AP K C AP AP

AP

Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

Legend: The following abbreviations will appear throughout the solutions manual file. LO BT

Difficulty:

Time: AACSB

CPA CM

Solutions Manual .

Learning objective Bloom's Taxonomy K Knowledge C Comprehension AP Application AN Analysis S Synthesis E Evaluation Level of difficulty S Simple M Moderate C Complex Estimated time to complete in minutes Association to Advance Collegiate Schools of Business Communication Communication Ethics Ethics Analytic Analytic Tech. Technology Diversity Diversity Reflec. Thinking Reflective Thinking CPA Canada Competency Map Ethics Professional and Ethical Behaviour PS and DM Problem-Solving and Decision-Making Comm. Communication Self-Mgt. Self-Management Team & Lead Teamwork and Leadership Reporting Financial Reporting Stat. & Gov. Strategy and Governance Mgt. Accounting Management Accounting Audit Audit and Assurance Finance Finance Tax Taxation

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CLASSIFICATION TABLE Questions

Brief Exercises

Exercises

Problems Set A

Problems Set B

1. Identify the use and users of accounting and the objective of financial reporting.

1, 2, 3

1

1, 2, 5

1

1

2. Compare the different forms of business organization.

4

2

3,

2

2

3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. 4. Describe the components of the financial statements and explain the accounting equation.

5, 6, 7, 8, 9, 10, 11

3, 4, 5, 6

4, 5, 9, 10

2, 5, 7, 11

2, 5, 7, 11

12, 13, 14. 15, 16

7, 8, 9, 10, 11, 15

6, 7, 13

3, 4, 6, 7, 8, 11

3, 4, 6, 7, 8, 11

5. Analyze the effects of business transactions on the accounting equation.

17, 18

12, 13, 14

5, 8, 9, 10, 11, 12, 13

5, 7, 8, 11

6, 7, 8, 9, 10, 11

6. Prepare financial statements.

19, 20

14, 15, 16 17, 18

9, 14, 15, 16, 17

6, 7, 8, 9, 10, 11

2, 5, 7, 11

Learning Objectives

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

Description

Difficulty Level

Time Allotted (min.)

1A

Identify users and uses of accounting information.

Simple

15-20

2A

Determine forms of business organization and types of accounting standards. Determine missing items.

Simple

15-20

Complex

20-25

Simple

20-30

5A

Classify accounts and prepare accounting equation. Assess accounting treatment.

Moderate

20-25

6A

Analyze transactions and calculate owner’s equity.

Simple

35-45

7A

Analyze transactions and prepare balance sheet.

Simple

40-50

8A

Moderate

40-50

9A

Analyze transactions and prepare financial statements. Prepare financial statements.

Simple

35-45

10A

Determine missing amounts, and comment.

Moderate

35-45

11A

Discuss errors and prepare corrected balance sheet.

Moderate

45-55

1B

Identify users and uses of accounting information.

Simple

15-20

2B

Determine forms of business organization and types of accounting standards. Determine missing items.

Simple

15-20

Complex

20-25

Simple

20-30

5B

Classify accounts and prepare accounting equation. Assess accounting treatment.

Moderate

20-25

6B

Analyze transactions and calculate owner’s equity.

Simple

35-45

7B

Analyze transactions and prepare balance sheet.

Simple

40-50

8B

Moderate

40-50

9B

Analyze transactions and prepare financial statements. Prepare financial statements.

Simple

35-45

10B

Determine missing amounts, and comment.

Moderate

35-45

11B

Discuss errors and prepare corrected balance sheet.

Moderate

45-55

3A 4A

3B 4B

Solutions Manual .

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BLOOM’S TAXONOMY TABLE Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-ofChapter Material

Learning Objective 1. Identify the use and users of accounting and the objective of financial reporting.

Knowledge Q1.3 BE1.1 E1.5

2. Compare the different forms of business organization.

Comprehension Q1.1 Q1.2 E1.1 E1.2

Application

Q1.4 BE1.2 BE1.4 BE1.10 E1.3 E1.7

P1.2A P1.2B P1.11B

3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework.

Q1.6 Q1.7 E1.5

Q1.5 Q1.8 Q1.9 Q1.10 Q1.11 BE1.4 BE1.5 BE1.6 E1.4 E1.9 E1.10 P1.5A P1.5B

P1.2A P1.2B P1.3A P1.3B P1.7A P1.7B P1.11A P1.11B

4. Describe the components of the financial statements and explain the accounting equation.

Q1.12 Q1.13 Q1.14 Q1.16 BE1.11

BE1.7

BE1.8 BE1.9 BE1.10 BE1.14 BE1.15 E1.6 E1.7 E1.13 P1.4A P1.4B P1.6A P1.6B P1.7A P1.7B P1.8A P1.8B P1.11A P1.11B

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Analysis

Synthesis P1.1A P1.1B

Evaluat ion

BE1.3

Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BLOOM’S TAXONOMY TABLE (Continued) Learning Objective 5. Analyze the effects of business transactions on the accounting equation.

Knowledge Q1.19 E1.5

6. Prepare financial statements.

Broadening Your Perspective

Solutions Manual .

Comprehension Q1.17 Q1.20 E1.8 E1.9 E1.10 E1.11 P1.5A P1.5B

Q1.19 Q1.20 E1.9

BYP1.1

Santé Saga BYP1. 6

1.7

Application Analysis Q1.18 BE1.12 BE1.13 BE1.14 E1.12 E1.13 P1.7A P1.7B P1.8A P1.8B P1.11A P1.11B BE1.15 BE1.16 BE1.17 BE1.18 E1.14 E1.15 E1.16 E1.17 P1.6A P1.6B P1.7A P1.7B P1.8A P1.8B P1.9A P1.9B P1.11A P1.11B BYP1.3

Synthesis

Evaluat ion

P1.10A P1.10B

BYP1.4

BYP1.2 BYP1.5

Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

ANSWERS TO QUESTIONS 1.

Yes. Accounting is the financial information system that provides useful financial information to every person who owns and uses economic resources or otherwise engages in economic activity.

LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

2.

Internal users are those who plan, organize, and run businesses and include managers, supervisors, directors, and company officers. External users work for other organizations but have reasons to be interested in the company’s financial position and performance, and include current or potential investors (owners), and creditors. Internal users may want answers to several types of questions. For example, the finance department wants to know if there is enough cash to pay the bills. The marketing department wants to know what price the business should use in selling its products to maximize profits. The human resources department wants to know how many people the business can afford to hire. The production department wants to know which product lines make the business the most profit. External users may want answers to several types of questions. For example, investors want to know if the company is earning enough to give them a return on their investment. Creditors want to know if the company is able to pay its debts as they come due. Labour unions want to know whether the owners can afford to pay increased wages and benefits. Customers are interested in whether a company will continue to honour its product warranties and support its product lines. Taxing authorities want to know whether the company respects the tax laws. Regulatory agencies want to know whether the company is respecting established rules.

LO 1 BT: C Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

3.

The main objective of financial reporting is to provide useful information to investors and creditors (external users) to make decisions about a business. Users may be potential investors who need to decide if they wish to invest in the business or they may be creditors deciding if they wish to lend money to the business. These users want to know if the business is running successfully and can generate cash and earn a profit.

LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 4.

Proprietorships, partnerships, and corporations are the three main forms of business organization. The main difference among these three forms is the size of the business. Since a proprietorship is a business owned by one person, it has limited resources. The size of the business is typically small and the life of the business is limited to the life of the owner. The size of businesses can expand in the case of a partnership as more owners are involved in the day-to-day operations of the business. In order to achieve a large size, with a diverse group of owners, the corporate form is used to have easy transferability of the ownership through the issuance of shares. Another important difference is that the corporation is a separate legal entity and pays income taxes. In addition, the corporation is the only form where owners have limited liability with respect to the business. The following are the main characteristics of each form: a.

A proprietorship is a private business with one owner who has unlimited liability for the business. The proprietorship has a limited life tied to the life of the owner. There is transparency between the owner and the business. Ultimately, the owner is personally responsible to pay tax on the profit of the business.

b.

A partnership has essentially the same characteristics as a proprietorship except that in a partnership, there is more than one owner. Partnerships are often used to organize service-type businesses, including professional practices.

c.

For corporations, the owners are one or more shareholders who enjoy limited liability. The corporation pays income taxes and can have an indefinite live since its ownership units, in the form of shares, are easily transferred to other owners.

LO 2 BT: K Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

5.

Ethics is a fundamental business concept. If accountants do not have a high ethical standard, the information they produce will not have any credibility. Ethics are important to statement users because it provides them comfort that the financial information they are using is credible and reliable.

LO 3 BT: C Difficulty: S Time: 5 min. AACSB: Ethics CPA: cpa-t001 cpa-e001 CM: Reporting and Ethics

Solutions Manual .

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 6.

The users of financial information of publicly accountable companies have different needs than the users of financial information of private companies. Publicly traded corporations are required to present financial information using accounting rules that are consistent with those used globally. To do this, public traded companies need to follow International Financial Reporting Standards (IFRS). Doing so helps Canadian companies compete in a global market. But following this set of policies and standards is often not essential or cost effective for privately owned businesses. The users of private company financial statements often do not require the extensive measurements and disclosures required by IFRS and thus private companies may report under Accounting Standards for Private Enterprises (ASPE).

LO 3 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

7.

The reporting entity concept states that economic events can be identified with a particular unit of accountability. This concept requires that the activities of the entity be kept separate and distinct from the activities of its owners and all other economic entities.

LO 3 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

8.

Accounting information has relevance if it makes a difference in a decision. Faithful representation shows the economic reality of events rather than just their legal form. Faithful representation is achieved if the information is complete, neutral, and free from material error. Complete information includes all information necessary to show the economic reality of the transaction. Accounting information is neutral if it is free from bias intended to attain a predetermined result or encourage a particular behaviour.

LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

9.

Historical cost represents the amount paid in a transaction. The fair value of an asset is generally the amount an asset could be sold for in the market. On the date of purchase, fair value and cost are the same. As time progresses, the fair value changes depending on the nature of the asset.

LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

10. In order for an event to be recognized in the accounting records, the event must change the entity’s financial position. Examples of events that are not transactions include hiring of employees and signing a lease for premises. LO 3 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 11. The monetary unit concept states that only transaction data that can be expressed as an amount of money may be included in the accounting records. Consequently, information that cannot be objectively measured in dollars cannot be included as transactions of the business. It is also assumed that the monetary unit is stable with respect to the value over several years. In other words, inflation is ignored. LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

12. The basic accounting equation is Assets = Liabilities + Owner's Equity and the expanded accounting equation is Assets = Liabilities + Owner's Capital – Owner’s Drawings + Revenue − Expenses. The equation is the basis for recording and summarizing all the economic events and transactions of a business. LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

13. a. Assets are resources controlled by a business, as a result of past events, and from which future economic benefits (like cash) have the potential to flow into the business. Liabilities are current obligations, arising from past events, the settlement of which will include an outflow of economic benefits (such as cash or services) Put more simply, liabilities are existing debts and obligations. Owner's equity is the owner’s claim on the residual assets of the company, which is the assets in a business after deducting liabilities. b.

Revenues and investments by the owner increase owner's equity. Drawings and expenses decrease owner’s equity.

LO 4 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

14. Accounts Receivable represent amounts owed to the business by its customers for services performed or goods provided, but for which collection has not yet been received. It is an asset. Accounts Payable represent amounts owed by the business for services or goods received, but for which payment has not yet been made. It is a liability. LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

15. Profit or loss is the result of the calculation: revenues less expenses. If revenues exceed expenses, the business has experienced profit. If expenses exceed revenues, a loss is experienced by the business. LO 4 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 16. a. b.

Accounts for assets, liabilities, and owner’s equity are reported on the balance sheet. Accounts for revenue and expenses are reported on the income statement.

LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

17. Yes, a business can enter into a transaction in which only the left side of the accounting equation is affected. An example would be a transaction where an increase in one asset is offset by a decrease in another asset, such as when equipment is purchased for cash (resulting in an increase in the equipment asset account that is offset by a decrease in the cash asset account). LO 5 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

18. No, this treatment is not proper. While the transaction does involve a disbursement of cash, it does not represent an expense. Expenses are decreases in owner's equity resulting from business activities entered into for the purpose of earning profit. This transaction is a withdrawal of capital from the business by the owner and should be recorded as a decrease in both cash and owner’s equity. LO 5 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

19. Financial statements are prepared in the following order: 1) Income statement, 2) Statement of owners’ equity, and 3) Balance sheet. This sequence is necessary because the profit or loss calculated on the income statement is used in the statement of owner’s equity, reporting the amounts that affect the owner’s equity during the year. The ending balance on the statement of owner’s equity is the year-end balance of the owner’s capital account. That balance is needed in the balance sheet. LO 6 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

20. It is likely that the use of rounded figures would not change the decisions made by the users of the financial statements. As well, presenting the information in this manner makes the statements easier to read and analyze, thereby increasing their usefulness to the users. LO 6 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 1.1 a. Kind of Decision 4 3 2 5 1

User Owner Marketing manager Creditor Chief financial officer Labour union

b. Internal or External User Internal Internal External Internal External

LO 1 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.2 a. P b. C c. PP LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.3 a. The student is provided with the opportunity to cheat on an exam. b. A production supervisor might become aware of a defect in a company’s product that is ready to ship but his/her bonus is based on volume of shipments. c. A banker is able to approve a loan for an unqualified family member. LO 3 BT: AN Difficulty: C Time: 5 min. AACSB: Ethics CPA: cpa-t001 cpa-e001 CM: Reporting and Ethics

Solutions Manual .

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 1.4 a. b. c. d. e.

F F T T T

LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.5 a. b. c. d.

F F T T

LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.6 a. b. c. d. e.

5. 1. 4. 2. 3.

Monetary unit concept Historical cost Reporting entity concept Revenue recognition Going concern assumption

LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.7

a. b. c. d. e.

Component

Balance Sheet or Income Statement

Revenues Assets Owner’s equity Liabilities Expenses

Income Statement Balance Sheet Balance Sheet Balance Sheet Income Statement

LO 4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 1.8 a.

$75,000 − $24,000 = $51,000 (Owner's Equity)

b.

$150,000 + $91,000 = $241,000 (Assets)

c.

$89,000 − $52,000 = $37,000 (Liabilities)

LO 4 BT: AP Difficulty: C Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.9 a.

$120,000 + $232,000 = $352,000 (Assets)

b.

$190,000 − $91,000 = $99,000 (Total liabilities)

c.

$800,000 − ($800,000 x ½) = $400,000 (Owner’s equity)

LO 4 BT: AP Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.10 Assets = Liabilities + Owner’s Equity $850,000 = $550,000 + X Owner’s Equity = Assets − Liabilities $300,000 = $850,000 − $550,000 a.

($850,000 + $130,000) − ($550,000 − $80,000) = $510,000 (Owner's equity)

b.

($550,000 − $95,000) + ($300,000 − $40,000 + $100,000) = $815,000 (Assets)

c.

($850,000 + $45,000) − ($550,000 − $50,000) = $395,000 ending balance Owner’s equity $395,000 + $40,000 − $300,000 = $135,000 Profit

LO 4 BT: AP Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 1.11 1. 2. 3. 4. 5. 6.

Accounts receivable Salaries payable Equipment Supplies Owner’s capital Notes payable

A L A A OE L

LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.12 Transaction a. b. c. d. e. f. g. h. i.

Assets +$250 +500 –300 –250 +1,000 –400 NE +500 / –500 +450

Owner's Equity Drawings Revenues NE NE NE +$500 NE NE NE NE NE NE –$400 NE NE NE

Liabilities +$250 NE NE –250 NE NE NE

Capital NE NE NE NE +$1,000 NE NE

Expenses NE NE –$300 NE NE NE NE

NE

NE

NE

NE

NE

+450

NE

NE

NE

NE

LO 5 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.13 a. b. c. d.

Description Transaction Analysis Company paid in advance for rent. 2 Owner invests cash in the business. 1 Supplies are purchased on account. 3 Company provides service on account. 4

LO 5 BT: AP Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 1.14 E R I E R E D

a. b. c. d. e. f. g.

Advertising expense Commission fees earned Cash received from the company’s owner Amounts paid to employees Services performed on account Utilities incurred Cash distributed to company owner

LO 4,5 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.15 a. b. c. d.

$68,000 − $25,000 − $50,000 = drawings $7,000 $65,000 + $33,000 − $68,000 = profit $30,000 $65,000 Ending balance 2020 = Opening balance 2021 $65,000 + $20,000 + $17,000 − $12,000 = $90,000

LO 4,6 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.16 PRAIRIE COMPANY Income Statement Month Ended October 31, 2021 Revenues Service revenue ............................................... Expenses Advertising expense ........................................ $3,600 Rent expense ................................................... 2,600 Total expenses ............................................ Profit......................................................................

$23,000

6,200 $16,800

LO 6 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 1.17 PRAIRIE COMPANY Statement of Owner's Equity Month Ended October 31, 2021 N. Woods, capital, October 1 ............................... Add: Profit ......................................................... Less: Drawings.................................................... N. Woods, capital, October 31 .............................

$36,000 16,800 52,800 6,000 $46,800

LO 6 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 1.18 PRAIRIE COMPANY Balance Sheet October 31, 2021 Assets Cash .................................................................................. $ 59,300 Accounts receivable ........................................................ 77,500 Total assets ............................................................... $136,800 Liabilities and Owner's Equity Liabilities Accounts payable ..................................................... $ 90,000 Owner's equity N. Woods, capital ...................................................... 46,800 Total liabilities and owner's equity ................... $136,800 LO 6 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

SOLUTIONS TO EXERCISES EXERCISE 1.1 a.

Customers Store manager Canada Revenue Agency Supplier Labour unions Chief Financial Officer Marketing manager Loan officer

E - External I - Internal E - External E - External E - External I - Internal I - Internal E - External

b. Can the company afford to give our members a pay raise?

E

How does the company’s profitability compare with other companies in the industry? E Do we need to borrow money in the near future?

I

What does it cost to manufacture each unit produced?

I

Has the company paid all income tax amounts owing?

E

Which product should we emphasize?

I

LO 1 BT: C Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.2 a.

Chief Financial Officer — Can lululemon Athletica Inc. generate enough cash to expand its product line? Human Resource Manager — What is lululemon Athletica Inc.’s annual salary expense?

b.

Creditor — Does lululemon Athletica Inc. have enough cash available to make its monthly debt payments? Investor — How much did lululemon Athletica Inc. pay in dividends last year?

LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

EXERCISE 1.3

a. b. c. d. e. f. g. h.

Proprietorship F F F F F F T F

Partnership F F F F F T T F

Publicly Traded Corporation T F T T T T F T

LO 2 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.4 a. b. c. d. e. f.

2 1 5 6 4 3

Faithful representation Relevance Neutrality Understandability Verifiability Comparability

LO 3 BT: C Difficulty: C Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

EXERCISE 1.5 a. b. c. d. e. f. g. h. i. j. k. l.

8 10 1 11 12 5 3 7 4 6 2 9

Corporation Generally accepted accounting principles (GAAP) Accounts payable Accounts receivable Owner’s equity Prepaid expense Creditor Assets International Financial Reporting Standards (IFRS) Profit Expenses Unearned revenue

LO 1,3,5 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

EXERCISE 1.6 a. b. c. d. e.

$6,800 - $400 - $900 - $3,500 = $2,000 $18,000 - $6,800 = $11,200 Same as b. $11,200 $26,200 - $21,700 = $4,500 $21,200 – $11,200 = $10,000

LO 4 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.7 The statement of owner’s equity is a calculation presented in statement form, and therefore we can use the following equation and solve for the unknown in this question: Owner’s equity, beginning of period + Owner’s investments + Profit (loss) for the period – Owner’s withdrawals = Owner’s equity, end of period

a.

Owner’s equity, December 31, 2021 = $370,000 – $210,000 = $160,000 $0 + $100,000 + Profit(loss) - $50,000 = $160,000 Profit(loss) = $160,000 - $100,000 + 50,000 Profit (loss) = $110,000

b.

Owner’s equity, December 31, 2022 = $440,000 - $290,000 = $150,000 $160,000 (see a.) + $40,000 + Profit(loss) - $0 = $150,000 Profit(loss) = $150,000 - $160,000 - $40,000 Profit (loss) = $(50,000)

c.

Owner’s equity, December 31, 2023 = $525,000 - $355,000 = $170,000 $150,000 (see b.) + $10,000 + Profit(loss) - $60,000 = $170,000 Profit(loss) = $170,000 - $150,000 - $10,000 + $60,000 Profit (loss) = $70,000

LO 4 BT: AP Difficulty: C Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.8 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

Accounts payable Accounts receivable Cash Equipment Interest payable Interest revenue Interest expense Investment by the owner Service revenue Prepaid rent P. Zizler, capital (opening balance) P. Zizler, drawings Salaries expense Supplies Supplies expense Unearned revenue

a. L A A A L Eq Eq Eq Eq A

b. BS BS BS BS BS IS IS OE IS BS

Eq Eq Eq A Eq L

OE OE IS BS IS BS

LO 5 BT: CP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.9 a. and b. 1. This accounting treatment is incorrect, as it violates the historical cost principle. Land was reported at its market value, when it should have been recorded and reported at cost. 2. This accounting treatment is correct. Although a commitment for future payments is put into place when the lease is signed, an exchange has not yet taken place so there is no transaction that needs to be recorded. At this time, all that is required concerning this lease is to disclose the details of the commitment in the notes to the financial statements. 3. This accounting treatment is incorrect, as it violates the reporting entity assumption. An owner’s personal transactions should be kept separate from those of the business. Instead of being charged as an expense to the business, the transaction should be recorded as drawings taken by the owner. 4. This accounting treatment is incorrect, because, at the time of payment, the insurance coverage had not yet been used up. The amount should have been recorded to Prepaid Insurance. Eventually, when the coverage expires at the end of one year, the full amount of $1,200 will have become insurance expense. 5. It is assumed that a company is a going concern, unless the notes state otherwise. Consequently, the statement in the notes that the company is a going concern need not be added. 6. The company is required to make the disclosure that it is following ASPE. LO 3,5,6 BT: C Difficulty: C Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.10 a. and b. 1. This is a transaction that should be recorded in the accounts as there has been an exchange of assets. Cash was reduced and equipment was increased. The historical cost of $10,000 should be used when recording this transaction. 2. This is a transaction that should be recorded in the accounts as there has been an exchange of assets. Cash was reduced and equipment was increased. The transaction is to be recorded in Canadian funds to follow the monetary unit concept, so the amount that should be used when recording this transaction is $5,200. 3. This is a transaction that should be recorded in the accounts because a performance obligation has been completed related to a contract with a customer and accounts receivable should be increased as the company now has a right to payment. The amount of $4,000 should be used when recording this transaction. 4. This is not a transaction as an exchange has not yet occurred. 5. This is a transaction that should be recorded in the accounts because an asset (cash) has increased and a liability (unearned revenue) has increased. The company has an obligation to perform services for the customer at a future date. The amount of $4,000 should be used when recording this transaction. LO 3,5 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.11 1.

Purchase inventory on credit. Increases an asset (inventory) and increases a liability (accounts payable).

2.

Investment made by owner. Increases an asset (cash) and increases owner’s equity (owner’s capital).

3.

Payment of accounts payable. Decreases an asset (cash) and decreases a liability (accounts payable).

4.

Withdrawal of cash by the owner or payment of an expense. Decreases an asset (cash) and decreases owner’s equity (drawings or expense).

5.

Record salaries due to employees. Increases a liability (salaries payable) and decreases owner’s equity (expense).

6.

Collect an accounts receivable. Increases one asset (cash) and decreases another asset (accounts receivable).

Note: These are examples. There are other correct responses. LO 5 BT: C Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.12 Assets

Trans. Cash Bal. $12,000 1 –3,000 2 +12,000 3 –3,000 4 –2,500 5 +7,000 6 –1,000 7 –5,000 8 –2,100 9 No entry 10 Total $14,400

+ Accounts Rec.

= + Equipment

$18,000

Liabilities + Accounts Payable $4,000

+

+ Note Payable

Owner's Equity + G. Brister, Capital $26,000

G. Brister, Drawings

+ Revenues Expenses

+$20,000

+$23,000

–12,000 –$3,000 –2,500 +$7,000 –1,000 –$5,000

+$6,000

+$23,000

+1,500 +$3,000

–2,000

–100

+$18,000

–1,500 –$5,600

+$26,000

–$5,000

+$7,000

$43,400 = $ 43,400 LO 5 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.13 a.

1.

Owner invested $18,000 cash and equipment with the fair value of $6,000 in the business. 2. Purchased equipment for $8,000, paying $4,000 in cash with the balance of $4,000 on account. 3. Prepaid for insurance for $750 cash. 4. Earned $8,300 in service revenue, receiving $3,500 cash with the remaining $4,800 on account. 5. Paid $2,000 cash on accounts payable. 6. B. Star withdrew $3,300 cash for personal use. 7. Paid $800 cash for rent for the month of July. 8. Collected $1,350 cash from customers on account. 9. Paid salaries of $2,700. 10. Incurred $420 of utilities expense on account.

b.

Revenues ................................................................... Rent expense ............................................................. Salaries expense........................................................ Utilities expense ........................................................ Profit...........................................................................

c.

Investment ................................................................. $24,000 Profit........................................................................... 4,380 Drawings .................................................................... (3,300) Increase in owner’s equity ........................................ $25,080

$8,300 (800) (2,700) (420) $4,380

LO 4,5 BT: AP Difficulty: M Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.14 STAR & CO. Income Statement Month Ended July 31, 2021 Revenues Service revenue ............................................... Expenses Salaries expense.............................................. $2,700 Rent expense ................................................... 800 Utilities expense .............................................. 420 Total expenses ............................................ Profit......................................................................

$8,300

3,920 $4,380

STAR & CO. Statement of Owner's Equity Month Ended July 31, 2021 B. Star, capital, July 1 .......................................... Add: Investments .............................................. $24,000 Profit .......................................................... 4,380 Less: Drawings.................................................... B. Star, capital, July 31 ........................................

Solutions Manual .

1.29

$

0

28,380 28,380 3,300 $25,080

Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

EXERCISE 1.14 (Continued)

STAR & CO. Balance Sheet July 31, 2021 Assets Cash .................................................................................. Accounts receivable ........................................................ Prepaid insurance ............................................................ Equipment......................................................................... Total assets ...............................................................

$ 9,300 3,450 750 14,000 $27,500

Liabilities and Owner's Equity Liabilities Accounts payable ..................................................... $ 2,420 Owner's equity B. Star, capital .............................................................. 25,080 Total liabilities and owner's equity ..................... $27,500 LO 6 BT: AP Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.15 ATLANTIC CRUISE CO. Income Statement Year Ended May 31, 2021 Revenue ........................................................... $350,640 Expenses Salaries expense......................................... $126,950 Maintenance expense................................. 82,870 Other expenses........................................... 66,500 Interest expense ......................................... 20,960 Advertising expense................................... 3,640 Insurance expense ..................................... 2,566 Total expenses ....................................... 303,486 Profit................................................................. $ 47,154

ATLANTIC CRUISE CO. Statement of Owner's Equity Year Ended May 31, 2021 I. Temelkova, capital, June 1, 2020 ................ Add: Investments .......................................... Profit ..................................................... Less: Drawings............................................... I. Temelkova, capital, May 31, 2021 ................

$311,182 $5,847 47,154

53,001 364,183 33,950 $330,233

LO 6 BT: AP Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.16 ATLANTIC CRUISE CO. Balance Sheet May 31, 2021 Assets Cash ....................................................................... Accounts receivable ............................................. Supplies ................................................................. Prepaid insurance ................................................. Building.................................................................. Equipment.............................................................. Total assets ..................................................

$ 20,080 42,950 16,800 1,283 122,570 553,300 $756,983

Liabilities and Owner's Equity Liabilities Notes payable ....................................................... $379,000 Accounts payable ................................................ 47,750 Total liabilities .............................................. 426,750 Owner's equity I. Temelkova, capital ............................................. 330,233 Total liabilities and owner's equity.................. $756,983 LO 6 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 1.17 a.

Revenues—camping fees ........................................ $150,000 Revenues—general store......................................... 40,000 Total revenue..................................................... 190,000 Operating expenses ................................................. 150,000 Profit .......................................................................... $ 40,000

b.

J. Cumby, capital, April 1, 2020 ............................... Add: Profit .............................................................. Less: J. Cumby, Drawings ...................................... J. Cumby, capital, March 31, 2021...........................

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1.33

$17,000 40,000 57,000 5,000 $52,000

Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

EXERCISE 1.17 (Continued) c. DEER PARK Balance Sheet March 31, 2021 Assets Cash ........................................................................... $ 9,400 Accounts receivable ..................................................... 21,000 Supplies ..................................................................... 2,500 Prepaid insurance ..................................................... 600 Equipment.................................................................. 110,000 Total assets ........................................................... $143,500 Liabilities and Owner's Equity Liabilities Notes payable ....................................................... $ 70,000 Accounts payable ..................................................... 11,500 Unearned revenue .................................................. 10,000 Total liabilities ...................................................... 91,500 Owner's equity J. Cumby, capital ................................................... 52,000 Total liabilities and owner's equity.................. $143,500 LO 6 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

SOLUTIONS TO PROBLEMS PROBLEM 1.1A 1. a. In deciding to extend credit to a new customer, Pierson Industries is an external user of the accounting information of its customers. b. Pierson Industries would focus its attention on the information about the customer’s economic resources and claims to those resources. The terms of the credit they are extending to customers, requires collection in a short period of time. Funds used to pay Pierson Industries would come from cash on hand. The balance sheet will show if the new customer has enough cash to meet its obligations, including those to Pierson Industries. 2. a. The owner, Dean Gunnerson, is an internal user of the accounting information of Toys and Sports Co. b. When deciding which manufactured products generate the most profit, the information that will be most relevant to the owner will be shown on the income statement. The income statement reports the past performance of the business in terms of its revenue, expenses, and profit. Using the details of revenue and expenses at a product line level, the owner can establish which product line is more profitable. 3. a. The president of Hi-tech Adventure is an internal user of the accounting information. b. In order to determine if Hi-tech Adventure is holding enough cash to buy additional equipment, the president should examine the business’s economic resources and claims to those resources in order to determine if the necessary cash is available to meet obligations and address the equipment purchase plans.

Solutions Manual .

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.1A (Continued) 4. a. Standen Bank is an external user of the accounting information of the small business that is the loan applicant. b. In deciding whether to extend a loan, Standen Bank is interested in two things—the ability of the company to make interest payments on an annual basis for the next five years and the ability to repay the principal amount at the end of five years. To determine if the necessary cash is available to meet obligations, the focus should be on the business’s economic resources and claims to those resources. As well, Standen Bank will look at the economic performance of the business that should generate the necessary cash from its operations on an ongoing basis. This will be the most important factor in determining if the company will survive and be able to repay the loan. Taking It Further: When making decisions based on the financial statements of a business, users need to rely on the faithful representation of the financial statements. The individual preparing the financial statements must adhere to the highest standards of ethical behaviour to ensure that the decision maker is not hurt by false or misleading financial information. LO 1 BT: S Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.2A 1. a. Tom will likely operate his walking service as a proprietorship because he is planning on operating it for a short time and a proprietorship is the simplest and least costly business organization to form and dissolve. b.

ASPE will likely be the accounting standard followed, as it is simpler to follow.

2. a. Joseph and Sabra might form a partnership as it is a small operation and would be easy to set up. However, a corporation may offer benefits that the partnership will not offer. The corporation will give them limited liability. Also, a corporation may be the best form of business for them because they plan to raise funds in the coming year. It is easier to raise funds in a corporation. A corporation may also receive more favourable income tax treatment. b.

ASPE will likely be the accounting standard followed, as it is simpler to follow. The business would not be a publicly traded corporation requiring the use of IFRS.

3. a. The professors should incorporate their business because of their concerns about the legal liabilities. A corporation is the only form of business that provides limited liability to its owners. b.

ASPE will likely be the accounting standard followed, as it is simpler to follow. The business would not be a publicly traded corporation requiring the use of IFRS.

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.2A (Continued) 4. a.

Abdur would likely form a corporation because he needs to raise funds to invest in inventories and equipment. He has no savings or personal assets and it is normally easier to raise funds through a corporation than through a proprietorship or partnership.

b.

ASPE will likely be the accounting standard followed, as it is simpler to follow. The business would not be a publicly traded corporation requiring the use of IFRS.

Taking It Further: The advantages of starting a business as a proprietorship and later incorporating the business include the ease of formation, simplicity, and reduced costs. As the business grows and the additional costs and administration that are required of corporations are justified, incorporating the business provides additional advantages. LO 2,3 BT: AP Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.3A a.

Total assets (Jan. 1, 2019) ...................................... Total liabilities (Jan. 1, 2019) .................................. Total owner's equity (Jan. 1, 2019) .........................

$40,000 0 $40,000

b.

Total liabilities (Dec. 31, 2019 ................................. $50,000 Total owner's equity (Dec. 31, 2019) c. below ....... 75,000 Total assets (Dec. 31, 2019) .................................... $125,000

c.

Total owner's equity (Dec. 31, 2019) ...................... Equal to owner's equity (Jan. 1, 2020) given

$75,000

d.

Total owner's equity (Dec. 31, 2019) ...................... Total owner's equity (Jan. 1, 2019)......................... Increase in owner's equity ......................................

$75,000 40,000 $35,000

Increase in owner's equity ...................................... Less: Investments ................................................... Add: Drawings ......................................................... Profit .........................................................................

$35,000 (7,000) 15,000 $43,000

e.

Total revenues ......................................................... $132,000 Less: Profit d. above ............................................... (43,000) Total expenses......................................................... $ 89,000

f.

Total liabilities (Jan. 1, 2020) .................................. $50,000 Total owner's equity (Jan. 1, 2020)......................... 75,000 Total assets (Jan. 1, 2020) ...................................... $125,000 Also same as b. above

g.

Total assets (Dec. 31, 2020) ................................... Total owner's equity (Dec. 31, 2020)...................... Total liabilities (Dec. 31, 2020) ...............................

Solutions Manual .

1.39

$140,000 97,000 $ 43,000

Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 1.3A (Continued) h.

Total owner's equity (Dec. 31, 2020) ...................... Total owner's equity (Jan. 1, 2020) c. above ......... Increase in owner's equity ......................................

$97,000 75,000 $22,000

Increase in owner's equity ...................................... Less: Profit ................................................ $40,000 Investments ..................................... 0 Drawings ..................................................................

$22,000 40,000 $18,000

i.

Profit......................................................................... $40,000 Total expenses ........................................................ 95,000 Total revenues ......................................................... $135,000

j.

Total assets (Jan. 1, 2021) ........................................ $140,000 Equal to total assets (Dec. 31, 2020) given

k.

Total liabilities (Jan. 1, 2021) .................................... $43,000 Equal to total liabilities (Dec. 31, 2020) g. above Total owner's equity (Jan. 1, 2021)........................... $97,000 Equal to total owner's equity (Dec. 31, 2020) given

l.

m.

Total assets (Dec. 31, 2021) ................................... Total liabilities (Dec. 31, 2021)............................... Total owner's equity (Dec. 31, 2021) .....................

$172,000 65,000 $107,000

n.

Total owner's equity (Dec. 31, 2021) ..................... Total owner's equity (Jan. 1, 2021) l. above ......... Increase in owner's equity .....................................

$107,000 97,000 $ 10,000

Increase in owner's equity ..................................... Less: Profit o. below ............................... $(31,000) Add: Drawings ....................................... 36,000 Investments ............................................................

$10,000

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1.40

5,000 $15,000

Chapter 1

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 1.3A (Continued) o.

Total revenues ........................................................... $157,000 Less: Total expenses ................................................ 126,000 Profit............................................................................ $ 31,000

Taking It Further: In order to decide if an owner is able to withdraw cash from the business, the owner needs to find out if her/his capital account is sufficiently high to cover the drawings charge. S/He also needs to know that there is sufficient cash available to make the withdrawal and still have enough cash to meet the obligations of the business. LO 4 BT: AP Difficulty: C Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.42A a. and b. ($ in thousands) 1. L 2. A 3. A 4. R 5. A 6. E 7. E 8. C 9. D 10. E 11. E

c.

BS BS BS IS BS IS IS OE OE IS IS

Accounts payable Accounts receivable Cash Consulting revenue Equipment Interest expense Rent expense S. Parker, capital, January 1 S. Parker, drawings Salaries expense Utilities expense

$ 810 900 3,500 15,730 5,700 790 4,800 6,600 3,900 3,200 350

(in thousands) Revenue – Expenses = Profit Revenue = $15,730 Expenses ($4,800 + $790 +$3,200 + $350) = $9,140 Profit ($15,730 - $9,140) = $6,590

Taking It Further: It is important for Parker Information Technology Company to keep track of its different types of expenses to ensure that management is able to get the necessary information to make decisions concerning where improvements in performance can be made. The company can also determine, by comparing the expenses with the revenues, if the amount of expenses is reasonable. LO 4 BT: AP Difficulty: S Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.5A 1. a. This accounting treatment is incorrect as people involved with the organization are not an asset of the business to be placed on the balance sheet. There is no reasonable way that a measurement of their value could be made. b. The entries to record people as assets should be removed from the accounting records. 2. a. This accounting treatment is incorrect as it violates the historical cost concept. The land and building should be recorded at $350,000, the amount paid on purchase. If the company was in the business of buying and reselling land and buildings, they may be able to value these items at fair value but that does not appear to be the case here. It appears that Sharon is attempting to deliberately overstate her assets to get a loan. These actions would be considered professionally unethical. b. The entry to increase the carrying value of the land and building from $350,000 to $500,000 should be removed from the accounting records of Barton Industries. 3. a. This accounting treatment is incorrect as it violates the reporting entity concept. The electric guitar is a personal asset, and not an asset of the business. b. The entry to record the purchase of the guitar should be removed from the Equipment account. Instead this should be recorded as drawings by Will Viceira. 4. a. West Spirit Oil Corp. must adopt IFRS because it is a publicly traded corporation. b. The 2021 financial statements must be prepared in accordance with the International Financial Reporting Standards (IFRS).

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.5A (Continued) Taking It Further: It is important for private and public companies to follow generally accepted accounting principles (GAAP) because a common set of standards, applied by all businesses and entities, provides financial statements that are reasonably comparable. Without a common set of standards, each enterprise could develop its own theory structure and set of practices, resulting in non-comparability among enterprises, to the detriment of financial statement users. LO 3,5 BT: C Difficulty: M Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.6A a.

PETRONICK ACCOUNTING SERVICES Assets

Transaction June 4 6 8

Cash +$4,376 -1,050

+

+

+

+

Acc. Rec.

Supplies

Furniture

Acc. Payable

+$3,160

Owner's Equity

+ F. Petronick, Capital +$4,376

– F. Petronick, Drawings

28

+900

30

-128

Revenues

Expenses

-1,580 +$344

-49

–

+$1,865

-1,580

26

+

+$3,160

+$1,865

18

Total

Liabilities +

-$1,050

15 15

=

+344 -49

-900 -$128

$2,469

$965

$344

$3,160

$1,924

+$4,376

-$128

+$1,865

–$1,099

$6,938 = $6,938 Note: Events at other dates than the transactions above are either not transactions or are personal transactions of F. Petronick.

Solutions Manual

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.6A (Continued) b.

Capital investment ........................................................ $4,376 Less: Drawings......................................................... 128 4,248 Add: Revenue .......................................................... 1,865 Less: Expenses ........................................................... (1,099) F. Petronick, capital, June 30 ....................................... $5,014

Taking It Further: $144 should be reported as an asset, Supplies, on the June 30 balance sheet. This is the amount of supplies on hand. $200 should be reported as an expense. This is the cost of supplies that were used in the month of June. LO 4,6 BT: AP Difficulty: S Time: 45 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 1

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.7A a.

LETOURNEAU LEGAL SERVICES Assets +

Transaction 1

Cash

+

Acc. Rec.

Supplies

Liabilities

= +

Equipment

+

Acc. Payable

+ Unearned Revenue

Owner's Equity

+ +

+

–

+

–

Note Payable

A. LeTourneau, Capital

A. LeTourneau, Drawings

Revenues

Expenses

2 3

+$50,000

+$50,000

4 5

–2,500

–$2,500

6 7

–10,000

+$10,000

8 9

+$400 –3,000

10

+6,500

+$3,500

+$3,500

11

+2,500

12

–500

13

–400

Total

+$400

$36,100

+$3,500 +$2,500 -500 –400

$3,500

$400

$16,500

$0

$2,500

$3,500

$50,000

0

$3,500

$56,500 = $56,500 Solutions Manual

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.7A (Continued) a. (Continued) Notes: Items 1 (March 4), 2 (March 7), and 4 (March 14) are not relevant to the business entity. They are personal transactions. Item 6 (March 19) is not recorded because the transaction has not yet been completed. There is no expense, nor liability, until he begins working. b.

Profit = Revenues − Expenses = ($3,500 − $3,000) = $500 Owner’s Equity = Investment − Drawings + Profit = ($50,000 − $0 + $500) = $50,500

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.7A (Continued) c. LETOURNEAU LEGAL SERVICES Balance Sheet March 31, 2021 Assets Cash .......................................................................... Accounts receivable ................................................ Supplies .................................................................... Equipment.................................................................

$36,100 3,500 400 16,500

Total assets ..........................................................

$56,500

Liabilities and Owner's Equity Note payable ................................................................. $ 3,500 Unearned revenue .................................................... 2,500 Total liabilities...................................................... 6,000 Owner’s Equity A. LeTourneau, capital ............................................ 50,500 Total liabilities and owner's equity ........................ $56,500 Taking It Further: Recognition of an event or transaction should take place only when there has been a change in the financial position of the company. In other words, if a transaction affects any asset, liability, equity, revenue, or expense and has a measureable dollar amount, it should be recognized in the accounting records. As well, personal transactions must be excluded, to comply with the reporting entity concept. LO 3,4,5,6 BT: AP Difficulty: S Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.8A a.

Bal Sept. 4 5 7 12 15 15 15 18 20 26 29 30

Izabela Jach, MD Accounts Cash + Receivable + $3,000 + $1,500 + +800 −800 +7,700 +2,800 −2,900 −800 –2,800 –1,900 –275 +700 –700 −1,000 +3,000

Supplies + $600 +

EquipAccounts Notes I. Jach, I. Jach, ment = Payable + Payable + Capital – Drawings + Revenues – Expenses $7,500 = $5,500 $3,000 + $4,100 +$10,500 -2,900 +1,500

+2,300

–$2,800 –1,900 –275 –$1,000 +3,000 –325

+325 +

+10,000 $12,800 +

$600 +

$9,800 =

$4,425 + $6,000 +

$4,100 –

$1,000 +

+10,000 $20,500 –

$5,300

$28,725 = $28,725 Note that the September 28 transaction is not recorded because the work will not commence until October.

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.8A (Continued) b. IZABELA JACH, MD Income Statement Month Ended September 30, 2021 Revenues Service revenue ....................................................... $20,500 Expenses Advertising expense.................................... $ 275 Rent expense .................................................. 1,900 Salaries expense............................................. 2,800 Utilities expense ........................................... 325 Total expenses ..................................................... 5,300 Profit............................................................................. $15,200

IZABELA JACH, MD Statement of Owner's Equity Month Ended September 30, 2021 I. Jach, capital, September 1 ....................................... $4,100 Add: Profit ................................................................. 15,200 19,300 Less: Drawings ......................................................... 1,000 I. Jach, capital, September 30..................................... $18,300

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.8A (Continued) b. (Continued) IZABELA JACH, MD Balance Sheet September 30, 2021 Assets Cash ........................................................................... Accounts receivable ................................................. Supplies ..................................................................... Equipment..................................................................

$ 5,525 12,800 600 9,800

Total assets ........................................................... $28,725 Liabilities and Owner's Equity Liabilities Accounts payable ................................................. $ 4,425 Notes payable ....................................................... 6,000 Total liabilities ...................................................... 10,425 Owner's Equity I. Jach, capital ......................................................... 18,300 Total liabilities and owner's equity.................... $28,725 Taking It Further: When an item is purchased on account, payment usually must be made in 30 days. If a note payable is used, payment will be delayed until the maturity date of the note, which is typically longer than 30 days. Although this will likely mean that interest will also have to be paid, the cash remains in the business longer than if the item had been purchased on account. LO 4,5,6 BT: AP Difficulty: M Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 1.9A PAVLOV’S HOME RENOVATIONS Income Statement Year Ended December 31, 2021 Revenues Service revenue ............................................................ $153,750 Expenses Interest expense .......................................... Insurance expense ...................................... Supplies expense ........................................ Salaries expense.......................................... Operating expenses .................................... Total expenses ........................................

$ 1,195 3,375 20,095 88,230 3,545 116,440

Profit.................................................................................... $ 37,310

PAVLOV’S HOME RENOVATIONS Statement of Owner's Equity Year Ended December 31, 2021 J. Pavlov, capital, January 1 ............................................. $45,850 Add: Profit ....................................................................... 37,310 83,160 Less: J. Pavlov, Drawings ............................................... 44,800 J. Pavlov, capital, December 31 ....................................... $38,360

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.9A (Continued) PAVLOV’S HOME RENOVATIONS Balance Sheet December 31, 2021

Assets Cash ................................................................................... Accounts receivable ......................................................... Supplies ............................................................................. Prepaid insurance ............................................................. Equipment.......................................................................... Vehicles .............................................................................

$ 8,250 10,080 595 1,685 29,400 42,000

Total assets ................................................................... $92,010 Liabilities and Owner's Equity Liabilities Notes payable ................................................................. $30,800 Accounts payable ......................................................... 7,850 Unearned revenue .......................................................... 15,000 Total liabilities .............................................................. 53,650 Owner's equity J. Pavlov, capital ............................................................. 38,360 Total liabilities and owner's equity ........................... $92,010 Taking It Further: In order to prepare the statement of owner’s equity, you need to have the amount of the profit or loss for the year. This is why the income statement is prepared first. The statement of owner’s equity is prepared next to have the ending capital balance for the balance sheet. LO 6 BT: AP Difficulty: S Time: 45 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.55A $91,300 (from ii) − $9,500 − $5,300 − $41,500 = $35,000 (ii) Total liabilities and owner’s equity = $91,300 (iii) $43,800 − $26,000 = $17,800 (iv) $91,300 − $43,800 = $47,500 (v) $59,500 − $32,000 − $1,500 = $26,000 (vi) $95,000 − $59,500 = $35,500 (vii) $62,500 − $22,000 − $35,500 (from viii) = $5,000 (viii) $35,500 from income statement (from vi) (ix) $62,500 − $47,500 (from x) = $15,000 (x) $47,500 from the balance sheet (from iv)

a.

(i)

b.

In preparing the financial statements, the first statement to be prepared is the income statement. The profit figure is used in the statement of owner’s equity to calculate the ending balance of capital. The balance sheet is then completed, using the balance of capital as calculated in the statement of owner’s equity.

Taking It Further: The balance sheet, which is sometimes referred to as the statement of financial position, reports balances at a specific point in time – as of the last day of the reporting period. The income statement reports the results of revenue and expense business transactions for a period of time, whether it is a month, a quarter, or a fiscal year. The statement of owner’s equity reports for the same period of time those items that have increased or decreased capital. Consequently, the income statement and the statement of owner’s equity are for the period of time ending on a specific date and the balance sheet is at that specific date. LO 6 AN: AP Difficulty: M Time: 45 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.11A a. 1.

The land should be recorded at cost of $36,000 until it is sold. The increase in value is not recognized until the land is sold (historical cost concept).

2.

The accounts receivable should be recorded in Canadian dollars, not in Chinese yuan (monetary unit concept). Accounts receivable should have the corrected balance of $7,000 Canadian.

3.

Equipment is an asset and not a liability. The entry in the liabilities for equipment of $58,000 must be removed and appear instead under assets. Supplies are also assets, not liabilities. This item will also have to be removed from the liabilities and added to assets.

4.

Notes payable are liabilities, not assets. The company has an obligation to repay the note in the future. The entry in the assets for notes payable must be removed from assets and instead should appear under liabilities.

5.

C. Dryfuss, capital is an equity account, not an asset. His investment in the company is an asset to him, but for the company it is equity (reporting entity concept). The entry in the assets for C. Dryfuss, capital should be removed and instead appear under the owner’s equity section of the balance sheet. The ‘plug’ figure needs to be removed. The accounting equation states that Assets = Liabilities + Owner’s Equity. Dryfuss needs to make the corrections above to determine the Owner’s equity balance.

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PROBLEM 1.11A (Continued) b. REFLECTIONS BOOK SHOP Balance Sheet April 30, 2021 Assets Cash ................................................................................ $ 10,000 Accounts receivable ($5,000 + $2,000) .......................... 7,000 Supplies ........................................................................... 1,000 Land ................................................................................. 36,000 Equipment........................................................................ 58,000 Building............................................................................ 110,000 Total assets ................................................................. $222,000 Liabilities and Owner's Equity Liabilities Notes payable ............................................................... $120,000 Accounts payable ........................................................ 15,000 Total liabilities ............................................................ 135,000 Owner's equity: C. Dryfuss, capital .......................................................... 87,000 Total liabilities and owner's equity ......................... $222,000 Taking It Further: All transactions affect a minimum of two financial statement items to ensure that the accounting equation always remains in balance – what we do to one side of the equation must be done to the other side. For example, when cash is decreased the reason why the cash is decreased is also recorded. Thus, an increase in another asset or a decrease in a liability or owner’s equity must also be recorded. LO 3,4,5,6 BT: AP Difficulty: M Time: 55 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.1B 1. a. The owner, Samuel Colt is an internal user of the accounting information of Organics To You. b. When deciding which retail products, in this case pasta, generate the most profit, the owner will be interested in the economic performance of the business as shown on the income statement. The income statement reports the past performance of the business in terms of its revenue, expenses, and profit. Using the details of revenue and expenses at a product line level, the owner can establish which pasta is more profitable to its retail chain of stores. 2. a. In deciding to extend credit to a new customer, The Backroads Company is an external user of the accounting information of its customers. b. Backroads would focus its attention on the information about Europe Tours Company’s economic resources and claims to those resources. The terms of the credit extended to customers requires collection in a short period. Funds used to pay Backroads would come from cash on hand. The balance sheet will show if the new customer has enough cash to meet its obligations, including those to Backroads . 3. a.

The senior partner of Accountants R Us is an internal user of the accounting information. b. To determine if the partnership is holding enough cash to increase the amount of partners’ drawings and still have enough cash to expand its operations, the senior partner should examine the business’s economic resources and claims to those resources to determine if the necessary cash is available to meet obligations and address the drawings and expansion plans.

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.1B (Continued)

Taking It Further: When making decisions based on the financial statements of a business, users need to rely on the faithful representation of the financial statements. To ensure this principle can be met, the individual preparing the financial statements must adhere to the highest standards of ethical behaviour so that the decision maker is not hurt by false or misleading financial information. LO 1 BT: S Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.2B 1. a. The computer science students should incorporate their business because of their concerns about legal liabilities. A corporation is the only form of business that provides limited liability to its owners. b. ASPE will likely be the accounting standards followed, as they are simpler to follow. The business would not be a publicly traded corporation requiring the use of IFRS. 2. a. Shamira should run her small cupcake shop as a proprietorship because this is the simplest and least costly form of business organization to establish and eventually dissolve. She is the only person involved in the business and is planning to operate for a limited time. b. ASPE will likely be the accounting standards followed, as they are simpler to follow. 3. a. Robert and Tom should form a corporation when they combine their operations. This is the best form of business for them to choose because they expect to raise funds in the coming year and it is easier to raise funds in a corporation. A corporation may also receive more favourable income tax treatment. b. ASPE will likely be the accounting standards followed, as they are simpler to follow. The business would not be a publicly traded corporation requiring the use of IFRS. 4. a.

A partnership would be the most likely form of business for Darcy, Ellen, and Meg to choose. It is simpler to form than a corporation and less costly. b. ASPE will likely be the accounting standards followed, as they are simpler to follow.

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.2B (Continued)

Taking It Further: The advantages of starting a business such as a partnership and later incorporating the business include ease of formation, simplicity, and reduced costs. As the business grows and the additional costs and administration that are required of corporations are justified, incorporating the business provides additional advantages. LO 2,3 BT: AP Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.3B a.

Total owner's equity (Jan. 1, 2019)......................... Total liabilities (Jan. 1, 2019) .................................. Total assets (Jan. 1, 2019).......................................

$60,000 0 $60,000

b.

Total assets (Dec. 31, 2019) .................................... Total owner's equity (Dec. 31, 2019) ...................... Total liabilities (Dec. 31, 2019)................................

$75,000 45,000 $30,000

c.

Total owner's equity (Dec. 31, 2019) ...................... Total owner's equity (Jan. 1, 2019)......................... Decrease in owner's equity .....................................

$45,000 60,000 $15,000

Decrease in owner's equity .................................... Add: Investments..................................................... Less: Drawings ........................................................ Loss ..........................................................................

$15,000 5,000 0 $20,000

d.

Total expenses ........................................................ $120,000 Less: Loss................................................................ (20,000) Total revenues ......................................................... $100,000

e.

Total liabilities (Jan. 1, 2020) .................................... $30,000 Equal to total liabilities (Dec. 31, 2019) b. above

f.

Total owner's equity (Jan. 1, 2020)........................... $45,000 Equal to total owner's equity (Dec. 31, 2019) given

g.

Total assets (Dec. 31, 2020) ................................... Equal to total assets (Jan. 1, 2021) given

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.3B (Continued) h.

Total assets (Dec. 31, 2020) g. above.................... Total liabilities (Dec. 31, 2020)............................... Total owner's equity (Dec. 31, 2020)......................

$127,000 45,000 $ 82,000

i.

Total owner's equity (Dec. 31, 2020) ...................... Total owner's equity (Jan. 1, 2020) f. above .......... Increase in owner's equity ......................................

$82,000 45,000 $37,000

Increase in owner's equity ...................................... Less: Profit .............................................. $(35,000) Add: Drawings ......................................... 10,000 Investments .............................................................

$37,000 (25,000) $12,000

j.

Profit......................................................................... $ 35,000 Add: Total expenses ............................................... 95,000 Total revenues ......................................................... $130,000

k.

Total liabilities (Jan. 1, 2021) ...................................... $45,000 Equal to total liabilities (Dec. 31, 2020) given

l.

Total owner's equity (Jan. 1, 2021) ............................. $82,000 Equal to total owner's equity (Dec. 31, 2020) h. above

m.

Total assets (Dec. 31, 2021) ................................... Total owner's equity (Dec. 31, 2021) ..................... Total liabilities (Dec. 31, 2021)...............................

$170,000 100,000 $ 70,000

n.

Total owner's equity (Dec. 31, 2021) ..................... Total owner's equity (Jan. 1, 2021) l. above ......... Increase in owner's equity .....................................

$100,000 82,000 $ 18,000

Increase in owner's equity ..................................... Less: Profit .............................................. $(30,000) Less: Investments .................................... 0 Drawings .................................................................

$18,000

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.3B (Continued) o.

Total revenues ........................................................... $160,000 Less: Profit ............................................................... 30,000 Total expenses .......................................................... $130,000

Taking It Further: In order to decide if an owner needs to invest additional cash in the business, the owner needs to determine if there is sufficient cash available to pay the obligations of the business. Quite often when a business is new, cash infusions are needed to fund the purchase of operating assets. Once the business is established and profitable, the owner is able to start making withdrawals. LO 4 BT: AP Difficulty: C Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.4B a. and b. ($ in thousands) 1. L 2. A 3. A 4. A 5. E 6. E 7. A 8. L 9. A 10. E 11. A 12. L 13. R 14. R 15. L 16. C 17. D 18. L

c.

BS BS BS BS IS IS BS BS BS IS BS BS IS IS BS OE OE BS

Accounts payable Accounts receivable Cash Equipment Insurance expense Interest expense Land and buildings Notes payable Prepaid insurance Operating expenses Other assets Other liabilities Other revenue Rent revenues Salaries payable T. Yuen, capital, January 1 T. Yuen, drawings Unearned rent revenue

$195 160 120 600 15 45 1,495 950 30 871 615 396 52 1,295 125 934 20 24

($ in thousands) Revenue – Expenses = Profit Revenue ($1,295 + $52) = $1,347 Expenses ($15 + $45 +$871) = $931 Profit ($1,347 - $931) = $416

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PROBLEM 1.4B (Continued) Taking It Further: It is important for Paradise Mountain Family Resort to keep track of its different types of expenses to ensure that management is able to get the necessary information to make decisions concerning where improvements in performance can be made. As well, separate expenses can be compared with their related revenues to determine the amount of profit from the different sources of revenue activity for the business. LO 4 BT: AP Difficulty: S Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.5B 1. a.

The accounting treatment is incorrect. The president is a person outside of the organization and not an asset of the business so the impact of his death should not be recorded. b. The entry to record the impact of the death of the president should be removed from the accounting records. Users of the statements would be aware of the death and no mention need be made in the financial statement notes.

2. a. The accounting treatment is incorrect as it violates the historical cost concept. The equipment should be recorded at the amount paid to purchase it. b. The entry to record the purchase of the equipment should be reduced by $100,000 in the accounting records of Montigny. 3. a. A note to the financial statements stating that Vertical Lines Company is a going concern is not necessary. The business is assumed to be a going concern, unless there is evidence to the contrary. b. Any note stating that the business is a going concern should be removed. Taking It Further: It is important for companies to follow generally accepted accounting principles (GAAP) because a common set of standards, applied by all businesses and entities, provides financial statements that are reasonably comparable. Without a common set of standards, each enterprise could develop its own theory structure and set of practices, resulting in noncomparability among enterprises, to the detriment of financial statement users. LO 3,5 BT: C Difficulty: M Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 1.6B a. KENSINGTON BIKE REPAIR SHOP

Cash

+

Acc. Rec.

SupEquipAcc. Unearned Note L.Depres, L.Depres, Ex+ plies + ment = Payable + Revenue + Payable + Capital – Drawings +Revenue – penses

April 1 +$21,000 +$9,000 2 −3,000 5 −1,050 7 +$975 9 +3,200 16 +$2,900 26 +1,200 −1,200 27 −975 28 −290 29 −1,300 30 30 −1,400 30 +750 30 +2,100 $19,485+ $2,450 + $975 + $9,000 =

+$21,000 +$6,000

−$1,050

+$975 +$3,200 +2,900 −975 −290 −1,300 −200 −1,400

+200 +750 +$2,100 $200 + $2,100 + $6,000 + $21,000 −

$1,300 + $6,850

$31,910 = $31,910

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 1.6B (Continued) b.

Capital investment .................................................... $21,000 Less: Drawings ........................................................ 1,300 19,700 Add: Revenue.......................................................... 6,850 Less: Expenses ........................................................ (2,940) L. Depres, capital, April 30 ........................................ $23,610

Taking It Further: $500 should be reported as an asset, Supplies, on the April 30 balance sheet; the $475 of supplies used as of that date should be reported as Supplies Expense representing supplies that were used in the month of April. LO 4,6 BT: AP Difficulty: S Time: 45 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 1.7B a.

Transaction

Cash

BARRY CONSULTING

+

June 1 +$6,000 2 –900 3 5 –95 9 +3,275 12 –600 15 17 21 22 26 29 30 30

–1,800 +3,000 –545 +5,500 –2,150 –150 +2,500 $14,035 +

Acc. Rec.

+ Sup- + Equip. = Acc. + Notes plies Payable Pay.

Unearn ed + Reve- + L. Barry, – L. Barry, + Revenue – Exnue Capital Drawings penses +$6,000 –$900

+$545

$545 –95 +$3,275 –$600

+$5,000

+5,000 –1,800

–3,000 -545 +$5,500 +$2,150 –150 +$2,500 $2,000 +

$545 + $2,150 =

$

0 + $ 5,500 + $2,500 +

$6,000 –

$600 +

$8,275 –

$18,730 = $18,730

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.7B (Continued) a.

(Continued)

Note: The first June 1 transaction is not relevant to the business entity. It is a personal transaction. The June 25 transaction is not recorded because the transaction has not yet been completed. Revenue will not be recognized until the services are performed in July.

b.

Profit = Revenues − Expenses = ($8,275 − $2,945) = $5,330 Owner’s Equity = Investment − Drawings + Profit = ($6,000 − $600 + $5,330) = $10,730

c. BARRY CONSULTING Balance Sheet June 30, 2021 Assets Cash ........................................................................... $14,035 Accounts receivable ................................................. 2,000 Supplies ..................................................................... 545 Equipment.................................................................. 2,150 Total assets ........................................................... $18,730 Liabilities and Owner's Equity Liabilities Note payable ............................................................ $ 5,500 Unearned revenue .................................................... 2,500 Total liabilities....................................................... 8,000 Owner’s equity L. Barry, capital (see part b.) .................................. 10,730 Total liabilities and owner's equity ........................ $18,730

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PROBLEM 1.7B (Continued) Taking It Further: Recognition of an event or transaction should take place only when there has been a change in the financial position of the company. In other words, if a transaction affects any asset, liability, equity, revenue, or expense and has a measureable dollar amount, it should be recognized in the accounting records. As well, personal transactions must be excluded, to comply with the reporting entity concept. LO 3,4,5,6 BT: AP Difficulty: S Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 1.8B a.

BAKER’S ACCOUNTING SERVICE +

Trans. Oct. 1 1 1 4 8 14 15 18 20 25 28 29 29 30 30 Total

Cash $5,700 -3,800 -900 +1,550 -500

+

+

=

Acc. Sup- EquipRec. plies ment $2,100 $350 $7,600

+ + + + – + F. UnF. Acc. Notes Revearned Baker, Baker, Pay. Revenue Payable Capital Drawings enues $4,300 $11,450 -3,800 +

-1,550 +4,000

+$3,500 +$900 -300

-400 -$500 +8,000 +2,300

+5,400 -720 +$2,800 +205

-1,200 $13,630

Expenses

-$900

+900 -300 +400 -500 +8,000 +3,100 -720 +2,800

–

$3,350 $350

$11,600 =

$ 705

-205 $ 2,800

$11,500 +

$11,450

-1,200 -$ 1,700

$ 6,300 -$2,125

$28,930 = $28,930

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.8B (Continued) a.

(Continued)

Note: The October 5 and October 26 events are not recorded because no accounting transaction has taken place. The October 26 statement is not a transaction. In the October 5 transaction, the expense incurred for the office assistant will be recorded when the office assistant has worked for Baker. b. BAKER’S ACCOUNTING SERVICE Income Statement Month Ended October 31, 2021 Revenues Service revenue ........................................................ $6,300 Expenses Advertising expense ........................................ $300 Rent expense ............................................... 900 Salaries expense.......................................... 720 Telephone expense ......................................... 205 Total expenses ..................................................... 2,125 Profit............................................................................... $4,175 BAKER’S ACCOUNTING SERVICE Statement of Owner's Equity Month Ended October 31, 2021 F. Baker, capital, October 1 ........................................ $11,450 Add: Profit ................................................................. 4,175 15,625 Less: Drawings ........................................................ 1,700 F. Baker, capital, October 31 ...................................... $13,925

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PROBLEM 1.8B (Continued) b. (Continued) BAKER’S ACCOUNTING SERVICE Balance Sheet October 31, 2021 Assets Cash ............................................................................. $13,630 Accounts receivable ....................................................... 3,350 Supplies ....................................................................... 350 Equipment..................................................................... 11,600 Total assets ............................................................. $28,930 Liabilities and Owner's Equity Liabilities Notes payable ......................................................... $11,500 Accounts payable ................................................... 705 Unearned revenue .................................................... 2,800 Total liabilities ...................................................... 15,005 Owner's Equity F. Baker, capital ....................................................... 13,925 Total liabilities and owner's equity.................... $28,930

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.8B (Continued) b. (Continued) Taking It Further: Although a payment was made from the business bank account, the payment was with respect to a personal transaction of the owner for his family. The amount must be recorded as a drawings transaction to the F. Baker, Drawings account as it is not a business expense. The reporting entity concept guides the accounting treatment for these transactions; it states that transactions related to the business must be kept separate from the personal transactions of the owner. In this case, the cost of the dinner is not a benefit to the business nor does it represent a cost associated with operating the business. LO 4,5,6 BT: AP Difficulty: M Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.9B JOHANSEN DESIGNS Income Statement Year Ended December 31, 2021 Revenues Service revenue ............................................................ $132,900 Expenses Salaries expense................................................ $70,500 Rent expense .................................................... 18,000 Supplies expense ............................................. 3,225 Telephone expense .......................................... 3,000 Utilities expense ............................................... 2,400 Insurance expense ........................................... 1,800 Interest expense ............................................... 350 Total expenses ........................................................... 99,275 Profit..................................................................................... $33,625 JOHANSEN DESIGNS Statement of Owner's Equity Year Ended December 31, 2021 J. Johansen, capital, January 1........................................ $35,800 Add: Profit ....................................................................... 33,625 69,425 Less: Drawings................................................................. 40,000 J. Johansen, capital, December 31 .................................. $29,425

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.9B (Continued) JOHANSEN DESIGNS Balance Sheet December 31, 2021 Assets Cash ................................................................................... $ 11,895 Accounts receivable ......................................................... 6,745 Supplies ............................................................................. 675 Prepaid insurance ............................................................. 600 Furniture ............................................................................ 15,750 Equipment.......................................................................... 9,850 Total assets ................................................................... $45,515 Liabilities and Owner's Equity Liabilities Notes payable ............................................................... Accounts payable ......................................................... Unearned revenue ........................................................ Total liabilities ..........................................................

$ 7,000 6,590 2,500 16,090

Owner's equity J. Johansen, capital ......................................................... 29,425 Total liabilities and owner's equity ........................... $45,515 Taking It Further: To determine the December 31, 2021, balance in the J. Johansen, capital account for the balance sheet, you need to have prepared the statement of owner’s equity first. The balance in the owner’s capital is not updated each time owner’s equity is increased or decreased. Instead, at the end of the accounting period, the impact of the revenues, expenses, and drawings on owner’s capital is determined in the income statement and then in the statement of owner’s equity. LO 6 BT: AP Difficulty: S Time: 45 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.79B $110,000 − $5,000 − $10,000 − $45,000 = $50,000 $66,500 − $59,600 = $6,900 $110,000 − $66,500 = $43,500 Total assets = $110,000 $62,500 − $37,500 − $6,000 = $19,000 $80,000 − $62,500 = $17,500 $57,500 − $35,000 − $17,500 (from vi) = $5,000 $17,500 (from vi) $57,500 − $43,500 (from iii) = $14,000 $43,500 from the balance sheet (from iii)

a.

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x)

b.

In preparing the financial statements, the first statement to be prepared is the income statement. The profit figure is then used in the statement of owner’s equity to calculate the ending balance of capital. The balance sheet is then completed using the balance of capital as calculated in the statement of owner’s equity.

Taking It Further: The balance sheet, which is sometimes referred to as the statement of financial position, reports balances at a specific point in time – as of the last day of the reporting period. The income statement reports the results of the business transactions of revenues and expenses for a period of time, whether it is a month, a quarter, or a fiscal year. The statement of owner’s equity also reports for the same period of time those items that have increased or decreased capital. Consequently, the income statement and the statement of owner’s equity are for the period of time ending at a specific date and the balance sheet is at that specific date. LO 6 AN: AP Difficulty: M Time: 45 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 1.11B a. 1. Only the assets that belong to the business and the liabilities that are owed by the business should be recorded in its financial statements. The boat and related debt should be removed from the balance sheet to conform to the reporting entity concept. 2.

The supplies should be recorded at cost of $15,000 until they are used (historical cost concept).

3.

The $5,000 should be returned to cash as this transaction has not yet occurred (recognition criteria).

4.

G. Goodman, capital should be reported at its ending balance at December 31, 2021, on the balance sheet. He needs to update the balance to include the impact of all revenues, expense, and drawings during the period on owner’s equity.

5.

The prepaid insurance of $1,200 needs to be added to the assets of the business.

6.

The profit should not appear on the balance sheet; it should be included in the ending balance of the capital account.

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PROBLEM 1.11B (Continued) b. GG Company Balance Sheet December 31, 2021 Assets Liabilities and Owner’s Equity Cash $20,000 Accounts payable $45,000 Accounts receivable 55,000 Supplies 15,000 G. Goodman, capital 46,200 Prepaid insurance 1,200 Total liabilities and Total assets $91,200 owner’s equity $91,200 G. Goodman, capital = $91,200 – $45,000 = $46,200. Taking It Further: If Gil Goodman did not make any withdrawals from GG Company nor make further investments into the business during 2021, the change in his capital account will correspond to the profit for the year ended December 31, 2021. In this case the G. Goodman, capital account increased from $25,000 to $46,200 and so the profit was $21,200. LO 3,4,5,6 BT: AP Difficulty: M Time: 55 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

BYP 1.1 FINANCIAL REPORTING PROBLEM

a.

Aritzia used a February 25 as its year end in 2018 and in 2017, the year end date was February 26. Aritzia uses a fiscal year end that is the Sunday closest to the last day in February each year. This results in a year end date that is one or two days different from the previous year. Companies may choose to use either a 12-month year or a 52-week year as in Aritzia’s case. The key is a consistent number of days from year to year.

b.

As mentioned in note 1 to the financial statements, titled Nature of operations and basis of presentation, Aritzia presents this information under the caption “Statement of compliance.”

c.

The five consolidated financial statements presented for the year ended February 25, 2018 include: 1. Statements of Financial Position 2. Statements of Operations 3. Statements of Comprehensive Income (Loss) 4. Statements of Changes in Shareholders’ Equity 5. Statements of Cash Flows

d.

At the top of each financial statement, immediately after the title of the statement in brackets (in thousands of Canadian dollars) appears. For the statements of operations and the statements of changes in shareholders’ equity, further clarification is given that this presentation excludes the amounts for the number of shares reported and for earnings per share (except per share amounts).

e.

Total assets as at February 25, 2018: February 26, 2017:

Solutions Manual .

$567,678,000 $486,845,000

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Accounting Principles, Eighth Canadian Edition

BYP 1.1 (Continued) f.

g.

Total liabilities as at February 25, 2018: February 26, 2017:

$281,977,000 $285,237,000

Net income (loss) for year ended: February 26, 2017 $(56,109,000) February 25, 2018 $57,093,000 Increase in net income during the year is the sum of $56,109,000 and $57,093,000 which is $113,202,000. A percentage comparison is misleading because of the loss in 2017.

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Accounting Principles, Eighth Canadian Edition

BYP 1.2 INTERPRETING FINANCIAL STATEMENTS

a.

Employees are the most important economic resource to a business such as Apple. Employees bring innovation in the development of new products and therefore have the potential to provide future economic benefit to the business. For an asset to be included on a company’s balance sheet, that asset needs to be owned or controlled by the company and have the potential to provide future services or economic benefits. In addition, the value must be able to be reliably measured in monetary terms. While employees do provide future services and economic benefits, their value cannot be measured in monetary terms, and they are not owned by Apple Inc. Unrecorded economic resources such as employees are not included on the balance sheet.

b.

The total assets reported on the balance sheet do not reveal what Apple is worth. A full balance sheet would be needed to find out how these assets are financed. If there was a great deal of debt on the balance sheet that would have to be paid out from the assets, this would leave very little equity to the shareholders, which is the amount that would be closer to the value of the business. There are other limitations to the balance sheet besides omitting the value of the employees. Many assets on the balance sheet are recorded at cost, rather than fair value. Other assets, such as the Apple trademark, are not listed. As well, what a business is “worth” or can be sold for may not be representative of either its cost or fair value. In the end, it is what someone is willing to pay for a company that determines a company’s worth, ideally supported by its current fair value or potential future profits.

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Accounting Principles, Eighth Canadian Edition

BYP 1.3 COLLABORATIVE LEARNING ACTIVITY All of the material supplementing the collaborative learning activity, including a suggested solution, can be found in the Collaborative Learning section of the Instructor Resources site accompanying this textbook.

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Accounting Principles, Eighth Canadian Edition

BYP 1.4 COMMUNICATION ACTIVITY Date: To: Robert Joote From: Student Subject: Balance Sheet Correction I have reviewed the balance sheet of Peak Company as at December 31, 2021 and offer the following comments for your review and consideration: a.

The balance in your capital account should be the accumulation of all investments, either in cash or other assets, contributed by you to the company, less any drawings, in either cash or other assets, you have made for personal use, plus profit and less losses over time. The purpose of a balance sheet is to present the financial position of the company at a point in time. The balance sheet lists the company’s assets, liabilities, and equity.

b.

A number of items in your balance sheet are not properly reported, as indicated below: 1.

The balance sheet should be dated as at a specific date, not for a period of time such as the month ended December 31, 2021. Rather, it should be dated "December 31, 2021."

2.

Assets on the balance sheet are normally listed in order of liquidity.

3.

Assets include Accounts Receivable and Prepaid Insurance, which should be included in the assets section rather than as deductions to liabilities and owner’s equity.

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BYP 1.4 (Continued) b. (Continued) 4.

The bottom portion of the balance sheet, headed "Liabilities and Owner's Equity", should be sub-divided into two sections: one for Liabilities and one for Owner's Equity. Liability accounts would include Notes Payable and Accounts Payable. The owner’s equity section would include the capital account.

5.

Accounts Payable should be reported in the liability section, rather than as a deduction in the assets section of the balance sheet.

6.

R. Joote, Drawings should not be reported separately on the balance sheet but rather should be subtracted from R. Joote, Capital to arrive at owner's equity for the end of the period.

To prepare the statement of owner’s equity, you need to have the amount of the profit or loss for the year. This is why the income statement is prepared first. To determine the ending balance in the capital account for the balance sheet, you need to have the balance in the owner’s capital account. This is why the statement of owner’s equity is prepared second.

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Accounting Principles, Eighth Canadian Edition

BYP 1.4 (Continued) c.

A correct balance sheet follows: PEAK COMPANY Balance Sheet December 31, 2021

Assets Cash ................................................................................... $10,500 Accounts receivable ......................................................... 3,000 Supplies ............................................................................. 2,000 Prepaid insurance ............................................................. 2,500 Equipment.......................................................................... 20,500 Total assets ................................................................... $38,500 Liabilities and Owner's Equity Liabilities Notes payable ................................................................. $12,000 Accounts payable ............................................................ 5,000 Total liabilities .............................................................. 17,000 Owner's equity R. Joote, capital .............................................................. 21,500 Total liabilities and owner's equity ........................... $38,500 R. Joote, capital = $38,500 − $17,000 = $21,500.

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Accounting Principles, Eighth Canadian Edition

BYP 1.5 ALL ABOUT YOU a. 1. When deciding what kind of summer job to apply for, considerations would include tuition and textbooks costs, living expenses, and spending money requirements for the year. The wage rate of any employment opportunity is also relevant in the decision, including the the number of weeks of work during the summer months. Financial stability of the employer to ensure continued employment may also be a consideration particularly if continued part-time employment beyond the summer months is desired. b.

By understanding an income statement and how it is used, the concept can be applied to assist in choosing an appropriate “profitable” job. Wages earned constitute the revenues that a student can expect less any of the relevant monthly expenses required to cover school and living expenses. This can help determine whether the wages earned by a particular job will result in a profit or loss at the end of the period.

a. 2. In determining the affordability of purchasing a secondhand car and incurring parking expenses versus using public transit to get back and forth to college each day, several pieces of financial information are required. The relevant information for the purchase and financing of a second-hand car include the actual cost of the car, financing costs, insurance costs, maintenance costs, gas and parking costs, along with the value of the car at the end of the school term. Lending costs would be dependent on negotiations regarding the car purchase, including the amount that could be borrowed, money available for a down payment, interest rates, and the loan amortization period. All of these factors will affect the monthly loan payment required. Other debt obligations should also be taken into consideration.

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BYP 1.5 (Continued) 2. a.

(Continued) Alternatively, public transit could be used. would be limited to the college term.

b.

The cost

By understanding the financial statements, a better analysis of the value of the car as an asset and the associated debt as a liability can be determined, and the student can make a more informed decision regarding the obligations of a car purchase. Monthly costs of owning the vehicle or using a transit pass will also have an impact on the amount of money (revenues/wages) the student requires to cover these additional expenses.

a. 3. When assessing whether an employer is financially stable and has growth potential, it is useful to have financial information. If the two options include publicly traded companies, annual reports and audited financial statements are good sources of information about the companies’ financial stability and growth potential. b.

By understanding the financial statements of a business, an individual is in a better position to reduce the risks involved in choosing between employers, whether this decision is upon graduation or for summer employment. The income statement provides information regarding profitability, while the balance sheet is used to assess long-term stability and immediate liquidity or solvency of the firm.

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Accounting Principles, Eighth Canadian Edition

BYP 1.6 Santé Smoothie Saga a.

Natalie has a choice between a sole proprietorship and a corporation. A partnership is not an option since she is the sole owner of the business. A proprietorship is the easiest to create and operate because there are no formal procedures involved in creating the proprietorship. However, if she operates the business as a proprietorship she will personally have unlimited liability for the debts of the business. Operating the business as a corporation may limit her liability to her investment in the business; however, in Canada it is not unusual for business lenders to require the shareholder(s) of small privately held corporations to personally guarantee corporate loans. In this case the shareholder may still be responsible for the business debt in the event of bankruptcy and/or insolvency. Natalie will likely require the services of a lawyer to incorporate. Costs to incorporate, as well as additional ongoing costs to administer and operate the business as a corporation, could be higher than a proprietorship.1 The corporation would pay income taxes on its profits, instead of Natalie personally paying taxes on the net income of the proprietorship. The amount of taxes that would be paid could be higher or lower with the corporation.1 My recommendation is that Natalie choose the proprietorship form of business organization. This is a very small business where the cost of incorporating outweighs the benefits of incorporating at present. Furthermore, it will be easier to stop operating the business if Natalie decides not to continue with it once she is finished college. 1

Additional comments that are not specifically covered in the text that some students may identify, or the instructor may wish to discuss with the students.

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BYP 1.6 (Continued) b.

Yes, Natalie will need accounting information to help her operate her business. She will need information on her cash balance on a daily or weekly basis to help her determine if she can pay her bills. She will need to know the cost of her smoothies so she can establish what to charge her customers. She will need to know the company’s revenues and expenses so she can report her profit for personal income tax reporting purposes on an annual basis. If she borrows money, she will need financial statements so lenders can assess the company’s ability to the service the debt and pay the principal plus interest. Natalie would also find financial statements useful to better understand her business and identify any financial issues as early as possible. Monthly financial statements would be best because accounting information is needed on a timely basis.

c.

If Natalie needs to borrow money from a relative or from the bank or needs to establish credit with some suppliers, she will need to be able to present these creditors with a set of financial statements to obtain credit and to demonstrate her ability to repay loans. The Canada Revenue Agency (CRA) is another user of the financial information. CRA will want to ensure that Natalie is reporting all the profits properly and that the expenses of the business are in fact deductible. Natalie will personally pay income taxes on the (net) profit of the company.

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BYP 1.6 (Continued) d.

Assets: Cash, Accounts Receivable, Supplies, Equipment Liabilities: Accounts Payable, Unearned Revenue, Notes Payable Owner’s Equity: N. Koebel, Capital, N. Koebel, Drawings Revenue: Revenue Expenses: Advertising Expense, Interest Supplies Expense, Telephone Expense

e.

Expense,

Natalie should have a separate bank account used solely by Santé Smoothies. This will make it easier to prepare financial statements for her business. The business is a separate entity from Natalie and must be accounted for separately.

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CHAPTER 2 The Recording Process

Learning Objectives 1. Describe how accounts, debits, and credits are used to record business transactions 2. State how a journal is used in the recording process and journalize transactions 3. Explain how a ledger helps in the recording process and post transactions 4. Prepare a trial balance

Solutions Manual .

2.1

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

Summary of Questions by Learning Objectives and Bloom’s Taxonomy Item

LO

BT Item

1. 2. 3. 4.

1 1 1 1

C K K C

1. 2. 3. 4.

1 1 1 1

AP K K K

1. 1 2. 1,2,3,4 3. 1 4. 1

K K C C

1. 2. 3.

AP AP AP

1,2 2 2

Solutions Manual .

LO

BT Item LO

BT Item

LO

BT Item LO BT

Questions 5. 1 C 9. 2 C 13. 3 C 17. 6. 1 C 10. 2 K 14. 4 C 18. C 11. 2 C 15. K 19. 7. 2 4 8. 2 K 12. 3 K 16. 4 C 20. Brief Exercises 5. 1 K 9. 2 AP 13. 2 AP 17. 6. 2 K 10. 2 AP 14. 3 AP 18. C 11. 2 AP 15. AP 7. 2 3 C 12. 2 AP 16. AP 8. 2 4 Exercises 5. 2 AP 9. 2,3 AP 13. 3,4 AP 17. 6. 2 AP 10. 2 AP 14. 3,4 AP 18. 7. 2 AP 11. 3 K 15. 3,4 AP 19. 8. 2 AP 12. 3,4 AP 16. 2,3,4 AP Problems 4. 1,2,3,4 AP 7. 2,3,4 AP 10. 4 AP 13. 5. 2,3,4 AP 8. 2,3,4 AP 11. 2,3,4 AP 14. 6. 2,3,4 AP 9. 4 AP 12. 4 AP 15.

2.2

4 4 4 4

C C AN AN

4 4

AP AP

4 4 4

AP AN AP

4 4 4

AP AN AN

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Accounting Principles, Eighth Canadian Edition

Legend: The following abbreviations will appear throughout the solutions manual file. LO BT

Difficulty:

Time: AACSB

CPA CM

Solutions Manual .

Learning objective Bloom's Taxonomy K Knowledge C Comprehension AP Application AN Analysis S Synthesis E Evaluation Level of difficulty S Simple M Moderate C Complex Estimated time to complete in minutes Association to Advance Collegiate Schools of Business Communication Communication Ethics Ethics Analytic Analytic Tech. Technology Diversity Diversity Reflec. Thinking Reflective Thinking CPA Canada Competency Map Ethics Professional and Ethical Behaviour PS and DM Problem-Solving and Decision-Making Comm. Communication Self-Mgt. Self-Management Team & Lead Teamwork and Leadership Reporting Financial Reporting Stat. & Gov. Strategy and Governance Mgt. Accounting Management Accounting Audit Audit and Assurance Finance Finance Tax Taxation

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Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CLASSIFICATION TABLE Learning Objectives

Questions

Brief Exercises

1. Describe how

1, 2, 3, 4, 5, 6

accounts, debits, and credits are used to record business transactions. 2. State how a journal is used in the recording process and journalize transactions. 3. Explain how a ledger helps in the recording process and post transactions. 4. Prepare a trial balance.

Solutions Manual .

Exercises

Problems Set A

Problems Set B

1, 2, 3, 4, 5

1, 2, 3, 4

1, 4

1, 4

7, 8, 9, 10, 11

6, 7, 8, 9, 10, 11, 12

2, 5, 6, 7, 8, 9, 14, 16

1, 2, 3, 4, 5, 6, 7, 8, 11

1, 2, 3, 4, 5, 6, 7, 8, 11

12, 13, 14

13, 14, 15

2, 9, 10, 11, 12, 13, 15, 16

4, 5, 6, 7, 8, 11

4, 5, 6, 7, 8, 11

15, 16, 17, 18, 19, 20

16, 17, 18

2, 12, 13, 14, 15, 16, 17, 18, 19

4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15

4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15

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Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

Description

Difficulty Level

Time Allotted (min.)

1A

Perform transaction analysis and journalize transactions.

Simple

20-30

2A

Journalize transactions.

Simple

15-20

3A

Journalize transactions.

Simple

20-25

4A

Journalize transactions, post, and prepare trial balance.

Moderate

40-50

5A

Journalize transactions, post, and prepare trial balance.

Moderate

40-50

6A

Journalize transactions, post, and prepare trial balance.

Moderate

55-65

7A

Journalize transactions, post, and prepare trial balance.

Moderate

55-65

8A

Journalize transactions, post, and prepare trial balance.

Moderate

55-65

9A

Prepare trial balance.

Simple

15-20

10A

Prepare financial statements.

Simple

25-35

11A

Moderate

75-90

12A

Journalize transactions, post, prepare trial balance and financial statements. Prepare trial balance and financial statements.

Simple

25-35

13A

Prepare trial balance and financial statements.

Simple

35-45

14A

Analyze errors and effects on trial balance.

Moderate

25-35

15A

Prepare correct trial balance.

Complex

30-40

1B

Perform transaction analysis and journalize transactions.

Simple

20-30

2B

Journalize transactions.

Simple

15-20

3B

Journalize transactions.

Simple

20-25

4B

Journalize transactions, post, and prepare trial balance.

Moderate

40-50

5B

Journalize transactions, post, and prepare trial balance.

Moderate

40-50

6B

Journalize transactions, post, and prepare trial balance.

Moderate

55-65

7B

Journalize transactions, post, and prepare trial balance.

Moderate

55-65

8B

Journalize transactions, post, and prepare trial balance.

Moderate

55-65

9B

Prepare trial balance and financial statements.

Moderate

35-45

10B

Prepare financial statements.

Simple

25-35

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Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

Description

Difficulty Level

Time Allotted (min.)

11B

Journalize transactions, post, prepare trial balance and financial statements.

Moderate

75-90

12B

Prepare financial statements.

Simple

25-35

13B

Prepare trial balance and financial statements.

Simple

35-45

14B

Analyze errors and effects on trial balance.

Moderate

25-35

15B

Prepare correct trial balance.

Complex

30-40

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Chapter 2

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Accounting Principles, Eighth Canadian Edition

BLOOM’S TAXONOMY TABLE Correlation Chart between Bloom’s Taxonomy, Study Objectives, and End-ofChapter Material Study Objective 1. Describe how accounts, debits, and credits are used to record business transactions.

Knowledge Q2.2 Q2.3 BE2.2 BE2.3 BE2.4 BE2.5 E2.1 E2.2

Comprehension Q2.1 Q2.4 Q2.5 Q2.6 E2.3 E2.4

Application BE2.1 P2.1A P2.1B P2.4A P2.4B

2. State how a journal is used in the recording process and journalize transactions.

Q2.8 Q2.10 BE2.6

Q2.7 Q2.9 Q2.11 BE2.7 BE2.8

BE2.9 BE2.11 E2.5 E2.7 E2.9 E2.14 P2.1A P2.2A P2.3A P2.4A P2.5A P2.6A P2.7A P2.8A P2.11A

BE2.10 BE2.12 E2.6 E2.8 E2.10 E2.16 P2.1B P2.2B P2.3B P2.4B P2.5B P2.6B P2.7B P2.8B P2.11B

3. Explain how a ledger helps in the recording process and post transactions

Q2.12 E2.2 E2.11

Q2.13 Q2.14

BE2.13 BE2.14 BE2.15 P2.4A P2.5A P2.6A P2.7A P2.8A P2.11A

4. Prepare a trial balance.

Q2.15 E2.2

Q2.16 Q2.17 Q2.18 Q2.19

Q2.20 BE2.16 BE2.17 BE2.18 E2.10 E2.14 P2.4A P2.5A P2.6A P2.7A P2.8A P2.9A P2.10A P2.11A P2.12A P2.13A

E2.9 E2.12 E2.13 E2.15 E2.16 P2.4B P2.5B P2.6B P2.7B P2.8B P2.11B E2.12 E2.13 E2.15 E2.16 E2.17 E2.19 P2.4B P2.5B P2.6B P2.7B P2.8B P2.9B P2.10B P2.11B P2.12B P2.13B

Solutions Manual .

E2.1 E2.2

2.7

Analysis

Synthesis

Evaluation

Q2.19 E2.18 P2.14A P2.14B P2.15A P2.15B

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Study Objective Broadening Your Perspective

Solutions Manual .

Knowledge

Comprehension BYP2.1 BYP2.4

2.8

Accounting Principles, Eighth Canadian Edition

Application BYP2.2 BYP2.3 BYP2.5 BYP2.6

Analysis

Synthesis

Evaluation

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

ANSWERS TO QUESTIONS 1.

An account is an accounting record of increases and decreases in a specific asset, liability, or owner’s equity item. A company will need, at a minimum, two accounts to represent an asset account and either a liability or owner’s equity account. However, companies usually have many accounts since they will have different types of assets, liabilities, and owner’s equity items, including drawings, revenues, and expenses.

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2.

Debiting an account refers to the practice of entering an amount on the debit (or left) side of an account. Crediting an account signifies entering an amount on the credit (or right) side of an account.

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3.

All accounts have a normal balance, which is the side that increases the account balance. Assets are on the left side of the basic accounting equation and liabilities and owner’s equity are on the right side of the basic accounting equation. Since debits are on the left side, and assets are also on the left side, the normal balance of an asset is a debit balance. Since credits are on the right side and liabilities are on the right side, the normal balance of a liability is a credit balance. The same is also true for owner’s equity. Revenues increase owner’s equity and therefore also have a normal credit balance. But expenses and drawings are decreases to owner’s equity and thus have a normal debit balance.

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4.

Dmitri is incorrect because debit and credit do not mean increase or decrease. Debit means left side and credit means right side. Different types of accounts will increase with debits versus credits. Accounts on the left side of the accounting equation (assets) will increase with debits. Accounts on the right side of the accounting equation (liabilities and owner’s equity) will increase with credits, except for expenses and drawings, which are decreases to owner’s equity and therefore are increased with debits. This way, the accounting equation remains in balance.

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Chapter 2

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Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 5.

The normal balance of owner’s capital is a credit. The account is increased by credits and decreased by debits. Both drawings and expenses reduce owner’s equity. Because of this, their normal balance is a debit. These accounts are increased by debits, which end up reducing owner’s equity.

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6.

Gustave is incorrect. The double-entry system merely records the effect of a transaction on the two (or more) accounts affected. A transaction is not recorded twice; it is recorded once, with a dual (or multiple) effect on the accounting equation.

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7.

An event or transaction is recorded only if it causes the company’s financial position (assets, liabilities, and/or owner’s equity) to change. In some events, nothing is currently obtained nor given up, so nothing is recorded. The event may lead to a future transaction that changes the company’s financial position but is not recorded until that time. An example of an event that is not currently recorded but will result in a future transaction is the signing of a lease.

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8.

The three basic steps in the recording process are analyze, journalize, and post.

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9.

After it is determined that a transaction should be recorded because it does cause the company’s financial position to change, analyzing a business transaction involves identifying (1) the type of accounts involved, (2) whether the accounts are increased or decreased, and (3) whether the accounts need to be debited or credited.

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10.

A simple journal entry refers to an entry that affects only two accounts, a debit to one account and a credit to another account. A compound entry refers to an entry that affects three or more accounts. To ensure the accounting equation remains balanced, the totals of the debit amounts and credit amounts must be equal.

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Chapter 2

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Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 11.

The accounts that could be credited are Revenue, Accounts Receivable, and Unearned Revenue. Revenue would be credited for a cash sale. Accounts Receivable would be credited when a customer makes a payment on account for revenue that was previously earned and recorded. Unearned Revenue would be credited when a customer pays in advance.

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12.

The advantages of recording the individual transactions in a journal before posting to the ledger are: 1. The journal discloses in one place the complete effect of a transaction. 2. The journal provides a chronological record of all transactions. 3. The journal helps to prevent or locate errors, because the debit and credit amounts for each entry can be readily compared.

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13.

The T account is often used in accounting textbooks for illustrative purposes. It shows only the debit and credit side of a ledger account. It is faster to create and more efficient for analyzing the impact of specific transactions Businesses however usually use a “standard” form of account. This form shows a debit and credit column but also includes additional information such as the balance of the account (to show the account balance after every transaction), the date, explanation, and reference. This additional information is useful in preventing and detecting errors.

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14.

The entire group of accounts and related transactional details maintained by a company, including all the asset, liability, and owners' equity accounts, is referred to collectively as the ledger. A chart of accounts lists only the account names and account numbers that identify their location in the ledger. The numbering system used to identify the accounts usually starts with the balance sheet accounts and follows with the income statement accounts. The chart of accounts is important, particularly for a company that has a large number of accounts, because it helps organize the accounts and identify their location in the ledger.

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Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 15.

A trial balance is a list of accounts and their balances at a given time. The primary purpose of a trial balance is to prove the mathematical equality of debits and credits, after all journalized transactions have been posted. A trial balance also helps with the discovery of errors in journalizing and posting. In addition, it is useful in preparing financial statements.

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16.

Since accounts are given an account number in the chart of accounts, the trial balance is prepared in numerical order. Accounts are generally listed and assigned account numbers in the chart of accounts using the following numerical sequence: assets, liabilities, owner’s equity, drawings, revenues, and lastly, expenses. This convention makes is easy for anyone to find an account either in the chart of accounts or in a trial balance.

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17.

The sequence in which the first four steps in the accounting process does matter in properly accounting for transactions. Unless business transactions are first analyzed, it is possible for the transaction to be misinterpreted or omitted from the accounting process. Once analyzed, the transactions need to be journalized in a journal, after which the transactions are posted to the general ledger to arrive at updated balances that then appear in a trial balance.

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18.

The company should use “December 31” on its trial balance. The trial balance simply shows the balance in the accounts at a specific point in time.

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Chapter 2

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Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 19.

a. The trial balance would not balance, because there were two debits for $750 and no credits. The debits do not equal the credits. Accounts Payable should have been credited, not debited, for $750. b. The trial balance would balance, because the debits ($1,000) and credits ($1,000) are equal. But both the Service Revenue and the Accounts Receivable balances would be incorrect as the credit should have been recorded to Accounts Receivable, not Service Revenue. c. The trial balance would not balance, because the debit to Rent Expense for $650 is not equal to the credit to Cash for $560. The debit side of the trial balance is overstated by $90, because either the Rent Expense is overstated by $90 (Rent Expense should have been debited for $560), or cash is overstated by $90 (Cash should have been credited for $650).

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20.

The following are three types of errors that could cause the trial balance to not balance, although the ledger accounts have correct balances. 1. When transcribing amounts from the ledger to the trial balance, an account balance was recorded at an incorrect amount or omitted. 2. Balances in the trial balance did not appear in the correct column. 3. The addition of the trial balance columns was not done correctly.

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Chapter 2

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Accounting Principles, Eighth Canadian Edition

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 2.1 a.

$7,500 + $16,700 – $15,400 = $8,800

b.

$8,800 + $13,100 – $4,700 = $17,200

c.

$3,800 – $6,400 + $6,800 = $4,200

d.

$3,800 + $7,700 – $5,900 = $5,600

e.

$100,000 – $24,000 + $45,000 = $121,000

f.

$149,000 – $121,000 + $27,000 = $55,000

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BRIEF EXERCISE 2.2 Normal Balance Debit Credit Debit Credit Debit Credit Debit Debit Debit Credit

Account 1. Prepaid Insurance 2. Accounts Payable 3. Land 4. Service Revenue 5. Utilities Expense 6. Owner’s Capital 7. Equipment 8. Salaries Expense 9. Supplies 10. Unearned Revenue

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Chapter 2

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Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 2.3

1. 2. 3. 4. 5. 6. 7. 8.

a. Type of Account Asset Owner’s Equity Owner’s Equity Asset Liability Owner’s Equity Asset Liability

Account Accounts Receivable Rent Expense B. Damji, Drawings Supplies Unearned Revenue Service Revenue Prepaid Insurance Notes Payable

b. Normal Balance Debit Debit Debit Debit Credit Credit Debit Credit

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BRIEF EXERCISE 2.4 Cash Dr. 500 800 8,920 5,355 10,435 Sub. 26,010 Bal. 10,045

Service Revenue Dr. Cr. 9,500 3,200 4,500 1,050 Bal. 18,250

Cr. 8,720 495 6,750

15,965

Accounts Payable Dr. Cr. 1,720 6,740 495 2,500 6,750 Sub. 8,965

Salaries Expense Dr. Cr. 4,550 550 3,750 425 Bal. 9,275

9,240 Bal. 275

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Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 2.5

1. 2. 3. 4. 5. 6. 7. 8.

Accounts Payable Supplies J. Takamoto, Capital J. Takamoto, Drawings Prepaid Rent Utilities Expense Service Revenue Unearned Revenue

a. Normal Balance Credit Debit Credit Debit Debit Debit Credit Credit

b. Debit Effect Decrease Increase Decrease Increase Increase Increase Decrease Decrease

c. Credit Effect Increase Decrease Increase Decrease Decrease Decrease Increase Increase

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BRIEF EXERCISE 2.6 a.

b. Change with Credit

1. Increase in D. Parmelee, Capital

Account Owner’s Equity

2. Decrease in Cash

Asset

Credit

3. Decrease in Notes Payable

Liability

Debit

4. Increase in Rent Expense

Owner’s Equity

Debit

5. Increase in D. Parmelee, Drawings

Owner’s Equity

Debit

6.

Increase in Equipment

Asset

Debit

7.

Increase in Accounts Payable

Liability

Credit

8.

Increase in Service Revenue

Owner’s Equity

Credit

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Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 2.7 Transaction 1: (Solution provided in text.) Basic Analysis Debit/Credit Analysis

The assetaccount Cash is decreased by $439. The asset account Supplies is increased by $439. Debits increase assets: debit Supplies $439. Credits decrease assets: credit Cash $439.

Transaction 2: Basic Analysis Debit/Credit Analysis

The asset account Accounts Receivable is increased by $1,020. The revenue account Service Revenue is increased by $1,020. Debits increase assets: debit Accounts Receivable $1,020. Credits increase revenues: credit Service Revenue $1,020.

Transaction 3: Basic Analysis Debit/Credit Analysis

The asset account Equipment is increased by $2,230. The liability account Accounts Payable is increased by $2,230. Debits increase assets: debit Equipment $2,230. Credits increase liabilities: credit Accounts Payable $2,230.

Transaction 4: Basic Analysis Debit/Credit Analysis

Solutions Manual .

The expense account Utilities Expense is increased by $293. The asset account Cash is decreased by $293. Debits increase expenses: debit Utilities Expense $293. Credits decrease assets: credit Cash $293.

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Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 2.7 (Continued) Transaction 5: Basic Analysis Debit/Credit Analysis

The asset account Cash is increased by $750. The revenue account Service Revenue is increased by $750. Debits increase assets: debit Cash $750. Credits increase revenues: credit Service Revenue $750.

Transaction 6: Basic Analysis Debit/Credit Analysis

The asset account Cash is increased by $7,100. The liability account Unearned Revenue is increased by $7,100. Debits increase assets: debit Cash $7,100. Credits increase liabilities: credit Unearned Revenue $7,100.

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Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 2.8 Account Debited a. b. Basic Specific Type Account Asset Cash

+ $17,970

4

Asset

+ $4,720

5

Asset

Prepaid Rent Supplies

6

Asset

Cash

17

Asset

27

Owner’s Equity Owner’s Equity

Accounts Receivable Salaries Expense B. Fleming, Drawings

Transaction Aug. 1*

29

c. Effect

Account Credited a. b. c. Basic Specific Effect Type Account Owner’s B. Fleming, + $17,970 Equity Capital Asset Cash – $4,720

+ $625

Liability

+ $560

+ $980

Owner’s Equity Owner’s Equity Asset

Accounts Payable Service Revenue Service Revenue Cash

+ $720

Asset

Cash

+ $1,210

+ $625 + $560 + $1,210 – $980 – $720

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.

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 2.9 June 1 transaction: (Solution provided in text) Basic Analysis Debit/Credit Analysis Journal Entry

The asset account Cash is increased by $8,430. The owner’s equity account T. Pridham, Capital is increased by $8,430. Debits increase assets: debit Cash $8,430. Credits increase owner’s equity: credit T. Pridham, Capital $8,430. June 1 Cash 8,430 T. Pridham, Capital 8,430 Invested cash in business.

June 2 transaction: Basic Analysis Debit/Credit Analysis Journal Entry

The asset account Equipment is increased by $2,620. The liability account Accounts Payable is increased by $2,620. Debits increase assets: debit Equipment $2,620. Credits increase liabilities: credit Accounts Payable $2,620. June 2 Equipment 2,620 Accounts Payable 2,620 Purchased equipment on account.

June 5 transaction: Basic Analysis

Solutions Manual .

An accounting transaction has not occurred. A debit/credit analysis is not needed because there is no accounting entry.

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Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 2.9 (Continued) June 17 transaction: Basic Analysis Debit/Credit Analysis Journal Entry

The asset account Accounts Receivable is increased by $2,500. The revenue account Service Revenue is increased by $2,500. Debits increase assets: debit Accounts Receivable $2,500. Credits increase revenues: credit Service Revenue $2,500. June 17 Accounts Receivable 2,500 Service Revenue 2,500 Performed services on account for R. Windl.

June 27 transaction: Basic Analysis Debit/Credit Analysis Journal Entry

The asset account Cash is increased by $1,190. The asset account Accounts Receivable is decreased by $1,190. Debits increase assets: debit Cash $1,190. Credits decrease assets: credit Accounts Receivable $1,190. June 27 Cash 1,190 Accounts Receivable 1,190 Collected cash on account from R. Windl.

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BRIEF EXERCISE 2.10 Oct.

1

2

3

6

27

30

Cash ..................................................... 30,000 L. Berge, Capital ............................. Invested cash in business.

30,000

Rent Expense .......................................... 700 Cash ................................................ Paid October rent.

700

Equipment ........................................... 2,800 Accounts Payable........................... Purchased office equipment on account.

2,800

Accounts Receivable ........................... 4,400 Service Revenue............................. Performed services on account.

4,400

Accounts Payable ................................ 1,100 Cash ................................................ Made a payment on account.

1,100

Utilities Expense ..................................... 130 Accounts Payable .......................... Received bill for October utilities.

130

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BRIEF EXERCISE 2.11 All entries are at August 31 as given in the text. 1.

2.

3.

4.

5.

6.

Supplies ............................................... Cash ................................................ Cash purchase for supplies.

439 439

Accounts Receivable .......................... 1,020 Service Revenue............................. Performed services on account.

1,020

Equipment ........................................... 2,230 Accounts Payable........................... Purchased office equipment on account.

2,230

Utilities Expense ..................................... 293 Cash ................................................ Paid utilities expense.

293

Cash ......................................................... 750 Service Revenue............................. Received cash for services performed.

750

Cash ...................................................... 7,100 Unearned Revenue ......................... Received cash in advance from customer.

7,100

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BRIEF EXERCISE 2.12 Aug.

1

4

5

6

17

27

29

Cash ..................................................... 17,970 B. Fleming, Capital ......................... Invested cash in business.

17,970

Prepaid Rent ......................................... 4,720 Cash ................................................ Paid rent in advance.

4,720

Supplies ................................................... 625 Accounts Payable........................... Purchased supplies on account.

625

Cash ..................................................... 560 Service Revenue............................. Received cash for services performed.

560

Accounts Receivable ........................... 1,210 Service Revenue............................. Performed services on account.

1,210

Salaries Expense .................................... 980 Cash ................................................ Paid employee salaries.

980

B. Fleming, Drawings .............................. 720 Cash ................................................ Withdrew cash for personal use by owner.

720

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BRIEF EXERCISE 2.13 Jan.

2

3

9

11

16

20

28

Cash ..................................................... 10,000 M. Acosta, Capital........................... Invested cash in business.

10,000

Vehicles ................................................ 3,000 Cash ................................................ Purchased a used car for cash.

3,000

Supplies ................................................... 600 Accounts Payable........................... Purchased supplies on account.

600

Accounts Receivable ........................... 2,400 Service Revenue............................. Performed services on account.

2,400

Advertising Expense ............................... 350 Cash ................................................ Paid for advertising expense.

350

Cash ......................................................... 900 Accounts Receivable ..................... Collection on account.

900

M. Acosta, Drawings ............................ 1,000 Cash ................................................ Withdrew cash for personal use by owner.

1,000

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BRIEF EXERCISE 2.14 Apr. 1 3 Bal.

Cash Apr. 16 1,600

700

3,400

250

20

4,050

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BRIEF EXERCISE 2.15

Sept. 4

Cash 2,400

10

3,000

28

1,325

Sept. 30 Bal.

6,725

Accounts Receivable Sept. 2 4,400 Sept. 4 2,400 28

1,325

Service Revenue Sept. 2 10

4,400 3,000

Sept. 30 Bal. 675

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BRIEF EXERCISE 2.27 AMARO COMPANY Trial Balance June 30, 2021 Debit Cash ............................................................... $ 5,800 Accounts receivable ..................................... 3,000 Equipment ..................................................... 17,000 Accounts payable.......................................... Owner’s capital.............................................. Owner’s drawings ......................................... 1,200 Service revenue............................................. 1,000 Rent expense ................................................. Salaries expense ........................................... 5,100 $33,100

Credit

$ 8,100 15,000 10,000 $33,100

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BRIEF EXERCISE 2.17 PETTIPAS COMPANY Trial Balance April 30, 2021 Debit

Credit

Cash ............................................................... $6,400 Accounts receivable ..................................... 5,000 Supplies ......................................................... 650 Prepaid rent ................................................... 800 Equipment ..................................................... 14,600 Accounts payable.......................................... Unearned revenue ......................................... C. Pettipas, capital ........................................ 1,100 C. Pettipas, drawings .................................... Service revenue............................................. 4,500 Rent expense ................................................. Salaries expense ........................................... 1,000 $34,050

$ 3,300 250 22,500 8,000 $34,050

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BRIEF EXERCISE 2.18 1.

The Prepaid insurance balance was in the wrong column. Assets have a normal debit balance. When this account is moved to the debit column, the new total in the debit column will be $46,200 ($42,700 + $3,500) and the new total in the credit column will be $47,100 ($50,600 – $3,500).

2.

The trial balance is now out of balance by $900 ($46,200 – $47,100). The transposition error in L. Bourque, Capital account is the cause of the $900 difference. If the $15,400 balance in that account is transposed to $14,500, this will reduce the total credits by $900 and the trial balance will now balance. See revised trial balance below: BOURQUE COMPANY Trial Balance December 31, 2021

Debit Cash ............................................................... $15,000 Accounts receivable ..................................... 1,800 Prepaid insurance ......................................... 3,500 Accounts payable.......................................... Unearned revenue ......................................... L. Bourque, capital ........................................ L. Bourque, drawings.................................... 4,900 Service revenue............................................. Rent expense ................................................. 2,400 Salaries expense ........................................... 18,600 $46,200

Credit

$ 2,000 2,200 14,500 27,500

$46,200

LO 4 BT: AP Difficulty: C Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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SOLUTIONS TO EXERCISES EXERCISE 2.1 1.

False. An account is an accounting record of a specific asset, liability, or owner’s equity item.

2.

False. An account shows increases and decreases in the item it relates to.

3.

False. Each asset, liability, and owner’s equity item has a separate account.

4.

False. An account has a left, or debit side, and a right, or credit side.

5.

True.

LO 1 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

EXERCISE 2.2 a. b. c. d. e. f. g. h. i. j.

4. 2. 9. 1. 5. 7. 10. 4. 3. 6.

Credit Analyzing transactions Posting Account Debit Journalizing Trial balance Credit Chart of accounts Journal

LO 1,2,3,4 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.3 a. Account Cash* M. Kobayashi, Capital Accounts Payable Building Insurance Expense Interest Revenue M. Kobayashi, Drawings Notes Receivable Prepaid Insurance Rent Expense Service Revenue Supplies

1. Type of Account Asset Owner’s Equity (Capital) Liability Asset Owner’s Equity (Expense) Owner’s Equity (Revenue) Owner’s Equity (Drawings) Asset Asset Owner’s Equity (Expense) Owner’s Equity (Revenue) Asset

2. Financial Statement Balance Sheet Balance Sheet and Statement of Owner’s Equity Balance Sheet Balance Sheet Income Statement

3. Normal Balance Debit Credit Credit Debit Debit

Income Statement

Credit

Statement of Owner’s Equity Balance Sheet Balance Sheet Income Statement

Debit

Income Statement

Credit

Balance Sheet

Debit

Debit Debit Debit

*Solution provided in text. b. Assets are on the left side of the basic accounting equation and liabilities and owner’s equity are on the right side of the basic accounting equation. Since debits are on the left side, and assets are also on the left side, the normal balance of an asset is a debit balance. Since credits are on the right side and liabilities are on the right side, the normal balance of a liability is a credit balance. The same is also true for owner’s equity. Revenues increase owner’s equity and therefore also have a normal credit balance. But expenses and drawings are decreases to owner’s equity and thus have a normal debit balance. LO 1 BT: C Difficulty: S Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

EXERCISE 2.4 a. Basic Date Type Mar. 5 Asset*

Account Debited b. c. Specific Effect Account Cash + $10,220

7 Owner’s Equity 9 Asset

Advertising Expense Supplies

11 Asset 13 Asset 25 Asset

Vehicles Accounts Receivable Cash

26 Asset 29 Liability 30 Asset

+ $350

Account Credited a. b. c. Basic Specific Effect Type Account Owner’s J. MacKenzie, +$10,220 Equity Capital Asset Cash – $350

+ $1,050

Liability

+ $8,770 + $1,520 + $10,880

Asset Owner’s Equity Liability

Cash

+ $1,140

Asset

Accounts Payable Cash

– $1,050

Asset

+ $800

Liability

+ $1,720

Asset

31 Owner’s J. MacKenzie, Equity Drawings *Solution provided in text.

Accounts Payable Cash Service Revenue Notes Payable Accounts Receivable Cash Unearned Revenue Cash

+ $1,050 – $8,770 + $1,520 +$10,880 – $1,140 – $1,050 + $800 – $1,720

LO 1 BT: K Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.5 Mar.

5

7

9

11

13

25

26

29

30

Solutions Manual .

Cash ..................................................... 10,220 J. MacKenzie, Capital ..................... Invested cash in business. Advertising Expense .......................... Cash ................................................ Paid for advertising expense.

10,220

350 350

Supplies............................................... 1,050 Accounts Payable .......................... Purchased supplies on account.

1,050

Vehicles ............................................... 8,770 Cash ................................................ Purchased used car for cash.

8,770

Accounts Receivable .......................... 1,520 Service Revenue............................. Performed services on account.

1,520

Cash ..................................................... 10,880 Notes Payable................................. Borrowed cash and signed a note.

10,880

Cash ..................................................... 1,140 Accounts Receivable ..................... Collection on account.

1,140

Accounts Payable ............................... 1,050 Cash ................................................ Payment on account.

1,050

Cash ..................................................... 800 Unearned Revenue ......................... Received cash in advance from customer.

800

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.5 (Continued) Mar. 31

J. MacKenzie, Drawings ...................... 1,720 Cash ................................................ Withdrew cash for personal use by owner.

1,720

LO 2 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 2

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EXERCISE 2.6 Transaction 1: Basic Analysis Debit/Credit Analysis Journal Entry

The expense account Rent Expense is increased by $550. The asset account Cash is decreased by $550. Debits increase expenses: debit Rent Expense $550. Credits decrease assets: credit Cash $550. June 1 Rent Expense 550 Cash 550 Paid June rent.

Transaction 2: Basic Analysis Debit/Credit Analysis Journal Entry

The expense account Insurance Expense is increased by $175. The asset account Cash is decreased by $175. Debits increase expenses: debit Insurance Expense $175. Credits decrease assets: credit Cash $175. June 2 Insurance Expense 175 Cash 175 Paid one month of insurance.

Transaction 3: Basic Analysis Debit/Credit Analysis Journal Entry

Solutions Manual .

The asset account Cash is increased by $1,255. The revenue account Service Revenue is increased by $1,255. Debits increase assets: debit Cash $1,255. Credits increase revenue: credit Service Revenue $1,255. June 5 Cash 1,255 Service Revenue 1,255 Received cash for services provided.

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.6 (Continued) Transaction 4: Basic Analysis

June 9: An accounting transaction has not occurred. A debit/credit analysis is not needed because there is no accounting entry.

Transaction 5: Basic Analysis Debit/Credit Analysis Journal Entry

The liability account Accounts Payable is decreased by $675. The asset account Cash is decreased by $675. Debits decrease liabilities: debit Accounts Payable $675. Credits decrease assets: credit Cash $675. June 14 Accounts Payable 675 Cash 675 Paid cash on account.

Transaction 6: Basic Analysis

Debit/Credit Analysis Journal Entry

Solutions Manual .

The asset account Accounts Receivable is increased by $1,420. The revenue account Service Revenue is increased by $1,420. Debits increase assets: debit Accounts Receivable $1,420. Credits increase revenues: credit Service Revenue $1,420. June 17 Accounts Receivable 1,420 Service Revenue 1,420 Performed services on account for Rudy Holland.

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.6 (Continued) Transaction 7: Basic Analysis Debit/Credit Analysis Journal Entry

The asset account Cash is increased by $1,000. The liability account Unearned Revenue is increased by $1,000. Debits increase assets: debit Cash $1,000. Credits increase liabilities: credit Unearned Revenue $1,000. June 19 Cash 1,000 Unearned Revenue 1,000 Received advance from J. Dupuis for future services.

Transaction 8: Basic Analysis Debit/Credit Analysis Journal Entry

The asset account Equipment is increased by $1,575. The liability account Accounts Payable is increased by $1,575. Debits increase assets: debit Equipment $1,575. Credits increase liabilities: credit Accounts Payable $1,575. June 29 Equipment 1,575 Accounts Payable 1,575 Purchased equipment on account.

Transaction 9: Basic Analysis Debit/Credit Analysis Journal Entry

Solutions Manual .

The expense account Salaries Expense is increased by $850. The asset account Cash is decreased by $850. Debits increase expenses: debit Salaries Expense $850. Credits decrease assets: credit Cash $850. June 30 Salaries Expense 850 Cash 850 Paid employee.

2.37

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.6 (Continued) Transaction 10: Basic Analysis Debit/Credit Analysis Journal Entry

The owner’s equity account D. Bratt, Drawings is increased by $1,250. The asset account Cash is decreased by $1,250. Debits increase drawings: debit D. Bratt, Drawings $1,250. Credits decrease assets: credit Cash $1,250. June 30 D. Bratt, Drawings 1,250 Cash 1,250 Paid D. Bratt, the company owner.

LO 2 BT: AP Difficulty: M Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.7 Mar.

1

3

5

Rent Expense ...................................... 1,200 Cash ................................................ Paid March rent. Accounts Receivable .......................... Service Revenue............................. Performed services on account.

160

Cash ..................................................... Service Revenue............................. Performed services for cash.

75

1,200

160

75

8

Equipment ........................................... 300 Cash ................................................ 100 Accounts Payable .......................... 200 Purchased equipment for cash and on account.

12

Cash ..................................................... Accounts Receivable ..................... Collection on account.

160

Salaries Expense ................................ Cash ................................................ Paid employee salaries.

525

Utilities Expense ................................. Cash ................................................ Paid utilities expense.

172

Repairs Expense ................................. Cash ................................................ Paid for plumbing repairs.

220

Account Payable ................................. Cash ................................................ Payment on account.

200

14

22

26

28

Solutions Manual .

2.39

160

525

172

200

200

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.7 (Continued) Mar. 30

Prepaid Insurance ................................ 1,800 Cash ................................................ Paid for insurance in advance.

1,800

LO 2 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

EXERCISE 2.8 GENERAL JOURNAL Trans.

Account Titles

1.

2.

3.

4.

5.

6.

Solutions Manual .

Debit

Credit

Cash ............................................................ 1,820 Service Revenue ................................ Received cash for services performed.

1,820

Rent Expense ............................................. 1,095 Cash.................................................... Paid October rent.

1,095

Supplies .................................................. Accounts Payable.............................. Purchased supplies on account.

450 450

Accounts Receivable ................................. 2,105 Service Revenue ................................ Performed services on account.

2,105

Cash ............................................................ 1,225 Accounts Receivable......................... Collection on account.

1,225

Cash ............................................................ 7,960 Unearned Revenue ............................ Received cash in advance from customer.

7,960

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.8 (Continued) GENERAL JOURNAL Trans.

Account Titles

7.

8.

9.

Debit

Credit

Prepaid Insurance ...................................... 8,120 Cash.................................................... Paid for insurance in advance. Accounts Payable .................................. Cash.................................................... Payment on account.

8,120

450

S. Beaulieu, Drawings ................................ 2,800 Cash.................................................... Withdrew cash for personal use by owner.

450

2,800

LO 2 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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2.41

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.9 a. GENERAL JOURNAL Date

Account Titles

Debit

Credit

June 1 Cash .......................................................... 13,430 Equipment .................................................. 3,490 S. Polland, Capital ............................. 16,920 Invested cash and equipment in business. 2 Prepaid Insurance ...................................... 1,420 Cash.................................................... Paid for insurance in advance.

1,420

3 Equipment .................................................. 4,580 Cash.................................................... 930 Notes Payable .................................... 3,650 Purchased equipment for cash and signed a note. 10 Cash ........................................................ 220 Service Revenue ................................ Received cash for services performed. 16 Accounts Receivable ............................. Service Revenue ................................ Performed services on account.

8,000

27 Advertising Expense.............................. Cash.................................................... Paid for advertising expense.

650

29 Telephone Expense ............................... Accounts Payable.............................. Received telephone invoice.

80

30 Salaries Expense.................................... Cash.................................................... Paid employee salaries.

1,830

Solutions Manual .

2.42

220

8,000

650

80

1,830

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.9 (Continued) GENERAL JOURNAL Date

Account Titles

Debit

June 30 Cash ............................................................ 8,000 Accounts Receivable......................... Collection on account.

Solutions Manual .

2.43

Credit

8,000

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.9 (Continued) b. Cash June 1 13,430 June 2 1,420 10 220 3 930 30 8,000 27 650 30 1,830 June30Bal. 16,820

S. Polland, Capital June 1 16,920

Accounts Receivable June 16 8,000 June 30 8,000

Service Revenue June10 220 16 8,000 June30 Bal. 8,220

June 30 Bal.

0

June30Bal. 16,920

Prepaid Insurance June 2 1,420 June 30Bal. 1,420 Equipment June 1 3,490 3 4,580 June30 Bal. 8,070 Notes Payable June 3

Salaries Expense June 30 1,830 June30Bal. 1,830

3,650

June30 Bal.3,650

Accounts Payable June 29

80

June30 Bal. 80

Advertising Expense June 27 650 June 30 Bal.650

Telephone Expense June 29 80 June 30 Bal. 80

LO 2,3 BT: AP Difficulty: M Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting

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EXERCISE 2.10 Apr.

1

2

3

4

6

8

Cash ..................................................... A. Santos, Capital ........................... Invested cash in business.

24,000

Rent Expense ...................................... Cash ................................................ Paid April rent.

1,800

Cash ..................................................... Notes Payable................................. Borrowed cash and signed a note.

7,000

Equipment ........................................... Cash ................................................ Purchased equipment with cash.

5,000

Supplies............................................... Cash ................................................ Cash purchase of supplies.

1,450

Advertising Expense .......................... Accounts Payable .......................... Purchased advertising on account.

1,600

24,000

1,800

7,000

5,000

1,450

1,600

10

Cash ..................................................... 2,000 Accounts Receivable .......................... 16,000 Service Revenue............................. 18,000 Performed services for cash and on account.

15

A. Santos, Drawings ........................... 1,000 Cash ................................................ 1,000 Withdrew cash for personal use by owner.

18

Accounts Payable ............................... Cash ................................................ Payment on account.

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2.45

1,600 1,600

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.10 (Continued) Apr. 20

22

29

30

Salaries Expense ................................ Cash ................................................ Paid employee salaries.

6,400

Cash ..................................................... Accounts Receivable ..................... Collection on account.

12,000

Utilities Expense ................................. Cash ................................................ Paid for utilities expense.

500

Interest Expense ................................. Cash ................................................ Paid for interest on bank loan.

40

6,400

12,000

500

40

LO 2 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 2

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EXERCISE 2.11 1. 2. 3.

4. 5.

False. The general ledger contains all the asset, liability, and owner’s equity accounts. True. False. The accounts in the general ledger are arranged in financial statement order, which is also used in the chart of accounts: first the assets, then the liabilities, owner’s capital, owner’s drawings, revenues, and expenses. True. False. The general ledger is not a book of original entry; transactions are first recorded in the general journal, then in the general ledger.

LO 3 BT: K Difficulty: C Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

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EXERCISE 2.12 a. and b. Cash Sept. 1 17,400 (1) 1,200 (4) 1,000 Sept.30Bal.18,700

(2) (3)

700 200 (3)

Accounts Receivable Sept. 1 2,000 (4) 1,000 Sept. 30 Bal.1,000

(5)

Accounts Payable Sept. 1 1,000 (6) 1,000 200 Sept.30 Bal. 1,800 Unearned Revenue 1,200 Sept. 1 1,600 Sept.30Bal.

400

Supplies Sept. 1 1,900 (6) 1,000 Sept. 30 Bal. 2,900

Owner’s Capital Sept. 1

Salaries Expense Sept. 1 1,400 (2) 700

Service Revenue Sept. 1 4,100 (1) 1,200 (5) 1,200 Sept. 30Bal. 6,500

Sept.30Bal.

Solutions Manual .

16,000

Sept.30Bal. 16,000

2,100

2.48

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.12 (Continued) c. DEPOT COMPANY Trial Balance September 30, 2021

Debit Cash ....................................................... $18,700 Accounts receivable ............................. 1,000 Supplies ................................................. 2,900 Accounts payable ................................. Unearned revenue ................................. Owner’s capital...................................... Service revenue..................................... Salaries expense ................................... 2,100 $24,700

Credit

$ 1,800 400 16,000 6,500 $24,700

LO 3,4 BT: AP Difficulty: M Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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EXERCISE 2.13 a. Cash 5,000 Aug. 12 2,300 2,600 900 6,200

Aug. 1 10 31 Aug.31Bal.

Accounts Receivable Aug. 25 1,700 Aug. 31 Aug. 31 Bal.

Aug. 12

900

800

Equipment 5,000

J. Feldman, Capital Aug. 1 5,000

Aug. 31Bal. 5,000

Service Revenue Aug.10 2,600 25 1,700 Aug.31Bal. 4,300 Notes Payable Aug. 12

Aug. 31Bal. 5,000

2,700

Aug.31 Bal 2,700

b. JUNE FELDMAN, INVESTMENT BROKER Trial Balance August 31, 2021

Cash ....................................................... Accounts receivable ............................. Equipment ............................................. Notes payable........................................ J. Feldman, capital ................................ Service revenue....................................

Debit $6,200 800 5,000

$12,000

Credit

$ 2,700 5,000 4,300 $12,000

LO 3,4 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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EXERCISE 2.14 a. Date Oct.

GENERAL JOURNAL Account Titles and Explanation

J1 Debit

Credit

1 Cash ........................................................... 1,200 A. Fortin, Capital ................................... Invested cash in business.

1,200

3 Equipment ................................................. 5,400 Cash....................................................... Notes Payable ....................................... Purchased equipment and issued a note.

400 5,000

4 Supplies ........................................................ 800 Accounts Payable................................. Purchased supplies on account.

800

6 Accounts Receivable ................................ 1,000 Service Revenue ................................... Performed services on account.

1,000

10 Cash .............................................................. 650 Service Revenue ................................... Performed services for cash.

650

12 Accounts Payable ........................................ 500 Cash....................................................... Payment on account.

500

15 Cash ........................................................... 3,000 Service Revenue ................................... Performed services for cash.

3,000

20 Accounts Receivable ................................... 940 Service Revenue ................................... Performed services on account.

940

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EXERCISE 2.14 (Continued) a. (Continued) GENERAL JOURNAL Date

Account Titles and Explanation

J1 Debit

Credit

Oct. 21 Cash .............................................................. 800 Accounts Receivable............................ Collection on account.

800

25 Cash ........................................................... 2,000 A. Fortin, Capital ................................... Invested cash in business.

2,000

28 Advertising Expense .................................... 400 Accounts Payable................................. Purchased advertising on account.

400

30 A. Fortin, Drawings ...................................... 600 Cash....................................................... Withdrew cash for personal use by owner.

600

31 Rent Expense ............................................... 250 Cash....................................................... Paid rent for October.

250

31 Salaries Expense.......................................... 500 Cash....................................................... Paid employee salaries.

500

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EXERCISE 2.14 (Continued) b. FORTIN CO. Trial Balance October 31, 2021

Debit Cash ....................................................... $ 5,400 Accounts receivable ............................. 1,140 Supplies ................................................. 800 Equipment ............................................. 5,400 Notes payable........................................ Accounts payable ................................. A. Fortin, capital .................................... A. Fortin, drawings................................ 600 Service revenue..................................... Advertising expense ............................. 400 Rent expense......................................... 250 Salaries expense ................................... 500 $14,490

Credit

$ 5,000 700 3,200 5,590

$14,490

LO 2,4 BT: AP Difficulty: C Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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EXERCISE 2.15 a. and b. Cash July 31 8,800 Aug. 1 Aug. 12 2,400 10 31 5,910 25 30 31 Aug.31 Bal. 7,930

1,200 420 2,250 540 4,770

Aug. 31 Bal. 2,900

Service Revenue July 31 10,410 Aug. 31 8,460 Aug.31Bal.18,870

Bal. 585 Equipment 15,550

July 31

Rent Expense July 31 1,200 Aug. 1 1,200 Aug.31 Bal. 2,400

Aug.31Bal. 15,550

Aug. 30

L. Meche, Drawings July 31 5,125 Aug. 31 4,770 Aug.31Bal. 9,895

Supplies 585

July 31

Notes Payable 500 July 31 10,000 Aug. 31 Bal. 9,500

Accounts Payable Aug. 10 420 July 31

Salaries Expense July 31 2,250 Aug. 25 2,250 Aug.31 Bal.4,500

Interest Expense 850 Aug.30 40

Aug. 31 Bal. 430 Aug.31

Solutions Manual .

15,000

Aug. 31 Bal. 15,000

Accounts Receivable July 31 2,750 Aug. 12 2,400 Aug. 31 2,550

Aug.31

L. Meche, Capital July 31

2.54

Bal. 40

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.15 (Continued) c. LEE MECHE, MD Trial Balance August 31, 2021

Cash ............................................................ Accounts receivable .................................. Supplies ...................................................... Equipment .................................................. Notes payable............................................. Accounts payable ...................................... L. Meche, capital ........................................ L. Meche, drawings .................................... Service revenue.......................................... Interest expense......................................... Rent expense.............................................. Salaries expense ........................................

Debit $7,930 2,900 585 15,550

Credit

$9,500 430 15,000 9,895 18,870 40 2,400 4,500 $43,800

$43,800

LO 3,4 BT: AP Difficulty: M Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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EXERCISE 2.16 a. GENERAL JOURNAL Date July

Account Titles

J1 Debit

Credit

2 Rent Expense ............................................ 1,060 Cash....................................................... Paid July rent.

1,060

4 Supplies ........................................................ 790 Accounts Payable................................. Purchased supplies on account.

790

15 Accounts Payable ........................................ 680 Cash....................................................... Payment on account.

680

31 Salaries expense ....................................... 2,420 Cash....................................................... Paid employee salaries.

2,420

31 Cash ........................................................... 9,940 Accounts Receivable ................................... 400 Service Revenue ................................... 10,340 Performed services for cash and on account. b. and c. Cash June 30 5,820 July 2 1,060 31 9,940 15 680 31 2,420 July31 Bal. 11,600 Accounts Receivable July 31 400 July 31 Bal. 400 Solutions Manual .

Accounts Payable June 30 680 July 4 790 July 15 680 July 31 Bal.790 Notes Payable June 30 50,020 July 31Bal. 50,020

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EXERCISE 2.16 (Continued) b. and c. (Continued) Supplies June 30 1,180 July 4 790 July 31 Bal. 1,970

June 30

Equipment 64,990

July31Bal.

64,990

July 2

S. Ahuja, Capital June 30 21,290 July31Bal. 21,290 Service Revenue July 31

July 31Bal. 10,340

Rent Expense 1,060

July31Bal.

10,340

Salaries Expense July 31 2,420 July31Bal.2,420

1,060

d. AHUJA DENTAL SERVICES Trial Balance July 31, 2021

Debit Cash ............................................................ $11,600 Accounts receivable .................................. 400 Supplies ...................................................... 1,970 Equipment .................................................. 64,990 Notes payable............................................. Accounts payable ...................................... S. Ahuja, capital ......................................... Service revenue.......................................... Rent expense.............................................. 1,060 Salaries expense ........................................ 2,420 $82,440

Credit

$50,020 790 21,290 10,340

$82,440

LO 2,3,4 BT: AP Difficulty: M Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting

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EXERCISE 2.17 a. O’NEILL’S PHYCHOLOGICAL SERVICES Trial Balance July 31, 2021

Cash .......................................................... Accounts receivable ................................ Supplies .................................................... Equipment ................................................ Notes payable........................................... Accounts payable .................................... Unearned revenue .................................... T. O’Neill, capital ...................................... T. O’Neill, drawings .................................. Service revenue........................................ Rent expense............................................ Salaries expense ...................................... Supplies expense.....................................

Solutions Manual .

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Debit $ 6,470 7,340 790 58,900

Credit

$22,960 9,030 1,350 64,340 57,980 96,180 10,880 45,540 5,960 $193,860 $193,860

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 2.17 (Continued)

b. O’NEILL’S PSYCHOLOGICAL SERVICES Income Statement Year Ended July 31, 2021 Revenues Service revenue ....................................................... $96,180 Expenses Rent expense ............................................ $10,880 Salaries expense ........................................ 45,540 Supplies expense ....................................... 5,960 Total expenses .................................................... 62,380 Profit ............................................................................. $33,800

O’NEILL’S PSYCHOLOGICAL SERVICES Statement of Owner's Equity Year Ended July 31, 2021 T. O’Neill, capital, August 1, 2020 ............................. $64,340 Add: Profit ............................................................... 33,800 98,140 Less: Drawings ......................................................... 57,980 T. O’Neill, capital, July 31, 2021 ................................ $40,160

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EXERCISE 2.17 (Continued)

b. (Continued) O’NEILL’S PSYCHOLOGICAL SERVICES Balance Sheet July 31, 2021 Assets Cash ............................................................................ $ 6,470 Accounts receivable .................................................. 7,340 Supplies ...................................................................... 790 Equipment .................................................................. 58,900 Total assets............................................................ $73,500 Liabilities and Owner's Equity Liabilities Notes payable .......................................................... $22,960 Accounts payable .................................................. 9,030 Unearned revenue .................................................... 1,350 Total liabilities............................................................ 33,340 Owner's Equity T. O’Neill, capital ...................................................... 40,160 Total liabilities and owner's equity .................... $73,500 LO 4 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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EXERCISE 2.18

Error 1.*

a. In Balance No

b. Difference $400

c. Larger Column Debit

d.

2.

Yes

$0

None

Rent Expense Prepaid Rent

3.

Yes

$0

None

Accounts Receivable Service Revenue

4.

No

$500

Credit

Accounts Payable

5.

Yes

$0

None

Supplies Cash

6.

No

$18

Credit

Advertising Expense

7.

Yes

$0

None

Cash Salaries Expense

Incorrect Accounts Accounts Payable

*Solution provided in text. LO 4 BT: AN Difficulty: C Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

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EXERCISE 2.19 ROYAL MOUNTAIN TOURS Trial Balance March 31, 2021

Debit Cash ($12,800+ $400 – [$240 × 2]) ..............$12,720 Accounts receivable ($4,090 + $900 + $770) .......................................... 5,760 Supplies ...................................................... 840 Equipment .................................................. 7,350 Accounts payable ($2,500 + 400) .............. T. Zelinski, capital ...................................... T. Zelinski, drawings .................................. 3,650 Service revenue ($6,750 + $770) ............... Advertising expense .................................. 3,700 Salaries expense ........................................ 400 Totals $34,420

Credit

$ 2,900 24,000 7,520

$34,420

LO 4 BT: AP Difficulty: C Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

SOLUTIONS TO PROBLEMS PROBLEM 2.1A a.

Basic Type Asset

Account Debited 2. Specific Account Cash

Effect + $12,800

2

Asset

Equipment

+ $5,000

Liability

Accounts Payable

+$5,000

2

Asset

Prepaid Insurance

+ $1,500

Asset

Cash

– $1,500

2

Asset

Supplies

+ $590

Asset

Cash

– $590

7

Owner’s Equity

Advertising Expense

+ $600

Asset

Cash

– $600

8

Asset

Cash

+ $630

Owner’s Equity

Service Revenue

+ $630

1. Transaction Apr. 1*

Solutions Manual .

3.

2.63

Account Credited 1. 2. 3. Specific Basic Type Account Effect Owner’s N. Dhaliwal, + $12,800 Equity Capital

Chapter 2 .

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 2.1A (Continued) a. (Continued)

(1)

Account Debited (2) Specific Account

Transaction

Basic Type

Apr.10

No transaction now (see Apr. 28).

(3) Effect

Account Credited (1) (2) Specific Basic Type Account

(3) Effect

25

Owner’s Equity

N. Dhaliwal, Drawings

+ $960

Asset

Cash

– $960

28

Asset

Cash

+ $1,270

Owner’s Equity

Service Revenue

+ $1,270

29

Asset

Cash

+ $1,800

Liability

Unearned Revenue

+ $1,800

30

Liability

Accounts Payable

– $5,000

Asset

Cash

– $5,000

*Solution provided in text.

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.1A (Continued) b. Date Apr.

GENERAL JOURNAL Account Titles

Debit

Credit

1 Cash ....................................................... 12,800 N. Dhaliwal, Capital........................... Invested cash in business.

12,800

2 Equipment.............................................. Accounts Payable ............................. Purchased equipment on account.

5,000 5,000

2 Prepaid Insurance ................................. Cash................................................... Paid insurance in advance.

1,500

2 Supplies ................................................. Cash................................................... Cash purchase of supplies.

590

7 Advertising Expense ............................. Cash................................................... Paid for advertising expense.

600

8 Cash ....................................................... Service Revenue ............................... Performed services for cash.

630

1,500

590

600

630

10 No transaction at this time. 25 N. Dhaliwal, Drawings ........................... 960 Cash................................................... Withdrew cash for personal use by owner.

960

28 Cash ...........................................................1,270 Service Revenue ............................... Performed services for cash.

1,270

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.1A (Continued) b. (Continued)

GENERAL JOURNAL Date

Account Titles

Debit

Credit

Apr. 29 Cash ...........................................................1,800 Unearned Revenue ........................... Received cash in advance from customer.

1,800

30 Accounts Payable .....................................5,000 Cash................................................... Payment on account.

5,000

Taking It Further The investment by the owner increases cash, an asset. Assets are on the left (or debit) side of the accounting equation. The same transaction also increases the right (or credit) side of the accounting equation and increases the owner’s capital. Since both the left and right side of the accounting equation must remain in balance, a transaction must have both a debit and a credit. LO 1,2 BT: AP Difficulty: S Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.2A GENERAL JOURNAL Date May

Account Titles

Debit

1 Cash ......................................................... 73,800 A. Mawani, Capital ........................... Invested cash in business.

Credit

73,800

2 Land ...................................................... 108,500 Building................................................. 84,300 Equipment............................................. 59,100 Cash.................................................. 60,300 Notes Payable ($251,900 – $60,300) 191,600 Purchased land, building, and equipment for cash and signed a note. 4 Equipment............................................. 17,000 Accounts Payable ............................ Purchased equipment on account.

17,000

5 No entry required. 6 Prepaid Insurance ................................ Cash.................................................. Paid for insurance in advance.

2,580

15 Cash ...................................................... Service Revenue .............................. Performed services for cash.

1,830

19 Accounts Payable ................................ Cash.................................................. Payment on account.

5,480

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2,580

1,830

5,480

Chapter 2

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.2A (Continued) Date

Account Titles

Debit

Credit

May 20 Cash ...................................................... 250 Accounts Receivable ........................... 250 Service Revenue .............................. Performed services for cash and on account. 30 Cash ...................................................... Accounts Receivable ....................... Collection on account.

250

31 Cash ...................................................... Service Revenue .............................. Performed services for cash.

3,100

31 Salaries Expense .................................. Cash.................................................. Paid employee salaries.

2,220

31 Interest Expense.................................. Cash.................................................. Paid interest on note payable.

710

500

250

3,100

2,220

31 A. Mawani, Drawings............................ 1,540 Cash.................................................. Withdrew cash for personal use by owner.

710

1,540

Taking It Further The purpose of the journal entries is to show the debit and credit effects of each transaction on specific accounts. This helps to prevent and locate errors because the debit and credit amounts in the entry must balance. The journal entries also provide a chronological record of transactions, explain the transactions, and identify source documents. LO 2 BT: AP Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.3A Aug.

2 Cash ......................................................... 35,000 J. Green, Capital ............................... Invest cash in business. 2 Supplies ................................................. Accounts Payable ............................ Purchased supplies on account.

35,000

550 550

5 Equipment................................................10,000 Notes Payable ................................... Purchased equipment and signed a note.

10,000

9 Cash ...........................................................7,500 Accounts Receivable ................................7,500 Service Revenue ............................... 15,000 Performed services for cash and on account. 14 Salaries Expense .......................................1,200 Cash................................................... Paid employee salaries.

1,200

15 J. Green, Drawings ....................................4,300 Cash................................................... Withdrew cash for personal use by owner.

4,300

19 Cash ...........................................................2,450 Unearned Revenue ........................... Received cash in advance from customer.

2,450

22 Accounts Payable ................................. Cash................................................... Payment on account.

550

25 Cash ...........................................................7,500 Accounts Receivable ........................ Collection on account.

Solutions Manual .

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550

7,500

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.3A (Continued) Aug. 26 Office Expense ..........................................3,200 Cash................................................... Paid office expense.

3,200

30 Interest Expense.................................... Cash................................................... Paid interest on note payable.

50

50

Taking It Further Service revenue and salaries expense are considered equity accounts because transactions that cause increases in service revenue will cause increases in equity and transactions that cause increases in salaries expense will cause decreases in equity. Increases in revenues are recorded on the credit side of the account because the credit side of the capital account represents an increase. On the other hand, increases in salaries expense are recorded on the debit side of the account because the debit side of the capital account represents a decrease. LO 2 BT: AP Difficulty: S Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.4A a. Date

Account Titles

Ref.

Debit

Apr. 1

Cash............................................ E. Valley, Capital................ Invested cash in business.

101 301

20,000

729 101

1,100

Supplies ..................................... 126 Accounts Payable ............. 201 Purchased supplies on account.

4,000

Accounts Receivable................. 112 Service Revenue................ 400 Performed services on account.

5,100

1

No entry—not a transaction.

2

Rent Expense ............................. Cash ................................... Paid rent for the month.

3

10

11

20

30

20,000

1,100

4,000

5,100

Cash............................................ 101 1,000 Unearned Revenue ............ 209 Received cash in advance from customer.

1,000

Cash............................................ 101 Service Revenue................ 400 Performed services for cash.

2,100 2,100

Salaries Expense ....................... 726 Cash ................................... 101 Paid secretary-receptionist salary.

2,800

30 Accounts Payable ..................... Cash ................................... Payment on account. Solutions Manual .

J1 Credit

2.71

201 101

2,800

2,400 2,400

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 2.4A (Continued) b.

Date Apr. 1 2 11 20 30 30

Explanation

Cash Ref. Debit J1 20,000 J1 J1 1,000 J1 2,100 J1 J1

Date Apr. 10

Accounts Receivable Explanation Ref. Debit J1 5,100

Date Apr. 3

Explanation

Supplies Ref. Debit 4,000 J1

Explanation

Accounts Payable Ref. Debit J1 J1 2,400

Explanation

Unearned Revenue Ref. Debit J1

Date Apr. 3 30

Date Apr. 11

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Credit 1,100

2,800 2,400

No. 101 Balance 20,000 18,900 19,900 22,000 19,200 16,800

Credit

No. 112 Balance 5,100

Credit

No. 126 Balance 4,000

Credit 4,000

No. 201 Balance 4,000 1,600

Credit 1,000

No. 209 Balance 1,000

Chapter 2

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.4A (Continued) E. Valley, Capital Date Apr. 1

Date Apr. 10 20

Explanation

Explanation

Ref. J1

No. 301 Debit

Service Revenue Ref. Debit J1 J1

Credit 20,000

Balance 20,000

No. 400 Credit Balance 5,100 5,100 2,100 7,200

Salaries Expense Date Apr. 30

Explanation

Ref. J1

No. 726 Debit 2,800

Credit

Balance 2,800

Rent Expense Date Apr. 2 c.

Explanation

Ref. J1

No. 729 Debit 1,100

Credit

Balance 1,100

EMILY VALLEY, DENTIST Trial Balance April 30, 2021 Cash.......................................................... Accounts Receivable............................... Supplies ................................................... Accounts Payable .................................... Unearned Revenue .................................. E. Valley, Capital ...................................... Service Revenue ...................................... Salaries Expense ..................................... Rent Expense ...........................................

Solutions Manual .

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Debit $16,800 5,100 4,000

Credit

$ 1,600 1,000 20,000 7,200 2,800 1,100 $29,800

$29,800 Chapter 2

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.4A (Continued) Taking It Further The next step in the accounting cycle will be the preparation of a trial balance. The main purpose of the trial balance is to prove that the debits equal the credits after posting. It is also useful in preparing financial statements. LO 1,2,3,4 BT: AP Difficulty: M Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.5A

a. Date

GENERAL JOURNAL Account Titles

Ref.

Debit

Sept. 1 Cash ............................................... 101 G. Rodewald, Capital ................ 301 Invested cash in business.

9,630

2 Rent Expense ................................ 726 Cash........................................... 101 Paid September rent.

690

2 Prepaid Insurance ......................... 130 Cash........................................... 101 Paid insurance policy in advance.

750

5 Equipment................................... 151 Accounts Payable .................. 201 Purchased equipment on account.

2,640

7 Advertising Expense .................. 610 Cash........................................ 101 Paid advertising expense.

420

13 Cash ............................................ 101 Service Revenue .................... 400 Performed services for cash.

500

21 Accounts Receivable ................. 112 Service Revenue .................... 400 Performed services on account.

800

24 Cash ............................................ 101 Accounts Receivable ............. 112 Collection on account.

540

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2.75

Credit

9,630

690

750

2,640

420

500

800

540

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 2.5A (Continued) a. (Continued) Date

Account Titles

Ref.

Debit

Sept. 28 Utilities Expense......................... 737 Cash........................................ 101 Paid utilities expense.

210

29 Accounts Payable ...................... 201 Cash........................................ 101 Payment on account.

1,470

210

1,470

30 Cash ............................................ 101 860 Unearned Revenue ................ 209 Received cash in advance from customer. 30 Cash ............................................ 101 Service Revenue .................... 400 Performed services for cash.

2.76

860

1,045

30 G. Rodewald, Drawings.............. 306 1,490 Cash........................................ 101 Withdrew cash for personal use by owner.

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Credit

1,045

1,490

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 2.5A (Continued) b. Cash Date

Explanation

Ref.

Sept. 1 2 2 7 13 24 28 29 30 30 30

Date

J1 J1 J1 J1 J1 J1 J1 J1 J1 J1 J1

9,630 690 750 420 500 540 210 1,470 860 1,045 1,490

Accounts Receivable Explanation Ref. Debit

Sept. 21 24

Date

Debit

J1 J1

9,630 8,940 8,190 7,770 8,270 8,810 8,600 7,130 7,990 9,035 7,545

No. 112 Credit Balance

800 540

800 260

Prepaid Insurance Explanation Ref.

Debit

No. 130 Credit Balance

J1

750

750

Ref.

Debit

No. 151 Credit Balance

J1

2,640

2,640

Sept. 2 Equipment Date

No. 101 Credit Balance

Explanation

Sept. 5

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.5A (Continued) b. (Continued)

Date

Accounts Payable Explanation Ref.

Sept. 5 29

Date

J1 J1 Unearned Revenue Explanation Ref.

Sept. 30

Date

Debit

J1 Service Revenue Explanation Ref. J1 J1 J1

Sept. 7

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J1

2.78

1,490 No. 400 Credit Balance 500 800 1,045

Advertising Expense Explanation Ref. Debit 420

9,630

No. 306 Credit Balance

1,490

Debit

860

No. 301 Credit Balance 9,630

G. Rodewald, Drawings Explanation Ref. Debit

2,640 1,170

No. 209 Credit Balance 860

J1

Sept. 13 21 30

Date

1,470

G. Rodewald, Capital Explanation Ref. Debit

Sept. 30

Date

2,640

J1

Sept. 1

Date

Debit

No. 201 Credit Balance

500 1,300 2,345

No. 610 Credit Balance 420

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 2.5A (Continued) b. (Continued)

Date

Rent Expense Explanation Ref.

Debit

No. 726 Credit Balance

J1

690

690

Utilities Expense Explanation Ref.

Debit

No. 737 Credit Balance

J1

210

210

Sept. 2

Date Sept. 28 c.

GRETE KANINES Trial Balance September 30, 2021 Debit Cash............................................................. $7,545 Accounts receivable ................................... 260 Prepaid insurance....................................... 750 Equipment ................................................... 2,640 Accounts payable ....................................... Unearned revenue ...................................... G. Rodewald, capital................................... G. Rodewald, drawings .............................. 1,490 Service revenue .......................................... 420 Advertising expense................................... Rent expense .............................................. 690 Utilities expense ......................................... 210 $14,005

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Credit

$1,170 860 9,630 2,345

$14,005

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.5A (Continued)

Taking It Further While Grete is correct in making the connection that transactions involving investments, drawings, revenues, and expenses ultimately have an impact on the owner’s capital account, there remains a need for these separate accounts. Without them, a business is unable to report the revenues and expenses on the income statement, and the investments and drawings by the owner on the statement of owner’s equity. This detailed information is relevant and necessary to the users of the financial statements. LO 2,3,4 BT: AP Difficulty: M Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.6A a. Date May

GENERAL JOURNAL Account Titles

Debit

Credit

1 Cash .................................................... 44,810 Equipment........................................... 10,690 J. Abramson, Capital ..................... 55,500 Invested cash and equipment in the business. 1 No entry—not a transaction. 2 Prepaid Insurance .............................. Cash................................................ Paid insurance in advance.

3,255

5 Rent Expense ..................................... Prepaid Rent ....................................... Cash................................................ Paid first and final month’s rent.

2,275 2,275

3,255

4,550

8 Equipment........................................... 15,870 Cash................................................ 7,150 Notes Payable ................................ 8,720 Purchased equipment for cash and signed a note. 9 Supplies .............................................. Cash................................................ Purchased supplies for cash.

570

15 Supplies .............................................. Accounts Payable .......................... Purchased supplies on account.

730

17 Accounts Receivable ......................... Service Revenue ............................ Provided services on account.

3,200

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570

730

3,200

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 2.6A (Continued) a. (Continued) Date

Account Titles

Debit

May 22 Telephone Expense............................ Cash................................................ Paid telephone expense.

320

25 Cash .................................................... Service Revenue ............................ Provided services for cash.

1,120

Credit

320

1,120

26 J. Abramson, Drawings...................... 1,980 Cash................................................ Withdrew cash for personal use by owner.

1,980

28 Cash .................................................... Accounts Receivable ..................... Collection on account.

2,720 2,720

30 Accounts Payable .............................. Cash................................................ Payment on account.

730

30 Interest Expense................................. Cash................................................ Paid interest on note payable.

67

730

67

31 Cash .................................................... 500 Unearned Revenue ........................ Received cash in advance from customer. 31 Salaries Expense ................................ Cash................................................ Paid employee salaries.

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500

2,340 2,340

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 2.6A (Continued) b.

May 1 25 28 31

Bal. 2.b.

Cash May 44,810 2 1,120 5 2,720 8 500 9 22 26 30 30 31 28,188

May 9 15 Bal.

Accounts Receivable May 17 3,200 May 28 2,720 3,255 4,550 7,150 570 320 1,980 730 67 2,340

Supplies 570 730 1,300

May 5 Bal.

2,275

May 1 8 Bal.

Equipment 10,690 15,870 26,560

Solutions Manual .

480

J. Abramson, Capital May 1 55,500 Bal.

Prepaid Insurance May 2 3,255 Bal. 3,255 Prepaid Rent 2,275

Bal.

55,500

J. Abramson, Drawings May 26 1,980 Bal. 1,980 Service Revenue May 17 3,200 25 1,120 Bal. 4,320 Interest Expense May 30 67 Bal.

2.83

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.6A (Continued) b. (Continued) Unearned Revenue May 31 Bal. Notes Payable May 8 Bal. Accounts Payable May 30 730 May 15 Bal.

Solutions Manual .

500 500

Rent Expense May 5 2,275 Bal. 2,275

8,720 8,720

Salaries Expense May 31 2,340 Bal. 2,340

730 0

2.84

Telephone Expense May 22 320 Bal. 320

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

PROBLEM 2.6A (Continued) c. ABRAMSON FINANCIAL SERVICES Trial Balance May 31, 2021 Debit Cash............................................................. $28,188 Accounts receivable ................................... 480 Supplies ...................................................... 1,300 Prepaid insurance....................................... 3,255 Prepaid rent................................................. 2,275 Equipment ................................................... 26,560 Unearned revenue ...................................... Notes payable ............................................. J. Abramson, capital................................... J. Abramson, drawings .............................. 1,980 Service revenue .......................................... Interest expense ......................................... 67 Rent expense .............................................. 2,275 Salaries expense......................................... 2,340 Telephone expense .................................... 320 $69,040

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Credit

$ 500 8,720 55,500 4,320

$69,040

Chapter 2

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.6A (Continued) Taking It Further This is not true. The cash account shows an increase of $28,188 during the month of May, whereas the company shows a loss of $682 for the month ($4,320 – $67 – $2,275 – $2,340 – $320). The change in the cash account does not reflect profit or loss because not all transactions that changed cash represent increases in revenues or expenses. One of the major sources of cash during the month is an investment by the owner of $55,500. This increases owner’s equity but is not a source of revenue for the company. The company received cash in advance of doing work (unearned revenue of $500) and performed services in advance of payment (accounts receivable of $480), as well as making non-expense payments for services in advance (prepaid rent and insurance), equipment, and owner drawings. The statement of cash flows reconciles the changes in the cash account to its various uses and sources. LO 2,3,4 BT: AP Difficulty: M Time: 65 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.7A a. GENERAL JOURNAL Date May

Account Titles

Debit

Credit

1 Film Rental Expense ......................... 25,000 Cash............................................... 10,784 Accounts Payable......................... 14,216 Rented movies for cash and on account. 2 No entry—not a transaction. 7 Advertising Expense ......................... Cash............................................... Paid advertising expense.

1,090

10 Cash ................................................... Admission Revenue ..................... To record admission revenue.

35,940

10 Accounts Payable ............................. Cash............................................... Payment on account.

14,216

1,090

35,940

14,216

15 Film Rental Expense ......................... 28,600 Cash............................................... 14,300 Accounts Payable......................... 14,300 Rented movies for cash and on account. 25 Accounts Payable ............................. Cash............................................... Payment on account.

4,990

30 Salaries Expense............................... Cash............................................... Paid employee salaries.

6,230

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4,990

6,230

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PROBLEM 2.7A (Continued) a. (Continued) Date

Account Titles

Debit

May 31 Cash ................................................... Accounts Receivable ........................ Concession Revenue ................... To record concession revenue.

2,370 1,785

31 Cash ................................................... Admission Revenue ..................... To record admission revenue.

41,800

31 Mortgage Payable ............................. Interest Expense ............................... Cash............................................... To record mortgage payment.

1,185 605

Credit

4,155

41,800

1,790

b. and c. Cash Date Explanation May 1 Balance 1 7 10 10 15 25 30 31 31 31

Date

Ref. Debit 

Credit Balance 18,900 10,784 8,116 1,090 7,026 35,940 42,966 14,216 28,750 14,300 14,450 4,990 9,460 6,230 3,230 2,370 5,600 41,800 47,400 1,790 45,610

Accounts Receivable Explanation Ref. Debit

Credit Balance

1,785

1, 785

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.7A (Continued) b. and c. (Continued) Land Date May

Explanation

Ref.

Debit

Credit Balance



1 Balance

75,000

Buildings Date May

Explanation

Ref.

Debit

Credit Balance



1 Balance

69,800

Equipment Date May

Date May

Date May

Date May

Explanation

Ref.

Credit Balance



1 Balance

Accounts Payable Explanation Ref.

17,000

Debit

Credit Balance



1 Balance 1 10 15 25

14,216 14,216 14,300 4,990

Mortgage Payable Explanation Ref.

Debit



1 Balance 31

1,185

N. Wood, Capital Explanation Ref. 

1 Balance

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Debit

4,990 19,206 4,990 19,290 14,300

Credit Balance 106,300 105,115

Credit Balance 69,410

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.7A (Continued) b. and c. (Continued) Admission Revenue Explanation Ref.

Date

Debit

May 10 31

35,940 41,800 Concession Revenue Explanation Ref. Debit

Date May 31

May

7 Film Rental Expense Explanation Ref.

Date May

1,090

1 15

Date

25,000 28,600 Interest Expense Explanation Ref.

May 31

Date

Debit

Salaries Expense Explanation Ref.

May 30

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4,155

Credit Balance 1,090

Credit Balance 25,000 53,600

Debit

Credit Balance

605

605

Debit

Credit Balance

6,230

2.90

35,940 77,740

Credit Balance 4,155

Advertising Expense Explanation Ref. Debit

Date

Credit Balance

6,230

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.7A (Continued) d. SEQUEL THEATRE Trial Balance May 31, 2021 Debit Cash ....................................................... Accounts receivable ............................. Land........................................................ Buildings ................................................ Equipment .............................................. Accounts payable .................................. Mortgage payable .................................. N. Wood, capital..................................... Admission revenue................................ Concession revenue.............................. Advertising expense.............................. Film rental expense ............................... Interest expense .................................... Salaries expense ...................................

Credit

$45,610 1,785 75,000 69,800 17,000 $ 14,300 105,115 69,410 77,740 4,155 1,090 53,600 605 6,230 $270,720 $270,720

Taking It Further The revenues less the expense in the trial balance show a profit for the month of May of $20,370 ($77,740 + $4,155 – $1,090 – $53,600 – $605 – $6,230). Although a positive profit is a good indication of the company’s profitability, it is not sufficient information to determine whether Sequel Theatre is a sound business. One month’s transactions do not indicate a pattern of profitability, in particular for businesses such as theatres where revenues tend to be seasonal. The financial results for the entire year should be examined, along with comparative amounts for previous years, to determine if the company has a trend of profitability. LO 2,3,4 BT: AP Difficulty: M Time: 65 min. AACSB: None CPA: cpa-t001 CM: Reporting Solutions Manual .

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PROBLEM 2.8A b. Date Dec.

GENERAL JOURNAL Account Titles

Debit

1 Rent Expense................................................475 Cash..................................................... Paid rent for December.

Credit

475

1 Equipment................................................ 3,500 1,500 Cash..................................................... Accounts Payable ............................... 2,000 Purchased equipment for cash and on account. 3 Cash ......................................................... 2,500 Notes Payable ..................................... Borrowed cash and signed a note.

2,500

4 Accounts Payable ................................... 2,000 Cash..................................................... Payment on account.

2,000

4 Cash ......................................................... 1,800 Accounts Receivable .......................... Collection on account.

1,800

7 Insurance Expense.................................. Cash..................................................... Paid insurance for December.

310

8 Supplies ................................................... Cash..................................................... Purchased supplies for cash.

150

310

10 Accounts Payable ................................... 2,130 Cash..................................................... Payment on account. Solutions Manual .

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150

2,130

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PROBLEM 2.8A (Continued) b. (Continued) Dec. 15 Unearned Revenue .......................................825 Service Revenue ................................. Performed services for advance payments.

825

20 Cash ........................................................... 3,300 Service Revenue ................................. Performed services for cash.

3,300

21 Telephone Expense......................................135 Cash..................................................... Paid telephone expense.

135

22 Accounts Receivable ................................ 2,250 Service Revenue ................................. Performed services on account.

2,250

24 A. Zhawaki, Drawings................................ 3,000 Cash..................................................... Withdrew cash for personal use by owner.

3,000

29 Cash .............................................................. 525 Unearned Revenue ............................. Received cash in advance from customer.

525

30 Travel Expense .............................................695 Cash..................................................... Paid travel expense.

695

31 Notes Payable ...............................................200 Interest Expense...................................... 10 Cash..................................................... Made principal and interest payment on note.

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.8A (Continued)

a. and c. Cash Nov.30 2,965 Dec. 1 Dec. 32,500 1 4 1,800 4 20 3,300 7 29 525 8 10 21 24 30 31 Bal. 485

475 1,500 2,000 310 150 2,130 135 3,000 695 210

Accounts Receivable Nov. 30 2,200 Dec. 4 1,800 Dec. 22 2,250 Bal. 2,650 Supplies Nov. 30 1,450 Dec. 8 150 Bal. 1,600

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Accounting Principles, Eighth Canadian Edition

PROBLEM 2.8A (Continued) a. and c. (Continued)

Equipment Nov.30 17,500 Dec. 1 3,500 Bal. 21,000 Notes Payable Dec. 31 200 Dec. 3 Bal.

Service Revenue Nov.30 47,075 Dec. 15 825 20 3,300 22 2,250 Bal. 53,450 2,500 2,300

Insurance Expense Nov.30 3,410 Dec. 7 310 Bal. 3,720

Accounts Payable Dec. 4 2,000 Nov.30 4,235 10 2,130 Dec. 1 2,000 Bal. 2,105 Unearned Revenue Dec. 15 825 Nov. 30 Dec. 29 Bal.

Rent Expense Nov.30 5,225 Dec. 1 475 Bal. 5,700

825 525 525

Telephone Expense Nov.30 1,485 Dec. 21 135 Bal. 1,620

A. Zhawaki, Capital Nov.30 19,500 A. Zhawaki, Drawings Nov.30 31,350 Dec. 24 3,000 Bal. 34,350

Travel Expense Nov.30 6,050 Dec. 30 695 Bal. 6,745 Interest Expense Dec. 31 10 Bal. 10

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PROBLEM 2.8A (Continued) d. A TO Z MUSIC Trial Balance December 31, 2021 Debit Cash............................................................. $ 485 Accounts receivable ....................................... 2,650 Supplies .......................................................... 1,600 Equipment ................................................... 21,000 Notes payable ............................................. Accounts payable ....................................... Unearned revenue ...................................... A. Zhawaki, capital...................................... A. Zhawaki, drawings ................................. 34,350 Service revenue .......................................... Insurance expense ..................................... 3,720 Rent expense .............................................. 5,700 Telephone expense .................................... 1,620 Travel expense............................................ 6,745 Interest expense ......................................... 10 $77,880

Credit

$ 2,300 2,105 525 19,500 53,450

$77,880

Taking It Further The cash balance has decreased from $2,965 to $485 during the month of December. This is a substantial decrease from the opening balance and exposes the company to the possibility of not being able to pay its outstanding liabilities. The company borrowed $2,500 at the beginning of December and used this cash to purchase used equipment for $3,500. Had the company not borrowed or purchased the additional equipment, the cash balance for the month would have been $1,695 ($485 + $3,500 – $2,500 + $210 payment on the note payable). This still represents a substantial decrease from the November ending balance and is cause for concern. Solutions Manual .

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PROBLEM 2.8A (Continued) Taking It Further (Continued) During the month of January, the company should collect outstanding receivables as quickly as possible (in particular, those amounts still outstanding from November) and reduce owner drawings. The company will also need to ensure the additional used equipment generates additional cash as soon as possible. LO 2,3,4 BT: AP Difficulty: M Time: 65 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.98A J. SAGGIT Trial Balance June 30, 2021 Debit

Credit

Cash ............................................................ $ 8,000 Accounts receivable .................................. 10,250 Supplies ...................................................... 5,000 Prepaid expenses....................................... 3,000 Land ............................................................ 64,000 Equipment................................................... 18,250 Accounts payable....................................... $ 12,500 Notes payable ............................................. 30,000 J. Saggit, capital ......................................... 28,000 J. Saggit, drawings..................................... 12,000 Service revenue.......................................... 63,050 Rent expense .............................................. 4,500 Utilities expense ......................................... 550 Salaries expense ........................................ 7,500 Interest expense ........................................ 500 $133,550 $133,550 Taking It Further J. Saggit is incorrect in his belief. While the ledger and the trial balance may be in balance, omissions or duplications of entries as well as entries to incorrect accounts may cause the financial statements to be incorrect and therefore not error free. LO 4 BT: AP Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.10A a. NICHOLAS MARKETING SERVICES Income Statement Year Ended December 31, 2021

Revenues Service revenue ...................................................... $35,800 Expenses Interest expense ................................. $ 150 Rent expense ...................................... 6,600 Salaries expense................................. 12,555 Telephone expense ............................. 1,540 Total expenses .................................................. 20,845 Profit............................................................................. $14,955 b. NICHOLAS MARKETING SERVICES Statement of Owner's Equity Year Ended December 31, 2021

O. Nicholas, capital, January 1, 2021 ..................... $ 34,460 Plus: Profit .............................................................. 14,955 49,415 Less: Drawings......................................................... 3,600 O. Nicholas, capital, December 31, 2021 ............... $45,815

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PROBLEM 2.10A (Continued) c. NICHOLAS MARKETING SERVICES Balance Sheet December 31, 2021 Assets Cash ........................................................................... $5,500 Accounts receivable ................................................. 20,380 Supplies ..................................................................... 3,320 Prepaid insurance ..................................................... 4,450 Prepaid rent ............................................................... 2,265 Equipment ................................................................. 27,400 Total assets ........................................................... $63,315 Liabilities and Owner's Equity Liabilities Unearned revenue ........................................................ $ 2,500 Notes payable ................................................................ 15,000 Total liabilities ........................................................... 17,500 Owner's Equity O. Nicholas, Capital ................................................. 45,815 Total liabilities and owner's equity.................... $63,315 Taking It Further Nicholas Marketing Services performed well, realizing a profit for the year. A large portion of its revenues remain uncollected and are reported in accounts receivable at the end of the year. In addition, if the notes payable are due in the near future, there would not be enough cash on hand to meet this obligation. Nicholas should be monitoring the collection of its accounts receivable closely. LO 4 BT: AP Difficulty: S Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting Solutions Manual .

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PROBLEM 2.11A a.

GENERAL JOURNAL

Date

Account Titles

Feb. 1

Advertising Expense ............................. Cash................................................... Paid for advertising expense.

2

3

4

6

14

15

23

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Debit

Credit

430 430

Rent Expense ........................................ 1,050 Cash................................................... Paid rent for first two weeks of February.

1,050

Cash .......................................................... 4,240 Service Revenue ............................... Performed services for cash.

4,240

Cash ....................................................... Accounts Receivable........................ Collection on account.

720

Accounts Payable ................................. Cash................................................... Payment on account.

970

Salaries Expense................................... Cash................................................... Paid employee salaries.

400

720

970

400

Rent Expense ........................................... 1,050 Cash................................................... Paid rent for last two weeks of February.

1,050

Accounts Receivable ............................... 1,475 Service Revenue ............................... Performed services on account.

1,475

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PROBLEM 2.11A (Continued) a. (Continued) Feb.26

27

27

28

28

Solutions Manual .

Telephone Expense............................... Cash................................................... Paid for telephone expense.

185 185

Cash ..........................................................2,830 Unearned Revenue ........................... Received cash in advance from customer.

2,830

D. Scoffin, Drawings ............................. 575 Cash................................................... Withdrew cash for personal use by owner.

575

Salaries Expense................................... Cash................................................... Paid employee salaries.

400

400

Prepaid Rent .............................................1,050 Cash................................................... Paid rent for first two weeks of March.

1,050

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PROBLEM 2.11A (Continued) b. and c. Jan.31 Feb. 3 4

27

Bal.

Cash 2,100 Feb. 1 4,240 2 720 6 14 15 2,830 26 27 28 28 3,780

Prepaid Rent Feb.28 1,050 Bal. 1,050

430 1,050 970 400 1,050 185 575 400 1,050

Equipment Jan.31 12,400 Bal. 12,400 Accounts Payable Unearned Revenue Feb. 27 2,830 Bal. 2,830

Accounts Receivable Jan.31 720 Feb. 4 720 Feb.23 1,475 Bal. 1,475 Jan.31 1,470 Feb. 6 970 Bal. 500

D. Scoffin, Capital

Jan.31 13,750 Bal.

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13,750

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PROBLEM 2.11A (Continued) b. and c. (Continued)

Feb. 27 Bal.

D. Scoffin, Drawings 575 575 Service Revenue Feb. 3 Feb. 23 Bal.

Feb. 1

Advertising Expense 430

Feb. 26

Telephone Expense 185

Feb. 2 Feb. 15 Bal.

Rent Expense 1,050 1,050 2,100

Feb. 14 Feb. 28 Bal.

Salaries Expense 400 400 800

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4,240 1,475 5,715

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PROBLEM 2.11A (Continued) d. YH CURLING SCHOOL Trial Balance February 28, 2021 Debit Cash ................................................................. Accounts receivable ....................................... Prepaid rent ..................................................... Equipment ....................................................... Accounts payable ........................................... Unearned revenue ........................................... D. Scoffin, capital ............................................ D. Scoffin, drawings........................................ Service revenue............................................... Advertising expense ....................................... Telephone expense ......................................... Rent expense................................................... Salaries expense .............................................

Credit

$ 3,780 1,475 1,050 12,400 $

500 2,830 13,750

575 5,715 430 185 2,100 800 $22,795

$22,795

e. YH CURLING SCHOOL Income Statement Month Ended February 28, 2021 Revenues Service revenue .......................................................... Expenses Advertising expense.................................... $ 430 Telephone expense ..................................... 185 Rent expense ............................................... 2,100 Salaries expense ......................................... 800 Total expenses ....................................................... Profit ................................................................................ Solutions Manual .

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$5,715

3,515 $2,200 Chapter 2

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Accounting Principles, Sixth Canadian Edition

PROBLEM 2.11A (Continued) f. YH CURLING SCHOOL Statement of Owner's Equity Month Ended February 28, 2021 D. Scoffin, capital, February 1, 2021 ...................................$13,750 Add: Profit ..................................................................... 2,200 15,950 Less: Drawings................................................................ 575 D. Scoffin, capital, February 28, 2021 .................................$15,375

g. YH CURLING SCHOOL Balance Sheet February 28, 2021 Assets Cash .................................................................................... $ 3,780 Accounts receivable .......................................................... 1,475 Prepaid rent ........................................................................ 1,050 Equipment .......................................................................... 12,400 Total assets.................................................................... $18,705 Liabilities and Owner's Equity Liabilities Accounts payable .......................................................... $ 500 Unearned revenue ............................................................. 2,830 Total liabilities ........................................................... 3,330 Owner's Equity D. Scoffin, capital...............................................................15,375 Total liabilities and owner's equity ............................$18,705

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PROBLEM 2.11A (Continued) Taking It Further The payments to YH Curling Club for February ice rental are an expense as they are a cost of the month to have a rink available to deliver the services performed by the school during the month. They are not an asset because there is no future benefit beyond the end of the month. However, the February 28 ice rental payment is for March ice rental, and thus has not been used yet, and therefore it is an asset as it has a future benefit. LO 2,3,4 BT: AP Difficulty: M Time: 90 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.12A a. MINDFUL MEDITATION Income Statement Year Ended December 31, 2021 Revenues Service revenue ...............................................................$85,050 Expenses Interest expense .......................................... $ 550 Rent expense ....................................................15,500 Salaries expense ..............................................36,500 Telephone expense ..................................... 2,510 Total expenses............................................. 55,060 Profit ................................................................................ $29,990 b. MINDFUL MEDITATION Statement of Owner's Equity Year Ended December 31, 2021 E. Mendes, capital, January 1, 2021............................... Add: Profit ...................................................................... Less: Drawings................................................................ E. Mendes, capital, December 31, 2021 .........................

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$16,845 29,990 46,835 24,000 $22,835

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PROBLEM 2.12A (Continued) c. MINDFUL MEDITATION Balance Sheet December 31, 2021 Assets Cash .....................................................................................$ 12,230 Accounts receivable .......................................................... 5,400 Supplies .............................................................................. 1,120 Prepaid insurance .............................................................. 2,145 Equipment .......................................................................... 15,200 Total assets.................................................................... $36,095 Liabilities and Owner's Equity Liabilities Accounts payable .............................................................$ 3,260 Notes payable ...................................................................10,000 Total liabilities ...............................................................13,260 Owner's Equity E. Mendes, capital............................................................22,835 Total liabilities and owner's equity ............................$36,095

Taking It Further There is a difference between cash collected from customers and revenue in any accounting period. Although the yoga studio has earned revenue, it has not necessarily collected all of the cash from providing the services. Also, some of the cash collected in 2021 may be for services provided in 2020. LO 4 BT: AP Difficulty: S Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.13A a. SUPER DELIVERY SERVICE Trial Balance August 31, 2021

Debit Credit Cash (to balance debits = credits*) ........... $ 6,301 Accounts receivable .................................. 4,226 Supplies ...................................................... 299 Prepaid insurance ...................................... 358 Equipment .................................................. 49,660 Notes payable............................................. $19,480 Accounts payable ...................................... 3,250 Salaries payable ......................................... 883 Unearned revenue ...................................... 643 T. Rowe, capital .......................................... 48,840 T. Rowe, drawings...................................... 25,000 Service revenue.......................................... 37,800 Utilities expense ......................................... 12,177 Insurance expense ..................................... 2,016 Interest expense ......................................... 1,006 Repairs expense......................................... 1,549 Salaries expense ........................................ 5,698 Supplies expense ...................................... 2,606 $110,896 $110,896 * Total debits without cash = $104,595 $110,896 – $104,595 = $6,301

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PROBLEM 2.13A (Continued) b. SUPER DELIVERY SERVICE Income Statement Year Ended August 31, 2021 Revenues Service revenue .......................................................$37,800 Expenses Utilities expense ....................................... $12,177 Insurance expense .................................. 2,016 Interest expense ...................................... 1,006 Repairs expense ...................................... 1,549 Salaries expense ..................................... 5,698 Supplies expense .................................... 2,606 Total expenses ......................................................25,052 Profit .............................................................................$12,748

SUPER DELIVERY SERVICE Statement of Owner's Equity Year Ended August 31, 2021 T. Rowe, capital, August 31, 2020 ............................. $48,840 Plus: Profit ............................................................... 12,748 61,588 Less: Drawings ......................................................... 25,000 T. Rowe, capital, August 31, 2021 ............................. $36,588

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PROBLEM 2.13A (Continued) b. (Continued) SUPER DELIVERY SERVICE Balance Sheet August 31, 2021 Assets Cash ............................................................................ Accounts receivable .................................................. Supplies ...................................................................... Prepaid insurance ...................................................... Equipment ..................................................................

$6,301 4,226 299 358 49,660

Total assets............................................................ $60,844 Liabilities and Owner's Equity Liabilities Notes payable ..........................................................$19,480 Accounts payable .................................................. 3,250 Salaries payable .................................................... 883 Unearned revenue .................................................. 643 Total liabilities .......................................................24,256 Owner's Equity T. Rowe, capital........................................................36,588 Total liabilities and owner's equity ....................$60,844

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PROBLEM 2.13A (Continued) Taking It Further Tom Rowe has withdrawn almost twice as much cash compared to the profit. This has resulted in a net decrease to the owner’s capital account. Tom’s drawings have left the company with a low level of liquid assets (Cash of $6,301 + Accounts receivable of $4,226 = $10,527) to pay off liabilities (Notes payable of $19,480 + Accounts payable of $3,250 + Salaries payable of $883 = $23,613). Tom’s drawings should be based on his cash budget for the coming year and leave the company with sufficient cash to meet its liabilities and to be able to grow. LO 4 BT: AP Difficulty: S Time: 45 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.14A a.

1. Correct 2. Correct 3. Incorrect 4. Incorrect 5. Incorrect 6. Incorrect 7. Incorrect 8. Incorrect 9. Incorrect 10. Incorrect

b. 1 1 2 3 4

5

2

No

Interest Revenue Yes Salaries Expense Drawings

6

Yes Unearned Revenue Service Revenue No Supplies

7

No

8

Unearned Revenue Yes Cash Salaries Payable

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3

4

Understated $750 Overstated $1,000 Understated $1,000 Overstated $325 Understated $325 Understated $1,540 Understated $500 Overstated $495 Overstated $495

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Yes Yes

Yes

Increase $1,540 Yes Decrease by $495

5

Increase by $750 Yes

Decrease by $325 Increase by $325 Yes Increase by $500 Decrease by $495

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PROBLEM 2.14A (Continued) b. (Continued) 2 Equipment

3 Overstated $3,600

4 Decrease by $3,600

Yes

10 Yes Utilities Expense Accounts Payable

Understated $650 Understated $650

Increase by $650

Increase by $650

9

1 No

5

Taking It Further Disagree. Even though the trial balance is balanced, uncorrected errors misstate the financial position of the company. For example: 4. This error overstates Salaries Expense and thereby lowers profit on the income statement. 8. This error shows higher liabilities by overstating Salaries Payable and higher assets by overstating Cash. 10. This error understates Utilities Expense and understates Accounts Payable. It results in a higher profit on the income statement because of the unrecorded expense that was incurred in generating the profits. LO 4 BT: AN Difficulty: M Time: 35 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

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PROBLEM 2.15A a. WINTER CO. Trial Balance June 30, 2021

Debit

Credit

Cash ($2,835 + $570 - $750) ................................... $ 2,655 Accounts receivable ($1,861 + $750 – $570 + $980 – $98) ................................................... 2,923 Prepaid insurance (correct balance provided).... 655 Supplies ($500 + $360) .......................................... 860 Equipment ($7,900 – $360) ................................... 7,540 Accounts payable ($2,695 + $608– $806)............. $ 2,497 Unearned revenue (correct balance provided) ... 1,855 F. Winter, capital (correct balance provided) ...... 11,231 F. Winter, drawings ($800 + $400) ........................ 1,200 Service revenue ($3,460– $3,460 + $4,360) .......... 4,360 Office expense ($1,010 + $500)............................. 1,510 Salaries expense ($3,000 – $400) ......................... 2,600 $19,943 $19,943 Taking It Further There could still be errors after correcting the items identified. The errors could be counter-balancing errors that affect both the debit and credit side equally, such as a transposition error in recording a journal entry that affects both the debit and credit sides, or errors that counter-balance on the debit side, or on the credit side, of the trial balance (items #1, 2, and 6). The trial balance could also be in balance and not show transactions that have been omitted but that should have been recorded. LO 4 BT: AN Difficulty: M Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

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Accounting Principles, Sixth Canadian Edition

PROBLEM 2.1B a. 1. Transaction Jan. 2* 4

Basic Type Owner’s Equity Asset

5

Asset

7 10

Account Debited 2. Specific Account Rent Expense

Effect + $525

Cash

+ $1,055

Supplies

3.

Account Credited 1. 2. Specific Basic Type Account Asset Cash

+ $1,055

+ $420

Service Revenue Accounts Payable

No transaction now (see Jan. 18). Asset Cash + $1,500

Liability

+ $1,500

+ $500

Asset

+ $1,085

Service Revenue Cash

+ $1,085

– $420

Owner’s Equity Asset

+ $1,085

Asset

Accounts Receivable Notes Payable Cash

– $1,085

18 25

Liability

27

Asset

28

Asset

Cash

+ $5,000

Liability

29

Asset

Equipment

+ $1,950

Asset

2.117

+ $420

Unearned Revenue Cash

K. Battistella, Drawings Accounts Receivable Accounts Payable Cash

Solutions Manual .

Effect – $525

Owner’s Equity Liability

Owner’s Equity Asset

12

3.

Chapter 2

– $500

– $420

+ $5,000 – $1,950

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.1B (Continued) *Solution provided in text. b. GENERAL JOURNAL Date Jan.

Account Titles

Debit

2 Rent Expense ........................................ Cash................................................... Paid rent for January.

525

4 Cash ....................................................... Service Revenue ............................... Performed services for cash.

1,055

5 Supplies ................................................. Accounts Payable ............................. Purchased supplies on account.

420

Credit

525

1,055

420

7 No transaction at this time. 10 Cash ....................................................... 1,500 Unearned Revenue ........................... Received cash in advance from customer.

1,500

12 K. Battistella, Drawings......................... 500 Cash................................................... Withdrew cash for personal use by owner.

500

18 Accounts Receivable ................................1,085 Service Revenue ............................... Performed services on account.

1,085

25 Accounts Payable ................................. Cash................................................... Payment on account.

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420 420

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.1B (Continued) b. (Continued) Jan. 27 Cash ....................................................... Accounts Receivable ........................ Collection on account.

1,085

28 Cash ....................................................... Notes Payable ................................... Borrowed cash and signed a note.

5,000

29 Equipment.............................................. Cash................................................... Purchased equipment for cash.

1,950

1,085

5,000

1,950

Taking It Further Cash is an asset and is on the left-hand side of the accounting equation. When cash is received, it increases the balance, and when cash is paid out, it decreases the balance. To decrease an asset, it is credited, so a credit to cash decreases cash. LO 1,2 BT: AP Difficulty: S Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.2B GENERAL JOURNAL Date May

Account Titles

Debit

Credit

1 Cash .......................................................... 70,000 D. Tanner, Capital ............................... 70,000 Invested cash in business. 3 Land ...................................................... 225,000 Building................................................. 75,000 Equipment............................................. 55,000 Cash.................................................. 35,000 Notes Payable .................................. 320,000 Purchase land, building, and equipment for cash and signed a note. 3 Insurance Expense.................................. Cash..................................................... Paid insurance expense.

780 780

8 Advertising Expense ............................... 1,950 Cash..................................................... Paid advertising expense.

1,950

15 Cash ......................................................... 5,400 Service Revenue ................................. Performed services for cash.

5,400

16 Salaries Expense ..................................... 2,600 Cash..................................................... Paid employee salaries.

2,600

20 Cash ......................................................... 500 Accounts Receivable .............................. 2,250 Service Revenue ................................. 2,750 Performed services for cash and on account. Solutions Manual .

2.120

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.2B (Continued) Date

Account Titles

Debit

Credit

May 22 No entry required 29 Cash ......................................................... 2,250 Accounts Receivable .......................... Collection on account.

2,250

30 Cash ......................................................... 5,750 Service Revenue ................................. Performed services for cash.

5,750

31 Interest Expense...................................... 1,200 Notes Payable.......................................... 5,333 6,533 Cash..................................................... Made principal and interest payment on note. 31 D. Tanner, Drawings................................ 1,800 Cash..................................................... Withdrew cash for personal use by owner.

1,800

31 Salaries Expense ........................................ 3,800 Cash..................................................... Paid employee salaries.

3,800

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PROBLEM 2.2B (Continued) Taking It Further The purpose of the journal entries is to show the debit and credit effects of each transaction on specific accounts. This helps to prevent and locate errors because the debit and credit amounts in the entry must balance. The journal entries also provide a chronological record of transactions, explain the transaction, and identify source documents. The next step in the recording process is to transfer the information to the ledger by posting the transactions to specific ledger accounts. Dustin should find the information generated by this next step more useful since posting transactions to the ledger will update the ledger account balances. Once this step is completed, a trial balance can be prepared from the ledger accounts as can the financial statements. LO 2 BT: AP Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 2

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PROBLEM 2.3B Apr.

1 Cash ......................................................... 27,750 A. Rai, Capital.................................... Invested cash in business.

27,750

2 Equipment..................................................5,000 Notes Payable ................................... Purchased equipment and signed a note.

5,000

3 Supplies ................................................. Accounts Payable ............................ Purchased supplies on account.

250 250

5 Cash ...........................................................6,300 Accounts Receivable ................................5,950 Service Revenue ............................... 12,250 Performed services for cash and on account. 10 A. Rai, Drawings ........................................4,300 Cash................................................... Withdrew cash for personal use by owner. 13 Accounts Payable ................................. Cash................................................... Payment on account.

4,300

250 250

15 Cash ...........................................................2,450 Unearned Revenue ........................... Received cash in advance from customer.

2,450

25 Cash ...........................................................5,950 Accounts Receivable ........................ Collection on account.

5,950

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PROBLEM 2.3B (Continued) a. (continued) Apr. 26 Office Expense ...................................... Cash................................................... Paid office expense.

1,200

30 Interest Expense.................................... Cash................................................... Paid interest on note payable.

45

1,200

45

Taking It Further Assets are on the left side of the basic accounting equation and liabilities and owner’s equity are on the right side of the basic accounting equation. Since debits are on the left side, and assets are also on the left side, the normal balance of an asset is a debit balance. Since credits are on the right side and liabilities are on the right side, the normal balance of a liability is a credit balance. The same is also true for owner’s equity. Revenues increase owner’s equity and therefore also have a normal credit balance. But expenses and drawings are decreases to owner’s equity and thus have a normal debit balance. LO 2 BT: AP Difficulty: S Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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PROBLEM 2.4B a. J1 Credit

Date

Account Titles

Ref.

Debit

Apr. 1

Cash................................................. B. Fair, Capital ........................ Invested cash in business.

101 301

45,000

729 101

800

Supplies .......................................... 126 Accounts Payable .................. 201 Purchased supplies on account.

1,500

Accounts Receivable...................... 112 Service Revenue..................... 400 Performed services on account.

1,800

1

No entry—not a transaction.

2

Rent Expense .................................. Cash ........................................ Paid rent for the month.

3

10

11

20

30

Solutions Manual .

45,000

800

1,500

1,800

Cash................................................. 101 500 Unearned Revenue ................. 209 Received cash in advance from customer. Cash................................................. Service Revenue..................... Performed services for cash.

101 400

1,500

Salaries Expense ............................ 726 Cash ........................................ 101 Paid secretary-receptionist salary.

2,000

2.125

500

1,500

2,000

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.4B (Continued) a. (continued) Apr. 30

Accounts Payable .......................... Cash ........................................ Payment on account.

201 101

600 600

b. Cash Date Apr. 1 2 11 20 30 30

Explanation

Ref. J1 J1 J1 J1 J1 J1

Date Apr. 10

Accounts Receivable Explanation Ref. J1

Date Apr. 3

Supplies Explanation Ref. J1

Date Apr. 3 30

Accounts Payable Explanation Ref. J1 J1

Solutions Manual .

2.126

Debit 45,000

Credit 800

500 1,500 2,000 600

Debit 1,800

Debit 1,500

Debit 600

No. 101 Balance 45,000 44,200 44,700 46,200 44,200 43,600

Credit

No. 112 Balance 1,800

Credit

No. 126 Balance 1,500

Credit 1,500

No. 201 Balance 1,500 900

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.4B (Continued) Unearned Revenue Date Apr. 11

Date Apr. 1

Explanation

Ref. J1

B. Fair, Capital Explanation Ref. J1

No. 209 Debit

Debit

Credit 500

Balance 500

Credit 45,000

No. 301 Balance 45,000

Service Revenue Date Apr. 10 20

Date Apr. 30

Explanation

Ref. J1 J1

Salaries Expense Explanation Ref. J1

No. 400 Debit

Debit 2,000

Credit 1,800 1,500

Balance 1,800 3,300

Credit

No. 726 Balance 2,000

Rent Expense Date Apr. 2

Solutions Manual .

Explanation

Ref. J1

2.127

No. 729 Debit 800

Credit

Balance 800

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.4B (Continued) c.

BARBARA FAIR, ARCHITECT Trial Balance April 30, 2021 Cash.......................................................... Accounts Receivable............................... Supplies ................................................... Accounts Payable .................................... Unearned Revenue .................................. B. Fair, Capital ......................................... Service Revenue ...................................... Salaries Expense ..................................... Rent Expense ...........................................

Debit $43,600 1,800 1,500

Credit

$ 900 500 45,000 3,300 2,000 800 $49,700

$49,700

Taking It Further Barbara is not correct. Debits mean left and credits mean right. Whether we debit or credit an account depends on the type of account (asset, liability, or owner’s equity) and whether the account is increasing or decreasing. For example, if we buy equipment with cash, we debit an equipment account and credit a cash account. Just because this transaction reduces (credits) the cash account, it does not mean it is bad. It means a transaction has taken place that has used some of the cash of the entity and this needs to be reflected in the books. LO 1,2,3,4 BT: AP Difficulty: M Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.5B a. GENERAL JOURNAL Date Aug.

Account Titles

Ref.

Debit

1 Cash ............................................... 101 T. Nguyen, Capital .................... 301 Invested cash in business.

25,000

1 Rent Expense ................................ 726 Cash ........................................... 101 Paid August rent.

750

2 Utilities Expense............................ 737 Cash ........................................... 101 Paid utilities expense.

250

3 Equipment...................................... 151 Cash ........................................... 101 Purchased equipment for cash.

5,250

5 Supplies ......................................... 126 Accounts Payable ..................... 201 Purchased supplies on account.

675

8 Accounts Receivable .................... 112 Service Revenue ....................... 400 Performed services on account.

1,270

12 Advertising Expense ..................... 610 Cash ........................................... 101 Paid advertising expense.

945

20 Cash ............................................... 101 Service Revenue ....................... 400 Performed services for cash.

1,320

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2.129

Credit

25,000

750

250

5,250

675

1,270

945

1,320

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.5B (Continued) a. (Continued) Aug. 24 Cash ............................................. 101 2,500 Unearned Revenue ................. 209 Received cash in advance from customer. 25 Accounts Payable ....................... 201 Cash......................................... 101 Payment on account.

675

28 Cash ............................................. 101 Accounts Receivable .............. 112 Collection on account.

970

2,500

675

970

29 T. Nguyen, Drawings ................... 306 1,225 Cash......................................... 101 Withdrew cash for personal use by owner.

1,225

31 Utilities Expense ........................... 737 Accounts Payable ..................... 201 Received utility bill.

225

Cash

No. 101 Credit Balance

225

b.

Date Aug.

Explanation 1 1 2 3 12 20 24 25 28 29

Solutions Manual .

Ref.

Debit

J1 J1 J1 J1 J1 J1 J1 J1 J1 J1

25,000

2.130

750 250 5,250 945 1,320 2,500 675 970 1,225

25,000 24,250 24,000 18,750 17,805 19,125 21,625 20,950 21,920 20,695 Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.5B (Continued) b. (Continued) Accounts Receivable Explanation Ref. Debit

Date Aug.

8 28

J1 J1

1,270 970

Supplies Date Aug.

Explanation 5

Aug.

Explanation 3

Ref.

Debit

J1

675

675

Ref.

Debit

No. 151 Credit Balance

J1

5,250

5,250

Debit

No. 201 Credit Balance

Accounts Payable Explanation Ref.

Date Aug.

5 25 31

Date

J1 J1 J1

Unearned Revenue Explanation Ref.

Aug. 24

Solutions Manual .

1,270 300

No. 126 Credit Balance

Equipment Date

No. 112 Credit Balance

J1

2.131

675 675 225

Debit

675 0 225

No. 209 Credit Balance 2,500

2,500

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.5B (Continued) b. (Continued) T. Nguyen, Capital Explanation Ref.

Date Aug.

1

J1

T. Nguyen, Drawings Explanation Ref. Debit

Date Aug. 29

J1

Service Revenue Explanation Ref.

Date Aug.

8 20

Date

J1

25,000

25,000

Credit

No. 306 Balance 1,225

No. 400 Credit Balance 1,270 1,320

1,270 2,590

No. 610 Credit Balance

945

945

Rent Expense Explanation Ref.

Debit

No. 726 Credit Balance

J1

750

750

Utilities Expense Explanation Ref.

Debit

No. 737 Credit Balance

J1 J1

250 225

250 475

1

Date Aug.

Debit

J1 J1

Aug. 12

Credit

1,225

Advertising Expense Explanation Ref. Debit

Date

Aug.

Debit

No. 301 Balance

2 31

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PROBLEM 2.5B (Continued) c. NGUYEN IMPORT SERVICES Trial Balance August 31, 2021

Debit Cash ............................................................ $20,695 Accounts receivable .................................. 300 Supplies ...................................................... 675 Equipment................................................... 5,250 Accounts payable....................................... Unearned revenue ...................................... T. Nguyen, capital....................................... T. Nguyen, drawings .................................. 1,225 Service revenue.......................................... Advertising expense .................................. 945 Rent expense .............................................. 750 Utilities expense ......................................... 475 $30,315

Credit

$

225 2,500 25,000 2,590

$30,315

Taking It Further While Thanh is correct in making the connection that transactions recorded to the drawings, revenue, and expense accounts ultimately impact the owner’s capital account, there remains a need for these separate accounts. Without them, a business is unable to report the revenues and expenses on the income statement, and the drawings by the owner as reported on the statement of owner’s equity. This detailed information is relevant and necessary to the users of the financial statements. LO 2,3,4 BT: AP Difficulty: M Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.6B a. Date Nov.

GENERAL JOURNAL Account Titles

Debit

Credit

1 Cash .................................................... 35,000 Equipment........................................... 12,000 H. Kiersted, Capital ........................ 47,000 Invested cash and equipment in the business. 2 No entry—not a transaction. 3 Rent Expense ..................................... Prepaid Rent ....................................... Cash................................................ Paid first and last month’s rent.

2,140 2,140 4,280

4 Insurance Expense............................. 395 Cash ($4,740 ÷ 12).......................... Paid insurance for the month of November.

395

5 Equipment........................................... 18,000 Cash................................................ 6,000 Notes Payable ................................ 12,000 Purchased equipment for cash and signed a note. 6 Supplies .............................................. Accounts Payable .......................... Purchased supplies on account.

1,550

7 Supplies .............................................. Cash................................................ Purchased supplies for cash.

475

16 Cash .................................................... Service Revenue ............................ Provided services for cash.

990

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2.134

1,550

475

990

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.6B (Continued) a. (Continued) Date

Account Titles

Debit

Nov. 20 Accounts Receivable ......................... Service Revenue ............................ Provided services on account.

4,500

26 Accounts Payable .............................. Cash................................................ Payment on account.

1,000

27 Telephone Expense............................ Accounts Payable .......................... Received telephone bill.

220

Credit 4,500

1,000

220

27 Cash .................................................... 750 Unearned Revenue ........................ Received cash in advance from customer. 29 Cash .................................................... Accounts Receivable ..................... Collection on account.

2,800

30 Interest Expense................................. Cash................................................ Paid interest on note payable.

60

30 Salaries Expense ................................ Cash................................................ Paid employee salaries.

2,825

750

2,800

60

2,825

30 H. Kiersted, Drawings ........................ 700 Cash................................................ Withdrew cash for personal use by owner.

700

30 H. Kiersted, Drawings ........................ 1,150 Cash................................................ Paid invoice for personal asset of owner.

1,150

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PROBLEM 2.6B (Continued) b.

Bal.

Cash 35,000 Nov.3 990 4 750 5 2,800 7 26 30 30 30 30 22,655

Nov.6 7 Bal.

Supplies 1,550 475 2,025

Nov.3

Prepaid Rent 2,140

Bal.

2,140

Nov. 1 5 Bal.

Equipment 12,000 18,000 30,000

Nov. 1 16 27 29

Accounts Payable Nov.26 1,000 Nov. 6 Nov. 27 Bal. Unearned Revenue Nov.27 Bal. Solutions Manual .

4,280 395 6,000 475 1,000 60 2,825 700 1,150

Accounts Receivable Nov.20 4,500 Nov 29 2,800 Bal. 1,700

H. Kiersted, Drawings Nov.30 700 30 1,150 Bal. 1,850 Service Revenue Nov.16 990 20 4,500 Bal. 5,490 Insurance Expense Nov. 4 395 Bal.

1,550 220 770

750 750 2.136

395

Interest Expense Nov. 30 60 Bal.

60

Rent Expense Nov. 3 2,140 Bal. 2,140 Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.6B (Continued) b. (Continued) Notes Payable Nov.5 Bal.

12,000 12,000

H. Kiersted, Capital Nov. 1 47,000 Bal. 47,000

Salaries Expense Nov. 30 2,825 Bal. 2,825 Telephone Expense Nov. 27 220 Bal. 220

c. KIERSTED FINANCIAL SERVICES Trial Balance November 30, 2021 Debit Cash ............................................................ $22,655 Accounts receivable ....................................... 1,700 Supplies .......................................................... 2,025 Prepaid rent..................................................... 2,140 Equipment ..................................................... 30,000 Accounts payable ....................................... Unearned revenue ...................................... Notes payable ............................................. H. Kiersted, capital ..................................... H. Kiersted, drawings ..................................... 1,850 Service revenue .......................................... Insurance expense ..................................... 395 Interest expense ......................................... 60 Rent expense .................................................. 2,140 Salaries expense ............................................ 2,825 Telephone expense ................................... 220 $66,010

Solutions Manual .

2.137

Credit

$ 770 750 12,000 47,000 5,490

$66,010

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.6B (Continued) Taking It Further This is not true. The cash account shows an increase of $22,655 during the month of November, whereas the company shows a loss of $150 for the month ($5,490 – $395 – $60 – $2,140 – $2,825 – $220). The change in the cash account does not reflect profit or loss because not all cash transactions represent increases in revenues or expenses. One of the major sources of cash during the month is an investment by the owner of $35,000. This increases owner’s equity but is not a source of revenue for the company. The company received cash in advance of doing work (unearned service revenue of $750) and performed services in advance of payment (accounts receivable of $1,700), as well as making non-expense payments for services in advance (prepaid rent), equipment, and owner drawings. The statement of cash flows reconciles the changes in the cash account to its various uses and sources. LO 2,3,4 BT: AP Difficulty: M Time: 65 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.7B a. Date July

GENERAL JOURNAL Account Titles

Debit

2 Film Rental Expense ........................... Cash................................................. Rented movies for cash.

800

2 Advertising Expense ........................... Cash................................................. Paid advertising expense.

620

Credit

800

620

3 No entry—not a transaction. 5 No entry—not a transaction. 10 Cash ..................................................... Admission Revenue........................ To record admission revenue.

1,950

11 Mortgage Payable................................ Interest Expense.................................. Cash................................................. To record mortgage payment.

2,000 500

12 Repairs Expense ................................. Cash................................................. Payment of equipment repairs.

350

16 Accounts Payable ............................... Cash................................................. Payment on account.

2,800

19 Film Rental Expense ........................... Accounts Payable ........................... Rented movies on account.

750

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2.139

1,950

2,500

350

2,800

750

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.7B (Continued) a. (Continued) July 29 Cash ..................................................... Admission Revenue........................ To record admission revenue.

3,500 3,500

30 F. Ferguson, Drawings ........................ 1,200 Cash................................................. Withdrew cash for personal use by owner. 30 Prepaid Film Rental ............................. Cash................................................. Paid for film rental in advance.

700

31 Salaries Expense ................................. Cash................................................. Paid employee salaries.

1,900

31 Cash ..................................................... Accounts Receivable .......................... Concession Revenue...................... To record concession revenue.

260 260

Solutions Manual .

2.140

1,200

700

1,900

520

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.7B (Continued) b. and c. Cash Date

Explanation

June 30 Balance July 2 2 10 11 12 16 29 30 30 31 31

Ref.  J1 J1 J1 J1 J1 J1 J1 J1 J1 J1 J1

Debit

Credit Balance

800 620 1,950 2,500 350 2,800 3,500 1,200 700 1,900 260

6,000 5,200 4,580 6,530 4,030 3,680 880 4,380 3,180 2,480 580 840

Accounts Receivable Date

Explanation

July 31

Ref.

Debit

Credit Balance

J1

260

260

Ref.

Debit

Credit Balance

J1

700

700

Prepaid Film Rental Date

Explanation

July 30

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PROBLEM 2.7B (Continued) b. and c. (Continued) Land Date

Explanation

Ref.

Debit

Credit Balance



June 30 Balance

100,000

Buildings Date

Explanation

Ref.

Debit

Credit Balance



June 30 Balance

80,000

Equipment Date

Explanation

Ref.

Debit

Credit Balance



June 30 Balance

25,000

Accounts Payable Date

Explanation

Ref.  J1 J1

June 30 Balance July 16 19

Debit

Credit Balance

2,800 750

5,000 2,200 2,950

Mortgage Payable Date

Explanation

June 30 Balance July 11

Solutions Manual .

Ref.  J1

2.142

Debit

2,000

Credit Balance 125,000 123,000

Chapter 2

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PROBLEM 2.7B (Continued) b. and c. (Continued) F. Ferguson, Capital Explanation

Date

June 30 Balance

Ref.

Debit

Credit Balance



81,000

F. Ferguson, Drawings Explanation

Date July 30

Ref.

Debit

Credit Balance

J1

1,200

1,200

Debit

Credit Balance

Admission Revenue Explanation

Date July 10 29

Ref. J1 J1

1,950 3,500

1,950 5,450

Concession Revenue Explanation

Date July 31

Ref.

Debit

J1

Credit Balance 520

520

Advertising Expense Explanation

Date July

2

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Ref.

Debit

Credit Balance

J1

620

620

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PROBLEM 2.7B (Continued) b. and c. (Continued) Film Rental Expense Explanation

Date July

2 19

Ref.

Debit

Credit Balance

J1 J1

800 750

800 1,550

Ref.

Debit

Credit Balance

J1

500

500

Ref.

Debit

Credit Balance

J1

350

350

Debit

Credit Balance

Interest Expense Date

Explanation

July 11

Repairs Expense Date

Explanation

July 12

Salaries Expense Date

Explanation

July 31

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Ref. J1

2.144

1,900

1,900

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.7B (Continued) d. HIGHLAND THEATRE Trial Balance July 31, 2021

Debit Cash ....................................................... Accounts receivable ............................. Prepaid film rental ................................. Land ....................................................... Buildings................................................ Equipment.............................................. Accounts payable.................................. Mortgage payable .................................. F. Ferguson, capital .............................. F. Ferguson, drawings .......................... Admission revenue ............................... Concession revenue ............................. Advertising expense ............................. Film rental expense ............................... Interest expense .................................... Repairs expense.................................... Salaries expense ...................................

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Credit

$840 260 700 100,000 80,000 25,000 $ 2,950 123,000 81,000 1,200 5,450 520 620 1,550 500 350 1,900 $212,920 $212,920

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PROBLEM 2.7B (Continued) Taking It Further The revenue and expense accounts in the trial balance show a profit for the month of July of $1,050 ($5,450 + $520 – $620– $1,550 – $500 – $350 – $1,900). Although a positive profit is a good indication of the company’s profitability, it is not sufficient information to determine whether Highland Theatre is a sound business. One month’s transactions do not indicate a pattern of profitability, in particular for businesses such as theatres where revenues tend to be seasonal. The financial results for the entire year should be examined, along with comparative amounts for previous years, to determine if the company has a trend of profitability. LO 2,3,4 BT: AP Difficulty: M Time: 65 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.8B b. Date Dec.

GENERAL JOURNAL Account Titles and Explanation

J1 Debit

1 Rent Expense................................................525 Cash..................................................... Paid rent for December.

Credit

525

1 Equipment................................................ 3,270 Cash..................................................... 1,270 Notes Payable ..................................... 2,000 Purchased equipment for cash and on account. 4 Cash ......................................................... 1,880 Accounts Receivable .......................... Collection on account. 7 Insurance Expense.................................. Cash..................................................... Paid insurance for December.

308

8 Supplies ................................................... Accounts Payable ............................... Purchased supplies on account.

135

1,880

308

135

10 Accounts Payable ................................... 2,140 Cash..................................................... Payment on account.

2,140

12 Unearned Revenue .................................. 765 Service Revenue ................................. Performed services for advance payments.

765

20 Cash ...........................................................3,480 Service Revenue ................................. Performed services for cash.

3,480

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PROBLEM 2.8B (Continued) b. (Continued) Dec. 21 Office Expense .............................................115 Cash..................................................... Paid office expense.

115

24 L. Kuznetsova, Drawings ..........................2,860 Cash..................................................... Withdrew cash for personal use by owner.

2,860

28 Accounts Receivable ................................2,280 Service Revenue ................................. Performed services on account.

2,280

29 Cash ..............................................................560 Unearned Revenue ............................. Received cash in advance from customer.

560

30 Salaries Expense ..........................................655 Cash..................................................... Paid employee salaries.

655

31 Notes Payable ...............................................160 Interest Expense...................................... 10 Cash..................................................... Made principal and interest payment on note.

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170

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PROBLEM 2.8B (Continued) a. and c. Cash Nov. 30 3,165 Dec. 1 1 4 1,880 7 10 20 3,480 21 29 560 24 30 31 Bal. 1,042

Accounts Payable Dec. 10 2,140 Nov. 30 4,245 Dec. 8 135

525 1,270 308 2,140 115 2,860 655 170

Bal.

2,240

Unearned Revenue Dec. 12 765 Nov. 30 Dec. 29 Bal.

Accounts Receivable Nov. 30 2,110 Dec. 4 1,880 Dec. 28 2,280 Bal. 2,510 Supplies Nov. 30 1,340 Dec. 8 135 Bal. 1,475

765 560 560

L. Kuznetsova, Capital Nov. 30 19,300 L. Kuznetsova, Drawings Nov. 30 31,190 Dec. 24 2,860 Bal. 34,050

Equipment Nov. 30 17,730 Dec. 1 3,270 Bal. 21,000 Notes Payable Dec.31 160 Dec. 1 Bal.

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PROBLEM 2.8B (Continued) a. and c. (Continued) Service Revenue Nov. 30 47,963 Dec. 12 765 20 3,480 28 2,280 Bal. 54,488 Advertising Expense Nov. 30 1,265 Bal.

1,265

Insurance Expense Nov. 30 3,388 Dec. 7 308 Bal. 3,696 Rent Expense Nov. 30 5,775 Dec. 1 525 Bal. 6,300 Salaries Expense Nov. 30 6,310 Dec. 30 655 Bal. 6,965 Office Expense Dec. 21 115 Interest Expense Dec. 31 10

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PROBLEM 2.8B (Continued) d. LVK COACHING SERVICES Trial Balance December 31, 2021 Debit Cash ............................................................ $ 1,042 Accounts receivable .................................. 2,510 Supplies ...................................................... 1,475 Equipment................................................... 21,000 Accounts payable....................................... Notes payable ............................................. Unearned revenue ...................................... L. Kuznetsova, capital................................ L. Kuznetsova, drawings ........................... 34,050 Service revenue.......................................... Advertising expense .................................. 1,265 Insurance expense ..................................... 3,696 Rent expense .............................................. 6,300 Salaries expense ........................................ 6,965 Office expense............................................ 115 Interest expense ......................................... 10 $78,428

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Credit

$ 2,240 1,840 560 19,300 54,488

$78,428

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.8B (Continued) Taking It Further The cash balance has decreased from $3,165 to $1,042 or $2,123 during the month of December. This is a substantial decrease from the opening balance and exposes the company to the possibility of not being able to pay its outstanding liabilities. The company borrowed $2,000 at the beginning of December to purchase equipment. Had the company not purchased the additional equipment, the cash balance for the month would have been $2,482 ($1,042 + $1,270 + $170 payment on the note payable). This still represents a decrease from the December ending balance. Depending on the timing of the repayment of the note payable, the company may be able to generate sufficient cash from the collection of its account receivable to be able to honour its commitments on its liabilities. During the month of January, the company should collect outstanding receivables as quickly as possible (in particular those amounts still outstanding from November) and reduce owner drawings. The company will also need to ensure the new equipment generates additional cash as soon as possible. LO 2,3,4 BT: AP Difficulty: M Time: 65 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.9B J. NIKKO Trial Balance November 30, 2021 Debit

Credit

Cash ............................................................ $ 8,000 Accounts receivable .................................. 10,250 Supplies ...................................................... 5,000 Prepaid expenses....................................... 3,000 Land ............................................................ 64,000 Equipment................................................... 18,250 Accounts payable....................................... $ 12,500 Notes payable ............................................. 30,000 J. Nikko, capital .......................................... 28,000 J. Nikko, drawings ...................................... 12,000 Service revenue.......................................... 63,050 Rent expense .............................................. 4,500 Utilities expense ......................................... 550 Salaries expense ........................................ 7,500 Interest expense ........................................ 500 $133,550 $133,550

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PROBLEM 2.9B (Continued) b. J. NIKKO Income Statement Year Ended November 30, 2021 Revenues Service revenue .............................................................. $63,050 Expenses Rent expense ............................................... $ 4,500 Salaries expense.......................................... 7,500 Utilities expense .......................................... 550 Interest expense ............................................ 500 Total expenses ....................................................... 13,050 Profit..................................................................................... $50,000 c. J. NIKKO Statement of Owner's Equity Year Ended November 30, 2021 J. Nikko, capital, December 1, 2020 ............................... Add: Profit ...................................................................... Less: Drawings................................................................ J. Nikko, capital, November 30, 2021 .............................

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$28,000 50,000 78,000 12,000 $66,000

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PROBLEM 2.9B (Continued) d. J. NIKKO Balance Sheet November 30, 2021 Assets Cash ................................................................................... $ 8,000 Accounts receivable ......................................................... 10,250 Supplies ............................................................................. 5,000 Prepaid expenses.............................................................. 3,000 Land ................................................................................... 64,000 Equipment.......................................................................... 18,250 Total assets ................................................................... $108,500 Liabilities and Owner's Equity Liabilities Accounts payable ......................................................... $ 12,500 Notes payable ................................................................. 30,000 Total liabilities .............................................................. 42,500 Owner's Equity J. Nikko, capital............................................................... 66,000 Total liabilities and owner's equity ......................... $108,500

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PROBLEM 2.9B (Continued) Taking It Further The advantages of first recording the individual transactions in a journal and then posting to the ledger are: 1. The journal discloses in one place, the complete effect of a transaction. 2. The journal provides a chronological record of all transactions. 3. The journal helps to prevent or locate errors, because the debit and credit amounts for each entry can be readily compared. The advantage of the last step in the posting process is to indicate that the item has been posted, and to provide a crossreference. LO 4 BT: AP Difficulty: M Time: 45 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.10B a. OWEN’S ART SUPPLIES Income Statement Year Ended December 31, 2021 Revenues Service revenue ..................................................... $ 26,600 Expenses Rent expense ............................................... $6,000 Salaries expense...................................... 6,300 Supplies expense ........................................ 1,280 Total expenses ................................................... 13,580 Profit............................................................................ $ 13,020 b. OWEN’S ART SUPPLIES Statement of Owner's Equity Year Ended December 31, 2021 O. Leduc, capital, January 1, 2021 ............................. $17,890 Add: Profit ................................................................. 13,020 30,910 Less: Drawings .......................................................... 10,300 O. Leduc, capital, December 31, 2021 ........................ $20,610

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PROBLEM 2.10B (Continued) c. OWEN’S ART SUPPLIES Balance Sheet December 31, 2021 Assets Cash .......................................................................... Accounts receivable ................................................ Supplies .................................................................... Equipment................................................................. Total assets ..........................................................

$ 2,550 3,310 1,830 21,000 $28,690

Liabilities and Owner's Equity Liabilities Accounts payable .................................................... $ 3,420 Unearned revenue ............................................... 4,660 Total liabilities ................................................. 8,080 Owner's Equity O. Leduc, capital ...................................................... 20,610 Total liabilities and owner's equity.................... $28,690 Taking It Further Owen’s Art Supplies performed well, realizing a profit for the year. A portion of its revenues remain uncollected and are reported in accounts receivable at the end of the year. Drawings were in line with the amount of the profit for the year. LO 4 BT: AP Difficulty: S Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.11B a.

GENERAL JOURNAL Account Titles

Mar.

Debit

Credit

1 Cash ........................................................ 12,000 Notes Payable .................................... Borrowed cash and signed a note.

12,000

2 Accounts Payable .................................. 13,000 Cash.................................................... Payment on account.

13,000

3 Insurance Expense................................. Cash.................................................... Paid March insurance expense.

145

10 Utilities Expense..................................... Cash.................................................... Paid utilities expense.

550

145

550

16 Cash ........................................................ 8,000 Accounts Receivable ......................... Collection on account.

8,000

18 Accounts Payable .................................. 5,000 Cash.................................................... Payment on account.

5,000

30 Office Expense ....................................... Cash.................................................... Paid office expense.

580 580

31 Cash ........................................................ 2,000 Accounts Receivable ............................. 5,000 Service Revenue ................................ 7,000 Performed services for cash and on account. Solutions Manual .

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PROBLEM 2.11B (Continued) a. (Continued) Mar. 31 Salaries Expense .......................................1,650 Cash.................................................... Paid employee salaries. 31 Interest Expense..................................... 55 Notes Payable......................................... 500 Cash.................................................... Paid principal and interest on note payable. 31 Rent Expense ......................................... Prepaid Rent ........................................... Cash.................................................... Paid March and April rent.

2.160

555

950 950

31 H. Nolan, Drawings................................. 1,000 Cash.................................................... Withdrew cash for personal use by owner.

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1,650

1,900

1,000

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PROBLEM 2.11B (Continued) b. and c. Cash Feb.28 3,500 Mar.2 13,000 Mar. 1 12,000 3 145 16 8,000 10 550 18 5,000 30 580 31 2,000 31 1,650 31 555 31 1,900 31 1,000 Bal. 1,120

Accounts Receivable Feb.28 14,450 Mar.16 8,000 Mar. 31 5,000 Bal. 11,450 Prepaid Rent Mar. 31 950

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PROBLEM 2.11B (Continued) b. and c. (Continued) Service Revenue Mar. 31 7,000

Equipment Feb.28 15,100 Accounts Payable Feb.28 18,750 Mar. 2 13,000 18 5,000 Bal. 750

Utilities Expense Mar. 10 550 Interest Expense Mar. 31 55

Notes Payable Mar. 31 500 Mar. 1 12,000 Bal.

Office Expense Mar. 30 580

11,500 Rent Expense Mar. 31 950

H. Nolan, Capital Feb.28 14,300

Insurance Expense Mar. 3 145

H. Nolan, Drawings Mar. 31 1,000

Salaries Expense Mar. 31 1,650

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PROBLEM 2.11B (Continued) d. HN CONSULTING Trial Balance March 31, 2021

Debit Cash ........................................................... $1,120 Accounts receivable ................................... 11,450 Prepaid rent ................................................. 950 Equipment.................................................... 15,100 Accounts payable........................................ Notes payable .............................................. H. Nolan, capital .......................................... H. Nolan, drawings ...................................... 1,000 Service revenue........................................... 550 Utilities expense .......................................... Interest expense .......................................... 55 Office expense............................................. 580 Rent expense ............................................... 950 Insurance expense ...................................... 145 Salaries expense ........................................ 1,650 $33,550

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Credit

$750 11,500 14,300 7,000

$33,550

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

PROBLEM 2.11B (Continued) e. HN CONSULTING Income Statement Month Ended March 31, 2021 Revenues Service revenue ..................................................... $ 7,000 Expenses Utilities expense ...................................... $550 Office expense ......................................... 580 Rent expense ........................................... 950 Insurance expense .................................. 145 Salaries expense...................................... 1,650 Interest expense ...................................... 55 Total expenses ..................................................... 3,930 Profit............................................................................ $ 3,070 f. HN CONSULTING Statement of Owner's Equity Month Ended March 31, 2021 H. Nolan, capital, Feb 28, 2021 ................................... $14,300 Add: Profit ............................................................. 3,070 17,370 Less: Drawings ...................................................... 1,000 H. Nolan, capital, March 31, 2021 ............................... $16,370

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PROBLEM 2.11B (Continued) g. HN CONSULTING Balance Sheet March 31, 2021 Assets Cash .......................................................................... Accounts receivable ................................................ Prepaid rent .............................................................. Equipment................................................................. Total assets ..........................................................

$ 1,120 11,450 950 15,100 $28,620

Liabilities and Owner's Equity Liabilities Notes payable ......................................................... $11,500 Accounts payable ................................................ 750 Total liabilities ................................................. 12,250 Owner's Equity H. Nolan, capital ....................................................... 16,370 Total liabilities and owner's equity.................... $28,620 Taking It Further The March rent payment of $1,900 is half asset and half expense. The asset portion of $950 is for the rent for April and the expense portion of $950 is for the March rent. April’s rent is a future benefit at March 31, and thus is an asset, whereas March’s rent has been used by March 31 and thus is an expense. LO 2,3,4 BT: AP Difficulty: M Time: 75 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.12B a. EDDEN ELECTRICAL Income Statement Year Ended April 30, 2021 Revenues Service revenue ...................................................... $90,600 Expenses Insurance expense ................................. $ 800 Salaries expense...................................... 18,000 Supplies expense .................................... 1,280 Total expenses ..................................................... 20,080 Profit............................................................................. $70,520 b. EDDEN ELECTRICAL Statement of Owner's Equity Year Ended April 30, 2021 N. Edden, capital, May 1, 2020 .................................... $27,500 Add: Profit.................................................................... 70,520 98,020 Less: Drawings............................................................ 29,500 N. Edden, capital, April 30, 2021 ................................. $68,520

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PROBLEM 2.12B (Continued) c. EDDEN ELECTRICAL Balance Sheet April 30, 2021 Assets Cash ............................................................................. $15,425 Accounts receivable ..................................................... 13,680 Supplies ........................................................................... 1,150 Prepaid insurance ........................................................... 1,600 Equipment...................................................................... 48,000 Total assets ............................................................. $79,855 Liabilities and Owner's Equity Liabilities Accounts payable ................................................... $ 3,085 Unearned revenue .................................................... 8,250 Total liabilities ...................................................... 11,335 Owner's Equity N. Edden, capital ....................................................... 68,520 Total liabilities and owner's equity.................... $79,855 Taking It Further Edden would not be able to retire and take out cash from the business in an amount equal to his capital account balance of $68,520. The cash balance is only $15,425. All other assets would need to be converted to cash, and the debts paid first. Edden would have the right to whatever cash remained. LO 4 BT: AP Difficulty: S Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.13B a. LAZDOWSKI MARKETING SERVICES Trial Balance October 31, 2021

Cash ......................................................... Accounts receivable ............................... Supplies ................................................... Prepaid rent ............................................. Furniture .................................................. Equipment................................................ Notes payable .......................................... Accounts payable.................................... Unearned revenue ................................... I. Lazdowski, capital ................................ I. Lazdowski, drawings ........................... Service revenue (to balance*)................. Advertising expense ............................... Insurance expense .................................. Interest expense ...................................... Supplies expense .................................... Rent expense ........................................... Salaries expense .....................................

Debit $ 4,930 6,010 1,240 975 56,685 25,970

Credit

$48,850 4,403 3,555 57,410 75,775 114,047 14,970 2,020 2,445 5,000 11,700 20,545 $228,265 $228,265

*Total credits without service revenue = $114,218 $228,265 – $114,218 = $114,047

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PROBLEM 2.13B (Continued) b. LAZDOWSKI MARKETING SERVICES Income Statement Year Ended October 31, 2021 Revenues Service revenue .................................................... $114,047 Expenses Advertising expense ................................. $14,970 Insurance expense .................................. 2,020 Interest expense ...................................... 2,445 Supplies expense .................................... 5,000 Rent expense ..............................................11,700 Salaries expense.........................................20,545 Total expenses ............................................... 56,680 Profit............................................................................. $57,367

LAZDOWSKI MARKETING SERVICES Statement of Owner's Equity Year Ended October 31, 2021 I. Lazdowski, capital, November 1, 2020 ................ Add: Profit ............................................................ Less: Drawings....................................................... I. Lazdowski, capital, October 31, 2021..................

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$57,410 57,367 114,777 75,775 $39,002

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PROBLEM 2.13B (Continued) b. (Continued) LAZDOWSKI MARKETING SERVICES Balance Sheet October 31, 2021 Assets Cash ........................................................................... Accounts receivable ................................................. Supplies ..................................................................... Prepaid rent ............................................................... Furniture .................................................................... Equipment..................................................................

$ 4,930 6,010 1,240 975 56,685 25,970

Total assets ........................................................... $95,810 Liabilities and Owner's Equity

I.

Liabilities Notes payable ......................................................... $48,850 Accounts payable ................................................. 4,403 Unearned revenue ................................................. 3,555 Total liabilities ...................................................... 56,808 Owner's Equity Lazdowski, capital ................................ 39,002 Total liabilities and owner's equity.................... $95,810

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PROBLEM 2.13B (Continued) Taking It Further Drawings exceeded profit. This has resulted in a net decrease to the owner’s capital account. Inga’s drawings have left the company with a low level of liquid assets (Cash of $4,930 + Accounts receivable of $6,010 = $10,940) to pay off liabilities (Notes payable of $48,850 + Accounts payable of $4,403 = $53,253). Inga’s drawings should be based on her cash budget for the coming year and should leave the company with sufficient cash to able to meet its liabilities and grow. LO 4 BT: AP Difficulty: S Time: 45 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 2.14B a.

1. Incorrect 2. Incorrect 3. Correct 4. Incorrect 5. Incorrect 6. Incorrect 7. Incorrect 8. Incorrect 9. Incorrect 10. Incorrect

b. Trans 1 1 No 2

3 4

2 Prepaid Insurance Yes Accounts Receivable Accounts Payable

3 Understated $3,600 Understated $500 Understated $500

4 Increase by $3,600 Increase by $500

Yes Salaries Payable Cash

Understated $1,200 Understated $1,200 Understated $250 Understated $1,200 Overstated $1,200

Increase by $1,200

Increase by $1,200

Increase by $250 Yes

Yes

5

No

Cash

6

Yes Drawings Salaries Expense

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5 Yes Increase by $500

Yes

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PROBLEM 2.14B (Continued) b. (Continued) Trans 1 2 7 Yes Unearned Revenue Service Revenue 8 No Accounts Payable 9

10

3 Understated $400 Overstated $400 Understated $750 = ($375 × 2) No Equipment Overstated $1,800 Overstated Cash $8,600 Accounts Understated $6,800 Payable Yes Accounts Understated Receivable $950 Understated Service Revenue $950

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4

5

Yes

Yes

Yes

Increase by $750

Decrease by $10,400

Increase by $6,800

Increase by $950

Increase by $950

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PROBLEM 2.14B (Continued) Taking It Further 2. This error understates Accounts Receivable and Accounts Payable. It may lead to liabilities being unpaid and receivables being uncollected. 4. This error may lead to salaries to employees not being paid since the transaction was posted as a credit to Cash. It would show as already being paid. The error would also understate the company’s liabilities. 6. This error overstates Salaries Expense. It results in lower profits on the income statement because of the additional expense. 7. This error shows lower liabilities by understating Unearned Revenue. It results in higher profit on the income statement because of the overstated Service Revenue. 10. This error understates the asset Accounts Receivable and understates Service Revenue. It results in a lower profit on the income statement because of the unrecorded revenue. LO 4 BT: AN Difficulty: M Time: 35 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

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PROBLEM 2.15B SHAWNEE SLOPES COMPANY Trial Balance June 30, 2021 Debit Cash ($5,875 + $210 – $120 +$650) ................... $ 6,615 Accounts receivable ($3,620 – $385– $385) .......... 2,850 Supplies ($0 + $650) ........................................... 650 Equipment ($14,020 – $650 + $2,000) .................. 15,370 Notes payable ($0 + $2,000)............................... Accounts payable ($5,290 – $165– $165 +$650) Property tax payable ($500 – $500) ................... A. Shawnee, capital ($17,900 + $750) ................ A. Shawnee, drawings ($0 + $750) .................... 750 Service revenue ($7,027– $560 + $650) ............. Advertising expense ($1,132 – $210 + $120) ........ 1,042 Property tax expense ($1,100 + $500) ................... 1,600 Salaries expense ($4,150 + $350) ..................... 4,500 $33,377

Credit

$ 2,000 5,610 0 18,650 7,117

$33,377

Taking It Further There could still be errors after correcting the items identified. The errors could be counter-balancing errors that affect both the debit and credit side equally, such as a transposition error in recording a journal entry that affects both the debit and credit sides (item #6), or errors that counter-balance on the debit side or on the credit side of the trial balance. The trial balance could also be in balance and not show transactions that have been omitted but that should have been recorded. LO 4 BT: AN Difficulty: M Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

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Accounting Principles, Seventh Canadian Edition

BYP2.1 FINANCIAL REPORTING PROBLEM

a. Account Finance Expense Cash and Cash Equivalents Intangible Assets Inventory Long-Term Debt Prepaid Expenses and Other Current Assets Net Revenue Accounts Payable and Accrued Liabilities

Solutions Manual .

(1) Financial Statement

Income Statement Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet Income Statement Balance Sheet

2.176

(2)

(3) Normal Balance

(4) Increase Side

(4) Decrease Side

Expense

Debit

Debit

Credit

Asset

Debit

Debit

Credit

Asset

Debit

Debit

Credit

Asset

Debit

Debit

Credit

Liability

Credit

Credit

Debit

Asset

Debit

Debit

Credit

Revenue

Credit

Credit

Debit

Liability

Credit

Credit

Debit

Account

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

BYP2.1 (Continued) b.

1. 2. 3. 4.

Cash is decreased. Cash is increased. Cash and/or Accounts Receivable are increased. Accounts Payable and Accrued Expenses is increased or Cash is decreased. 5. Cash is decreased.

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BYP2.2 INTERPRETING FINANCIAL STATEMENTS a. 1. Deferred income tax liability. 2. Income tax expense. 3. Also, in a corporation the owners are called shareholders. So, the final two amounts have different names in a proprietorship.

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BYP2.2 (Continued) b. WESTJET AIRLINES LTD. Trial Balance December 31, 2016 Cash and cash equivalents $1,520,822 Restricted cash 102,649 Accounts receivable 127,785 Inventory 33,535 Prepaid expenses and deposits 181,070 Property and equipment 4,036,880 Intangibles 66,187 Other assets 95,368 Accounts payable and accrued liabilities Advance ticket sales liability Deferred rewards program Non-refundable guest credits liability Maintenance provisions liability Other liabilities Deferred income tax liability Long-term debt Shareholders’ (owners’) equity, January 1, 2016 Shareholders’ (owners’) “drawings” 66,967 Guest revenues Other revenues Aircraft fuel, leasing, and maintenance expense 1,153,538 Rates and fees expense 617,573 Salaries and benefits expense 854,056 Other expenses 291,024 Depreciation and amortization expense 350,484 Sales and marketing expense 356,745 Employee profit share expense 59,342 Non-operating expenses 23,864 Income tax expense 120,775 $10,058,664

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547,490 626,635 155,567 42,942 366,234 8,374 309,694 2,046,658 1,832,211 3,556,941 565,918

$10,058,664

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

BYP2.2 (Continued) c.

Items have been grouped on the WestJet income statement based on the nature of the expenses such as salaries and benefits expenses. Preparing a more condensed statement of income is preferable for large organizations such as WestJet as the users of the financial statements are generally investors who are not interested in any greater detail concerning expenses than what has been presented by management.

d.

Most customers using WestJet services book their flights well in advance of their trip. The customers also pay for their tickets before the flight. The cash obtained by WestJet represents unearned revenue until the service of the flight has been delivered to the customer. WestJet has used two main accounts for unearned revenue: Advance Ticket Sales Liability and Non-refundable Guest Credits Liability.

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BYP2.3 COLLABORATIVE LEARNING ACTIVITY All of the material supplementing the collaborative learning activity, including a suggested solution, can be found in the Collaborative Learning section of the Instructor Resources site accompanying this textbook.

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BYP2.4 COMMUNICATION ACTIVITY

e-mail: Hello instructor, As requested, following is an explanation and illustration of the steps in the recording process as they relate to the March 15 events for White Glove Company: (1)

In the first example, a transaction has not yet taken place. White Glove’s financial position (assets, liabilities, and owner’s equity) is not changed as a result of the contract. There has been no exchange between the parties involved in the event.

(2)

In the second example, bills totalling $6,000 were sent to customers for services performed. First, we analyze the transaction to determine the accounts involved and the debits/credits required. We determine that the asset Accounts Receivable is increased $6,000 and Service Revenue is increased $6,000. Debits increase assets and credits increase revenues, so the next step is preparing the journal entry: Accounts Receivable ......................................... 6,000 Service Revenue ............................................ Billed customer for services performed.

6,000

The third step is posting the entry. The $6,000 amount is then posted to the debit side of the general ledger account Accounts Receivable and to the credit side of the general ledger account Service Revenue.

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BYP2.4 (Continued) (3)

In the third example, $2,000 was paid in salaries to employees. First, we analyze the transaction to determine the accounts involved and the debits/credits required. We determine that the expense Salaries Expense is increased $2,000 and the asset Cash is decreased $2,000. Debits increase expenses and credits decrease assets, so the next step is preparing the journal entry: Salaries Expense ................................................. 2,000 Cash................................................................ 2,000 Paid employee salaries. The third step is posting the entry. The $2,000 amount is then posted to the debit side of the general ledger account Salaries Expense and to the credit side of the general ledger account Cash.

I trust that the foregoing is satisfactory. Please let me know if anything further is required.

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BYP2.5 “All About You” Activity a.

On September 1, 2021, my personal equity would be as follows: Cash ($4,000 + $14,000) ............. $18,000 Clothes.................................... 1,000 Cell phone ................................... 200 Total assets ............................ 19,200 Less Student loan .................. (14,000) Personal equity, Sept. 1, 2021 $5,200

b. Personal Trial Balance December 15, 2021

Debit Cash ............................................................... $6,000 Clothes ($1,000 + $1,500) .............................. 2,500 Cell phone...................................................... 200 Computer ....................................................... 1,000 Damage deposit on apartment ..................... 400 Unused bus pass........................................... 250 Student loan .................................................. Personal equity ............................................. Rent expense ................................................. 1,600 Groceries expense ........................................ 1,200 Tuition for September to December............. 2,800 Textbooks for September to December ....... 600 Entertainment expense ................................. 1,500 Cell phone expense....................................... 250 Internet expense............................................ 200 Bus pass expense ......................................... 250 Airfare ............................................................ 450 $19,200

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Credit

$14,000 5,200

$19,200

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

BYP2.5 (Continued) b. (Continued) Errors in the Trial Balance:  The cash amount should be the amount in the bank account at December 15.  The computer was recorded at $100 rather than the actual cost of $1,000.  Rent expense of $2,000 should be split between the actual expense of $1,600 ($400 per month for September to December inclusive) and the damage deposit on the apartment which is an asset and not an expense.  Groceries are an expense and should be listed in the debit column.  Bus pass expense of $500 should be split between the amount used for September through December 2021 of $250 and the amount of the bus pass that represents an asset as at the end of December 2021 of $250.  The airfare is $450, not $540. c.

Personal equity, September 1 Net loss * Personal equity (deficit), December 15

$5,200 (8,850) $(3,650)

Rent expense....................................................... Groceries expense .............................................. Tuition for September to December................... Textbooks for September to December............. Entertainment expense....................................... Cell phone expense ............................................ Internet expense.................................................. Bus pass for September to December............... Airfare expense ................................................... * Net loss ................................................................

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$1,600 1,200 2,800 600 1,500 250 200 250 450 $8,850

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

BYP2.5 (Continued) d. Personal Balance Sheet December 15, 2021 Assets Cash .......................................................................... Clothes ...................................................................... Cell phone................................................................. Damage deposit on apartment ................................ Unused bus pass...................................................... Computer .................................................................. Total assets ..........................................................

$6,000 2,500 200 400 250 1,000 $10,350

Liability and Deficit Liability Student loan ............................................................ $14,000 Personal equity (deficit) ........................................... (3,650) Total liabilities and owner's equity ........................ $10,350 e.

The amount of expenses in the September to December semester totalled $8,850. It will not be necessary to use cash to pay for the $250 bus pass next semester as it has already been purchased. If the other expenses are kept at the same level, I will need $8,600 ($8,850 – $250) of cash which exceeds my current cash balance of $6,000 by $2,600. The cash balance is inadequate.

f.

Expenses that can be avoided in the second semester include entertainment expenses of $1,500 and the airfare of $450. Another expense that can be reduced but not eliminated is the cell phone expense.

g.

Additional cash expenditures that could occur in the second semester may possibly include repair to the computer or the loss of the damage deposit and additional payments to the landlord for damage to the apartment. Textbooks may exceed $600 in the second semester.

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BYP2.5 (Continued) h.

Unless I get a part-time job or cut expenses in addition to the entertainment and airfare expenses mentioned in f., it will be necessary to ask for more money from my parents.

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BYP2.6 Santé Smoothie Saga a. Apr. 12 No entry required for cashing Canada Savings Bonds—this is a personal transaction. 13 Cash ....................................................... N. Koebel, Capital ............................. Invested cash in business.

900 900

15 Cash ..........................................................3,000 Notes Payable ................................... Borrowed cash and signed a note. 18 Advertising Expense............................. Cash................................................... Paid advertising expense.

325

20 Supplies ................................................. Cash................................................... Purchased supplies for cash.

198

22 Equipment ............................................. N. Koebel, Capital ............................. Invested equipment in business.

825

23 Account Receivable .............................. Revenue ............................................ Billed customer for smoothies.

300

24 Telephone Expense............................... Accounts Payable............................. Received invoice for cell phone.

98

325

198

825

300

28 Cash ....................................................... 125 Unearned Revenue ........................... Received cash for services in advance.

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3,000

98

125

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

BYP2.6 (Continued) b. Apr. 13 Apr. 15 Apr.28

Cash 900 3,000 Apr. 18 125 Apr. 20

Bal.

3,502

Apr. 23

Accounts Receivable 300

Apr. 20

Supplies 198

Apr. 22

Equipment 825

Solutions Manual .

325 198

Accounts Payable Apr. 24

98

Unearned Revenue Apr. 28

125

Notes Payable Apr. 15

3,000

N. Koebel, Capital Apr. 13 Apr. 22 Bal.

900 825 1,725

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Seventh Canadian Edition

BYP2.6 (Continued) b. (Continued) Revenue Apr. 23

Apr. 18

Advertising Expense 325

Apr. 24

Telephone Expense 98

300

c. SANTÉ SMOOTHIES Trial Balance April 30, 2021

Cash ......................................................... Accounts receivable ............................... Supplies ................................................... Equipment................................................ Accounts payable.................................... Unearned revenue ................................... Notes payable .......................................... N. Koebel, capital .................................... Revenue ................................................... Advertising expense ............................... Telephone expense .................................

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Debit $3,502 300 198 825

Credit

$

98 125 3,000 1,725 300

325 98 $5,248

$5,248

Chapter 2

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

CHAPTER 3 Adjusting the Accounts

Learning Objectives 1. Explain accrual basis accounting, and when to recognize revenues and expenses. 2. Prepare adjusting entries for prepayments. 3. Prepare adjusting entries for accruals. 4. Describe the nature and purpose of an adjusted trial balance, and prepare one.

Solutions Manual .

3.1

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

Summary of Questions by Learning Objectives and Bloom’s Taxonomy Item LO

BT Item LO BT Item LO

1. 2. 3. 4.

1 1 1 1

K C C C

5. 6. 7. 8.

2 2 2 2

C K C C

1. 2. 3. 4.

1 2 2 2

AP AP C AP

5. 6. 7. 8.

2 2 2 2

AP AP AP AP

1. 1 2. 1 3. 2,3

AP AP AP

4. 5. 6.

2,3 AP 2 AP 2 AP

1. 2. 3.

AP AP AP

4. 5. 6.

2,3 2,3 2,3

1 2 3

Solutions Manual .

AP AP AP

BT Item LO

BT Item LO

Questions 9. 2 C 13. 3 AP 10. 2 C 14. 3 C 11. 2 C 15. 2,3 K 12. 3 C 16. 2,3 K Brief Exercises 9. 2 AP 13. 3 AP 10. 3 AP 14. 4 AP 11. 3 AP 15. 4 AP 12. 3 AP 16. 4 AP Exercises 7. 2,3 AP 10. 2,3 AP 8. 2,3 AP 11. 2,3 AP 9. 2,3 AP 12. 3 AP Problems 7. 2,3 AP 10. 2,3,4 AP 8. 2,3 AP 11. 2,3,4 AP 9. 3 AP 12. 2,3,4 AP

3.2

17. 18. 19. 20.

2,3 4 4 4

BT C C K C

13 3 AP 14 2,3,4 AN 15 2,3,4 AP 13. 2,3,4 AP

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

Legend: The following abbreviations will appear throughout the solutions manual file. LO BT

Difficulty:

Time: AACSB

CPA CM

Solutions Manual .

Learning objective Bloom's Taxonomy K Knowledge C Comprehension AP Application AN Analysis S Synthesis E Evaluation Level of difficulty S Simple M Moderate C Complex Estimated time to complete in minutes Association to Advance Collegiate Schools of Business Communication Communication Ethics Ethics Analytic Analytic Tech. Technology Diversity Diversity Reflec. Thinking Reflective Thinking CPA Canada Competency Map Ethics Professional and Ethical Behaviour PS and DM Problem-Solving and Decision-Making Comm. Communication Self-Mgt. Self-Management Team & Lead Teamwork and Leadership Reporting Financial Reporting Stat. & Gov. Strategy and Governance Mgt. Accounting Management Accounting Audit Audit and Assurance Finance Finance Tax Taxation

3.3

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CLASSIFICATION TABLE Study Objectives

Questions

Brief Exercises

Exercises

Problems Set A

Problems Set B

1. Explain accrual basis accounting, and when to recognize revenues and expenses.

1, 2, 3, 4

1, 3

1, 2

1

1

2. Prepare adjusting entries for prepayments.

5, 6, 7, 8, 2, 3, 4, 5, 9, 10, 11, 6, 7, 8, 9, 14, 15, 16, 13 17 12, 13, 10, 11, 14, 15, 12, 13 16, 17

3, 4, 5, 6, 7, 8, 9, 10, 11, 14, 15 3, 4, 7, 8, 9, 10,11, 12, 13, 14, 15 14, 15

2, 4, 5, 6, 7, 8, 10, 11, 12, 13

3. Prepare adjusting entries for accruals.

4. Describe the nature and purpose of an adjusted trial balance, and prepare one.

Solutions Manual .

18, 19, 20

14, 15, 16

3.4

2, 4, 5, 6, 7, 8, 10, 11, 12, 13 3, 4, 5, 6, 3, 4, 5, 6, 7, 8, 9, 10, 7, 8, 9, 11, 12, 13 10, 11, 12, 13 10, 11, 12, 10, 11, 13 12, 13

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

Description

Difficulty Level

Time Allotted (min.)

1A

Determine profit on cash and accrual bases; recommend method.

Complex

20-25

2A

Prepare and post prepayment transaction entries. Prepare basic analysis, debit/credit analysis, and journal entry.

Moderate

25-35

3A

Prepare entries for accrual subsequent cash transactions.

Moderate

25-35

4A

Prepare adjusting journal entries.

Simple

15-20

5A

Moderate

25-35

6A

Prepare adjusting entries and subsequent cash payments. Prepare transaction and adjusting entries.

Moderate

25-35

7A

Prepare adjusting entries.

Moderate

25-35

8A

Prepare adjusting entries.

Moderate

25-35

9A

Prepare transaction and adjusting entries for notes and interest.

Moderate

40-45

10A

Prepare and post adjusting entries, and prepare adjusted trial balance.

Moderate

50-60

11A

Prepare and post adjusting entries, and prepare adjusted trial balance and financial statements.

Moderate

50-60

12A

Journalize transactions and follow through accounting cycle to adjusting entries and preparation of financial statements. Prepare adjusting entries, adjusted trial balance, and financial statements.

Complex

60-70

Moderate

50-60

13A

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3.5

adjustments

and

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE (Continued) Problem Number

Description

Difficulty Level

Time Allotted (min.)

1B

Determine profit on cash and accrual bases; recommend method.

Complex

20-25

2B

Prepare and post prepayment transaction entries. Prepare basic analysis, debit-credit analysis, and journal entry, and post adjustments for the prepayments.

Moderate

25-35

3B

Prepare entries for accrual subsequent cash transactions.

Moderate

25-35

4B

Prepare adjusting journal entries,

Simple

15-20

5B

Moderate

25-35

6B

Prepare adjusting entries and subsequent cash payments. Prepare transaction and adjusting entries.

Moderate

25-35

7B

Prepare adjusting entries.

Moderate

25-35

8B

Prepare adjusting entries.

Moderate

25-35

9B

Prepare transaction and adjusting entries for notes and interest.

Moderate

40-45

10B

Prepare and post adjusting entries, and prepare adjusted trial balance.

Moderate

50-60

11B

Prepare and post adjusting entries, and prepare adjusted trial balance and financial statements.

Moderate

50-60

12B

Journalize transactions and follow through accounting cycle to adjusting entries and preparation of financial statements. Prepare adjusting entries, adjusted trial balance, and financial statements.

Complex

60-70

Moderate

50-60

13B

Solutions Manual .

3.6

adjustments

and

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BLOOM’S TAXONOMY TABLE Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Material Study Objectives 1. Explain accrual basis accounting, and when to recognize revenues and expenses. 2. Prepare adjusting entries for prepayments.

Knowledge Q3.1

Comprehension Q3.2 Q3.3 Q3.4 Q3.5

Application BE3.1 P3.1B BE3.3 E3.1 E3.2

Analysis

Q3.6 Q3.8 Q3.15 Q3.16

Q3.7 Q3.9 Q3.10 Q3.11 Q3.14 Q3.17 BE3.13

BE3.2 BE3.3 BE3.4 BE3.5 BE3.6 BE3.7 BE3.8 BE3.9 BE3.12 E3.3 E3.4 E3.5 E3.6 E3.7 E3.8 E3.9 E3.10 E3.11 E3.15

P3.2A P3.4A P3.5A P3.6A P3.7A P3.8A P3.10A P3.11A P3.12A P3.13A P3.2B P3.4B P3.5B P3.6B P3.7B P3.8B P3.10B P3.11B P3.12B P3.13B

E3.14

3. Prepare adjusting entries for accruals.

Q3.15 Q3.16

Q3.12 Q3.14 Q3.17 BE3.13

Q3.13 Q3.15 BE3.11 BE3.12 BE3.13 E3.3 E3.4 E3.7 E3.8 E3.9 E3.10 E3.11 E3.12 E3.13 E3.15 P3.3A P3.4A P3.5A P3.6A

P3.7A P3.8A P3.9A P3.10A P3.11A P3.12A P3.13A P3.3B P3.4B P3.5B P3.6B P3.7B P3.8B P3.9B P3.10B P3.11B P3.12B P3.13B

E3.14

Solutions Manual .

3.7

Synthesis

Chapter 3

Evalu ation

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BLOOM’S TAXONOMY TABLE (Continued)

Study Objectives 4. Describe the nature and purpose of an adjusted trial balance, and prepare one.

Broadening Your Perspective

Solutions Manual .

Knowledge

Comprehension Q3.18 Q3.19 Q3.20

Application BE3.14 P3.13A BE3.15 P3.8B BE3.16 P3.9B E3.15 P3.10B P3.10A P3.11B P3.11A P3.12B P3.12A P3.13B Cumulative Coverage, BYP3.2 BYP3.3 BYP3.5 BYP3.6 Santé Smoothies

BYP3.1

3.8

Analysis E3.14

Synthesis

BYP3.4

Chapter 3

Evaluation

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

ANSWERS TO QUESTIONS 1.

a. Accountants divide the life of a business into specific time periods so that they can provide feedback on how the business is doing. The periods chosen are of equal lengths so that the information provided is comparable, period to period. Management usually wants monthly financial statements. Investors want to view the results of publicly traded companies at least quarterly. The Canada Revenue Agency (CRA) requires financial statements to be filed with annual income tax returns. Consequently, accountants divide the life of a business into specific time periods, such as a month, a three-month quarter, or a year. b.

A fiscal year is an accounting period that is one year long but does not need to start and end on the same days as the calendar year. A calendar year begins on January 1 and ends on December 31.

LO 1 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

2.

The accrual basis provides useful information for decision making as it reflects transactions in the period in which they occur. Compared to the cash basis, the accrual basis gives a more realistic measure of the performance and future earnings potential of the business.

LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

3.

The law firm should recognize the revenue in April. The revenue should be recognized in the accounting period in which the services were performed (i.e., when the work is done).

LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

4.

Expenses of $3,000 ($500 + $2,500) should be recognized and deducted from the revenues in April since April was when the revenue was recorded for the services performed. Expense recognition is tied to revenue recognition when there is a direct association between costs incurred and the recognition of revenue. Salaries are the costs related to performing the legal service.

LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

5.

Prepaid expenses are costs paid before they are used or consumed. For example, rent or insurance is often paid in advance. Prepaid expenses need to be adjusted at the end of each accounting period to reflect the fact that part of the asset has been used up or consumed.

LO 2 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 6.

Normally, adjusting entries to prepaid expense cause expenses to be increased with the debit side of the adjustment and an asset to be decreased with the credit side of the adjustment.

LO 2 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

7.

No. Depreciation is the process of allocating the cost of an asset to expense over its useful life, in a rational and systematic manner. Depreciation results in the presentation of the carrying amount of the asset, not its fair value.

LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

8.

a.

Depreciation Expense is an expense account whose normal balance is a debit. This account shows the cost that has expired during the current accounting period. Accumulated Depreciation is a contra asset account whose normal balance is a credit. The balance in this account is the total of all the depreciation that has been recognized from the date of acquisition of an asset to the balance sheet date.

b.

Cost includes the amount paid to purchase the asset. Carrying amount is the cost of the asset reduced by the accumulated depreciation.

LO 2 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

9.

The Accumulated Depreciation contra asset account is used so that both the original cost of an asset and the portion of the cost that has been allocated to expense to date are shown.

LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

10. The equipment will be shown on the balance sheet at its carrying amount of $12,000. The Accumulated Depreciation account is offset (deducted) against the related asset account which remains at its cost on the balance sheet in order to show the asset`s carrying amount as follows: Property, plant, and equipment Equipment ....................................................... Less: Accumulated depreciation...................... Carrying amount ..............................................

$18,000 6,000 $12,000

LO 2 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.10

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 11. Unearned revenue exists when cash is received for goods or services to be provided in the future. It represents a liability and belongs on the balance sheet because the cash has been received and the company has a future obligation to provide the goods or services. As the business provides the goods or the services, adjusting journal entries are recorded at the end of the period to recognize the corresponding amount of revenue for services performed that will then appear on the income statement. LO 2 BT: C Difficulty: C Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

12. It is necessary to prepare an adjusting entry to record the revenue for services performed during the month and to show the receivable that exists at the end of the month. When the interest payment is received at the beginning of each month, Waiparous will increase (debit) the Cash account and decrease (credit) the Interest Receivable account. LO 3 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

13. Accrued Expense: On the balance sheet, liabilities (accounts payable) are understated $600 and owner’s equity is overstated $600. On the income statement, expenses are understated $600 and profit is overstated $600. LO 3 BT: AP Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

14. a. 1. 2. 3. 4. 5. 6.

Type of adjusting entry Accrued revenue Unearned revenue Accrued expense Prepaid expense Prepaid expense Accrued revenue

b. Related account Revenue Revenue Interest expense Supplies Insurance expense Interest receivable

Balance understated understated understated overstated understated understated

LO 3 BT: C Difficulty: C Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.11

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 15.

One half of the entry:

Other half of the entry:

a. Salaries Expense is debited

Salaries Payable is credited

b. Depreciation Expense is debited

Accumulated Depreciation is credited

c. Interest Payable is credited

Interest Expense is debited

d. Supplies is credited

Supplies Expense is debited

e. Accounts Receivable is debited

Service Revenue is credited

f.

Service Revenue is credited

Unearned Revenue is debited

LO 2,3 BT: K Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

16. Disagree. The Cash account is never involved in adjusting journal entries. Adjusting entries are intended to implement the accrual basis of accounting. Accrued revenues and expenses are recorded by adjusting journal entries before the cash is received or paid. Prepayments and unearned revenues require adjustments after the cash has been received or paid. LO 2,3 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

17. Disagree. An adjusting entry affects only one balance sheet account and one income statement account. LO 2,3 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

18. Both the trial balance and the adjusted trial balance list the balances of all accounts and prove the equality of the total debit and credit balances. The trial balance lists the balances in the accounts prior to adjusting entries; the adjusted trial balance lists the balances after all adjustments have been posted. The adjusted trial balance is used to prepare the financial statements. LO 4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

19. An adjusted trial balance, similar to all trial balances, only proves that the ledger is mathematically accurate. Having a balanced trial balance does not mean there are no mistakes in the ledger. Entries may be omitted, duplicated, or recorded to the wrong accounts. LO 4 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.12

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 20. The balance sheet will not balance. The balance sheet must be prepared using the ending owner`s capital balance that is reported in the statement of owner`s equity. Profit and additional investments made by the owner are added to the beginning balance in Owner’s Equity (Capital account) and Drawings are subtracted. The resulting balance then appears on the balance sheet. LO 4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.13

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 3.1 Transaction 1. Collected $550 cash from customers for services provided in May. 2. Billed customers $725 for services provided in May. 3. Received $350 from customers for services to be provided in June. 4. Purchased $250 of supplies on account. All of the supplies were used in May but were paid for in June. Profit

a. Cash

b. Accrual

+$550

+$550

0

+725

+350

0

0 $900

–250 $1,025

LO 1 BT: AP Difficulty: C Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3.2 Supplies used: $795 + $3,830 – $665 = $3,960 Supplies on hand, May 31, 2021: $985 + $3,070 – x = $2,750 x = $1,305 Green Co. Supplies used: $1,325 + $2,395 - $1,700 = $2,020 Red Co. Blue Co.

LO 2 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.14

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 3.3 a. Balance sheet account

b. Balance sheet account Overstated or Understated

1.

Supplies

Overstated

2.

Accounts Receivable

Understated

3.

Interest Payable

Understated

4.

Unearned Revenue

Overstated

LO 2 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3.4 T accounts not required Supplies Jan. 1 785 May 31 3,255 Dec. 31 3,005 Dec. 31 Bal. 1,035 a. May 31

Supplies Expense Jan. 1 0 Dec. 31 3,005 Dec. 31 3,005 Bal.

Supplies............................................ 3,255 Cash ........................................... Purchase supplies for cash.

b.

Supplies used = $785 + $3,255 − $1,035 = $3,005

c.

Dec. 31

Supplies Expense ............................ 3,005 Supplies ..................................... To record supplies used.

3,255

3,005

LO 2 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.15

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 3.16 a.

b.

March 1 Prepaid Insurance .............................. 4,800 Cash ............................................. Paid insurance in advance.

4,800

Monthly cost: $4,800 ÷ 12 = $400/month; Number of months expired: March to December—10 months Amount expired in 2021: 10 months × $400 = $4,000 Number of months remaining: January to February—2 months Amount unexpired at December 31: 2 months × $400 = $800 Total $4,800 = $4,000 + $800

c.

Dec. 31 Insurance Expense ............................ 4,000 Prepaid Insurance ....................... To record insurance expired.

4,000

T accounts not required Prepaid Insurance Mar. 1 4,800 Dec. 31 4,000 Dec. 31 Bal.

Insurance Expense Dec. 31 4,000

800

LO 2 BT: AP Difficulty: C Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.16

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 3.17 a.

b.

July 1

Prepaid Insurance ............................ 12,750 Cash ............................................. Paid insurance in advance.

12,750

Monthly cost: $12,750 ÷ 36 = $354.17/month; Number of months expired: July to December—6 months Amount expired in 2021: 6 months × $354.17 = $2,125 Dec. 31 Insurance Expense ............................ 2,125 Prepaid Insurance ....................... To record insurance expired.

2,125

T accounts not required Prepaid Insurance July 1 12,750 Dec. 31 2,125

Insurance Expense Dec. 31 2,125

Dec. 31 Bal. 10,625 LO 2 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3.7 a.

July 1/21

b. c.

Equipment .................................... 30,000 Cash ......................................... Purchased equipment for cash.

30,000

$30,000 ÷ 10 X 6/12 = $3,000 per year X 6/12 = $1,500 Dec. 31/21 Depreciation Expense ................... 1,500 Accumulated Depreciation —Equipment........................... To record depreciation expense.

1,500

LO 2 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.17

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 3.18 a.

b.

Jan. 1/21

Equipment .................................... 27,000 Cash ......................................... Purchased equipment for cash.

27,000

Dec. 31/21 Depreciation Expense1 .................. 3,000 Accumulated Depreciation —Equipment........................... 1 ($27,000 ÷ 9 = $3,000 per year) To record depreciation expense.

3,000

Dec. 31/22 Depreciation Expense ................... 3,000 Accumulated Depreciation —Equipment........................... To record depreciation expense.

3,000

c. ZHANG COMPANY Balance Sheet (partial) December 31 2022

2021

Property, plant, and equipment Equipment............................................ $27,000 Less: Accumulated depreciation ....... 6,000 Carrying amount.................................. $21,000

$27,000 3,000 $24,000

ZHANG COMPANY Income Statement (partial) Year Ended December 31

Depreciation Expense .............................

2022

2021

$3,000

$3,000

LO 2 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.18

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 3.19 a.

Mar. 1

Cash .................................................... 4,800 Unearned Revenue ...................... 4,800 Received cash in advance from customer.

b.

$4,800 ÷ 12 = $400 per month Number of months to recognize March to October—8 months Amount to recognize to October 31: 8 × $400 = $3,200 Number of months remaining November to February—4 months Amount unearned at October 31: 4 × $400 = $1,600 Total $4,800 = $3,200 + $1,600

c.

Oct. 31 Unearned Revenue............................. 3,200 Service Revenue.......................... 3,200 To record revenue for services performed.

d. Service Revenue Oct. 31 3,200

Unearned Revenue Mar. 1 4,800 Oct. 31 3,200 Oct. 31 Bal.

1,600

LO 2 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.19

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 3.20 a.

July 31 Salaries Expense1 .............................. 3,540 Salaries Payable .......................... 3,540 1 ($7,080 ÷ 6, number of days worked in week = $1,180 3 x $1,180 = $3,540 To record accrued salaries.

b.

Aug. 4 Salaries Expense................................ 3,540 Salaries Payable ................................. 3,540 Cash ............................................. Paid employee salaries.

7,080

LO 3 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3.11 a.

Note 1: $50,000 × 6% × 5/12 = Note 2: $20,000 × 5% × 1/12 = Total accrued interest

$1,250 83 $1,333

b.

May 31/21 Interest Receivable ......................... 1,333 Interest Revenue ..................... To accrue interest revenue.

1,333

LO 3 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.20

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 3.12 a.

July 31/20 Equipment .................................... 150,000 Cash ..................................... 40,000 Notes Payable ..................... 110,000 Purchase equipment for cash and signed a note.

b.

Nov. 30/21 Interest Expense1...................... Interest Payable .................. 1 ($110,000 × 5% × 4/12) To accrue interest expense.

c.

1,833 1,833

Jan. 31/21 Interest Expense2...................... 917 Interest Payable ........................ 1,833 Notes Payable ........................... 110,000 Cash .................................... 112,750 2 ($110,000 × 5% × 6/12) – $1,833 To pay principal and interest on note payable.

LO 3 BT: AP Difficulty: S Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3.13 1.

Interest Expense .............................. Interest Payable ........................... To accrue interest expense.

400 400

2.

Accounts Receivable ......................... 2,300 Service Revenue.......................... 2,300 To accrue revenue for services performed but not billed or collected.

3.

Salaries Expense.............................. Salaries Payable .......................... To record accrued salaries.

900 900

LO 3 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.21

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 3.22 WINTERHOLT COMPANY Adjusted Trial Balance September 30, 2021

Debit Credit Cash............................................................. $ 1,100 Accounts receivable ................................... 6,050 Prepaid rent................................................. 780 Equipment ................................................... 29,800 Accumulated depreciation—equipment.... $ 6,400 Accounts payable ....................................... 2,890 Salaries payable.......................................... 875 Unearned revenue ...................................... 840 C. Winterholt, capital .................................. 16,150 C. Winterholt, drawings .............................. 21,000 Service revenue .......................................... 48,450 Depreciation expense ................................. 3,100 Rent expense .............................................. 1,560 Salaries expense......................................... 12,215 $75,605 $75,605

A A A A A L L L C D R E E E

LO 4 BT: AP Difficulty: S Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.22

Chapter 3

BS BS BS BS BS BS BS BS OE OE IS IS IS IS

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 3.15 WILDWOOD COMPANY Income Statement Year Ended December 31, 2021 Revenues Service revenue ............................................................... $39,000 Expenses Depreciation expense ..................................... $ 1,300 Insurance expense ........................................ 2,000 Rent expense ................................................. 4,000 Salaries expense ........................................... 1,500 Supplies expense ............................................. 1,500 Total expenses.......................................... 10,300 Profit .................................................................................... $ 28,700 LO 4 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3.16 RAY WONG’S MAGIC COMPANY Statement of Owner's Equity Year Ended December 31, 2021 R. Wong, capital, January 1 ............................................ Add: Profit .................................................................... Less: Drawings .............................................................. R. Wong, capital, December 31 .......................................

$25,600 14,200 39,800 12,000 $27,800

LO 4 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.23

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

SOLUTIONS TO EXERCISES EXERCISE 3.1 a. CASH BASIS Revenues 1. Cash collected from customers during the year for services provided that year. 3. Cash collected from customers for services provided on account the previous year. 4. Cash collected from customers for services to be provided the following year. Total Revenues Expenses 6. Cash paid for operating expenses incurred during the year. 8. Cash paid to creditors for operating expenses incurred on account during the previous year. Total Expenses Profit (cash basis)

Solutions Manual .

3.24

2021

2022

$50,250

$55,430

–

12,070

4,580

1,760

54,830

69,260

17,380

18,990

17,380

2,199 21,189

$37,450

$48,071

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.1 (Continued) b. ACCRUAL BASIS Revenues 1. Cash collected from customers during the year for services provided that year. 2. Accounts receivable at year end for services provided on account during the year. 5. Services provided to customers who had paid cash in advance the previous year. Total Revenues Expenses 6. Cash paid for operating expenses incurred during the year. 7. Accounts payable at year end for operating expenses incurred on account during the year. Total Expenses Profit (accrual basis) c.

2021

2022

$50,250

$55,430

12,070

18,080

– 62,320

4,580 78,090

17,380

18,990

2,199 19,579

3,120 22,110

$42,741

$55,980

The accrual basis provides more useful information for decision-makers as it reflects transactions in the period in which they occur. Compared to the cash basis, the accrual basis gives a more realistic measure of the performance and future earnings potential of the business.

LO 1 BT: AP Difficulty: C Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.25

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.26 1. When the flight takes place in December. 2. When the home theatre is delivered. 3. As the home games are played over the season. 4. Over the period of time the loan is outstanding. 5. When the sweater is shipped in September. 6. As each magazine is delivered. 7. When the gift card is redeemed in January. LO 1 BT: AP Difficulty: C Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.26

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.3 Adjustment 1: Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

The asset Prepaid Insurance is decreased by $435. The expense Insurance Expense is increased by $435. Debits increase expenses: debit Insurance Expense $435. Credits decrease assets: credit Prepaid Insurance $435. Dec. 31 Insurance Expense 435 Prepaid Insurance 435 To record insurance expired.

Adjustment 2: Basic Analysis Debit-Credit Analysis Adjusting Journal Entry

Solutions Manual .

The asset Supplies is decreased by $425. The expense Supplies Expense is increased by $425. Debits increase expenses: debit Supplies Expense $425. Credits decrease assets: credit Supplies $425. Dec. 31 Supplies Expense 425 Supplies 425 To record supplies used.

3.27

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.3 (Continued) Adjustment 3: Basic Analysis

Debit-Credit Analysis

Adjusting Journal Entry

One year of depreciation increases the contra asset Accumulated Depreciation—Equipment (which decreases the carrying value of the asset Equipment) by $1,240. The expense Depreciation Expense is increased by $1,240. Debits increase expenses: debit Depreciation Expense $1,240. Credits increase contra assets: credit Accumulated Depreciation—Equipment $1,240. Dec. 31 Depreciation Expense 1,240 Accumulated Depreciation —Equipment 1,240 To record depreciation of equipment.

Adjustment 4: Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

Solutions Manual .

The liability Unearned Revenue is decreased by $320 for the services provided. The revenue account Service Revenue is increased by $320. Debits decrease liabilities: debit Unearned Revenue $320. Credits increase revenues: credit Service Revenue $320. Dec. 31 Unearned Revenue 320 Service Revenue 320 To record revenue for services performed.

3.28

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.3 (Continued) Adjustment 5: Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

The liability account Salaries Payable is increased by $835. The expense Salaries Expense is increased by $835. Debits increase expenses: debit Salaries Expense $835. Credits increase liabilities: credit Salaries Payable $835. Dec. 31 Salaries Expense 835 Salaries Payable 835 To record accrued salaries.

Adjustment 6: Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

Solutions Manual .

The liability account Accounts Payable is increased by $230. The expense Utilities Expense is increased by $230. Debits increase expenses: debit Utilities Expense $230. Credits increase liabilities: credit Accounts Payable $230. Dec. 31 Utilities Expense 230 Accounts Payable 230 To record accrued expenses.

3.29

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.3 (Continued) Adjustment 7: Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

The asset account Accounts Receivable is increased by $935. The revenue account Service Revenue is increased by $935. Debits increase assets: debit Accounts Receivable $935. Credits increase revenues: credit Service Revenue $935. Dec. 31 Accounts Receivable 935 Service Revenue 935 To accrue revenue for services performed but not billed or collected.

Adjustment 8: Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

The liability account Interest Payable is increased by $85. The expense Interest Expense is increased by $85. Debits increase expenses: debit Interest Expense $85. Credits increase liabilities: credit Interest Payable $85. Dec. 31 Interest Expense 85 Interest Payable 85 To record interest on note payable.

LO 2,3 BT: AP Difficulty: S Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.30

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.31 1.

2.

3.

4.

5.

6.

7.

Insurance Expense ............................ 2,800 Prepaid Insurance ....................... To record insurance expired.

2,800

Unearned Revenue........................... 500 Service Revenue.......................... To record revenue for services performed.

500

Interest Expense1 ............................. Interest Payable ........................... 1 ($10,000 x 4% X 6/12) To accrue interest expense.

200

200

Depreciation Expense ........................ 2,150 Accumulated Depreciation —Equipment ............................. To record depreciation expense.

2,150

Supplies Expense2 ........................... 1,610 Supplies ....................................... 2 ($950 + $1,395 - $735) = $1,610 To record supplies used.

1,610

Salaries Expense3 ............................ 1,464 Salaries Payable .......................... 3 (4 x 3 x 8 x $15.25) = $1,464 To record accrued salaries.

1,464

Accounts Receivable ....................... 5,000 Service Revenue.......................... 5,000 To accrue revenue for services performed but not billed or collected.

LO 2,3 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.31

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.5 a. and b. Transaction 1: a. Apr. 1

b. Dec. 31

Prepaid Insurance ............................ 4,020 Cash ............................................. Paid insurance in advance.

4,020

Insurance Expense1 ......................... 3,015 Prepaid Insurance ....................... 1 ($4,020 × 9/12 = $3,015) To record insurance expired.

3,015

Transaction 2: a. Aug. 31

b. Dec. 31

Prepaid Rent ..................................... 6,500 Cash ............................................. Paid rent in advance.

6,500

Rent Expense2 .................................. 5,200 Prepaid Rent ................................ 2 ($6,500 × 4/5 = $5,200) To record rent expired.

5,200

Transaction 3: a. Sept. 27

Cash .................................................... 3,600 Unearned Revenue ...................... 3,600 Received cash in advance from customer.

b. Dec. 31

Unearned Revenue............................. 1,080 Service Revenue3 ........................ 1,080 3 ($3,600 × 3/10 = $1,080) To record revenue for services performed.

Solutions Manual .

3.32

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.5 (Continued) Transaction 4: a. Nov. 30

b. Dec. 31

Prepaid Expenses ............................ 1,500 Cash ............................................. Paid office expenses in advance. Office Expense ................................. Prepaid Expenses........................ To record office expenses used.

1,500

500 500

Transaction 5: a. Dec. 15

Cash .................................................. 935 Unearned Revenue ...................... 935 Received cash in advance from customers.

b. Dec. 31

Unearned Revenue........................... 390 4 Admission Revenue ................... 390 4 ($935 – $545 = $390) To record revenue from services performed.

LO 2 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.33

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.34 a.

Dec. 31 Depreciation Expense1 ..................... 2,720 Accumulated Depreciation— Building....................................... 2,720 1 ($68,000 ÷ 25 = $2,720 per year) To record depreciation expense for building. 31 Depreciation Expense2 ..................... 4,000 Accumulated Depreciation— Vehicles....................................... 4,000 2 ($28,000 ÷ 7 = $4,000 per year) To record depreciation expense for vehicles. 31 Depreciation Expense3 ..................... 1,575 Accumulated Depreciation —Equipment .............................. 1,575 3 ($12,600 ÷ 8 = $1,575 per year) To record depreciation expense for equipment.

b. Building $68,000

Cost Less: Accumulated Depreciation * 21,760 Carrying amount $46,240

Vehicles $28,000

Equipment $12,600

** 16,000 $12,000

***8,663 $ 3,937

* $2,720 × 8 = $21,760 ** $4,000 × 4 = $16,000 **$1,575 × 5.5 = $8,663 LO 2 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.34

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.35 1.

Accounts Receivable ......................... 2,400 Service Revenue.......................... 2,400 To accrue revenue for services performed but not billed or collected.

2.

Utilities Expense .............................. Accounts Payable........................ To accrue utilities expense.

3.

5.

400

Depreciation Expense...................... 500 Accumulated Depreciation —Equipment ............................. 500 To record depreciation expense for equipment. Interest Expense .............................. Interest Payable ........................... To record accrued interest.

4.

400

600 600

Insurance Expense1 ........................... 1,000 Prepaid Insurance ....................... 1 ($12,000 ÷ 12 = $1,000) To record insurance expired.

1,000

Supplies Expense2 ............................. 1,700 Supplies ....................................... 2 ($2,600 - $900 = $1,700) To record supplies used.

1,700

LO 2,3 BT: AP Difficulty: S Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.35

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.36 1.

2.

3.

Insurance Expense1 ......................... Prepaid Insurance ....................... 1 ($3,600 ÷ 24 = $150) To record insurance expired.

150

Depreciation Expense...................... Accumulated Depreciation —Equipment ............................. To record depreciation expense.

500

Interest Expense2 ............................. Interest Payable ........................... 2 ($20,000 x 6% X 1/12) = $100 To accrue interest expense.

100

150

500

100

4.

Accounts Receivable ....................... 1,500 Service Revenue.......................... 1,500 To accrue revenue for services performed but not billed or collected.

5.

Unearned Revenue........................... 600 Service Revenue.......................... To record revenue for services performed.

600

LO 2,3 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.36

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.9 a.

June 30 Interest Expense1 ............................. Interest Payable ........................... 1 ($48,000 × 4% × 1/12 = $160) To accrue interest expense.

160 160

30 Salaries Expense2 ............................ 1,500 Salaries Payable .......................... 2 ($3,500 × 3/7 = $1,500) To record accrued salaries.

1,500

30 Accounts Receivable ........................... 520 Commission Revenue ................. 520 To accrue revenue for commissions earned. 30 Utilities Expense .................................. 425 Accounts Payable ....................... To accrue utilities expense. 30 Interest Receivable .......................... Interest Revenue3 ........................ 3 ($6,000 × 6% × 1/12 = $30) To accrue interest revenue. b.

July

30

1 Interest Payable ................................... 160 Cash ............................................. Pay interest owed. 5 Salaries Payable................................ 1,500 Salaries Expense .............................. 2,000 Cash ............................................. Pay employee salaries. 7 Cash ...................................................... 520 Accounts Receivable .................. Collection on account.

Solutions Manual .

3.37

425

30

160

3,500

520

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.38 (Continued) July 9 Accounts Payable ............................ Cash ............................................. Payment on account.

425 425

Sept. 1 Cash .................................................. 6,090 Interest Receivable ..................... Interest Revenue4 ........................ Notes Receivable......................... 4 ($6,000 × 6% × 2/12) Collect principal and interest on note.

30 60 6,000

`LO 2,3 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

EXERCISE 3.10 a.

July

2 Prepaid Rent..................................... Cash ............................................. Paid rent in advance.

750

10 Supplies............................................ Cash ............................................. Purchased supplies for cash.

200

14 Cash .................................................. Accounts Receivable .................. Collection on account.

850

750

200

850

20 Cash .................................................. 700 Unearned Revenue ...................... 700 Received cash in advance from customer.

Solutions Manual .

25 Cash ................................................... 1,300 Service Revenue.......................... Performed services for cash.

1,300

3.38

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.39 (Continued) b.

July 31 Accounts Receivable ........................... 800 Service Revenue.......................... 800 To accrue revenue for services performed but not billed or collected. 31 Rent Expense1 .................................. Prepaid Rent ................................ 1 ($750 ÷ 3 = $250) To record rent expense.

250

31 Supplies Expense2 ........................... Supplies ....................................... 2 ($1,100 + $200 – $800 = $500) To record supplies used.

500

31 Depreciation Expense3 ................... Accumulated Depreciation —Equipment ............................... 3 ($9,360 ÷ 6 × 1/12) To record depreciation expense.

130

250

500

130

31 Unearned Revenue .......................... 900 Service Revenue.......................... 900 To record revenue for services performed. LO 2,3 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.40 1.

Mar. 31 Depreciation Expense1 ..................... 2,363 Accumulated Depreciation —Equipment ............................... 1 ($37,800 ÷ 4 × 3/12) To record depreciation expense.

2,363

2.

31 Unearned Revenue............................ 6,975 Rent Revenue ($9,300 × 3/4) ...... 6,975 To record revenue for services performed.

3.

31 Interest Expense2 ............................ Interest Payable .......................... 2 ($30,000 × 6% × 3/12) To accrue interest expense.

4.

5.

6.

450 450

31 Supplies Expense3 .......................... 13,550 Supplies ...................................... 3 ($14,400 – $850) To record supplies used. 31 Insurance Expense ($3,600 × 3/12) Prepaid Insurance ...................... To record insurance expired.

13,550

900 900

31 Accounts Receivable ...................... 700 Rent Revenue ............................. To accrue revenue for services performed but not billed or collected.

700

LO 2,3 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

3.40

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.12 a. July 1/21

Nov. 1/21

b. Dec. 1/21

Cash................................................ 75,000 Notes Payable ......................... Borrowed cash and signed a note.

75,000

Cash................................................ 42,000 Notes Payable ......................... Borrowed cash and signed a note.

42,000

Interest Expense1.......................... Cash ......................................... 1 ($42,000 × 5% × 1/12) Paid interest expense.

175 175

Dec. 31/21

Interest Expense2 ........................... 1,500 Interest Payable ...................... 1,500 2 ($75,000 × 4% × 6/12) To accrue interest on note issued July 1, 2021.

Dec. 31/21

Interest Expense3.......................... 175 Interest Payable ...................... 175 ($42,000 × 5% × 1/12) To accrue interest on note issued Nov. 1, 2021.

Jan. 1/22

Interest Payable ............................ Cash ......................................... 3 ($42,000 × 5% × 1/12) Pay interest owed on note.

Feb. 1/22

Solutions Manual .

175

Interest Expense4.......................... 175 Notes Payable ............................... 42,000 Cash ........................................ 4 ($42,000 × 5% × 1/12) Pay principal and interest on note.

3.41

175

42,175

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.42 (Continued) Mar. 1/22

Interest Expense5.......................... 500 Interest Payable .............................. 1,500 Notes Payable ............................... 75,000 Cash ........................................ 5 ($75,000 × 4% × 8/12) – $1,500 Pay principal and interest on note.

77,000

LO 3 BT: AP Difficulty: M Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

EXERCISE 3.13 a. June 1/21

Oct. 1/21

b. Nov. 1/21

Cash ................................................ 85,000 Notes Payable ......................... Borrowed cash and signed a note.

85,000

Cash ................................................ 60,000 Notes Payable ......................... Borrowed cash and signed a note.

60,000

Interest Expense1.......................... 250 Cash ......................................... 250 1 ($60,000 × 5% × 1/12) Paid interest expense on note issued Oct 1, 2021.

Nov. 30/21

Interest Expense2............................ 2,550 Interest Payable ...................... 2,550 2 ($85,000 × 6% × 6/12) To accrue interest on note issued June 1, 2021.

Nov. 30/21

Interest Expense3.......................... 250 Interest Payable ...................... 250 3 ($60,000 × 5% × 1/12) To accrue interest on note issued Oct. 1, 2021.

Solutions Manual .

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.43 (Continued) Dec. 1/22

Interest Payable ............................ 250 Cash ......................................... 250 Pay interest owed on note issued Oct. 1, 2021.

Jan. 1/22

Interest Expense4.......................... 250 Notes Payable ............................... 60,000 Cash ........................................ 4 ($60,000 × 5% × 1/12) Pay principal and interest on note issued Oct 1, 2021.

60,250

Interest Expense5.......................... 850 Interest Payable .............................. 2,550 Notes Payable ............................... 85,000 Cash ........................................ 5 ($85,000 × 6% × 8/12) – $2,550 Pay principal and interest on note issued June 1, 2021.

88,400

Feb. 1/22

LO 3 BT: AP Difficulty: M Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.44 Answer

Calculation

a.

Unearned revenue = $1,150

Service Revenue (01/31/21) $2,000 Unearned Revenue (01/31/21) 750 2,750 Cash received in Jan. 1,600 Unearned Revenue (12/31/20) $1,150

b.

Purchase date = Jan. 1, 2016

On Jan. 31/21, there is $3,660 in Accumulated Depreciation: $3,660 ÷ $60/month = 61 months Purchase date: 61 months or 5 years and one month earlier than Jan. 31/21.

c.

Total premium = $4,800

Total premium = Monthly premium × 12 $400 × 12 = $4,800

Purchase date = June 1, 2020

Purchase date: On Jan. 31, there are 4 months coverage remaining ($400 × 4). Thus, the purchase date was 8 months earlier, on June 1, 2020.

d.

Supplies purchased = $850

Supplies Expense Add: Supplies (01/31/21) Less: Supplies (01/01/21) Supplies purchased

$950 700 (800) $850

e.

Salaries paid = $2,200

Salaries Payable (12/31/20) Salaries Payable (01/31/21)

$1,200 (800) 400 1,800 $2,200

Plus: Salaries Expense Salaries paid

LO 2,3,4 BT: AN Difficulty: M Time: 25 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.15 a. Oct. 31

Oct. 31

Oct. 31

Oct. 31

Oct. 31

Oct. 31

Oct. 31

Solutions Manual .

Accounts Receivable .............................. 530 Service Revenue ($9,230 – $8,700).... To accrue revenue for services performed but not billed or collected.

530

Supplies Expense ($2,450 – $710) ......... 1,740 Supplies .............................................. To record supplies used.

1,740

Insurance Expense ($3,775 - $2,525) ..... 1,250 Prepaid Insurance .............................. To record insurance expired.

1,250

Depreciation Expense ............................ 2,275 Accumulated Depreciation —Equipment ....................................... To record depreciation expense. Salaries Expense .................................... 1,125 Salaries Payable ................................. To record accrued salaries. Interest Expense ..................................... Interest Payable ................................... To accrue interest expense.

1,125

500

Unearned Revenue ($1,600 – $900) ........................................ 700 Service Revenue.................................. To record revenue for services performed.

3.45

2,275

500

700

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.15 (Continued) b. LANE COMPANY Income Statement Year Ended October 31, 2021 Revenues Service revenue ............................................................... $46,230 Expenses Depreciation expense ..................................... $ 2,275 Insurance expense ........................................ 1,250 Interest expense ............................................ 2,000 Rent expense .................................................... 15,000 Salaries expense .............................................. 18,125 Supplies expense ............................................. 1,740 Total expenses.......................................... 40,390 Profit ................................................................................. $ 5,840

LANE COMPANY Statement of Owner's Equity Year Ended October 31, 2021 E. Lane, capital, November 1, 2020................................. Add: Profit .................................................................... Less: Drawings .............................................................. E. Lane, capital, October 31, 2021 ..................................

Solutions Manual .

3.46

$ 5,600 5,840 11,440 10,000 $ 1,440

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

EXERCISE 3.15 (Continued) (a) (continued) LANE COMPANY Balance Sheet October 31, 2021 Assets Cash.................................................................................. Accounts receivable ........................................................ Prepaid insurance............................................................ Supplies............................................................................ Equipment ........................................................... $34,100 Less: Accumulated depreciation ....................... 5,800 Total assets .............................................................

$ 9,100 9,230 2,525 710 28,300 $49,865

Liabilities and Owner's Equity Liabilities Notes payable .............................................................. Accounts payable........................................................ Interest payable ........................................................... Salaries payable .......................................................... Unearned revenue ....................................................... Total liabilities.........................................................

$40,000 5,900 500 1,125 900 48,425

Owner's equity E. Lane, capital ............................................................... 1,440 Total liabilities and owner's equity ............................ $49,865 LO 2,3,4 BT: AP Difficulty: M Time: 40 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

SOLUTIONS TO PROBLEMS PROBLEM 3.1A Students may find this to be a fairly challenging problem, so here are a few points that should help:  Under the CASH BASIS, revenues are recorded when cash is collected, even if the services were performed (or the sale of goods was made) earlier;  Under the ACCRUAL BASIS of accounting, revenues are recorded when the services are performed (the sale of goods is made) even if the cash is not collected until later, or is received prior to the performance of the services;  Under the CASH BASIS, expenses are recorded when the cash is paid; and  Under the ACCRUAL BASIS of accounting, expenses are recorded when the services or goods are used or consumed, rather than when the cash is paid. For example,  Under the CASH BASIS of accounting, Supplies are recorded as expenses as soon as they are paid for; other items, such as insurance, are recorded as expenses when they are paid for even if a portion of the payment relates to future periods;  Under the ACCRUAL BASIS of accounting, Supplies are not recorded as expenses until they have been used up. While the supplies are still on hand, they are recorded as assets because they have future benefits;  Under the CASH BASIS, amounts such as Salaries Payable at the end of 2020 would not be considered expenses until they are actually paid out in 2021; and  Under the ACCRUAL BASIS of accounting, Salaries Payable at the end of 2020 would be considered expenses in 2020, because the cost was incurred or “used up” during 2020, even though the cash will not be paid out until 2021.

Solutions Manual .

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.1A (Continued) a. and b. $37,100

Cash basis profit ($85,500 – $48,400)

–1,310 Accounts Payable owing at the end of 2021 should be accrued; the related expense was incurred in 2021 and thus reduces profit. +2,250 Accounts Payable owing at year end 2020 represent expenses of 2020. Amounts have been deducted from cash and must be added back for accrual basis profit. +4,230 Accounts Receivable arise from providing services or making sales in 2021, and thus, revenue must be recognized and recorded in 2021. –2,650 Accounts Receivable collected in 2021 from sales made (and revenue that was earned) in 2020. –640

Depreciation Expense is equal to the increase in accumulated depreciation from 2020 to 2021 ($11,040 – $10,400 = $640)

+1,580 Prepaid Insurance at year end 2021 is an asset rather than an expense. Amount has been deducted from cash basis and must be added back for accrual basis profit. –1,250 Prepaid Insurance at year end 2020 has been used up and must be recorded as an expense during 2021 under the accrual basis. +910 Supplies on hand at year end 2021 represent assets rather than an expense. Amount has been deducted from cash basis and must be added back for accrual basis profit. –490 Supplies on hand at year end 2020 have been used up and must be recorded as an expense during 2021.

Solutions Manual .

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Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.1A (Continued) a. and b. (Continued) –1,260 Unearned Revenue was received in cash in 2021 but services have not been performed and thus the unearned revenue must be deducted. +1,480 Services have been performed and the Unearned Revenue received in cash in 2020 must be recorded as revenue in 2021. $39,950

Accrual basis income

Taking It Further: Recommend that Southlake Co. use the accrual basis of accounting. The cash basis does not correctly show when the services are performed or when the expenses were incurred. The cash basis of accounting is not in accordance with generally accepted accounting principles. LO 1 BT: AP Difficulty: C Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.2A a.

b.

1. Jan. 10 Supplies ............................................. 3,290 Cash ............................................ Purchase of supplies for cash. 2. Feb. 1 Prepaid Insurance ............................. 3,696 Cash ............................................ Pay insurance in advance. 3. Mar. 31 Equipment ....................................... 24,000 Cash ............................................ Purchase equipment for cash. 4. Sept. 1 Prepaid Rent ...................................... 6,480 Cash ............................................ Pay rent in advance. 5. Oct. 15 Cash ................................................... 1,749 Unearned Revenue ..................... Received cash in advance from client. 6. Nov. 1 Cash ................................................... 1,794 Unearned Revenue ..................... Received cash in advance for rental.

3,290

3,696

24,000

6,480

1,749

1,794

1.

Basic Analysis Debit-Credit Analysis Adjusting Journal Entry

Solutions Manual .

The asset Supplies is decreased by $2,340. The expense Supplies Expense is increased by $2,340. Debits increase expenses: debit Supplies Expense $2,340. Credits decrease assets: credit Supplies $2,340. Dec. 31 Supplies Expense 2,340 Supplies ($3,290 – $950) 2,340 To record supplies used.

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.2A (Continued) 2. Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

The asset Prepaid Insurance is decreased by $3,388. The expense Insurance Expense is increased by $3,388. Debits increase expenses: debit Insurance Expense $3,388. Credits decrease assets: credit Prepaid Insurance $3,388. Dec. 31 Insurance Expense 3,388 Prepaid Insurance 3,388 To record insurance expired. ($3,696 × 11/12)

3. Basic Analysis

Debit-Credit Analysis

Adjusting Journal Entry

Solutions Manual .

One year of depreciation increases the contra asset Accumulated Depreciation—Equipment (which decreases the carrying value of the asset Equipment) by $2,250. The expense Depreciation Expense is increased by $2,250. Debits increase expenses: debit Depreciation Expense $2,250. Credits increase contra assets: credit Accumulated Depreciation—Equipment $2,250. Dec. 31 Depreciation Expense 2,250 Accumulated Depreciation —Equipment 2,250 To record depreciation of equipment. ($24,000 ÷ 8 × 9/12)

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.2A (Continued) 4. Basic Analysis Debit-Credit Analysis Adjusting Journal Entry

The asset Prepaid Rent is decreased by $2,160. The expense Rent Expense is increased by $2,160. Debits increase expenses: debit Rent Expense $2,160. Credits decrease assets: credit Prepaid Rent $2,160. Dec. 31 Rent Expense ($6,480 × 4/12) 2,160 Prepaid Rent 2,160 To record office rent expired.

5. Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

The liability Unearned Revenue is decreased by $1,166 for the services performed. The revenue account Service Revenue is increased by $1,166. Debits decrease liabilities: debit Unearned Revenue $1,166. Credits increase revenues: credit Service Revenue $1,166. Dec. 31 Unearned Revenue ($1,749 × 2/3) 1,166 Service Revenue 1,166 To record revenue for services performed.

6. Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

Solutions Manual .

The liability Unearned Revenue is decreased by $1,196 for the services performed. The revenue account Rent Revenue is increased by $1,196. Debits decrease liabilities: debit Unearned Revenue $1,196. Credits increase revenues: credit Rent Revenue $1,196. Dec. 31 Unearned Revenue ($1,794 × 2/3) 1,196 Rent Revenue 1,196 To record revenue for rental services performed.

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.2A (Continued) Taking It Further: Two generally accepted accounting principles that relate to adjusting entries are: - the revenue recognition principle that indicates revenue should be recorded when the services are performed, not when the cash is received and, - the time period assumption, that allows accountants to divide up the economic life of a business into artificial time periods. LO 2 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.3A a.

Dec. 31 Interest Receivable ......................... Interest Revenue1 ....................... 1 ($10,000 × 8% × 1/12 = $67) To accrue interest revenue.

67 67

31 Salaries Expense2 ........................... 3,250 Salaries Payable ......................... 2 ($6,500 ÷ 10 × 5 = $3,250) To record accrued salaries.

3,250

31 Accounts Receivable ........................ 3,375 Service Revenue......................... 3,375 To accrue revenue for services performed but not billed or collected

b.

31 Utilities Expense ............................. Accounts Payable ...................... To accrue utilities expense.

485

31 Interest Expense3 ............................ Interest Payable .......................... 3 ($25,000 × 5% × 2/12 = $208) To accrue interest expense.

208

Jan. 1

Cash ................................................. Interest Receivable..................... Collect interest receivable.

485

208

67 67

Jan. 12 Salaries Expense4 ............................. 3,250 Salaries Payable................................ 3,250 Cash ............................................ 4 ($6,500 ÷ 10 × 5 = $3,250) Paid employee salaries.

6,500

Jan. 18 Cash ................................................... 3,375 Accounts Receivable ................. Collection on account.

3,375

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PROBLEM 3.3A (Continued) b. (Continued) Jan. 22 Accounts Payable ........................... Cash ............................................ Payment on account.

485

Apr. 30 Interest Expense5 ............................ Interest Payable .............................. Cash ............................................ 5 ($25,000 × 5% × 4/12) Pay interest.

417 208

485

625

Taking It Further: The following revenue accounts would be understated by: Service Revenue ...................................................... $3,375 Interest Revenue ..................................................... 67 $ 3,442 The following expense accounts would be understated by: Interest Expense ..................................................... 208 Salaries Expense .................................................... 3,250 Utilities Expense ..................................................... 485 3,943 Profit would be overstated by ................................

$ 501

Assets would be understated by: Interest Receivable ................................................. $ 67 Accounts Receivable .............................................. 3,375

$3,442

Liabilities would be understated by: Interest Payable ..................................................... 208 Accounts Payable .................................................. 485 Salaries Payable .................................................... 3,250

3,943

Owner’s equity would be overstated by................

$ 501

LO 3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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PROBLEM 3.4A June 30, 2021 1. Supplies Expense ............................ Supplies ....................................... To record supplies used. 2.

3.

4.

5.

6.

7.

8.

Solutions Manual .

900 900

Utilities Expense .............................. Accounts Payable........................ To accrue utilities expense.

250

Insurance Expense1 ......................... Prepaid Insurance ....................... 1 ($3,600 ÷ 12 = $300) To record insurance expired.

300

Depreciation Expense...................... Accumulated Depreciation —Equipment ............................. To record depreciation expense.

190

Interest Expense2 ............................. Interest Payable ........................... ($10,000 x 6% X 1/12) = $50 To accrue interest expense.

50

250

300

190

Salaries Expense.............................. 1,104 Salaries Payable .......................... 2 ($920 x 2 X 3/5) = $1,104 To accrue salaries expense. Unearned Revenue........................... 500 Service Revenue.......................... To record revenue for services performed.

50

1,104

500

Accounts Receivable ......................... 1,700 Service Revenue.......................... 1,700 To accrue revenue for services performed but not billed or collected.

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PROBLEM 3.4A (Continued) Taking It Further: Utility companies send invoices to customers after the delivery of services have been performed. The invoice received by Logan Miller is for services received in June 2021. Consequently, an adjusting journal entry should be recorded at June 30, 2021, increasing the Utilities Expense account with a debit and increasing Accounts Payable with a credit. LO 2,3 BT: AP Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.5A 1. a.

b.

2. a.

3. a.

4. a.

5. a.

Dec. 31 Interest Expense1 ............................ Interest Payable 1 ($10,000 × 4% × 4/12) ................ To accrue interest expense.

133 133

Aug. 31 Interest Expense2 ............................ 267 Interest Payable ............................. 133 Notes Payable ................................. 10,000 Cash ............................................ 10,400 2 ($10,000 × 4% × 8/12) Pay principal and interest on note payable. Dec. 31 Supplies Expense ............................. 1,550 Supplies ($2,450- $900) .............. To record supplies used. Dec. 31 Depreciation Expense....................... 1,000 Accumulated Depreciation— Equipment ............................... To record depreciation expense. Dec. 31 Insurance Expense3 .......................... 1,225 Prepaid Insurance .................. 3 ($2,100 x 7/12 = $1,225) To record insurance expired.

1,550

1,000

1,225

Dec. 31 Unearned Revenue............................ 8,000 Service Revenue4.................... 8,000 4 ($32,000 X 1/4 = $8,000) To record revenue for services performed.

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PROBLEM 3.5A (Continued) 6. a.

b.

7. a.

b.

Dec. 31 Accounts Receivable ........................ 4,200 Service Revenue ..................... 4,200 To accrue revenue for services performed but not billed or collected. Jan. 14

Cash ................................................... 4,200 Accounts Receivable.............. Collection on account.

4,200

Dec. 31 Salaries Expense .............................. 9,000 Salaries Payable ..................... To accrue salaries expense.

9,000

Jan.

5 Salaries Payable................................ 9,000 Cash ........................................ Pay salaries owing.

9,000

Taking It Further: For most businesses, it is impractical to try to keep track of supplies used in the business. This is the case for Devin Wolf Company. Rather than recording supplies expense based on the system of tracking which supplies have been used, it is less time consuming to count what is left in supplies at the end of the accounting period using a physical count. The count amount is then compared to the Supplies account balance, which has been debited with all supplies purchases, and the asset account is adjusted to the value of supplies remaining. LO 2,3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.6A 1. a.

b.

2. a.

b.

3. a.

b.

June 10 Supplies........................................... 1,905 Cash ............................................ Purchased supplies for cash.

1,905

Dec. 31 Supplies Expense1 .......................... 1,910 Supplies ...................................... 1 ($875 + $1,905 – $870) To record supplies used.

1,910

Aug.

1 Equipment ....................................... 43,500 Cash ............................................ Purchased equipment for cash.

43,500

Dec. 31 Depreciation Expense2 ................... 1,510 Accumulated Depreciation— Equipment................................... 1,510 2 ($43,500 ÷ 12 × 5/12) To record depreciation expense for equipment.

July

Cash ($500 × 250) ............................125,000 Unearned Revenue ..................... 125,000 Received cash in advance from customers.

Dec. 31 Unearned Revenue ......................... 62,500 Admission Revenue3 ................. 62,500 3 ($125,000 ÷ 8 × 4) To record revenue for services performed.

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PROBLEM 3.6A (Continued) 4. a.

b.

c.

5. a.

b.

c.

Dec. 29 Salaries Expense ............................ 5,400 Cash ............................................ Paid employee salaries.

5,400

Dec. 31 Salaries Expense ............................ 5,400 Salaries Payable ......................... To accrue salaries expense.

5,400

Jan. 5

Salaries Payable.............................. 5,400 Cash ............................................ Paid employee salaries owing.

Dec. 10 Cash ................................................. Rent Revenue ............................. Collect rent revenue.

550

Dec. 31 Accounts Receivable ...................... Rent Revenue ($800 – $550) ...... Accrue rent revenue.

250

Jan. 10

Solutions Manual .

550

Cash ($250 + $800).......................... 1,050 Accounts Receivable ................. Rent Revenue ............................. Collect rent revenue.

3.62

5,400

250

250 800

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.6A (Continued) 6. a.

b.

c.

7. b.

c.

June 1 Cash ................................................. 25,000 Notes Payable............................. Borrowed cash and signed a note. Dec. 31 Interest Expense4 ............................ Interest Payable ......................... 4 ($25,000 × 4.5% × 7/12) Accrue interest expense.

656 656

May 30 Interest Expense5 ............................ 469 Interest Payable .............................. 656 Notes Payable ................................. 25,000 Cash ............................................ 5 ($25,000 × 4.5% × 5/12) Pay principal and interest on note.

Dec. 31 Telephone Expense ........................ Accounts Payable ...................... Accrue telephone expense.

573

Jan. 12

573

Solutions Manual .

Accounts Payable ........................... Cash ............................................ Payment on account.

3.63

25,000

26,125

573

573

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.6A (Continued) Taking It Further: The three basic reasons that a trial balance may not contain complete or up-to-date data are: 1. Some events are not journalized daily because it is not efficient to do so. 2. Some costs are not journalized during the accounting period because they expire through the passage of time and are not daily transactions. 3. Some items may be unrecorded. The adjustment to record supplies used (Item 1) is an example of the first reason above. It is not practical to record an expense every time supplies are used. The adjustment to record depreciation (Item 2) is an example of the second reason above. The cost of a long-lived asset expires through the passage of time. The adjustment to record the telephone bill (Item 7) is an example of the third reason above. The bill was for the month of December but had not been recorded in the recording of daily transactions. LO 2,3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.7A 1.

Sept. 30 Supplies Expense1 ............................ 2,970 Supplies ...................................... 1 ($2,080 + $1,700 – $810) To record supplies used.

2,970

30 Insurance Expense2 .......................... 2,933 Prepaid Insurance ...................... 2 ($3,200 × 11/12) To record insurance expired.

2,933

2.

3.

30 Unearned Revenue............................ 1,800 Service Revenue......................... 1,800 To record revenue for services performed.

4.

30 Depreciation Expense3 ..................... 1,333 Accumulated Depreciation— Equipment................................... 1,333 3 ($24,000 ÷ 12 × 8/12) To record revenue for services performed.

5.

30 Interest Expense4 ............................ Interest Payable .......................... 4 ($25,000 × 4% × 5/12) To accrue interest expense.

417 417

6.

30 Accounts Receivable ........................ 2,000 Service Revenue......................... 2,000 To accrue revenue for services performed but not billed or collected.

7.

30 Rent Expense ($9,000 ÷ 9) ................ 1,000 Prepaid Rent ............................... To record expired rent.

1,000

3.65

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.7A (Continued) 8.

30 Salaries Expense .............................. 3,500 Salaries Payable ......................... To record accrued salaries.

3,500

9.

30 Accounts Receivable ........................ 1,500 Service Revenue......................... 1,500 To accrue revenue for services performed but not billed or collected.

10.

30 Utilities Expense ............................ Accounts Payable ...................... To accrue utilities expense.

895 895

Taking It Further: The timing of the preparation of the adjusting journal entries in the accounting cycle depends completely on the business’s needs to communicate financial information to those who use it. If the business does not need financial statements monthly and decides that financial statements are only needed on an annual basis, then the preparation of adjusting journal entries on an annual basis is adequate. On the other hand, the practice of recording adjusting journal entries at the end of each month should be adopted if doing so will provide feedback to the business on action that should be taken to rectify a business problem, or initiate changes in the way the business is managed. Companies reporting under IFRS must prepare quarterly financial statements and must therefore prepare adjusting entries at least on a quarterly basis. LO 2,3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.8A a. 1.

2.

3.

Dec. 31 Advertising Expense......................... 4,658 Prepaid Advertising ................... 4,658 A650 – $5,000 ÷ 12 x 8 months = .................. $3,333 B974 – $10,600 ÷ 24 x 3 months = ................. 1,325 $4,658 To record expired advertising. Dec. 31 Depreciation Expense1 ..................... 4,286 Accumulated Depreciation— Vehicles....................................... 4,286 1 ($30,000 ÷ 7) To record depreciation expense for the first vehicle. Dec. 31 Depreciation Expense2 ..................... 5,000 Accumulated Depreciation— Vehicles....................................... 2 ($40,000 ÷ 8) To record depreciation expense for the second vehicle.

5,000

Dec. 31 Interest Expense3 .............................. 2,302 Interest Payable .......................... 3 ($85,000 × 6.5% × 5/12 mos. = $2,302) To accrue interest expense.

2,302

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PROBLEM 3.8A (Continued) 4.

Dec. 31 Salaries Expense .............................. 5,250 Salaries Payable ......................... 6 × $750 × 5/6............................... 3 × $600 × 5/6............................... Total ............................................. To accrue employee salaries.

5.

5,250

$3,750 1,500 $5,250

Dec. 31 Unearned Revenue.......................... 69,000 Rent Revenue .............................

69,000

6 × $4,000 × 2 = ............................. $48,000 3 × $7,000 × 1 =............................... 21,000 Total rent earned..... $69,000 To record rent revenue for services performed.

b. Vehicle 1, Accumulated depreciation = $4,286 × 3 = $12,858 Carrying amount = $30,000 – $12,858 = $17,142 Vehicle 2, Accumulated depreciation = $5,000 + $5,000 × 7/12 = $7,917 Carrying amount = $40,000 – $7,917 = $32,083 Taking It Further: The purpose of depreciation is to allocate the cost of a long-lived asset to expense over the useful life of the asset in a systematic and rational manner. Land is not depreciated because it has an unlimited useful life. LO 2,3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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PROBLEM 3.9A a.

Cobalt Co.:

Mar. 31/21

Cash.................................................. 107,900 Notes Payable (Note 1) ........... 107,900 Borrow cash and sign Note 1.

June 1/21

Cash.................................................... 75,000 Notes Payable (Note 2) ........... 75,000 Borrow cash and sign Note 2.

June 30/21

Interest Expense1........................... 1,025 Cash ......................................... 1 Note 1: ($107,900 × 3.8% × 3/12) Pay interest on Note 1.

1,025

Sept. 1/21

Cash.................................................... 24,400 Notes Payable (Note 3) ........... 24,400 Borrow cash and sign Note 3.

Sept. 30/21

Interest Expense2........................... 1,025 Cash ......................................... 2 Note 1: ($107,900 × 3.8% × 3/12) Pay interest on Note 1.

Sept. 30/21

Sept. 30/21

Solutions Manual .

Interest Expense3........................... Interest Payable ...................... 3 Note 3: ($24,400 × 5% × 1/12) To accrue interest on Note 3.

102

Interest Expense4........................... Interest Payable ...................... 4 Note 2: ($75,000 × 4.6% × 4/12) To accrue interest on Note 2.

1,150

3.69

1,025

102

1,150

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.9A (Continued) a. (Continued) Oct. 1/21

Nov. 1/21

Interest Payable5 ............................ Cash ......................................... 5 Note 3: ($24,400 × 5% × 1/12) Pay interest owed on Note 3.

102

Interest Expense6........................... Cash ......................................... 6 Note 3: ($24,400 × 5% × 1/12) Pay interest on Note 3.

102

102

102

Dec. 1/21

Interest Expense ............................ 102 Notes Payable (Note 3) .................. 24,400 Cash ......................................... 24,502 Pay principal and interest on Note 3.

Dec. 31/21

Interest Expense7........................... 1,025 Cash ......................................... 7 Note 1: ($107,900 × 3.8% × 3/12) Pay interest on Note 1.

1,025

Mar. 1/22

Interest Expense8........................... 1,438 Interest Payable ............................. 1,150 Notes Payable (Note 2) ......................75,000 Cash ........................................ 77,588 8 Note 2: ($75,000 × 4.6% × 5/12) Pay principal and interest owed on Note 2.

Mar. 31/22

Interest Expense9........................... 1,025 Notes Payable (Note 1) .................... 107,900 108,925 Cash ........................................ 9 Note 1: ($107,500 × 3.8% × 3/12) Pay principal and interest on Note 1.

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PROBLEM 3.9A (Continued) b.

Azores Enterprises:

Mar. 31/21

Notes Receivable (Note 1) ...............107,900 Cash ......................................... 107,900 Lend cash in exchange for Note 1.

June 1/21

Notes Receivable (Note 2) .................75,000 Cash ......................................... 75,000 Lend cash in exchange for Note 2.

June 30/21

Cash................................................ 1,025 10 Interest Revenue .................. 10 Note 1: ($107,900 × 3.8% × 3/12) Collect interest revenue on Note 1.

1,025

Sept. 1/21

Notes Receivable (Note 3) .................24,400 Cash ......................................... 24,400 Lend cash in exchange for Note 3.

Sept. 30/21

Cash................................................ 1,025 11 Interest Revenue .................. 11 Note 1: ($107,900 × 3.8% × 3/12) Collect interest on Note 1.

Oct. 1/21

Oct. 31/21

Oct. 31/21

Solutions Manual .

Cash................................................ Interest Revenue12 .................. 12 Note 3: ($24,400× 5% × 1/12) Collect interest on Note 3.

102

Interest Receivable ........................ 342 13 Interest Revenue .................. 13 Note 1: ($107,900 × 3.8% × 1/12) To accrue interest revenue on Note 1. Interest Receivable ........................ 1,438 14 Interest Revenue .................. 14 Note 2: ($75,000 × 4.6% × 5/12) To accrue interest on Note 2.

3.71

1,025

102

342

1,438

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.9A (Continued) Oct. 31/21

Nov. 1/21

Interest Receivable ........................ 102 15 Interest Revenue .................. 15 Note 3: ($24,400× 5% × 1/12) To accrue interest revenue on Note 3. Cash................................................ 102 16 Interest Receivable ............... 16 Note 3: ($24,400 × 5% × 1/12) Collect interest receivable on Note 3.

102

102

Dec. 1/21

Cash................................................ 24,502 Interest Revenue ..................... 102 Notes Receivable (Note 3) ...... 24,400 Collect principal and interest on Note 3.

Dec. 31/21

Cash................................................ 1,025 Interest Receivable ................. Interest Revenue17 .................. 17 Note 1: ($107,900 × 3.8% × 2/12) Collect principal and interest on Note 1.

342 683

Mar. 1/22

Cash ....................................................77,588 Interest Receivable ................. 1,438 18 Interest Revenue .................. 1,150 Notes Receivable (Note 2) ...... 75,000 18 Note 2: ($75,000 × 4.6% × 4/12) Collect principal and interest on Note 2.

Mar. 31/22

Cash ..................................................108,925 Interest Revenue19 .................. 1,025 Notes Receivable (Note 1) ...... 107,900 19 Note 1: ($107,900 × 3.8% × 3/12) Collect principal and interest on Note 1.

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PROBLEM 3.9A (Continued) Taking It Further: It is appropriate because the accrued interest payable records the obligation that exists at the balance sheet date and the offsetting expense that applies to the current accounting period. If it is not recorded, both liabilities and expenses are understated, and profit and owner’s equity are overstated. LO 3 BT: AP Difficulty: M Time: 45 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.10A b. 1. Aug. 31 Supplies Expense............................ Supplies ($4,455 – $850) .......... To record supplies used. 2.

3.

3,605 3,605

31 Insurance Expense1 ........................ 10,550 Prepaid Insurance .................... 1 ($12,660 × 10/12) To record insurance expired.

10,550

31 Depreciation Expense2.................... 4,032 Accumulated Depreciation— Equipment................................. 4,032 2 ($40,320 ÷ 10). To record depreciation expense on equipment. 31 Depreciation Expense3 ...................... 35,100 Accumulated Depreciation—Vehicles 35,100 3 ($421,200 ÷ 12) To record depreciation expense on vehicles.

4.

31 Unearned Revenue ............................ 20,500 Service Revenue3 ..................... 20,500 3 ($25,000 – $4,500) To record revenue for services performed.

5.

31 Interest Expense5 ............................ Interest Payable ........................ 5 ($162,000 × 4.5% × 1/12) To accrue interest expense.

608

31 Salaries Expense ............................. Salaries Payable ($545 × 5) ...... To accrue salaries expense.

2,725

6.

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3.74

608

2,725

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.10A (Continued) b. (Continued) 7. Aug. 31 Accounts Receivable .......................... 1,350 Service Revenue....................... 1,350 To accrue revenue for services performed but not billed or collected. 8.

31 Fuel Expense ................................... Accounts Payable .................... To accrue fuel expense.

620 620

a. and c.

Aug. 31

Aug. 31 Aug. 31 Bal.

Aug. 31 Bal.

Aug. 31

Cash 9,000

Accounts Receivable 7,080 1,350 8,430 Prepaid Insurance 12,660 Aug. 31 2,110

Supplies 4,455 Aug. 31

Bal.

Solutions Manual .

10,550

3,605

850

3.75

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PROBLEM 3.10A (Continued) a. and c. Aug. 31

Vehicles 421,200

Accumulated Depreciation-Vehicles Aug. 31 175,500 Aug. 31 35,100 Bal. 210,600

Aug. 31

Equipment 40,320

Accumulated Depreciation-Equipment Aug. 31 25,200 Aug. 31 4,032 Bal. 29,232

Aug. 31

Accounts Payable Aug. 31 Aug. 31 Bal.

5,700 620 6,320

Notes Payable Aug. 31

162,000

Unearned Revenue Aug. 31 20,500 Bal.

Solutions Manual .

3.76

25,000

4,500

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.10A (Continued) a. and c.

Aug. 31

Interest Payable Aug. 31

608

Salaries Payable Aug. 31

2,725

J. Reyes, Capital Aug. 31

105,075

J. Reyes, Drawings 141,000

Service Revenue Aug. 31 Aug. 31 Aug. 31 Bal.

Aug. 31 Aug. 31 Bal.

Solutions Manual .

334,300 20,500 1,350 356,150

Salaries Expense 140,625 2,725 143,350

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PROBLEM 3.10A (Continued) a. and c.

Aug. 31 Aug. 31 Bal.

Interest Expense 9,653 608 10,261

Aug. 31

Rent Expense 22,810

Aug. 31 Aug. 31 Bal.

Fuel Expense 23,972 620 24,592

Aug. 31

Insurance Expense 10,550

Aug. 31 Aug. 31 Bal.

Depreciation Expense 4,032 35,100 39,132

Aug. 31

Supplies Expense 3,605

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PROBLEM 3.10A (Continued) d. REYES RIDES Adjusted Trial Balance August 31, 2021 Debit $ 9,000 8,430 2,110 850 40,320

Credit

Cash.................................................................. Accounts receivable ........................................ Prepaid insurance............................................ Supplies............................................................ Equipment ........................................................ Accumulated depreciation—equipment......... $ 29,232 Vehicles ............................................................ 421,200 Accumulated depreciation—vehicles............. 210,600 Accounts payable ............................................ 6,320 Notes payable .................................................. 162,000 Interest payable ............................................... 608 Salaries payable............................................... 2,725 Unearned revenue ........................................... 4,500 J. Reyes, capital ............................................... 105,075 J. Reyes, drawings .......................................... 141,000 Service revenue ............................................... 356,150 Depreciation expense ...................................... 39,132 Fuel expense .................................................... 24,592 Insurance expense .......................................... 10,550 Interest expense .............................................. 10,261 Rent expense ................................................... 22,810 Salaries expense.............................................. 143,350 Supplies expense ............................................ 3,605 $877,210 $877,210

Solutions Manual .

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PROBLEM 3.10A (Continued) Taking It Further: The carrying amount of the vehicles at Aug. 31, 2021 is $421,200 − $210,600 = $210,600 or half of the purchase price. Since the carrying amount is half of the purchase price, the vehicles are half depreciated through their useful life estimated at 12 years. Consequently, the vehicles are 6 years old. The accumulated depreciation of the equipment at Aug. 31, 2021 is $29,232. Annual depreciation expense is $4,032. Consequently, the equipment is 7.25 years old ($29,232 ÷ $4,032). LO 2,3,4 BT: AP Difficulty: M Time: 60 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual .

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PROBLEM 3.11A b. 1.

May 31 Insurance Expense ($6,360 × 1/12) Prepaid Insurance ...................... To record insurance expired.

530

31 Supplies Expense ($995 – $560) .... Supplies ...................................... To record supplies used.

435

2.

3.

530

435

31 Depreciation Expense1 ................... 250 Accumulated Depreciation—Building 1 [($150,000 ÷ 50) × 1/12] To record depreciation expense on building.

250

4.

31 Depreciation Expense2 ................... 275 Accumulated Depreciation—Furniture 275 2 [($33,000 ÷ 10) × 1/12] To record depreciation expense on furniture.

5.

31 Unearned Revenue ......................... 10,000 Service Revenue3 ....................... 10,000 3 ($15,000 X 2/3) To record revenue for services performed.

6.

31 Interest Expense4 ........................... Interest Payable .......................... 4 ($96,000 × 6.5% × 1/12) To accrue interest expense.

7.

8.

Solutions Manual .

520 520

31 Salaries Expense ............................ 1,450 Salaries Payable ......................... To record accrued salaries.

1,450

31 Utilities Expense ............................. 3,420 Accounts Payable ...................... To accrued utilities expense.

3,420

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PROBLEM 3.11A (Continued) a. and c.

May 31

May 31 Bal.

May 31

Cash 17,520

Prepaid Insurance 1,590 May 31 1,060

Supplies 995 May 31

Bal.

May 31

May 31

Building 150,000

Accumulated Depreciation-Building May 31 May 31 Bal.

Solutions Manual .

435

560

Land 35,000

May 31

530

47,750 250 48,000

Furniture 33,000

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PROBLEM 3.11A (Continued) a. and c. Accumulated Depreciation-Furniture May 31

May 31

Solutions Manual .

12,925

May 31 Bal.

275 13,200

Accounts Payable May 31 May 31 Bal.

8,500 3,420 11,920

Mortgage Payable May 31

96,000

Unearned Revenue May 31 10,000 Bal.

15,000 5,000

Interest Payable May 31

520

Salaries Payable May 31

1,450

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PROBLEM 3.11A (Continued) a. and c. K. MacPhail, Capital May 31

May 31

K. MacPhail, Drawings 42,735

Service Revenue May 31 May 31 Bal.

May 31 May 31 Bal.

Salaries Expense 156,710 1,450 158,160

May 31 May 31 Bal.

Interest Expense 5,720 520 6,240

May 31

Repairs Expense 14,400

Solutions Manual .

85,000

3.84

246,150 10,000 256,150

Chapter 3

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.11A (Continued) a. and c.

May 31 May 31 Bal.

Utilities Expense 37,600 3,420 41,020

May 31 May 31 Bal.

Insurance Expense 5,830 530 6,360

May 31 May 31 May 31 Bal.

Depreciation Expense 5,775 250 275 6,300

May 31 May 31 Bal.

Supplies Expense 4,450 435 4,885

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PROBLEM 3.11A (Continued) c. HIGHLAND COVE RESORT Adjusted Trial Balance May 31, 2021 Debit Credit Cash................................................................... $ 17,520 Prepaid insurance............................................. 1,060 Supplies............................................................. 560 Land ................................................................... 35,000 Building ............................................................. 150,000 Accumulated depreciation—building .............. $ 48,000 Furniture ............................................................ 33,000 13,200 Accumulated depreciation—furniture ............. Accounts payable ............................................. 11,920 Unearned revenue ............................................ 5,000 Salaries payable................................................ 1,450 Interest payable ................................................ 520 Mortgage payable ............................................. 96,000 K. MacPhail, capital .......................................... 85,000 K. MacPhail, drawings ...................................... 42,735 Service revenue ................................................ 256,150 Depreciation expense ....................................... 6,300 Insurance expense ........................................... 6,360 Interest expense ............................................... 6,240 Repairs expense ............................................... 14,400 Salaries expense............................................... 158,160 Supplies expense ............................................. 4,885 Utilities expense ............................................... 41,020 $517,240 $517,240

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PROBLEM 3.11A (Continued) d. HIGHLAND COVE RESORT Income Statement Year Ended May 31, 2021 Revenues Service revenue........................................... $256,150 Expenses Depreciation expense ................................ $ 6,300 Insurance expense ...................................... 6,360 Interest expense .......................................... 6,240 Repairs expense.......................................... 14,400 Salaries expense ......................................... 158,160 Supplies expense ........................................ 4,885 Utilities expense .......................................... 41,020 Total expenses........................................ 237,365 Profit ................................................................. $ 18,785

HIGHLAND COVE RESORT Statement of Owner's Equity Year Ended May 31, 2021 K. MacPhail, capital, June 1, 2020 .................................. $ 85,000 Add: Profit ........................................................................ 18,785 103,785 Less: Drawings ................................................................ 42,735 K. MacPhail, capital, May 31, 2021.................................. $ 61,050

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PROBLEM 3.11A (Continued) d. (Continued) HIGHLAND COVE RESORT Balance Sheet May 31, 2021 Assets Cash.................................................................... $ 17,520 Prepaid insurance.............................................. 1,060 Supplies.............................................................. 560 Land .................................................................... 35,000 Building ............................................................. $150,000 Less: Accumulated depreciation ...................... 48,000 102,000 Furniture ................................................................ 33,000 Less: Accumulated depreciation ...................... 13,200 19,800 Total assets ................................................... $175,940 Liabilities and Owner's Equity Liabilities Accounts payable........................................................ $ 11,920 Unearned revenue ....................................................... 5,000 Salaries payable .......................................................... 1,450 Interest payable .......................................................... 520 Mortgage payable........................................................ 96,000 Total liabilities......................................................... 114,890 Owner's equity K. MacPhail, capital ........................................................ 61,050 Total liabilities and owner's equity .......................... $175,940

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PROBLEM 3.11A (Continued) Taking It Further: The balance of the owner’s capital account that appears on the adjusted trial balance on May 31, 2021 does not correspond to the amount of the owner’s capital that appears on the balance sheet at that date. The reason for the difference is that the owner’s capital account in the trial balance does not include the amount of the profit and the drawings taken by the owner for the year ended May 31, 2021. LO 2,3,4 BT: AP Difficulty: M Time: 60 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.12A b.

Nov.

8 Salaries Payable.............................. 700 Salaries Expense .............................. 1,000 Cash ............................................ 1,700 To pay for salaries expense and salaries payable. 10 Cash ................................................... 3,620 Accounts Receivable ................. Collection on account.

3,620

12 Cash ................................................... 3,100 Service Revenue......................... Performed services for cash.

3,100

15 Equipment ......................................... 2,000 Accounts Payable ...................... Purchased equipment on account.

2,000

17 Supplies........................................... Accounts Payable ...................... Purchased supplies on account.

700 700

20 Accounts Payable ............................. 2,700 Cash ............................................ Payment on account. 22 Rent Expense .................................. Cash ............................................ Paid November rent.

Solutions Manual .

2,700

400 400

22 Salaries Expense .............................. 1,700 Cash ............................................ Paid employee salaries.

1,700

27 Accounts Receivable ........................ 2,200 Service Revenue......................... Performed services on account.

2,200

3.90

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PROBLEM 3.12A (Continued) b. (Continued) Nov. 29 Cash ................................................. 600 Unearned Revenue ..................... 600 Received cash in advance from customers. c. HAMM EQUIPMENT REPAIR Trial Balance November 30, 2021 Debit Cash...................................................................... $ 3,220 Accounts receivable ......................................... 2,830 Supplies............................................................. 2,500 Equipment ............................................................. 14,000 Accumulated depreciation—equipment.......... Accounts payable ............................................. Unearned revenue ............................................ J. Hamm, capital ............................................... Service revenue ................................................ Salaries expense............................................... 2,700 Rent expense ....................................................... 400 $25,650

Credit

$2,000 2,600 1,800 13,950 5,300

$25,650

d. Nov.

30 Supplies Expense1 ............................ 1,100 Supplies ...................................... 1 ($2,500 - $1,400 = $1,100) To record supplies used. 30 Salaries Expense ............................ Salaries Payable ......................... To accrue salaries expense.

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1,100

350 350

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PROBLEM 3.12A (Continued) d. (Continued) Nov.

30 Depreciation Expense..................... 200 Accumulated Depreciation— Equipment................................... 200 To record depreciation expense on equipment. 30 Unearned Revenue ........................... 1,220 Service Revenue......................... 1,220 To record revenue for services performed.

a., b., and d.

Nov. 1 Nov. 10 Nov. 12 Nov. 29 Bal.

Cash 2,400 3,620 3,100 600 3,220

Nov. 1 Nov. 27 Bal.

Accounts Receivable 4,250 Nov. 10 2,200 2,830

Nov. 1 Nov. 17 Bal.

Nov. 8 Nov. 20 Nov. 22 Nov. 22

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3,620

Supplies 1,800 700 2,500 Nov. 30

Bal.

1,700 2,700 400 1,700

1,100

1,400

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PROBLEM 3.12A (Continued) a., b., and d.(Continued) Nov. 1 Nov. 15 Bal.

Equipment 12,000 2,000 14,000

Accumulated Depreciation-Equipment Nov. 1

Nov. 20

Nov. 30

Nov. 8

Solutions Manual .

Nov. 30 Bal.

2,000 2,000 200 2,200

Accounts Payable Nov. 1 2,700 Nov. 15 Nov. 17 Bal.

2,600 2,000 700 2,600

Unearned Revenue Nov. 1 Nov. 29 Bal. 1,220 Bal. Salaries Payable Nov. 1 700 Nov. 30 Bal.

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1,200 600 1,800 580

700 350 350

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PROBLEM 3.12A (Continued) a., b., and d.(Continued) J. Hamm, Capital Nov. 1

13,950

Service Revenue Nov. 12 Nov. 27 Bal. Nov. 30 Bal.

3,100 2,200 5,300 1,220 6,520

Nov. 8 Nov. 22 Bal. Nov. 30 Bal.

Salaries Expense 1,000 1,700 2,700 350 3,050

Nov. 22

Rent Expense 400

Nov. 30

Depreciation Expense 200

Nov. 30

Supplies Expense 1,100

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PROBLEM 3.12A (Continued) e. HAMM EQUIPMENT REPAIR Adjusted Trial Balance November 30, 2021

Cash................................................................... Accounts receivable ......................................... Supplies............................................................. Equipment ......................................................... Accumulated depreciation—equipment.......... Accounts payable ............................................. Salaries payable................................................ Unearned revenue ............................................ J. Hamm, capital ............................................... Service revenue ................................................ Salaries expense............................................... Depreciation expense ....................................... Supplies expense ............................................. Rent expense ....................................................

Debit $ 3,220 2,830 1,400 14,000

Credit

$2,200 2,600 350 580 13,950 6,520 3,050 200 1,100 400 $26,200

$26,200

f. HAMM EQUIPMENT REPAIR Income Statement Month Ended November 30, 2021 Revenues Service revenue........................................... Expenses Depreciation expense ................................. Rent expense ............................................... Salaries expense ......................................... Supplies expense ........................................ Total expenses........................................ Profit

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$6,520 $ 200 400 3,050 1,100 4,750 $1,770

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PROBLEM 3.12A (Continued) f. (Continued) HAMM EQUIPMENT REPAIR Statement of Owner's Equity Month Ended November 30, 2021

J. Hamm, capital, November 1, 2021 .............................. Add: Profit ........................................................................ J. Hamm, capital, November 30, 2021 ............................

$13,950 1,770 $15,720

HAMM EQUIPMENT REPAIR Balance Sheet November 30, 2021 Assets Cash.................................................................... Accounts receivable .......................................... Supplies.............................................................. Equipment ........................................................... $14,000 Less: Accumulated depreciation ......................... 2,200 Total assets ...............................................

$ 3,220 2,830 1,400 11,800 $19,250

Liabilities and Owner’s Equity Liabilities Accounts payable........................................................ Unearned revenue ....................................................... Salaries payable .......................................................... Total liabilities.........................................................

$2,600 580 350 3,530

Owner’s Equity J. Hamm, capital .............................................................. 15,720 Total liabilities and owner’s equity ................................$19,250

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PROBLEM 3.12A (Continued) Taking It Further: Although the balance in the accounts payable account remains unchanged after recording the adjusting entries, its balance must appear on the adjusted trial balance along with all accounts that have any balance. Failing to include this account will result in the adjusted trial balance being out of balance. LO 2,3,4 BT: AP Difficulty: M Time: 70 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.13A b. 1.

Jan. 31 Insurance Expense1 .......................... 2,310 Prepaid Insurance ...................... 1 ($3,960 × 7/12) To record insurance expired.

2,310

31 Supplies Expense ............................. 5,660 Supplies ($6,580 − $920) ............ To record supplies used.

5,660

2.

3.

31 Depreciation Expense2 ..................... 6,470 Accumulated Depreciation— Equipment................................... 6,470 2 ($32,350 ÷ 5) To record depreciation expense for equipment.

4.

31 Unearned Revenue............................ 5,230 Service Revenue......................... 5,230 To record revenue for services performed.

5.

31 Interest Expense3 ............................ Interest Payable .......................... 3 ($11,000 × 6% × 3/12) To accrue interest expense.

6.

165 165

31 Salaries Expense .............................. 1,315 Salaries Payable ......................... To accrue employee salaries.

1,315

7.

31 Accounts Receivable ........................ 2,675 Service Revenue......................... 2,675 To accrue revenue for services performed but not billed or collected.

8.

31 Telephone Expense ........................ Accounts Payable ...................... To accrue telephone expense.

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PROBLEM 3.13A (Continued) a. and b.

Jan. 31

Jan. 31 Jan. 31 Bal.

Cash 4,970

Accounts Receivable 14,540 2,675 17,215

Bal.

Prepaid Insurance 3,960 Jan. 31 1,650

Jan. 31

Supplies 6,580

Jan. 31

Jan. 31 Bal.

Jan. 31

2,310

5,660

920

Equipment 32,350

Accumulated Depreciation-Equipment Jan. 31 12,940 Jan. 31 6,470 Bal.

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PROBLEM 3.13A (Continued) a. and b. Accounts Payable Jan. 31 Jan. 31 Bal.

7,760 170 7,930

Notes Payable Jan. 31

Jan. 31

Jan. 31

Solutions Manual .

Unearned Revenue Jan. 31 5,230 Bal.

11,000

7,480 2,250

Interest Payable Jan. 31

165

Salaries Payable Jan. 31

1,315

E. Fox, Capital Jan. 31

18,320

E. Fox, Drawings 119,000

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PROBLEM 3.13A (Continued) a. and b. Service Revenue Jan. 31 Jan. 31 Jan. 31 Bal.

Jan. 31 Jan. 31 Bal.

Salaries Expense 66,950 1,315 68,265

Jan. 31

Interest Expense 165

Jan. 31

Rent Expense 20,750

Jan. 31 Jan. 31 Bal.

Telephone Expense 2,900 170 3,070

Jan. 31

Insurance Expense 2,310

Jan. 31

Depreciation Expense 6,470

Jan. 31

Supplies Expense 5,660

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214,500 5,230 2,675 222,405

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PROBLEM 3.13A (Continued) c. FOX ENTERPRISES Adjusted Trial Balance January 31, 2021 Debit $ 4,970 17,215 920 1,650 32,350

Credit

Cash................................................................... Accounts receivable ......................................... Supplies ............................................................ Prepaid insurance ............................................ Equipment ......................................................... Accumulated depreciation—equipment ......... $ 19,410 Notes payable ................................................... 11,000 Accounts payable ............................................ 7,930 Interest payable ................................................ 165 Salaries payable................................................ 1,315 Unearned revenue ............................................ 2,250 E. Fox, capital.................................................... 18,320 E. Fox, drawings ............................................... 119,000 Service revenue ............................................... 222,405 Depreciation expense ....................................... 6,470 Insurance expense ........................................... 2,310 Interest expense ............................................... 165 Rent expense .................................................... 20,750 Salaries expense............................................... 68,265 Supplies expense ............................................. 5,660 Telephone expense........................................... 3,070 $282,795 $282,795

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PROBLEM 3.13A (Continued) d. FOX ENTERPRISES Income Statement Year Ended January 31, 2021 Revenues Service revenue............................................ $222,405 Expenses Depreciation expense .................................. $ 6,470 Insurance expense ....................................... 2,310 Interest expense ........................................... 165 Rent expense ................................................ 20,750 Salaries expense .......................................... 68,265 Supplies expense ......................................... 5,660 Telephone expense ...................................... 3,070 Total expenses......................................... 106,690 Profit .................................................................. $115,715

FOX ENTERPRISES Statement of Owner's Equity Year Ended January 31, 2021 E. Fox, capital, February 1, 2020..................................... Add: Profit ........................................................................

$ 18,320 115,715 134,035 Less: Drawings ................................................................ 119,000 E. Fox, capital, January 31, 2021 .................................... $ 15,035

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PROBLEM 3.13A (Continued) d. (Continued) FOX ENTERPRISES Balance Sheet January 31, 2021 Assets Cash................................................................... Accounts receivable ......................................... Supplies............................................................. Prepaid insurance............................................. Equipment ......................................................... $32,350 Less: Accumulated depreciation ..................... 19,410 Total assets ..............................................

$ 4,970 17,215 920 1,650 12,940 $37,695

Liabilities and Owner's Equity Liabilities Notes payable .............................................................. Accounts payable........................................................ Interest payable ........................................................... Salaries payable .......................................................... Unearned revenue ....................................................... Total liabilities.........................................................

$11,000 7,930 165 1,315 2,250 22,660

Owner's equity E. Fox, capital .................................................................. 15,035 Total liabilities and owner's equity ............................ $37,695

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PROBLEM 3.13A (Continued) Taking It Further: Fox Enterprises is performing very well. Profit is positive and expenses represent only 48% of total revenues. A negative indicator in these financial statements is the amount of drawings the owner has taken. This amount exceeds the profit for the year. The financial position of Fox Enterprises is also positive; total cash and accounts receivable ($22,185) exceeds liabilities (excluding unearned revenues) of $20,410. As long as all accounts receivable are collected, there should be adequate cash to pay all outstanding liabilities. If Fox Enterprises wishes to purchase additional assets, the company may require additional cash. This will have to be obtained from Edmund Fox by additional investment of cash or by bank financing. LO 2,3,4 BT: AP Difficulty: M Time: 60 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.1B Students may find this to be a fairly challenging problem, so here are a few points that should help:  Under the CASH BASIS, revenues are recorded when cash is collected, even if the services were performed (or the sale of goods was made) earlier;  Under the ACCRUAL BASIS of accounting, revenues are recorded when the services are performed (the sale of goods is made) even if the cash is not collected until later, or is received prior to the performance of the services;  Under the CASH BASIS, expenses are recorded when the cash is paid; and  Under the ACCRUAL BASIS of accounting, expenses are recorded when the services or goods are used or consumed, rather than when the cash is paid. For example:  Under the CASH BASIS of accounting, Supplies are recorded as expenses as soon as they are paid for. Expenses, such as insurance, are recorded when items are paid for even if a portion relates to future periods;  Under the ACCRUAL BASIS of accounting, Supplies are not recorded as expenses until they have been used up. While the supplies are still on hand, they are recorded as assets because they have future benefits;  Under the CASH BASIS of accounting, amounts such as Salaries Payable at the end of 2020 would not be considered expenses until they are actually paid out in 2021; and  Under the ACCRUAL BASIS of accounting, Salaries Payable at the end of 2020 would be considered expenses in 2020, because the cost was incurred or “used up” during 2020, even though the cash will not be paid out until 2021.

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PROBLEM 3.1B (Continued) a. and b. $27,500

Cash basis income ($136,200 − $108,700)

−3,990 Accounts Payable owing at the end 2021 should be accrued; the related expense was incurred in 2021 and thus reduces profit. +1,460 Accounts Payable owing at year end 2020 represents expenses of 2020. Amount has been deducted from cash and must be added back for accrual basis profit. +6,100 Accounts Receivable arise from providing services or making in 2021, and thus revenue must be recognized and recorded in 2021. −13,200 Accounts Receivable collected in 2021 from sales made (and revenue that was earned) in 2020. −3,250

Depreciation Expense is equal to the increase in accumulated depreciation from 2020 to 2021 ($18,250 − $15,000 = $3,250)

+620 Prepaid Insurance at year end 2021 is an asset rather than an expense. Amount has been deducted from cash basis and must be added back for accrual basis profit. −1,530 Prepaid Insurance at year end 2020 has been used up and must be recorded as an expense during 2021. +550 Supplies on hand at year end 2021 represent assets rather than an expense. Amount has been deducted from cash basis and must be added back for accrual basis profit. −2,350 Supplies on hand at year end 2020 have been used up and must be recorded as an expense during 2021.

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PROBLEM 3.1B (Continued) a. and b. (Continued) −7,400 Unearned Revenue was received in cash in 2021 but services have not been performed and thus the unearned revenue must be taken away. +1,560 Services have been performed and the Unearned Revenue received in cash in 2020 must be recorded as revenue in 2021. $6,070

Accrual basis income

Taking It Further: Recommend that Northland Co. use the accrual basis of accounting. The cash basis does not correctly show when the services are performed or the expenses were incurred. The cash basis of accounting is not in accordance with generally accepted accounting principles. LO 1 BT: AP Difficulty: C Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.2B a.

1. Jan.

2. Mar.

9 Supplies ............................................. 2,950 Cash ............................................ Cash purchase for supplies.

2,950

1 Prepaid Insurance ............................. 4,920 Cash ............................................ Pay insurance in advance.

4,920

Equipment ....................................... 31,200 Cash ............................................ Purchase equipment for cash.

31,200

3. June 1

4. Sept. 1 Prepaid Rent ...................................... 1,650 Cash ............................................ 1,650 Pay rent in advance. 5. Oct. 1 Cash ................................................... 2,600 Unearned Revenue ..................... 2,600 Received cash in advance from customer. 6. Nov. 15 Cash ................................................... 2,500 Unearned Revenue ..................... 2,500 b.

1.

Basic Analysis Debit-Credit Analysis Adjusting Journal Entry

Solutions Manual .

The asset Supplies is decreased by $2,235. The expense Supplies Expense is increased by $2,235. Debits increase expenses: debit Supplies Expense $2,235. Credits decrease assets: credit Supplies $2,235. Dec. 31 Supplies Expense 2,235 Supplies ($2,950 – $715) 2,235 To record supplies used.

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PROBLEM 3.2B (Continued) 2. Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

The asset Prepaid Insurance is decreased by $4,100. The expense Insurance Expense is increased by $4,100. Debits increase expenses: debit Insurance Expense $4,100. Credits decrease assets: credit Prepaid Insurance $4,100. Dec. 31 Insurance Expense 4,100 Prepaid Insurance 4,100 To record insurance expired. ($4,920 × 10/12)

3. Basic Analysis

Debit-Credit Analysis

Adjusting Journal Entry

Solutions Manual .

Seven months of depreciation increases the contra asset Accumulated Depreciation—Equipment (which decreases the carrying value of the asset Equipment) by $2,275. The expense Depreciation Expense is increased by $2,275. Debits increase expenses: debit Depreciation Expense $2,275. Credits increase contra assets: credit Accumulated Depreciation—Equipment $2,275. Dec. 31 Depreciation Expense 2,275 Accumulated Depreciation —Equipment 2,275 To record depreciation of equipment. ($31,200 ÷ 8 × 7/12)

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PROBLEM 3.2B (Continued) 4. Basic Analysis Debit-Credit Analysis Adjusting Journal Entry

The asset Prepaid Rent is decreased by $1,100. The expense Rent Expense is increased by $1,100. Debits increase expenses: debit Rent Expense $1,100. Credits decrease assets: credit Prepaid Rent $1,100. Dec. 31 Rent Expense ($275 × 4) 1,100 Prepaid Rent 1,100 To record equipment lease expired.

5. Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

The liability Unearned Revenue is decreased by $975 for rental services performed. The revenue account Rent Revenue is increased by $975. Debits decrease liabilities: debit Unearned Revenue $975. Credits increase revenues: credit Rent Revenue $975. Dec. 31 Unearned Revenue ($325 × 3) 975 Rent Revenue 975 To record revenue for rent earned.

6. Basic Analysis Debit-Credit Analysis

Adjusting Journal Entry

Solutions Manual .

The liability Unearned Revenue is decreased by $1,500 for the services performed. The revenue account Service Revenue is increased by $1,500. Debits decrease liabilities: debit Unearned Revenue $1,500. Credits increase revenues: credit Service Revenue $1,500. Dec. 31 Unearned Revenue ($500 × 3) 1,500 Service Revenue 1,500 To record revenue for services performed.

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PROBLEM 3.2B (Continued) c.

1.

Jan. 9

Supplies 2,950 Dec. 31 2,235

Dec. 31 Bal.

Supplies Expense Dec. 31 2,235

715

2. Prepaid Insurance Mar. 1 4,920 Dec. 31 4,100 Dec. 31 Bal. 820

Insurance Expense Dec. 31 4,100

3.

Jun. 1

Accumulated Depreciation—Equipment Dec. 31 2,275

Equipment 31,200

Depreciation Expense Dec. 31 2,275 4. Prepaid Rent Sept. 1 1,650 Dec. 31 1,100 Dec. 31 Bal. 550

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Rent Expense Dec. 31 1,100

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PROBLEM 3.2B (Continued) 5. Unearned Revenue Oct. 1 2,600 Dec. 31 975

Rent Revenue Dec. 31

975

Dec. 31 Bal. 1,625 6. Unearned Revenue Nov. 15 2,500 Dec. 31 1,500 Dec. 31 Bal. 1,000

Service Revenue Dec. 31 1,500

Taking It Further: Burke Bros. cannot avoid recording adjusting journal entries at the end of the fiscal year. Had Burke originally recorded items 1 through 4 as expenses and items 5 and 6 as revenues, there would still have been a need to adjust asset and liability accounts at the end of the fiscal year to arrive at accurate balances. LO 2 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.3B a.

b.

Dec. 31 Interest Expense1 ............................ Interest Payable .......................... 1 ($40,000 × 5.5% × 1/12 = $183) To accrue interest revenue.

183 183

31 Salaries Expense .............................. 7,500 Salaries Payable ......................... To record accrued salaries.

7,500

31 Accounts Receivable ...................... 12,000 Rent Revenue ............................. To accrue rent revenue.

12,000

31 Telephone Expense ........................ Accounts Payable ...................... To accrue telephone expense.

290

31 Interest Receivable ......................... Interest Revenue2 ....................... 2 ($10,000 × 7% × 2/12 = $117) To accrue interest expense.

117

Jan. 1 Interest Payable .............................. Cash ............................................ Payment of interest owed.

183

290

117

183

Jan. 4 Salaries Payable................................ 7,500 Cash ............................................ Paid salaries payable.

7,500

Jan. 5 Cash ................................................. 18,000 Accounts Receivable ................. Rent Revenue ............................. Collected rent revenue.

12,000 6,000

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PROBLEM 3.3B (Continued) b. (Continued) Jan. 9 Accounts Payable ........................... Cash ............................................ Payment on account.

290 290

Apr. 30 Cash ($10,000 × 7% × 6/12)............. 350 Interest Receivable..................... 117 3 Interest Revenue ...................... 233 3 ($10,000 × 7% × 4/12) Collected interest receivable and interest revenue.

Taking It Further: The following revenue accounts would be understated by: Rent Revenue ........................................................ $12,000 Interest Revenue .................................................. 117 $12,117 The following expense accounts would be understated by: Interest Expense ..................................................... $ 183 Salaries Expense ...................................................... 7,500 Utilities Expense .................................................... 290 7,973 Profit would be understated by .............................

$ 4,144

Assets would be understated by: Interest Receivable ................................................. $ 117 Accounts Receivable .............................................. 12,000 $12,117 Liabilities would be understated by: Interest Payable ..................................................... $ 183 Accounts Payable .................................................. 290 Salaries Payable ....................................................... 7,500 Owner’s equity would be understated by .............

7,973 $ 4,144

LO 3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.4B Sept. 30, 2021 1. Supplies Expense ............................ Supplies ....................................... To record supplies used. 2.

3.

4.

5.

6.

7.

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400 400

Utilities Expense .............................. Accounts Payable........................ To accrue utilities expense.

775

Insurance Expense1 ......................... Prepaid Insurance ....................... 1 ($2,360 ÷ 12 = $197) To record insurance expired.

197

Depreciation Expense2 .................... Accumulated Depreciation —Equipment ............................. 2 ($9,600 ÷ 48 = $200) To record depreciation expense.

200

Interest Expense3 ............................. Interest Payable ........................... 3 ($15,000 x 4.5% X 1/12) = $56 To accrue interest expense.

56

775

197

200

Salaries Expense4 ............................ 1,800 Salaries Payable .......................... 4 ($1,000 x 3 x 3/5) = $1,800 To accrue salaries expense. Accounts Receivable ....................... 950 Service Revenue.......................... To accrue revenue for services performed but not billed or collected.

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PROBLEM 3.4B (Continued) Taking It Further: Sam is incorrect in stating that it is never appropriate to make adjusting entries to accrue for revenue. Service revenue is susceptible to the need for adjusting entries at the end of accounting periods. This is particularly true if the amount of time working on an assignment or service takes several days, even weeks to perform. It would be unfair to postpone recording revenue just because a task was in process. LO 2,3 BT: AP Difficulty: S Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.5B 1. a.

2. a.

3. a.

4. a.

b.

5. a.

June 30 Rent Expense .................................. Prepaid Rent ............................... To record expired rent.

900

June 30 Supplies Expense ........................... Supplies ($1,415 – $900) ............ To record supplies used.

515

900

515

June 30 Depreciation Expense1 ..................... 2,000 Accumulated Depreciation— Equipment ............................... 1 ($12,000 ÷ 36 x 6) To record depreciation expense. June 30 Interest Expense2 ............................ Interest Payable .......................... 2 ($5,000 × 4.5% × 5/12) To accrue interest expense.

2,000

94 94

Jan. 31 Interest Expense3 ............................ 131 Interest Payable .............................. 94 Notes Payable ................................... 5,000 Cash ............................................ 5,225 3 ($5,000 × 4.5% × 7/12) Pay principal and interest on note payable. June 30 Accounts Receivable ........................ 3,650 Service Revenue ........................ 3,650 To accrue revenue for services performed but not billed or collected.

b. If payment is received in July, debit Cash and credit Accounts Receivable.

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PROBLEM 3.5B (Continued) 6. a.

b.

7. a.

June 30 Salaries Expense ............................ 3,000 Salaries Payable ..................... To accrue salaries expense. July

Salaries Payable.............................. 3,000 Cash ........................................ Pay salaries owing.

3,000

3,000

June 30 Unearned Revenue ......................... 2,190 2,190 Service Revenue4.................... 4 ($2,590 – $400 = $2,190) To record revenue for services performed.

Taking It Further: The statement: “The amount included in an adjusted trial balance for a specific account will always be more than the amount that was included in the trial balance for the same account” is true when accruals are recorded as adjustments to revenue and expense accounts and their respective asset and liability accounts. For prepayment adjustments, for example prepaid insurance, the asset will be reduced by the adjustment and the expense account will be increased. Unearned revenue is an example where the liability decreases and the revenue increases. When depreciation is recorded, it increases an expense and it increases a contra-asset account Accumulated Depreciation. LO 2,3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.6B 1. a.

b.

2. a.

b.

3. a.

b.

c.

Jan. 31

Supplies ............................................. 2,880 Cash ............................................ Purchased supplies for cash.

2,880

Nov. 30 Supplies Expense1 ............................ 3,160 Supplies ...................................... 1 ($950 + $2,880 − $670) To record supplies used.

3,160

Aug.

Cash ($200 × 310) ............................ 62,000 Unearned Revenue ..................... 62,000 Received cash in advance from customers.

Nov. 30 Unearned Revenue.......................... 18,600 Admission Revenue2 .................. 18,600 2 ($62,000 ÷ 10 × 3) To record revenue for services performed.

Nov. 24 Salaries Expense ............................ 4,500 Cash ............................................ Paid employee salaries.

4,500

Nov. 30 Salaries Expense ............................ 4,500 Salaries Payable ......................... To accrue salaries expense.

4,500

Dec.

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1 Salaries Payable.............................. 4,500 Cash ............................................ Paid employee salaries owing.

3.120

4,500

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.6B (Continued) 4. a.

b.

c.

5. a.

b.

c.

6. b.

c.

Nov.

1 Cash ................................................. Rent Revenue ............................. Collect rent revenue.

245

Nov. 30 Accounts Receivable ...................... Rent Revenue4 ............................ 4 ($425 − $245) Accrue rent revenue.

180

Dec.

605

4 Cash ($180 + $425) ......................... Accounts Receivable ................. Rent Revenue ............................. Collect rent.

245

180

180 425

June 1 Cash ................................................. 11,000 Notes Payable............................. Borrowed cash and signed a note. Nov. 30 Interest Expense5 ............................ Interest Payable .......................... 5 ($11,000 × 4.5% × 6/12).............. Accrue interest expense. Feb.

11,000

248

1 Interest Expense6 ............................ 82 Interest Payable .............................. 248 Notes Payable ................................. 11,000 Cash ............................................ 6 ($11,000 × 4.5% × 2/12) Pay principal and interest on note.

248

11,330

Nov. 30 Utilities Expense ............................... 1,420 Accounts Payable ...................... Accrue utilities expense.

1,420

Dec. 10 Accounts Payable ............................. 1,420 Cash ............................................ Payment on account.

1,420

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PROBLEM 3.6B (Continued) 7. b.

Nov. 30 Depreciation Expense7 ..................... 4,747 Accumulated Depreciation—Vehicles.............. 7 ($37,975 ÷ 8) To record depreciation expense.

4,747

Taking It Further: The three basic reasons that a trial balance may not contain complete or up-to-date data are: 1. Some events are not journalized daily because it is not efficient to do so; 2. Some costs are not journalized during the accounting period because they expire through the passage of time so are not daily transactions; 3. Some items may be unrecorded. The adjustment to record supplies used (Item 1) is an example of the first reason above. It is not practical to record an expense every time supplies are used. The adjustment to record depreciation (Item 7) is an example of the second reason above. The cost of a long-lived asset expires through the passage of time. The adjustment to record the utility bill (Item 6) is an example of the third reason above. The bill was for the month of November but had not been recorded in the recording of daily transactions. LO 2,3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.7B 1.

Oct. 31 Depreciation Expense....................... 1,500 Accumulated Depreciation— Equipment ($9,000 ÷ 6)............... 1,500 To record depreciation expense on equipment.

2.

31 Supplies Expense1 .......................... 2,520 Supplies ...................................... 1 ($1,000 + $2,500 – $980) To record supplies used.

3.

4.

5.

31 Interest Expense2 ............................ Interest Payable .......................... 2 ($28,000 × 6% × 4/12) To accrue interest expense.

560

31 Rent Expense .................................. Prepaid Rent ............................... To record expired rent.

800

2,520

560

800

31 Unearned Revenue ......................... 2,000 Service Revenue3 ....................... 3 [$200 × (15 − 5)]

2,000

6.

31 Accounts Receivable ...................... 1,550 Service Revenue......................... 1,550 To record revenue for services performed.

7.

31 Salaries Expense ($125 × 2 × 3) ..... Salaries Payable ......................... To record accrued salaries.

750

31 Telephone Expense ....................... Accounts Payable ...................... To accrue telephone expense.

360

8.

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750

360

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.7B (Continued) Taking It Further: The timing of the preparation of the adjusting journal entries in the accounting cycle depends completely on the business’s needs to communicate financial information to those who use it. If the business does not need financial statements monthly and decides that financial statements are only needed on an annual basis, then the preparation of adjusting journal entries on an annual basis is adequate. On the other hand, the practice of recording adjusting journal entries at the end of each month should be adopted if doing so will provide feedback to the business on action that should be taken to rectify a business problem, or initiate changes in the way the business is managed. Companies reporting under IFRS must prepare quarterly financial statements and must therefore prepare adjusting entries at least on a quarterly basis. LO 2,3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.8B a. 1.

2.

3.

July 31 Insurance Expense ........................... 7,035 Prepaid Insurance ...................... Expired insurance: B4564 $10,440 × 11/24 $4,785 A2958 $ 5,400 × 5/12 2,250 $7,035 To record expired insurance. July 31 Rent Expense .................................... 4,675 Prepaid Rent ............................... Expired rent: Agreement 1: $335 × 5 months $1,675 Agreement 2: $375 × 8 months 3,000 $4,675 To record expired rent.

7,035

4,675

July 31 Depreciation Expense1 ..................... 4,260 Accumulated Depreciation— Building....................................... 4,260 1 ($127,800 ÷ 30) To record depreciation expense on building. 31 Depreciation Expense2 ..................... 4,104 Accumulated Depreciation— Building....................................... 4,104 2 ($164,160 ÷ 40) To record depreciation expense on building.

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PROBLEM 3.8B (Continued) a. (Continued 4. July 31 Unearned Revenue.......................... 34,242 Service Revenue.........................

34,242

Earned Revenue at July 31, 2021: October 325 × $35 × 10/12 = $ 9,479 November 450 × $35 × 9/12 = 11,813 December 555 × $35 × 8/12 = 12,950 $34,242 To record revenue for services performed. 5.

b.

July 31 Salaries Expense .............................. 6,450 Salaries Payable ......................... 6 × $650 = $ 3,900 3 × $850 = 2,550 Total $ 6,450 To accrue employee salaries.

6,450

First building, Accumulated Depreciation = ($4,260 × 15) + $4,260 × 11/12 = $63,900 + $3,905 (11 months for first year) = $67,805 Carrying amount = $127,800 − $67,805 = $59,995 Second building, Accumulated Depreciation = $4,104 × 14 + $4,104 × 3/12 = $57,456 + $1,026 (3 months for 2007) = $58,482 Carrying amount = $164,160 − $58,482 = $105,678

Taking It Further: The purpose of depreciation is to allocate the cost of a long-lived asset to expense over the useful life of the asset in a systematic and rational manner. Land is not depreciated because it has an unlimited useful life. LO 2,3 BT: AP Difficulty: M Time: 35 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.9B a.

Alabaster Co.:

June 1/21

Sept. 30/21

Oct. 1/21

Oct. 31/21

Oct. 31/21

Oct. 31/21

Nov. 1/21

Dec. 1/21

Solutions Manual .

Cash................................................ Notes Payable (Note 1) ........... Borrow cash and sign Note 1.

50,000

Cash................................................ Notes Payable (Note 2) ........... Borrow cash and sign Note 2.

80,000

Cash................................................ Notes Payable (Note 3) ........... Borrow cash and sign Note 3.

45,000

Interest Expense1........................... Interest Payable ...................... 1 Note 1: ($50,000 × 4% × 5/12) To accrue interest on Note 1.

833

Interest Expense2........................... Interest Payable ...................... 2 Note 2: ($80,000 × 3.5% × 1/12) To accrue interest on Note 2.

233

Interest Expense3........................... Interest Payable ...................... 3 Note 3: ($45,000 × 5.5% × 1/12) To accrue interest on Note 3.

206

Interest Payable ............................. Cash ......................................... Pay interest owed on Note 3.

206

Interest Expense4........................... Cash ......................................... 4 Note 3: ($45,000 × 5.5% × 1/12) Pay interest on Note 3.

206

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50,000

80,000

45,000

833

233

206

206

206

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.9B (Continued) a. (Continued) Dec. 31/21

Interest Expense5........................... Interest Payable ............................. Cash ........................................ 5 Note 2: ($80,000 × 3.5% × 2/12) Pay interest owed on Note 2.

467 233 700

Jan. 1/22

Interest Expense ............................ 206 Notes Payable (Note 3) .................. 45,000 Cash ......................................... 45,206 Pay principal and interest on Note 3.

Jan. 1/22

Interest Expense6........................... 334 Interest Payable ............................. 833 Notes Payable (Note 1) .................. 50,000 Cash ........................................ 51,167 6 Note 1: ($50,000 × 4% × 2/12) Pay principal and interest owed on Note 1.

Mar. 31/22

Interest Expense7........................... Cash ......................................... 7 Note 2: ($80,000 × 3.5% × 3/12) Pay interest on Note 2.

700

Interest Expense8........................... Cash ......................................... 8 Note 2: ($80,000 × 3.5% × 3/12) Pay interest on Note 2.

700

June 30/22

Sept. 30/22

Solutions Manual .

700

700

Interest Expense9........................... 700 Notes Payable (Note 2) .................. 80,000 Cash ........................................ 80,700 9 Note 2: ($80,000 × 3.5% × 3/12) Pay principal and interest on Note 2.

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PROBLEM 3.9B (Continued) b.

Fuchsia Enterprises:

June 1/21

Notes Receivable (Note 1) .................50,000 Cash ......................................... 50,000 Lend cash in exchange for Note 1.

Sept. 30/21

Notes Receivable (Note 2) .................80,000 Cash ......................................... 80,000 Lend cash in exchange for Note 2.

Oct. 1/21

Notes Receivable (Note 3) .................45,000 Cash ......................................... 45,000 Lend cash in exchange for Note 3.

Nov. 1/21

Cash................................................ 206 10 Interest Revenue .................. 10 Note 3: ($45,000 × 5.5% × 1/12) Collect interest revenue on Note 3.

Nov. 30/21

Nov. 30/21

Nov. 30/21

Dec. 1/21

Solutions Manual .

Interest Receivable ........................ 1,000 11 Interest Revenue .................. 11 Note 1: ($50,000 × 4% × 6/12) To accrue interest revenue on Note 1. Interest Receivable ........................ 467 12 Interest Revenue .................. 12 Note 2: ($80,000 × 3.5% × 2/12) To accrue interest revenue on Note 2. Interest Receivable ........................ 206 13 Interest Revenue .................. 13 Note 3: ($45,000 × 5.5% × 1/12) To accrue interest revenue on Note 3. Cash14 ............................................. Interest Receivable ................. 14 Note 3: ($45,000 × 5.5% × 1/12) Collect interest owed on Note 3.

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206

1,000

467

206

206 206

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak Accounting Principles, Eighth Canadian Edition

PROBLEM 3.9B (Continued) b. (Continued) Dec. 31/21

Cash................................................ Interest Receivable ................. Interest Revenue15 .................. 15 Note 2: ($80,000 × 3.5% × 1/12) Collect interest owed on Note 2.

700 467 233

Jan. 1/22

Cash .................................................... 45,206 Interest Revenue ..................... 206 Notes Receivable (Note 3) ...... 45,000 Collect principal and interest on Note 3.

Jan. 1/22

Cash .................................................... 51,167 Interest Receivable ................. 1,000 16 Interest Revenue .................. 167 Notes Receivable (Note 1) ...... 50,000 16 Note 1: ($50,000 × 4% × 1/12) Collect principal and interest on Note 1.

Mar. 31/22

Cash................................................ 700 17 Interest Revenue .................. 17 Note 2: ($80,000 × 3.5% × 3/12) Collect interest revenue on Note 2.

June 30/22

Sept. 30/22

Solutions Manual .

Cash................................................ 700 18 Interest Revenue .................. 18 Note 2: ($80,000 × 3.5% × 3/12) Collect interest revenue on Note 2.

700

700

Cash .................................................... 80,700 700 Interest Revenue19 .................. Notes Receivable (Note 2) ...... 80,000 19 Note 2: ($80,000 × 3.5% × 3/12) Collect principal and interest on Note 2.

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PROBLEM 3.9B (Continued) Taking It Further: It is appropriate because the accrued interest receivable records the asset that exists at the balance sheet date and the offsetting revenue that applies to the current accounting period. If it is not recorded, both assets and revenues are understated, and profit and owner’s equity are understated. LO 3 BT: AP Difficulty: M Time: 45 min. AACSB: None CPA: cpa-t001 CM: Reporting

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PROBLEM 3.10B b. 1.

June 30 Supplies Expense ............................. 3,755 Supplies ($4,470 − $715) ............ To record supplies used.

3,755

30 Insurance Expense1 .......................... 7,110 Prepaid Insurance ...................... 1 ($9,480 × 9/12) To record insurance expired.

7,110

2.

3.

30 Depreciation Expense....................... 5,040 Accumulated Depreciation— Equipment ($30,240 ÷ 6)........... 5,040 To record depreciation expense on equipment. 30 Depreciation Expense..................... 26,325 Accumulated Depreciation— Vehicles ($210,600 ÷ 8)............. 26,325 To record depreciation expense on vehicles.

4.

30 Unearned Revenue.......................... 16,500 Service Revenue2 ....................... 16,500 2 ($18,750 – $2,250) To record revenue for services performed.

5.

30 Interest Expense3 ............................ Interest Payable .......................... 3 ($120,000 × 4.5% × 1/12) To accrue interest expense.

6.

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450 450

30 Salaries Expense .............................. 2,340 Salaries Payable ($390 × 6) ........ To accrue salaries expense.

2,340

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PROBLEM 3.10B (Continued) b. (Continued) 7.

30 Accounts Receivable ........................ 1,100 Service Revenue......................... 1,100 To accrue revenue for services performed but not billed or collected.

a. and c. Cash 9,810

June 30

Accounts Receivable 5,310

June 30 June 30

1,100 Bal.

June 30

Bal.

June 30

6,410

Prepaid Insurance 9,480 June 30

7,110

June 30

3,755

2,370

Supplies 4,470 715

June 30

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Vehicles 210,600

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PROBLEM 3.10B (Continued) a. and c. (Continued) Accumulated Depreciation-Vehicles June 30

June 30

26,325

June 30

26,325

Bal.

52,650

Equipment 30,240

Accumulated Depreciation-Equipment June 30 June 30 Bal.

5,040 5,040 10,080

Accounts Payable June 30

June 30

Solutions Manual .

5,075

Notes Payable June 30

120,000

Unearned Revenue June 30

18,750

Bal.

2,250

16,500

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PROBLEM 3.10B (Continued) a. and c. (Continued) Interest Payable June 30

450