Last revised: October 26, 2012
SOLUTIONS MANUAL to accompany
Fundamental Accounting Principles 14th Canadian Edition by Larson/Jensen
Prepared by: Tilly Jensen, Athabasca University Wendy Popowich, Northern Alberta Institute of Technology Susan Hurley, Northern Alberta Institute of Technology Ruby So Koumarelas, Northern Alberta Institute of Technology Technical checks by: Ross Meacher Betty Young, Red River College, ANSR Source
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Chapter 2
Analyzing and Recording Transactions
Chapter Opening Critical Thinking Challenge Questions* “Financial health” can be interpreted in a number of ways. It could refer to an organization’s ability to meet long-term goals. One of the key factors in predicting longterm viability is to have an accurate understanding of the organization’s financial position. From an operational perspective, “financial health” could mean having adequate resources and systems in place to meet current objectives.
*The Chapter 2 Critical Thinking Challenge questions are asked at the beginning of the chapter. Students are reminded at the conclusion of the chapter, to refer to the Critical Thinking Challenge questions at the beginning of the chapter. The solutions to the Critical Thinking Challenge questions are available here in the Solutions Manual and accessible to students on the Online Learning Centre.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Concept Review Questions 1.
The fundamental steps in the accounting process are those involved in the accounting cycle: Analyze transactions to determine if an economic exchange has taken place and, if so, journalize and post the transaction. An unadjusted trial balance is then prepared to help identify potential adjustments. Appropriate adjusting entries are journalized and posted and an adjusted trial balance is generated from which the financial statements are prepared. Closing entries are then journalized and posted. Finally, a post-closing trial balance is prepared.
2.
A note receivable is a document that specifies the fixed amount due to a company on a fixed date or on demand. An account receivable is also an amount due to a company, but the amount can be increased by the debtor by making additional purchases. An account receivable is not a single document but represents the result of several written, oral, or implied promises to pay the creditor.
3. Fifteen possible expense accounts might be: Utilities Expense, Telephone Expense, Internet Expense, Office Supplies Expense, Salaries Expense, Wages Expense, Entertainment Expense, Travel Expense, Repair Expense, Postage Expense, Printing Expense, Advertising Expense, Interest Expense, Equipment Repair Expense, Insurance Expense, and any number of others. 4. Four different asset accounts would include any of the following from Danier’s June 25, 2011 balance sheet: Cash, Accounts receivable, Inventories, Prepaid expenses, Future income taxes asset, Property and equipment, or Intangible assets. Three different liability accounts would include any of the following: Accounts payable and accrued liabilities; Income taxes payable; or Deferred lease inducements and rent liability. 5.
Expense accounts have debit balances because they reflect decreases in equity.
6.
Three debit balance accounts from WestJet’s December 31, 2011 balance sheet might include any of the following: Cash and cash equivalents; Restricted cash; Accounts receivable; Prepaid expenses, deposits and other; Inventory; Property and equipment; Intangible assets; or Other assets. Three credit balance accounts might include any of the following: Accounts payable and accrued liabilities; Advance ticket sales; Nonrefundable guest credits; Current portion of long-term debt; Current portion of obligations under finance leases; Maintenance provisions; Long-term debt; Obligations under finance leases; Other liabilities; Deferred income tax; Share capital; Equity reserves; or Retained earnings.
7.
A General Journal can be used to record any economic transaction.
8.
Debited accounts are recorded first. The credited accounts are indented.
9.
A transaction should first be recorded in a journal to create a complete record of the transaction in one place. Then the transaction is posted to the ledger where entries are summarized by type, i.e., cash, accounts payable, interest expense, etc., to enable analysis by account. This arrangement also means that fewer errors will be made in the accounts.
10. The bookkeeper prepares a trial balance to summarize the contents of the ledger and to determine whether equal debits and credits have been recorded. The trial balance also serves as a helpful internal document for preparing the financial statements.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
QUICK STUDY Quick Study 2-1 Answer A E E L A L A E L L R R E L R L A A E R L A L R W OE E L A A
Answer Detail Asset Expenses (Equity) Expenses (Equity) Liability Asset Liability Asset Expenses (Equity) Liability Liability Revenues (Equity) Revenues (Equity) Expenses (Equity) Liability Revenues (Equity) Liability Asset Asset Expenses (Equity) Revenues (Equity) Liability Asset Liability Revenues (Equity) Owner’s Withdrawals (Equity) Owner’s Capital (Equity) Expenses (Equity) Liability Asset Asset
Account 1. Buildings 2. Building Repair Expense 3. Wages Expense 4. Wages Payable 5. Notes Receivable 6. Notes Payable 7. Prepaid Advertising 8. Advertising Expense 9. Advertising Payable 10. Unearned Advertising 11. Advertising Fees Earned 12. Interest Earned 13. Interest Expense 14. Interest Payable 15. Earned Subscription Fees 16. Unearned Subscription Fees 17. Prepaid Subscription Fees 18. Supplies 19. Supplies Expense 20. Rent Revenue 21. Unearned Rent Revenue 22. Prepaid Rent 23. Rent Payable 24. Service Fees Earned 25. Jan Sted, Withdrawals 26. Jan Sted, Capital 27. Salaries Expense 28. Salaries Payable 29. Furniture 30. Equipment
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Quick Study 2-2 Accounts Receivable 1,000 650 400 920 920 1,500 3,000 Bal. 2,250 Utilities Expense 610 520 390 275 Bal. 1,795
Accounts Payable 250 250 900 1,800 650 1,400 650 2,300 Bal. Cash 3,900 2,400 17,800 3,900 14,500 21,800 340 Bal. 8,440
Service Revenue 13,000 2,500 810 3,500 19,810 Bal. Notes Payable 4,000 50,000 8,000 38,000 Bal.
Quick Study 2-3 a. b. c. d. e. f. g. h. i. j. k. l. m. n. o.
Equipment ............................................ Debit Land ............................................ Debit Al Tait, Withdrawals .................... Debit Rent Expense ............................... Debit Interest Revenue .......................... Credit Prepaid Rent .......................... Debit Accounts Receivable ............ Debit Office Supplies ...................... Debit Notes Receivable .................. Debit Notes Payable ....................... Credit Al Tait, Capital ....................... Credit Rent Earned ........................... Credit Rent Payable ......................... Credit Interest Expense ................... Debit Interest Payable .................... Credit
Quick Study 2-4 a. b. c. d. e.
Credit Credit Credit Debit Credit
f. g. h. i. j.
Credit Debit Credit Debit Debit
k. l. m. n. o.
Debit Credit Debit Debit Debit
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Quick Study 2-5 a. b. c. d. e.
Credit Debit Credit Debit Credit
f. g. h. i. j.
Debit Credit Credit Credit Debit
k. Credit l. Debit m. Debit n. Credit o. Credit
Quick Study 2-6 Note: Students could choose any account number within the specified range. a. b. c. d. e.
173 409 302 301 128
f. g. h. i. j.
203 106 622 124 403
k. l. m. n. o.
629 219 222 170 115
Quick Study 2-7 1. Cash 101 (a) 15,000 500 (c) (d) 1,000 500 (f) (g) 300 Bal. 15,300
Accounts Payable 201 (f) 500 2,000 (b)
1,500 Bal.
Accounts Receivable 106 (e) 700 300 (g) (h) 400 Bal. 800
Furniture (b) 2,000 (c) 500
161
Bal. 2,500
Del Martin, Capital 301 15,000 (a)
15,000 Bal.
Revenue 403 1,000 (d) 700 (e) 400 (h) 2,100 Bal.
2. The account balance for each T-account is shown above. The accounting equation (Assets = Liabilities + Equity) is proved as follows: $18,600 = $1,500 + $17,100
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Quick Study 2-8 1 & 2.
Apr 30 May 12 May 16 Bal.
Cash 15,000 6,000 10,000 3,000 4,000 20,000
Unearned Revenue 1,800 10,000 11,800
101 May 15 May 22
205 Apr 30 May 12 Bal.
Accounts Receivable 106 Apr 30 3,200 4,000 May 16 May 10 4,000 Bal. 3,200
Dee Bell, Capital 8,900 8,000 16,900
301 Apr 30 May 2 Bal.
May 2 Bal.
Car 8,000 8,000
Revenue 3,000 4,000 7,000
150
410 Apr 30 May 10 Bal.
Accounts Payable May 22 3,000 6,000 3,000
Wages Expense Apr 30 1,500 May 15 6,000 Bal. 7,500
202 Apr 30 Bal.
650
3. The account balance for each T-account is shown above. The accounting equation (Assets = Liabilities + Equity) is proved as follows: $31,200 = $14,800 + $16,400
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Quick Study 2-9
Date 2014 May 1
2
3
4
5
6
7
General Journal Account Titles and Explanations
Debit
Equipment............................................................... Accounts Payable .......................................... Purchased equipment on account.
500
Accounts Payable .................................................. Cash ................................................................ Paid for the equipment purchased May 1.
500
Supplies .................................................................. Cash ................................................................ Purchased supplies for cash.
100
Wages Expense ...................................................... Cash ................................................................ Paid wages to employees.
2,000
Cash ........................................................................ Service Revenue ............................................ Performed services for a client for cash.
750
Accounts Receivable ............................................. Service Revenue ............................................ Did work for a customer on credit.
2,500
Cash ........................................................................ Accounts Receivable ..................................... Collected May 6 customer account.
2,500
Page 1 Credit
500
500
100
2,000
750
2,500
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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2-8
Last revised: October 26, 2012
Quick Study 2-10
Date 2014 Jan. 3
4
6
15
16
30
General Journal Account Titles and Explanations
Debit
Cash ........................................................................ Equipment............................................................... Stan Adams, Capital....................................... Investment by owner.
60,000 40,000
Office Supplies ....................................................... Accounts Payable .......................................... Purchased office supplies on credit.
340
Cash ........................................................................ Landscaping Services Revenue ................... Received cash for landscaping services.
5,200
Accounts Payable .................................................. Cash ................................................................ Paid part of the January 4 credit purchase.
200
Office Supplies ....................................................... Accounts Payable .......................................... Purchased supplies on account.
700
Accounts Payable .................................................. Cash ................................................................ Paid the balance owing re January 4 credit purchase; 340 – 200 paid on Jan. 15 = 140.
140
Page 1 Credit
100,000
340
5,200
200
700
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Last revised: October 26, 2012
Quick Study 2-11 Date 2014 Jan. 3 6 15 30
Date 2014 Jan. 4 16
Date 2014 Jan. 3
Date 2014 Jan. 4 15 16 30
Date 2014 Jan. 3
Date 2014 Jan. 6
Cash Explanation
PR
Debit
Account No. 101 Credit Balance
60,000 5,200 200 140 Office Supplies Explanation
PR
Debit
Account No. 124 Credit Balance
340 700 Equipment Explanation
PR
Debit
340 1,040 Account No. 163 Credit Balance
40,000 Accounts Payable Explanation
PR
Debit
60,000 65,200 65,000 64,860
40,000 Account No. 201 Credit Balance 340
340 140 840 700
200 700 140 Stan Adams, Capital Explanation
PR
Debit
Account No. 301 Credit Balance 100,000
Landscaping Services Revenue Explanation
PR
Debit
100,000
Account No. 403 Credit Balance 5,200
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2-10
Last revised: October 26, 2012
Quick Study 2-12 Vahn Landscaping Trial Balance January 31, 2014 Acct. No. 101 163 233 301 302 401 640 690
Account Cash ..................................................................... Equipment ........................................................... Unearned fees ..................................................... Brea Vahn, capital ............................................... Brea Vahn, withdrawals ...................................... Fees earned ......................................................... Rent expense ....................................................... Utilities expense .................................................. Totals ...................................................................
Debit
Credit
$ 7,000 9,000 $ 2,000 14,000 1,000 11,000 6,000 4,000 $27,000
_ ____ $27,000
Quick Study 2-13 The correct answer is c. If a $2,250 debit to Rent Expense is incorrectly posted as a credit, the effect is to understate the Rent Expense debit balance by $4,500. This causes the Debit column total on the trial balance to be $4,500 less than the Credit column total. Quick Study 2-14 1. Subtract total debits in the trial balance from total credits 24,250 - 21,550 = 2,700 2. Divide the difference by 9 2,700 ÷ 9 = 300 3. The quotient equals the difference between the two transposed numbers. 300 is the difference between the two transposed numbers. 4. The number of digits in the quotient tells us the location of the transposition Look for a difference of 3 between the third number from the right and the fourth number from the right. Through a process of elimination, the incorrect value is Rent Expense for $4,100. The correct value must be $1,400. Proof: Recalculate the trial balance replacing $1,400 for the incorrect $4,100 and the trial balance now balances at $21,550.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Quick Study 2-15 1. Subtract total debits in the trial balance from total credits 728 - 503 = 225 2. Divide the difference by 9 225 ÷ 9 = 25 The quotient equals the incorrect number. Through a review of the values in the trial balance, the incorrect value is Notes Payable for $25. The correct value must be $250. Proof: Recalculate the trial balance replacing $250 for the incorrect $25 and the trial balance now balances at $728.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
EXERCISES Exercise 2-1 (30 minutes)
Balance
Cash 32,600 925 3,000 13,600 5,400 3,500 5,000 17,975
(f) Balance
Accounts Receivable 5,400 5,400 (h) 0
(a) (d) (h)
(b) Balance
Office Supplies 925 925
(c) Balance
Office Equipment 13,600 13,600
(b) (e) (g) (i)
(e)
Accounts Payable 13,600 13,600 0
(c) Balance
Sandra Moses, Capital 32,600 (a) 32,600 Balance Sandra Moses, Withdrawals (i) 5,000 Balance 5,000 Fees Earned 3,000 5,400 8,400
(g) Balance
(d) (f) Balance
Rent Expense 3,500 3,500
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Exercise 2-2 (10 minutes) Jan. 31 Feb. 2 20 22 Bal.
Cash 890 4,000 3,100 125 2,400 1,000 10,000 1,600 9,665
Feb. 14 23 25 26
Accounts Receivable Jan. 31 1,200 2,400 Feb. 20 Feb. 12 15,000 10,000 Feb. 22 18 1,900 Bal. 5,700
Jan. 31 Feb. 14 Bal.
Neil Poundmaker, Withdrawals Jan. 31 -0Feb. 25 1,000 Bal. 1,000 Service Revenue 2,600 3,100 15,000 1,900 22,600
Prepaid Insurance -04,000 4,000
Computer Equipment Jan. 31 480 Feb. 10 7,600 Bal. 8,080
Feb. 23
Neil Poundmaker, Capital 800 Jan. 31 800 Bal.
Accounts Payable 125 250 Jan. 31 125 Bal.
Jan. 31 Feb. 26 Bal.
Jan. 31 Feb. 2 12 18 Bal.
Wages Expense 1,080 1,600 2,680
NOTE: There is no entry to be recorded for February 21.
Notes Payable -0- Jan. 31 7,600 Feb. 10 7,600 Bal. Analysis component: Revenue recognition requires that when work has been completed, it must be recorded whether cash has been received or not. A transaction has occurred when there has been an economic exchange — when something has been given up or received. On February 12, services were performed and, although cash will not be received until a future date, a revenue must be recorded because an economic exchange has occurred.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Exercise 2-3 (10 minutes)
Mar. 31 Apr. 2 19 Bal.
Cash 1,800 1,000 Apr. 10 2,100 950 15 2,800 1,500 29 3,250
Nels Sigurdsen, Withdrawals Mar. 31 500 Apr. 29 1,500 Bal. 2,000 Repair Revenue 14,000 2,100 1,200 17,300
Accounts Receivable Mar. 31 4,800 2,800 Apr. 19 Apr. 18 1,200 Bal. 3,200
Mar. 31 Apr. 9 Bal.
Repair Supplies 1,400 1,500 2,900
Mar. 31 Apr. 15 Bal.
Equipment 7,400 950 8,350
Apr. 10
Mar. 31 Apr. 25 Bal.
Mar. 31 Apr. 2 18 Bal.
Rent Expense 950 820 1,770
Accounts Payable 1,000 500 Mar. 31 1,500 Apr. 9 820 25 1,820 Bal.
Nels Sigurdsen, Capital 2,350 Mar. 31 2,350 Bal. NOTE: There is no entry to be recorded for April 5.
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Last revised: October 26, 2012
Exercise 2-4 (45 minutes) 2. Date 2014 July
GENERAL JOURNAL Account Titles and Explanations PR 1
10
12
14
15
31
Page 1 Credit
Debit
Cash ....................................................... Mira Delco, Capital ........................ To record investment by owner.
101 301
5,000
Equipment.............................................. Accounts Payable ......................... Purchased equipment on credit.
150 201
2,500
Cash ....................................................... Revenue ......................................... Performed services for cash.
101 401
10,000
Expenses ............................................... Cash ................................................ Paid expenses.
501 101
3,500
Accounts Receivable ........................... Revenue ......................................... Completed services on account.
106 401
1,500
Mira Delco, Withdrawals ....................... Cash ................................................ Owner withdrew cash.
302 101
250
5,000
2,500
10,000
3,500
1,500
250
Note: The account numbers in the PR column above would be included only during the posting of these journal entries into the ledger accounts in Part 3 of this exercise.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Exercise 2-4 (continued) *Note: The student could use T-accounts or balance column format accounts as their general ledger. Both are shown in this solution. 1 and 3. July
1 12 Balance
Cash 5,000 3,500 10,000 250 11,250
101 July 14 31
106
July 15
Accts. Receivable 1,500
Equipment 2,500
150
July 10
July 31
Accounts Payable 2,500
201 July 10
Mira Delco, Capital 5,000
301 July 1
Mira Delco, Withdrawals 250
Revenue 10,000 1,500 11,500
July 14
Expenses 3,500
302
401 July 12 15 Balance 501
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Exercise 2-4 (continued) 1 and 3. Date 2014 July
Cash Explanation 1 12 14 31
Date 2014 July 15
Date 2014 July 10
Date 2014 July 10
Date 2014 July
G1 G1 G1 G1 Accounts Receivable Explanation
Equipment Explanation
Date 2014 July 14
PR G1
Accounts Payable Explanation
PR
Debit 5,000 10,000
3,500 250
Debit
PR
Debit
Debit
PR G1
Revenue Explanation
PR
PR G1
Account No. 150 Credit Balance 2,500 Account No. 201 Credit Balance
Debit
2,500
Account No. 301 Credit Balance 5,000
Credit
5,000
Account No. 302 Balance
250
Debit
G1 G1 Expenses Explanation
1,500
2,500
Debit
5,000 15,000 11,500 11,250
Account No. 106 Balance
2,500
G1 Mira Delco, Withdrawals Explanation
Credit
1,500
G1
1
Date 2014 July 12 15
PR G1
Mira Delco, Capital Explanation
Date 2014 July 31
PR
Account No. 101 Credit Balance
250 Account No. 401 Credit Balance 10,000 1,500
Debit
Credit
10,000 11,500
Account No. 501 Balance
3,500
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Exercise 2-4 (continued) 4.
MiraCom Trial Balance July 31, 2014 Acct. No. 101 106 150 201 301 302 401 501
Account Title Cash ..................................................... Accounts receivable .......................... Equipment ........................................... Accounts payable ............................... Mira Delco, capital .............................. Mira Delco, withdrawals ..................... Revenue ............................................... Expenses ............................................. Totals ...................................................
Debit $11,250 1,500 2,500
Credit
$ 2,500 5,000 250 11,500 3,500 $19,000
$19,000
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Last revised: October 26, 2012
Exercise 2-4 (concluded) 5.
MiraCom Income Statement For Month Ended July 31, 2014 Revenue ............................................................... Expenses ............................................................. Net income .......................................................... MiraCom Statement of Changes in Equity For Month Ended July 31, 2014 Mira Delco, capital, July 1 .................................. Add: Investments by owner .............................. $5,000 Net income ................................................ 8,000 Total ................................................................. Less: Withdrawals by owner ............................. Mira Delco, capital, July 31 ................................
$11,500 3,500 $ 8,000
$
0
13,000 13,000 250 $12,750
The arrows are imaginary but emphasize the link between
MiraCom Balance Sheet July 31, 2014 Assets Cash ........................................... Accounts receivable................. Equipment .................................
$11,250 1,500 2,500
Total assets ...............................
$15,250
statements.
Liabilities Accounts payable .............................$ 2,500 Equity Mira Delco, capital............................. 12,750 Total liabilities and equity .............................................$15,250
Analysis component: Accounts receivable result from credit sales to customers (debit accounts receivable and credit a revenue). Sales, or revenue, is part of equity. As revenues on account are recorded, assets on the left side of the accounting equation increase and equity on the opposite side of the accounting equation also increases. Therefore, accounts receivable are financed by, or created by, an equity transaction.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Exercise 2-5 (10 minutes) Note: Students could choose any account number within the specified range. Account Number 101 115 160 210 215 310 320 410 510 520 530
Account Name Cash Accounts Receivable Office Equipment Accounts Payable Unearned Revenue Aaron Paquette, Capital Aaron Paquette, Withdrawals Consulting Revenues Salaries Expense Rent Expense Utilities Expense
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Exercise 2-6 (30 minutes) 1. Date 2014 Feb.
General Journal Account Titles and Explanations 1
PR
Debit
Cash ............................................................................................................ 101 8,500 Consulting Revenues ......................................................................... 410 Performed work for cash.
5
10
Accounts Payable ...................................................................................... 210 5,000 Cash ..................................................................................................... 101 Paid account.
8,500
5,000
Cash ............................................................................................................ 101 3,600 Unearned Revenue ............................................................................. 215 Received cash in advance.
12
No entry.
17
Aaron Paquette, Withdrawals ................................................................... 320 3,000 Cash ..................................................................................................... 101 Owner withdrew cash.
28
Page G1 Credit
3,600
3,000
Salaries Expense ........................................................................................ 510 10,000 Cash ..................................................................................................... 101 Paid salaries.
10,000
Note: The account numbers in the PR column above would be included only during the posting of these journal entries into the ledger accounts in Part 2 of this exercise.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Exercise 2-6 (continued) 2.
Bal Feb 1 10 Bal
Cash 15,000 5,000 8,500 3,000 3,600 10,000 9,100
Unearned Revenue 2,600 3,600 6,200
Salaries Expense Bal 10,000 Feb 28 10,000 Bal 20,000
101 Feb 5
Accounts Receivable Bal 3,800
115
Office Equipment Bal 22,500
160
17
Accounts Payable Feb 5 5,000 8,000 3,000
210 Bal Bal
28
215 Bal
Aaron Paquette, Capital 9,500
310 Bal
Feb 10 Bal
510
Rent Expense Bal 7,500
520
Aaron Paquette, Withdrawals Bal 2,000 Feb 17 3,000 Bal 5,000
Utilities Expense Bal 1,000
320
Consulting Revenues 410 41,700 Bal 8,500 Feb 1 50,200 Bal
530
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3. Paquette Advisors Trial Balance February 28, 2014 Acct. No. 101 115 160 210 215 310 320 410 510 520 530
Account Title Cash ................................................................... Accounts receivable ........................................ Office equipment ............................................... Accounts payable ............................................. Unearned revenue ............................................. Aaron Paquette, capital .................................... Aaron Paquette, withdrawals ........................... Consulting revenues......................................... Salaries expense ............................................... Rent expense ..................................................... Utilities expense ................................................ Totals..................................................................
Debit $ 9,100 3,800 22,500
Credit
$ 3,000 6,200 9,500 5,000 50,200 20,000 7,500 1,000 $68,900
$68,900
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Last revised: October 26, 2012
4. Paquette Advisors Income Statement For Two Months Ended February 28, 2014 Revenues: Consulting revenues ..................................... Operating expenses: Salaries expense ............................................ Rent expense ................................................. Utilities expense ............................................ Total operating expenses ........................ Net income ..........................................................
$50,200 $20,000 7,500 1,000
The arrows are imaginary but emphasize the link between statements.
28,500 $21,700
5. Paquette Advisors Statement of Changes in Equity For Two Months Ended February 28, 2014 Aaron Paquette, capital, March 1 ...................... Add: Investments by owner .............................. $ 9,500 Net income ................................................ 21,700 Total ................................................................. Less: Withdrawals by owner ............................. Aaron Paquette, capital, February 28 ...............
$
0
31,200 $31,200 5,000 $26,200
6. Paquette Advisors Balance Sheet February 28, 2014 Assets Cash ....................................... Accounts receivable............. Office equipment ..................
Total assets ...........................
$ 9,100 3,800 22,500
Liabilities Accounts payable ..................... Unearned revenue .................... Total liabilities ...........................
$35,400
Equity Aaron Paquette, capital ............ Total liabilities and equity .....................................
$ 3,000 6,200 $ 9,200
26,200 $35,400
Analysis component: Unearned revenue occurs when cash is received from a customer in advance of the work being done. The collection is not recorded as revenue because it has not been earned until the work is done. Unearned revenue is therefore a liability because the business owes the customer a service (or work). For example, WestJet receives cash from customers in advance of the customer actually flying and records it as advance ticket revenue, a type of unearned revenue. These cash collections are recorded as advance ticket revenue, a liability, because the cash doesn’t belong to WestJet until they have earned it which occurs when the customer takes their flight.
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Last revised: October 26, 2012
Exercise 2-7 (30 minutes) a.
b.
c.
d.
e.
f.
g.
Cash ........................................................................................ Equipment .............................................................................. Automobiles ........................................................................... Jerry Steiner, Capital ..................................................... The owner invested cash, an automobile, and equipment.
7,000 5,600 11,000 23,600
Prepaid Insurance ................................................................. Cash ................................................................................ Purchased insurance coverage in advance.
3,600
Office Supplies ...................................................................... Cash ................................................................................ Purchased supplies with cash.
600
Office Supplies ...................................................................... Equipment .............................................................................. Accounts Payable .......................................................... Purchased supplies and equipment on credit.
200 9,400
Cash ........................................................................................ Delivery Services Revenue ........................................... Received cash from customer for work done.
2,500
Accounts Payable .................................................................. Cash ................................................................................ Made payment on payables.
2,400
Gas and Oil Expense ............................................................. Cash ................................................................................ Paid for gas and oil.
700
3,600
600
9,600
2,500
2,400
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2-26
Last revised: October 26, 2012
Exercise 2-8 (20 minutes) 2014 April 5 Cash ................................................................................... Surgical Revenues .................................................... Performed surgery and collected cash.
4,600 4,600
8 Supplies ............................................................................. Accounts Payable ..................................................... Purchased surgical supplies on credit.
19,000
15 Salaries Expense .............................................................. Cash ........................................................................... Paid salaries.
41,000
20 Accounts Payable ............................................................. Cash ........................................................................... Paid for the credit purchase of April 8.
19,000
19,000
41,000
19,000
21 No entry. 22 Accounts Receivable ........................................................ Surgical Revenues .................................................... Performed six surgeries on credit; $3,800 x 6 = $22,800
22,800
29 Cash ................................................................................... Accounts Receivable ................................................ Collection from four credit customers of April 22; $3,800 x 4 = $15,200.
15,200
30 Utilities Expense ............................................................... Cash ........................................................................... Paid the April utilities.
1,800
22,800
15,200
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Last revised: October 26, 2012
Exercise 2-9 (20 minutes) b.
c.
Accounts Receivable .............................................................. Services Revenue ............................................................ Provided services on credit.
2,700
Cash .......................................................................................... Services Revenue ............................................................ Provided services for cash.
3,150
2,700
3,150
Revenues are inflows of assets (or decreases in liabilities) received in exchange for goods or services provided to customers. The other transactions did not create revenues for the following reasons: a.
This transaction brought in cash, but it was an owner investment in the company.
d.
This transaction brought in cash, but it also created a liability because the services have not yet been provided to the client.
e.
This transaction changed the form of the asset from accounts receivable to cash. Total assets were not increased. Revenue was not generated.
f.
This transaction brought cash into the company and increased assets, but it also increased a liability by the same amount.
Exercise 2-10 (20 minutes) b.
d.
Salaries Expense ................................................................... Cash ................................................................................ Paid the salary of the receptionist.
1,125
Utilities Expense .................................................................... Cash ................................................................................ Paid the utilities bill for the office.
930
1,125
930
Expenses are outflows or using up of assets (or the creation of liabilities) that occur in the process of providing goods or services to customers. The transactions labelled a, c, and e were not expenses for the following reasons: a.
This transaction decreased assets in settlement of a previously existing liability. Thus, the using up of assets did not reduce equity.
c.
This transaction was the purchase of an asset. The form of the company’s assets changed, but total assets did not change, and the equity did not decrease.
e.
This transaction was a distribution of cash to the owner. Even though equity decreased, the decrease did not occur in the process of providing goods or services to customers.
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Last revised: October 26, 2012
Exercise 2-11 (25 minutes) Parts a and b: Date 2013 Dec. 31 2014 Jan. 1 20 31 31 31
Date 2013 Dec. 31 2014 Jan. 12 31
Date 2013 Dec. 31 2014 Jan. 20
Date 2013 Dec. 31 2014 Jan. 20
Date 2013 Dec. 31 2014 Jan. 1
Cash Explanation
PR
Debit
Account No. 101 Credit Balance
Beginning balance
850 G1 G1 G1 G1 G1
Accounts Receivable Explanation
PR
3,500 2,000 5,000 3,000 750
Debit
4,350 2,350 7,350 4,350 3,600
Account No. 106 Credit Balance
Beginning balance
300 G1 G1
Equipment Explanation
PR
9,000 5,000
Debit
Account No. 167 Credit Balance
Beginning balance
1,500 G1
Accounts Payable Explanation
9,300 4,300
PR
12,000
Debit
13,500 Account No. 201 Credit Balance
Beginning balance
325 G1
Jay Walker, Capital Explanation
PR
10,000
Debit
10,325
Account No. 301 Credit Balance
Beginning balance
2,325 G1
3,500
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2-29
Last revised: October 26, 2012
Exercise 2-11 (Parts a and b continued) Date 2013 Dec. 31 2014 Jan. 31
Date 2013 Dec. 31 2014 Jan. 12
Date 2013 Dec. 31 2014 Jan. 31
Jay Walker, Withdrawals Explanation
PR
Debit
Account No. 302 Credit Balance
Beginning balance
Fees Earned Explanation
300 G1
750
PR
Debit
1,050 Account No. 401 Credit Balance
Beginning balance
1,800 G1
Salaries Expense Explanation
PR
9,000
Debit
10,800
Account No. 622 Credit Balance
Beginning balance
1,500 G1
3,000
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2-30
Last revised: October 26, 2012
Exercise 2-11 (Parts a and b continued) Note: After posting the journal entries, the PR column in the General Journal would appear as follows: General Journal Account Titles and Explanations
Date PR 2014 Jan. 1 Cash ..................................................................................... 101 Jay Walker, Capital ..................................................... 301 Additional owner investment.
Debit
Page 1 Credit
3,500 3,500
12 Accounts Receivable .......................................................... 106 Fees Earned ................................................................. 401 Performed work for a customer on account.
9,000
20 Equipment ........................................................................... 167 Cash ............................................................................. 101 Accounts Payable ....................................................... 201 Purchased equipment by paying cash and the balance on credit.
12,000
31 Cash ..................................................................................... 101 Accounts Receivable .................................................. 106 Collected cash from credit customer.
5,000
31 Salaries Expense ................................................................ 622 Cash ............................................................................. 101 Paid month-end salaries.
3,000
31 Jay Walker, Withdrawals .................................................... 302 Cash ............................................................................. 101 Jay Walker withdrew cash for personal use.
750
9,000
2,000 10,000
5,000
3,000
750
Analysis component: All of the details regarding a transaction, such as serial numbers or invoice numbers, form part of the journal entry recorded in the journal and provide a chronological picture of what has happened in the business. The general ledger does not accommodate these kinds of very necessary details. Therefore, we need to journalize to ensure important details are readily available. The general ledger summarizes by account all of the transactions recorded in the journal. For example, without the ledger, we would not be able to determine the balance in cash without going through the journal and adding/subtracting all of the individual transactions. The ledger allows us to have account balance information. In summary, although it appears that journalizing and posting are recording the same information twice, the journal and ledger each serve different and important functions in the accounting system.
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Last revised: October 26, 2012
Exercise 2-12 (25 minutes) Date 2014 Aug. 1
1
5
20
31
General Journal Account Titles and Explanations
PR
Debit
Cash................................................................ Photography Equipment............................... Joseph Eetok, Capital ........................... Investment by owner.
101 167 301
20,000 42,000
Prepaid Rent .................................................. Cash ........................................................ Rented studio space.
131 101
12,000
Office Supplies .............................................. Cash ........................................................ Purchased office supplies.
124 101
1,800
Cash................................................................ Photography Fees Earned .................... Collected photography fees.
101 401
9,200
Utilities Expense............................................ Cash ........................................................ Paid for August utilities.
690 101
1,400
Page G1 Credit
62,000
12,000
1,800
9,200
1,400
Note: The account numbers in the PR column above would be included only during the posting of these journal entries into the ledger accounts in Exercise 2-13.
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Exercise 2-13 (30 minutes) Date 2014 Aug. 1 1 5 20 31
Date 2014 Aug. 5
Date 2014 Aug. 1
Date 2014 Aug. 1
Date 2014 Aug. 1
Date 2014 Aug. 20
Date 2014 Aug. 31
Cash Explanation
Office Supplies Explanation
PR
Debit
G1 G1 G1 G1 G1
20,000
PR
Debit
G1 Prepaid Rent Explanation
PR G1
Photography Equipment Explanation
PR G1
Joseph Eetok, Capital Explanation
PR
12,000 1,800 9,200 1,400
Debit
PR
PR G1
Account No. 131 Credit Balance 12,000 Account No. 167 Credit Balance
42,000
Debit
42,000 Account No. 301 Credit Balance 62,000
Debit
G1 Utilities Expense Explanation
1,800
12,000
Debit
62,000
Account No. 401 Credit Balance 9,200
Debit
20,000 8,000 6,200 15,400 14,000
Account No. 124 Credit Balance
1,800
G1 Photography Fees Earned Explanation
Account No. 101 Credit Balance
9,200
Account No. 690 Credit Balance
1,400
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2-33
Last revised: October 26, 2012
Exercise 2-13 (concluded)
THE PIXEL SHOP Trial Balance August 31, 2014 Acct No. 101 124 131 167 301 401 690
Account Title Cash ........................................... Office supplies .......................... Prepaid rent ............................... Photography equipment ........... Joseph Eetok, capital ............... Photography fees earned ......... Utilities expense ........................ Totals..........................................
Debit $ 14,000 1,800 12,000 42,000
Credit
$62,000 9,200 1,400 $71,200
$71,200
Analysis component: The trial balance is not a financial statement; it is an internal working paper used to verify that debits and credits in the general ledger are equal and to review account balances. The trial balance format does not readily communicate information such as financial performance and financial position, information that is desired by external decision makers. Financial statements are used for external reporting because the formats of these communicate information desired by external users. For example, the income statement reports financial performance while the balance sheet reports financial position.
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Last revised: October 26, 2012
Exercise 2-14 (20 minutes) Aug. 1 20 Bal
Cash 101 20,000 12,000 Aug. 1 9,200 1,800 5 1,400 31 14,000
Photography Equipment Aug. 1 42,000
167
Photography Fees Earned 401 9,200 Aug. 20
Aug. 5
Office Supplies 1,800
124
Prepaid Rent Aug. 1 12,000
Joseph Eetok, Capital 301 62,000 Aug. 1
Utilities Expense Aug. 31 1,400
690
THE PIXEL SHOP Trial Balance August 31, 2014 Acct. No. 101 124 131 167 301 401 690
Account Title Cash ........................................................... Office supplies .......................................... Prepaid rent ............................................... Photography equipment ........................... Joseph Eetok, capital ............................... Photography fees earned ......................... Utilities expense ........................................ Totals ..........................................................
Debit $14,000 1,800 12,000 42,000
Credit
$62,000 9,200 1,400 $71,200
$71,200
Analysis component: The trial balance is an internal working paper used to verify that debits and credits in the general ledger are equal and to review account balances. The trial balance format does not readily communicate information such as financial performance and financial position, information that is desired by external decision makers. Financial statements are used for external reporting because the formats of these communicate information desired by external users. For example, the income statement reports financial performance while the balance sheet reports financial position.
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131
Last revised: October 26, 2012
Exercise 2-15 (20 minutes) Hogan’s Consulting Income Statement For Year Ended December 31, 2014 Revenues: Consulting fees earned ................................. Operating expenses: Wages expense .............................................. Rent expense ................................................. Total operating expenses ........................ Net loss ................................................................
$18,000 $29,000 8,000
Hogan’s Consulting Statement of Changes in Equity For Year Ended December 31, 2014 Lisa Hogan, capital, January 1 .......................... Add: Investments by owner .............................. Total ................................................................. Less: Withdrawals by owner ............................. $2,000 Net loss ...................................................... 19,000 Lisa Hogan, capital, December 31 .....................
37,000 $19,000
$
0 50,000 $50,000 21,000 $29,000
The arrows are imaginary but emphasize the link between statements.
Hogan’s Consulting Balance Sheet December 31, 2014 Assets Cash ........................................... Accounts receivable................. Prepaid rent............................... Machinery ..................................
$18,000 5,200 13,000 57,100
Total assets ...............................
$93,300
Liabilities Accounts payable ............................. $ 17,300 Notes payable .................................... 47,000 Total liabilities ................................... $ 64,300 Equity Lisa Hogan, capital ........................... 29,000 Total liabilities and equity ............................................. $ 93,300
Analysis component:
Losses cause equity to decrease. If equity decreases, either assets have to decrease and/or liabilities must increase to keep the balance sheet in balance. Therefore, if Hogan’s Consulting continues to experience losses, there are two short-term alternatives available to prevent a decrease in assets. First, the business could borrow which would increase liabilities and temporarily increase assets until payments had to be made. Second, Lisa Hogan, the owner, could invest additional assets into the business which would increase equity and assets. However, for the long-term, the owner does not want to support the business through continual investments; the business must be able to support itself through positive performance (net income).
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Exercise 2-16 (20 minutes) JenCo Income Statement For Month Ended March 31, 2014 Revenues: Service revenue .............................................................................. Operating expenses: Salaries expense ............................................................................. Interest expense ............................................................................. Total operating expenses .......................................................... Net income ...........................................................................................
$1,650 $ 800 10 810 $ 840
JenCo Statement of Changes in Equity For Month Ended March 31, 2014 Marie Jensen, capital, March 1 ........................................................... Add: Investment by owner ................................................................. Net income ................................................................................. Total ................................................................................................. Less: Withdrawal by owner ............................................................... Marie Jensen, capital, March 31 .........................................................
$ $2,050 840
0
2,890 $2,890 1,500 $1,390
JenCo Balance Sheet March 31, 2014 Assets Cash ......................................... Accounts receivable ............... Prepaid insurance ................... Equipment ...............................
Total assets .............................
$ 500 1,950 300 700
Liabilities Accounts payable ................................. $ 500 Unearned service revenue ................... 460 Notes payable ........................................ 1,100 Total liabilities .................................. $2,060
$3,450
Equity Marie Jensen, capital ............................ 1,390 Total liabilities and equity .................... $3,450
The arrows are imaginary but emphasize the link between statements.
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Exercise 2-17 (20 minutes) Nanimahoo Marketing Services Income Statement For Month Ended March 31, 2014 Revenues: Fees earned .......................................................................... Operating expenses: Wages expense .................................................................... Office supplies expense ...................................................... Total operating expenses ................................................ Net loss .......................................................................................
$126,000 $146,000 7,000 153,000 $ 27,000
Nanimahoo Marketing Services Statement of Changes in Equity For Month Ended March 31, 2014 Dee Nanimahoo, capital, March 1 ............................................. Add: Investment by owner ....................................................... Total ...................................................................................... Less: Withdrawal by owner ..................................................... Net loss ............................................................................ Dee Nanimahoo, capital, March 31 ...........................................
Assets Cash .............................. Accounts receivable .... Office supplies ............. Building ........................ Land .............................. Machinery ..................... Total assets ..................
$87,000* 35,000 $122,000 $ 18,000 27,000
45,000 $77,000
Nanimahoo Marketing Services Balance Sheet March 31, 2014 Liabilities $ 17,000 Accounts payable .............................. $ 46,000 3,000 Notes payable ..................................... 114,000 3,000 Total liabilities .................................. $ 160,000 80,000 84,000 Equity 50,000 Dee Nanimahoo, capital ....................... 77,000 $237,000 Total liabilities and equity .................... $237,000 The arrows are imaginary but emphasize the link between statements.
*$122,000 March 31/14 Balance - $35,000 invested in March = $87,000 March 1/14 Balance
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Last revised: October 26, 2012
Exercise 2-18 (20 minutes)
Description a. A $2,400 debit to Rent Expense was posted as a $1,590 debit. b. A $42,000 debit to Machinery was posted as a debit to Accounts Payable.
c. A $4,950 credit to Services Revenue was posted as a $495 credit. d. A $1,440 debit to Store Supplies was not posted at all. e. A $2,250 debit to Prepaid Insurance was posted as a debit to Insurance Expense.
f.
A $4,050 credit to Cash was posted twice as two credits to the Cash account. g. A $9,900 debit to the owner’s withdrawals account was debited to the owner’s capital account.
(1) (2) (3) Difference Column Identify Between Debit With the Account(s) and Credit Larger Incorrectly Columns Total Stated $810 Credit Rent Expense $0
—
$4,455
Debit
$1,440
Credit
$0
$4,050
$0
—
Credit
—
(4) Amount That Account(s) is Overstated or Understated Rent Expense is understated by $810 Machinery Machinery is understated by $42,000 and Accounts Accounts Payable Payable is understated by $42,000 Services Services Revenue Revenue is understated by $4,455 Store Store Supplies is Supplies understated by $1,440 Prepaid Prepaid Insurance Insurance is understated by $2,250 and Insurance Expense Insurance is overstated by Expense $2,250 Cash Cash is understated by $4,050 Owner’s Owner’s Capital Capital account is understated by $9,900
Owner’s Withdrawals
Owner’s Withdrawals is understated by $9,900
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Last revised: October 26, 2012
Exercise 2-19 (15 minutes) a. 1. Dr = Cr 2. Accounts Receivable is understated (too low) by $3,500 and Revenue is understated by $3,500. b. 1. Dr = Cr 2. Accounts Payable is overstated (too high) by $600 and Cash is overstated by $600. c. 1. Dr ≠ Cr 2. Cash is overstated by $180. d. 1. Dr ≠ Cr 2. Accounts Receivable is overstated by $750. e. 1. Dr = Cr 2. Accounts Payable is understated by $2,000 and Equipment is understated by $2,000.
Exercise 2-20 (15 minutes) Case A: 1. Subtract total debits in the trial balance from total credits 5,010 – 4,290 = 720 2. Divide the difference by 9 720 ÷ 9 = 80 3. The quotient equals the difference between the two transposed numbers. 80 is the difference between the two transposed numbers. 4. The number of digits in the quotient tells us the location of the transposition. Look for a difference of 8 between the second number from the right and the third number from the right. Through a process of elimination, the incorrect value is Accounts Payable of $190. The correct value must be $910. Proof: Recalculate the trial balance replacing $910 for the incorrect $190 and the trial balance now balances at $5,010.
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Exercise 2-20 (concluded) Case B: 1. Subtract total debits in the trial balance from total credits 34,400 – 28,100 = 6,300 2. Divide the difference by 9 to reveal a slide error 6,300 ÷ 9 = 700 3. The quotient identifies a slide error and equals the correct value. Through a process of elimination, the incorrect value is Withdrawals for $7,000. The correct value must be $700. Proof: Recalculate the trial balance replacing $700 for the incorrect $7,000 and the trial balance now balances at $28,100.
Case C: 1. Subtract total debits in the trial balance from total credits 942 – 906 = 36 2. Divide the difference by 9 36 ÷ 9 = 4 3. The quotient equals the difference between the two transposed numbers. 4 is the difference between the two transposed numbers. 4. The number of digits in the quotient tells us the location of the transposition. Look for a difference of 4 between the first number from the right and the second number from the right. Through a process of elimination, the incorrect value is Cash for $59. The correct value must be $95. Proof: Recalculate the trial balance replacing $95 for the incorrect $59 and the trial balance now balances at $942.
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Last revised: October 26, 2012
PROBLEMS Problem 2-1A (40 minutes) Parts 1 and 2 (a) (g) (n)
Bal
(l) Bal
Cash 100,000 80,000 16,000 3,200 1,900 1,800 4,600 9,300 3,200 3,200 12,600
(c)
(d)
Automobiles 9,000
(b)
(b)
(j)
(o)
Office Equipment 9,000 700 3,000 10,000 21,300
Joel Douglas, Withdrawals 3,200 Fees Earned 16,000 5,100 21,100
Accounts Receivable 5,100 1,900 (n) 3,200 Office Supplies 4,600
(a) (e) (k) Bal.
(b) (f) (h) (j) (k) (m) (o)
Joel Douglas, Capital 109,000 (a) 9,000 (d) 118,000 Bal.
(f) (m) Bal
Wages Expense 3,200| 3,200 6,400
(h)
Utilities Expense 1,800
(g) (l) Bal
(k)
Building 85,000
Land 115,000
Accounts Payable 4,600 4,600 3,000 3,000
(c) (e) Bal
Note: There is no entry for (i) since it is not a transaction.
Long-Term Notes Payable 120,000 (b)
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Problem 2-2A (30 minutes) General Journal Date Account Titles and Explanations 2014 May 1 Equipment ............................................................................ Cash .............................................................................. Notes Payable ............................................................... Purchased new equipment paying cash and signing a 90-day note payable.
Debit
Page 1 Credit
46,000 14,000 32,000
2 Prepaid Insurance ................................................................ Cash .............................................................................. Purchased 12 months of insurance to begin May 2.
24,000
3 Cash ...................................................................................... Design Revenue ........................................................... Completed a fitness contract for a group of customers and collected cash.
6,000
4 Office Supplies ..................................................................... Accounts Payable ........................................................ Purchased office supplies on account.
3,750
6 Accounts Payable ................................................................ Office Supplies ............................................................. Returned defective supplies to supplier.
750
10 Accounts Receivable ........................................................... Fitness Contract Revenue ........................................... Did work for a client today on account.
11,500
15 Accounts Payable ................................................................ Cash .............................................................................. Paid for the May 4 purchase less the return of May 6; $3,750 - $750 return = $3,000.
3,000
20 Cash ...................................................................................... Accounts Receivable ................................................... Received payment from the client of May 10.
11,500
24,000
6,000
3,750
750
11,500
3,000
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11,500
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Last revised: October 26, 2012
Problem 2-2A (concluded) May 25
31
31
31
Cash ...................................................................................... Unearned Revenue ....................................................... Received cash for work to be done in June.
2,500
Salaries Expense ................................................................. Cash .............................................................................. Paid month-end salaries.
47,000
Telephone Expense ............................................................. Cash .............................................................................. Paid the May telephone bill.
2,250
Utilities Expense .................................................................. Accounts Payable (or Utilities Payable) ..................... May electrical bill to be paid June 15.
3,100
2,500
47,000
2,250
3,100
Note: Assume that all entries were journalized on Page 1 of the General Journal.
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Problem 2-3A (90 minutes) Date 2014 Mar. 1
1
3
5
9
11
15
20
General Journal Account Titles and Explanations
PR
Cash .......................................................................... 101 Office Equipment ..................................................... 163 Abe Factor, Capital........................................... 301 Invested cash and equipment to start the business.
Debit
Page 1 Credit
50,000 12,000 62,000
Prepaid Rent ............................................................. Cash ................................................................... Prepaid three months’ rent.
131 101
9,000
Office Equipment ..................................................... Office Supplies ......................................................... Accounts Payable ............................................ Purchased equipment and supplies on credit.
163 124 201
6,000 1,200
Cash .......................................................................... Accounting Fees Earned ................................. Received cash from client for completed work.
101 401
6,200
Accounts Receivable ............................................... Accounting Fees Earned ................................. Billed client for completed work.
106 401
4,000
Accounts Payable .................................................... Cash ................................................................... Paid balance due on accounts payable.
201 101
7,200
Prepaid Insurance ..................................................... Cash .................................................................... Paid annual premium for insurance.
128 101
3,000
Cash .......................................................................... Accounts Receivable ....................................... Collected part of the amount owed by a client.
101 106
1,500
9,000
7,200
6,200
4,000
7,200
3,000
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Last revised: October 26, 2012
Problem 2-3A (concluded) Mar.
22
No entry.
23
Accounts Receivable ............................................... Accounting Fees Earned ................................. Billed client for completed work.
106 401
2,850
Abe Factor, Withdrawals ......................................... Cash ................................................................... Owner’s withdrawal of cash.
302 101
3,600
Office Supplies ......................................................... Accounts Payable ............................................ Purchased supplies.
124 201
650
Utilities Expense ...................................................... Cash ................................................................... Paid monthly utility bill.
690 101
860
27
30
31
2,850
3,600
650
860
Note: The account numbers in the PR column above would be included only when these journal entries are being posted in Problem 3-4A. Assume that all entries were journalized on Page 1 of the General Journal.
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Problem 2-4A (45 minutes) Parts 1 and 2 Cash Date 2014 Mar. 1 1 5 11 15 20 27 31
Date 2014 Mar. 9 20 23
Date 2014 Mar. 3 30
Date 2014 Mar. 15
Date 2014 Mar. 1
Date 2014 Mar. 1 3
Explanation
PR
Debit
G1 G1 G1 G1 G1 G1 G1 G1
50,000
Accounts Receivable Explanation PR G1 G1 G1 Office Supplies Explanation
Prepaid Insurance Explanation
Prepaid Rent Explanation
Office Equipment Explanation
Acct. No. 101 Credit Balance
3,600 860
50,000 41,000 47,200 40,000 37,000 38,500 34,900 34,040
Credit
Acct. No. 106 Balance
9,000 6,200 7,200 3,000 1,500
Debit 4,000 2,850
4,000 2,500 5,350
PR
Debit
Acct. No. 124 Credit Balance
G1 G1
1,200 650
1,200 1,850
PR
Debit
G1
3,000
3,000
PR
Debit
Acct. No. 131 Credit Balance
G1
9,000
9,000
PR
Debit
Acct. No. 163 Credit Balance
G1 G1
12,000 6,000
12,000 18,000
1,500
Credit
Acct. No. 128 Balance
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Problem 2-4A (continued) Date 2014 Mar. 3 11 30
Date 2014 Mar. 1
Date 2014 Mar. 27
Date 2014 Mar. 5 9 23
Date 2014 Mar. 31
Accounts Payable Explanation
Abe Factor, Capital Explanation
PR
Debit
G1 G1 G1
7,200
PR
Debit
Acct. No. 201 Credit Balance 7,200
G1
650
7,200 0 650
Credit
Acct. No. 301 Balance
62,000
62,000
Abe Factor, Withdrawals Explanation PR
Debit
Acct. No. 302 Credit Balance
G1
3,600
3,600
Debit
Acct. No. 401 Credit Balance
Accounting Fees Earned Explanation PR G1 G1 G1 Utilities Expense Explanation
6,200 4,000 2,850
6,200 10,200 13,050
PR
Debit
Acct. No. 690 Credit Balance
G1
860
860
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-48
Last revised: October 26, 2012
Problem 2-4A (concluded) Part 3 X-FACTOR ACCOUNTING Trial Balance March 31, 2014 Acct. No. 101 106 124 128 131 163 201 301 302 401 690
Account Title Cash ................................................................. Accounts receivable ....................................... Office supplies ................................................ Prepaid insurance ........................................... Prepaid rent ..................................................... Office equipment ............................................. Accounts payable ........................................... Abe Factor, capital .......................................... Abe Factor, withdrawals ................................. Accounting fees earned ................................. Utilities expense .............................................. Totals ...............................................................
Debit $34,040 5,350 1,850 3,000 9,000 18,000
Credit
$
650 62,000
3,600 13,050 860 $75,700
$75,700
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-49
Last revised: October 26, 2012
Problem 2-5A (20 minutes) X-FACTOR ACCOUNTING Income Statement For Month Ended March 31, 2014 Revenues: Accounting fees earned .................................. Operating expenses: Utilities expense .............................................. Net income ..........................................................
X-FACTOR ACCOUNTING Statement of Changes in Equity For Month Ended March 31, 2014 Abe Factor, capital, March 1 .............................. Add: Investments by owner .............................. $62,000 Net income ................................................ 12,190 Total ................................................................. Less: Withdrawals by owner ............................. Abe Factor, capital, March 31 ............................
Assets Cash ........................................... Accounts receivable................. Office supplies .......................... Prepaid insurance .................... Prepaid rent............................... Office equipment ...................... Total assets ...........................
$13,050 860 $12,190
$
0 The arrows are imaginary
74,190 74,190 3,600 $70,590
but emphasize the link between statements.
X-FACTOR ACCOUNTING Balance Sheet March 31, 2014 Liabilities $34,040 Accounts payable ............................. $ 650 5,350 1,850 3,000 Equity 9,000 Abe Factor, capital ............................ 70,590 18,000 Total liabilities and $71,240 equity ............................................. $71,240
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-50
Last revised: October 26, 2012
Problem 2-6A (90 minutes) Part 1
Date 2011 May 1
1
2
6
9
10
19
22
25
25
General Journal Account Titles and Explanations
PR
Debit
Cash ................................................................. 101 75,000 Office Equipment ............................................ 163 48,000 Jill Wahpoosywan, Capital ..................... 301 Invested cash and equipment to start the business. Prepaid Rent .................................................... 131 Cash ......................................................... 101 Prepaid three months’ rent.
14,400
Office Equipment ............................................ 163 Office Supplies ................................................ 124 Accounts Payable ................................... 201 Purchased equipment and supplies on credit.
24,000 4,800
Cash ................................................................. 101 Services Revenue ................................... 403 Received cash from client for services performed.
Page 1 Credit
123,000
14,400
28,800 8,000 8,000
Accounts Receivable ...................................... 106 Services Revenue ................................... 403 Billed client for completed work.
16,000
Accounts Payable ........................................... 201 Cash ......................................................... 101 Paid one-half of balance due on accounts payable.
14,400
16,000
14,400
Prepaid Insurance ........................................... 128 Cash ......................................................... 101 Paid annual premium for insurance.
7,500
Cash ................................................................. 101 Accounts Receivable .............................. 106 Collected part of the amount owed by a client.
12,800
Accounts Receivable ...................................... 106 Services Revenue ................................... 403 Billed client for completed work.
5,280
Wages expense ............................................... 623 Cash ......................................................... 101 Paid wage expense.
34,000
7,500
12,800
5,280
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
34,000
2-51
Last revised: October 26, 2012
Problem2-6A, Part 1 (continued) May
31
31
31
Jill Wahpoosywan, Withdrawals .................... 302 Cash ......................................................... 101 Owner withdrew cash.
5,000
Office Supplies ................................................ 124 Accounts Payable ................................... 201 Purchased supplies on credit.
1,600
Utilities Expense ............................................. 690 Cash ......................................................... 101 Paid monthly utility bill.
1,400
5,000
1,600
1,400
Note: Assume that all entries were journalized on Page 1 of the General Journal. Parts 2 and 3 Cash Date 2014 May 1 1 6 10 19 22 25 31 31
Date 2014 May 9 22 25
Date 2014 May
Explanation
Accounts Receivable Explanation
Office Supplies Explanation 2 31
PR
Debit
G1 G1 G1 G1 G1 G1 G1 G1 G1
75,000 14,400 8,000 14,400 7,500 12,800 34,000 5,000 1,400
PR
Debit
G1 G1 G1
16,000
PR G1 G1
Acct. No. 101 Credit Balance
Acct. No. 106 Credit Balance
12,800 5,280
Debit
75,000 60,600 68,600 54,200 46,700 59,500 25,500 20,500 19,100
16,000 3,200 8,480
Acct. No. 124 Credit Balance
4,800 1,600
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
4,800 6,400
2-52
Last revised: October 26, 2012
Problem 2-6A (continued) Parts 2 and 3 Prepaid Insurance Explanation
Date 2014 May 19
PR G1
Debit 7,500
Prepaid Rent Date 2014 May 1
Date 2014 May 1 2
Date 2014 May 2 10 31
Date 2014 May 1
Date 2014 May 31
Date 2014 May 6 9 25 Date 2014 May 25
Explanation
Office Equipment Explanation
PR
Debit
G1
14,400
PR G1 G1
Accounts Payable Explanation
PR G1 G1 G1
Jill Wahpoosywan, Capital Explanation PR
Debit
G1 Services Revenue Explanation
PR
Debit
Acct. No. 131 Credit Balance 14,400 Acct. No. 163 Credit Balance 48,000 72,000 Acct. No. 201 Credit Balance 28,800
14,400 1,600
Debit
Debit
5,000 Acct. No. 403 Credit Balance 8,000 16,000 5,280
PR
Debit
G1
34,000
123,000
Acct. No. 302 Credit Balance
5,000
Debit
28,800 14,400 16,000
Acct. No. 301 Credit Balance 123,000
G1 G1 G1 Wages Expense Explanation
7,500
48,000 24,000
G1 Jill Wahpoosywan, Withdrawals Explanation PR
Acct. No. 128 Credit Balance
8,000 24,000 29,280
Acct. No. 623 Credit Balance
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
34,000
2-53
Last revised: October 26, 2012
Problem 2-6A (continued) Parts 2 and 3 Date 2014 May 31
Utilities Expense Explanation
PR G1
Debit
Acct. No. 690 Credit Balance
1,400
1,400
Part 4 TECHNO WIZARDS Trial Balance May 31, 2014 Acct. No. 101 106 124 128 131 163 201 301 302 403 623 690
Account Title
Debit
Cash.......................................................... Accounts receivable ............................... Office supplies......................................... Prepaid insurance ................................... Prepaid rent ............................................. Office equipment ..................................... Accounts payable.................................... Jill Wahpoosywan, capital ...................... Jill Wahpoosywan, withdrawals............. Services revenue ..................................... Wages expense…………………………… Utilities expense ...................................... Totals ........................................................
$ 19,100 8,480 6,400 7,500 14,400 72,000
Credit
$ 16,000 123,000 5,000 29,280 34,000 1,400 $168,280
$168,280
Analysis component: Equity represents how much of Techno Wizards’ assets belong to the owner, Jill Wahpoosywan. Services Revenue is an equity account because as revenues are realized, the business’s net worth (assets – liabilities, or equity) increases either through the receipt of an asset (cash or accounts receivable) or satisfying a liability (unearned revenues). Utilities Expense is an equity account because as expenses are realized, net worth (what belongs to the owner) decreases either through the use of an asset (such as prepaid insurance) or increase in a liability (such as rent payable). Jill Wahpoosywan, Withdrawals is an equity account because as the owner withdraws assets, Jill Wahpoosywan’s equity in the business (what belongs to the owner) decreases. The owner’s objective is for the business to generate sufficient revenues to cover all expenses, provide sufficient assets for the purpose of withdrawals, and at the same time maintain or preferably increase equity (because excess revenues remained after deducting expenses and withdrawals).
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Problem 2-7A TECHNO WIZARDS Income Statement For Month Ended May 31, 2014 Revenues: Service revenue .................................................. Operating expenses: Wages expense ................................................ Utilities expense .............................................. Total operating expenses ............................. Net loss ................................................................
$29,280 $34,000 1,400
TECHNO WIZARDS Statement of Changes in Equity For Month Ended May 31, 2014 Jill Wahpoosywan, capital, May 1 ..................... Add: Investments by owner…………………….. Less: Withdrawals by owner .............................. $5,000 Net loss ...................................................... 6,120 Jill Wahpoosywan, capital, May 31 ...................
35,400 $ 6,120
$
0 123,000
11,120 $111,880
The arrows are imaginary but emphasize the link between statements.
TECHNO WIZARDS Balance Sheet May 31, 2014 Assets Cash ........................................... Accounts receivable................. Office supplies .......................... Prepaid insurance .................... Prepaid rent............................... Office equipment ...................... Total assets ...........................
$ 19,100 8,480 6,400 7,500 14,400 72,000 $127,880
Liabilities Accounts payable ............................. $ 16,000
Equity Jill Wahpoosywan, capital................ 111,880 Total liabilities and equity ............................................. $127,880
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-55
Last revised: October 26, 2012
Problem 2-8A (25 minutes) WILDCAT OPTICIANS Income Statement For Month Ended May 31, 2014 Revenues: Service revenue .................................................. Operating expenses: Wages expense ................................................ Rent expense …………………………………… Utilities expense .............................................. Total operating expenses ............................. Net income ..........................................................
$25,280 $15,000 4,300 1,400
WILDCAT OPTICIANS Statement of Changes in Equity For Month Ended May 31, 2014 Bo Wildcat, capital, May 1 .................................. Add: Owner investment .................................... $ 56,300 Net income ................................................ 4,580 Total ................................................................. Less: Withdrawals by owner ............................. Bo Wildcat, capital, May 31 ................................
20,700 $ 4,580
$
-0-
60,880 $60,880 1,480 $59,400
The arrows are imaginary but emphasize the link between statements.
WILDCAT OPTICIANS Balance Sheet May 31, 2014 Assets Cash ........................................... Accounts receivable................. Office supplies .......................... Prepaid insurance .................... Office equipment ......................
Total assets ...........................
$18,500 8,480 6,400 9,820 25,600
$68,800
Liabilities Accounts payable ............................. $ 1,600 Unearned service revenue ............... 7,800 Total liabilities ................................... $ 9,400
Equity Bo Wildcat, capital ............................ 59,400 Total liabilities and equity ............................................. $68,800
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-56
Last revised: October 26, 2012
Analysis component: 2014 May 31 Utilities Expense .......................................................... Cash .................................................................... Paid the May utilities. 31
Utilities Expense .......................................................... Accounts Payable .............................................. Received the May utility bill which will be paid next month.
1,400 1,400
1,400 1,400
Problem 2-9A (90 minutes) Part 1 Date 2014 July
General Journal Account Titles and Explanations 1
2
3
5
7
9
10
PR
Debit
Cash ............................................................... Office Equipment .......................................... Drafting Equipment ....................................... Bishr Binbutti, Capital ........................... Investment by owner.
101 163 167 301
300,000 12,000 90,000
Land ................................................................ Cash ........................................................ Long-Term Notes Payable .................... Purchased land.
183 101 251
108,000
Building .......................................................... Cash ........................................................ Purchased a building.
173 101
150,000
Prepaid Insurance ......................................... Cash ........................................................ Purchased two one-year insurance policies.
128 101
12,000
Cash ............................................................... Engineering Fees Earned ..................... Completed services for cash.
101 401
1,400
Drafting Equipment ....................................... Cash ........................................................ Long-Term Notes Payable .................... Purchased drafting equipment.
167 101 251
45,000
Accounts Receivable .................................... Engineering Fees Earned ..................... Completed services on credit.
106 401
4,000
Page 1 Credit
402,000
10,800 97,200
150,000
12,000
1,400
21,000 24,000
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
4,000
2-57
Last revised: October 26, 2012
Problem 2-9A (continued) July
12
15
16
17
19
22
25
26
30
31
Office Equipment .......................................... Accounts Payable ................................. Purchased office equipment on credit.
163 201
4,500
Accounts Receivable .................................... Engineering Fees Earned ..................... Completed services on credit.
106 401
7,000
Equipment Rental Expense .......................... Accounts Payable ................................. Equipment rental to be paid in 30 days.
645 201
13,800
Cash ............................................................... Accounts Receivable ............................ Collection from credit customer.
101 106
400
Wages Expense ............................................. Cash ........................................................ Paid drafting assistants.
623 101
12,000
Accounts Payable ......................................... Cash ........................................................ Paid July 12 transaction.
201 101
4,500
Repairs Expense ........................................... Cash ........................................................ Paid for repairs on drafting equipment.
684 101
1,350
Bishr Binbutti, Withdrawals ......................... Cash ........................................................ Owner withdrawal.
302 101
800
Wages Expense ............................................. Cash ........................................................ Paid drafting assistants.
623 101
12,000
Advertising Expense ..................................... Cash ........................................................ Paid for advertising in local newspaper.
655 101
6,000
4,500
7,000
13,800
400
12,000
4,500
1,350
800
12,000
6,000
Note: Assume all entries were journalized on Page 1 of the General Journal.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-58
Last revised: October 26, 2012
Problem 2-9A (continued) Parts 2 and 3 Date 2014 June 30 July 1 2 3 5 7 9 17 19 22 25 26 30 31
Date 2014 June 30 July 10 15 17
Date 2014 June 30 July 5
Date 2014 June 30 July 1 12
Cash Explanation
PR
Debit
Account No. 101 Credit Balance
Beginning balance
Accounts Receivable Explanation
G1 G1 G1 G1 G1 G1 G1 G1 G1 G1 G1 G1 G1
300,000
PR
Debit
10,800 150,000 12,000 1,400 21,000 400 12,000 4,500 1,350 800 12,000 6,000
Credit
Account No. 106 Balance
Beginning balance G1 G1 G1 Prepaid Insurance Explanation
4,000 7,000 400
3,000 7,000 14,000 13,600
PR
Debit
Account No. 128 Credit Balance
G1
12,000
500 12,500
PR
Debit
Account No. 163 Credit Balance
G1 G1
12,000 4,500
1,700 13,700 18,200
Beginning balance
Office Equipment Explanation
26,000 326,000 315,200 165,200 153,200 154,600 133,600 134,000 122,000 117,500 116,150 115,350 103,350 97,350
Beginning balance
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Problem 2-9A (continued) Parts 2 and 3 (continued) Date 2014 June 30 July 1 9
Date 2014 June 30 July 3
Date 2014 June 30 July 2
Date 2014 June 30 July 12 16 22
Date 2014 June 30 July 2 9
Date 2014 June 30 July 1
Drafting Equipment Explanation
Debit
Account No. 167 Credit Balance
90,000 45,000
1,200 91,200 136,200
PR
Debit
Account No. 173 Credit Balance
G1
150,000
PR
Beginning balance G1 G1 Building Explanation Beginning balance
Land Explanation
PR
Debit
42,000 192,000 Account No. 183 Credit Balance
Beginning balance
Accounts Payable Explanation
G1
108,000
PR
Debit
28,000 136,000
Credit
Account No. 201 Balance
Beginning balance G1 G1 G1 Long-Term Notes Payable Explanation
PR
4,500
1,740 6,240 20,040 15,540
Debit
Account No. 251 Credit Balance
4,500 13,800
Beginning balance G1 G1 Bishr Binbutti, Capital Explanation
PR
97,200 24,000
Debit
Credit
Account No. 301 Balance
Beginning balance G1
24,000 121,200 145,200
402,000
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
54,000 456,000
2-60
Last revised: October 26, 2012
Problem 2-9A (continued) Parts 2 and 3 (continued) Date 2014 June 30 July 26
Date 2014 June 30 July 7 10 15
Date 2014 June 30 July 19 30
Date 2014 June 30 July 16
Date 2014 June 30 July 31
Date 2014 June 30 July 25
Bishr Binbutti, Withdrawals Explanation
PR
Debit
Account No. 302 Credit Balance
Beginning balance
Engineering Fees Earned Explanation
G1
800
PR
Debit
1,000 1,800
Credit
Account No. 401 Balance
Beginning balance G1 G1 G1 Wages Expense Explanation
1,400 4,000 7,000
PR
Debit
G1 G1
12,000 12,000
PR
Debit
Account No. 623 Credit Balance
Beginning balance
Equipment Rental Expense Explanation
4,000 16,000 28,000
Credit
Account No. 645 Balance
Beginning balance G1 Advertising Expense Explanation
PR
1,000 14,800
13,800
Debit
Account No. 655 Credit Balance
Beginning balance G1 Repairs Expense Explanation
PR
640 6,640
6,000
Debit
Account No. 684 Credit Balance
Beginning balance G1
29,600 31,000 35,000 42,000
1,350
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
300 1,650
2-61
Last revised: October 26, 2012
Problem 2-9A (concluded) Part 4 BINBUTTI ENGINEERING Trial Balance July 31, 2014 Acct. No. 101 106 128 163 167 173 183 201 251 301 302 401 623 645 655 684
Account Title Cash ..................................................................... Accounts receivable ........................................... Prepaid insurance ............................................... Office equipment ................................................. Drafting equipment ............................................. Building ................................................................ Land...................................................................... Accounts payable ............................................... Long-term notes payable ................................... Bishr Binbutti, capital ......................................... Bishr Binbutti, withdrawals ................................ Engineering fees earned .................................... Wages expense ................................................... Equipment rental expense ................................. Advertising expense ........................................... Repairs expense.................................................. Totals....................................................................
Debit $ 97,350 13,600 12,500 18,200 136,200 192,000 136,000
Credit
$ 15,540 145,200 456,000 1,800 42,000 28,000 14,800 6,640 1,650 $658,740
$658,740
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-62
Last revised: October 26, 2012
Problem 2-10A (25 minutes) BINBUTTI ENGINEERING Income Statement For Three Months Ended July 31, 2014 Revenues: Engineering fees earned .................................... Operating expenses: Wages expense ................................................ Equipment rental expense .............................. Advertising expense ........................................ Repairs expense .............................................. Total operating expenses ............................ Net loss ................................................................
$42,000 $28,000 14,800 6,640 1,650
BINBUTTI ENGINEERING Statement of Changes in Equity For Three Months Ended July 31, 2014 Bishr Binbutti, capital, May 1 ............................. Add: Investments by owner .............................. Total ................................................................. Less: Withdrawals by owner ............................. $1,800 Net loss ..................................................... 9,090 Bishr Binbutti, capital, July 31 ..........................
Assets Cash ........................................... Accounts receivable................. Prepaid insurance .................... Office equipment ...................... Drafting equipment................... Building ..................................... Land ........................................... Total assets ...........................
51,090 $ 9,090
$
0 456,000 456,000
10,890 $445,110
The arrows are imaginary but emphasize the link between statements.
BINBUTTI ENGINEERING Balance Sheet July 31, 2014 Liabilities $ 97,350 Accounts payable ............................. $ 15,540 13,600 Long-term notes payable ................. 145,200 12,500 Total liabilities ................................ 160,740 18,200 136,200 Equity 192,000 Bishr Binbutti, capital ....................... 445,110 136,000 Total liabilities and $605,850 equity ............................................. $605,850
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Problem 2-11A (45 minutes) Part 1 Date 2014 July
General Journal Account Titles and Explanations 1
2
3
4
5
15
20
31
PR
Debit
Supplies ......................................................... Accounts Payable ............................... Purchased supplies on account.
126 201
100
Cash ............................................................... Unearned Teaching Revenue ............... Collected teaching fees for August.
101 233
4,000
Cash ............................................................... Teaching Revenue .............................. Collected teaching fees for July.
101 401
2,000
Rent Expense ................................................ Cash ........................................................ Paid July rent.
640 101
3,000
Accounts Payable ......................................... Cash ..................................................... Paid for supplies purchased on account.
201 101
500
Ted Ng, Withdrawals ..................................... Cash ........................................................ The owner withdrew cash.
302 101
500
Wages Expense ............................................. Cash ..................................................... Paid wages.
623 101
1,300
Furniture ........................................................ Accounts Payable ............................... Purchased a new chair on account.
161 201
300
Page 1 Credit
100
4,000
2,000
3,000
500
500
1,300
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
300
2-64
Last revised: October 26, 2012
Problem 2-11A (continued) Parts 2 and 3 Bal. Jul. 2 3
Bal.
Cash 6,000 4,000 3,000 2,000 500 500 1,300 6,700
101 Jul. 4 Jul. 5 Jul. 15 Jul. 20
Unearned Teaching Rev 233 9,800 Bal. 4,000 Jul. 2 13,800 Bal.
Wages Expense Bal. 26,350 Jul. 20 1,300 Bal. 27,650
623
Bal. Jul. 1 Bal.
Supplies 950 100 1,050
126 Bal. Jul. 31 Bal.
Ted Ng, Capital 301 3,000 Bal.
Rent Expense Bal. 6,000 Jul. 4 3,000 Bal. 9,000
Furniture 161 8,000 300 8,300
Ted Ng, Withdrawals Bal. 13,000 Jul. 15 500 Bal. 13,500
302
Accounts Payable 1,500 Jul. 5 500 100 300 1,400
201 Bal. Jul. 1 Jul. 31 Bal.
Teaching Revenue 401 46,000 Bal. 2,000 Jul. 3 48,000 Bal.
640
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-65
Last revised: October 26, 2012
Problem 2-11A (continued) Part 4 NG’S ENGLISH SCHOOL Trial Balance July 31, 2014 Acct. No. 101 126 161 201 233 301 302 401 623 640
Account Title Cash ................................................................. Supplies ........................................................... Furniture .......................................................... Accounts payable ........................................... Unearned teaching revenue ........................... Ted Ng, capital ................................................ Ted Ng, withdrawals ....................................... Teaching revenue ........................................... Wages expense ............................................... Rent expense ................................................... Totals ...............................................................
Debit $ 6,700 1,050 8,300
Credit
$ 1,400 13,800 3,000 13,500 48,000 27,650 9,000 $66,200
$66,200
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-66
Last revised: October 26, 2012
Problem 2-11A (concluded) Part 5 NG’S ENGLISH SCHOOL Income Statement For Three Months Ended July 31, 2014 Teaching revenue ............................................... Operating expenses: Wages expense ................................................ Rent expense ................................................... Total operating expenses ............................. Net income ..........................................................
$48,000 $27,650 9,000
NG’S ENGLISH SCHOOL Statement of Changes in Equity For Three Months Ended July 31, 2014 Ted Ng, capital, May 1 ........................................ Add: Owner investment .................................... $ 3,000 Net income ................................................ 11,350 Total ................................................................. Less: Withdrawals by owner ............................. Ted Ng, capital, July 31 ......................................
36,650 $11,350
$
-0-
14,350 $14,350 13,500 $ 850
The arrows are imaginary but emphasize the link between statements.
NG’S ENGLISH SCHOOL Balance Sheet July 31, 2014 Assets Cash ........................................... Supplies..................................... Furniture ....................................
$ 6,700 1,050 8,300
Total assets ...........................
$16,050
Liabilities Accounts payable ............................. $ 1,400 Unearned teaching revenue ............. 13,800 Total liabilities ................................... $15,200 Equity Ted Ng, capital................................... 850 Total liabilities and equity ............................................. $16,050
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-67
Last revised: October 26, 2012
Problem 2-12A (25 minutes) FELINE PET CARE Income Statement For Year Ended July 31, 2014 Revenues: Fees earned ......................................................... Operating expenses: Wages expense ................................................ Equipment rental expense .............................. Pet food expense ............................................ Advertising expense ........................................ Total operating expenses ............................ Net loss ................................................................
$117,000 $58,000 34,000 17,800 9,200
FELINE PET CARE Statement of Changes in Equity For Year Ended July 31, 2014 Betty Lark, capital, August 1 ............................. Add: Investments by owner .............................. Total ................................................................. Less: Withdrawals by owner ............................. $ 5,000 Net loss ..................................................... 2,000 Betty Lark, capital, July 31 .................................
119,000 $ 2,000
$
0 292,760 292,760
7,000 $285,760
The arrows are imaginary but emphasize the link between statements.
FELINE PET CARE Balance Sheet July 31, 2014 Assets Cash ........................................... Accounts receivable................. Prepaid insurance .................... Equipment ................................. Building ..................................... Land ...........................................
$ 23,000 11,600 12,500 18,200 192,000 136,000
Total assets ...........................
$393,300
Liabilities Accounts payable ............................. $ 15,540 Unearned fees ...................................92,000 Total liabilities ................................ 107,540 Equity Betty Lark, capital ............................. 285,760 Total liabilities and equity ............................................. $393,300
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-68
Last revised: October 26, 2012
Problem 2-12A (concluded)
Analysis component: 2014 July 31 Cash .............................................................................. Fees Earned ........................................................ Received cash for completing work for clients. 31
Accounts Receivable ................................................... Fees Earned ........................................................ Completed work for clients on account.
117,000 117,000
117,000 117,000
Problem 2-13A (15 minutes) Wilm’s Window Washing Services Trial Balance January 31, 2014 Cash (11,600 + 2,800b – 4,400d) ....................................... Accounts receivable (9,240 – 2,800b + 3,600c) ............... Prepaid insurance ............................................................ Equipment (24,000 + 4,000a) ............................................ Accounts payable (5,400 + 4,000a) .................................. Wilm Schmidt, capital ...................................................... Wilm Schmidt, withdrawals ............................................. Service revenues (60,400 + 3,600e) ................................. Salaries expense .............................................................. Insurance expense ........................................................... Maintenance expense (13,000 + 3,600e).......................... Utilities expense ............................................................... Totals .................................................................................
Debit $ 10,000 10,040 2,400 28,000
Credit
$ 9,400 45,000 8,960 64,000 32,000 5,200 16,600 5,200 $118,400
$118,400
Note: The superscripts (a) to (e) are references to items (a) to (e) listed in Problem 213A.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-69
Last revised: October 26, 2012
ALTERNATE PROBLEMS Problem 2-1B (40 minutes) Parts 1 and 2
(a) (g) (m)
Balance
(k) Balance
(b) (f) (h) (i) (j) (l) (n)
Land 268,000
(b)
Accounts Payable 600 600 4,600 4,600
(i)
Accounts Receivable 2,400 1,000 (m) 1,400
Automobiles 7,000
(d)
(a) (e) (j) Balance
Office Equipment 24,000 1,600 4,600 4,000 31,000 Building 66,000
(c) (e) Balance
Long-Term Notes Payable 304,000 (b) Trevor Peeters, Capital 70,000 (a) 7,000 (d) 77,000 Balance
Office Supplies 600
(c)
(b)
Cash 46,000 30,000 2,700 1,800 1,000 1,430 600 2,400 1,800 1,050 10,620
(n)
Trevor Peeters, Withdrawals 1,050 Fees Earned 2,700 2,400 5,100
(j)
(f) (l) Balance
Salaries Expense 1,800 1,800 3,600
(h)
Utilities Expense 1,430
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
(g) (k) Balance
2-70
Last revised: October 26, 2012
Problem 2-2B Date 2014 March
General Journal Accounts Titles and Explanations 1
1
Debit
Building ................................................................................. Cash ............................................................................... Note Payable ................................................................. Purchased new portable building paying cash and signing a five-year note payable.
375,000
Prepaid Insurance ................................................................ Cash ............................................................................... Purchased six months of insurance to begin March 1.
5,700
75,000 300,000
5,700
2
No entry.
4
Cleaning Supplies ................................................................ Accounts Payable ........................................................ Purchased cleaning supplies on account.
450
Accounts Payable ................................................................ Cash ............................................................................... Paid for the March 4 purchase.
450
Accounts Receivable ........................................................... Advertising Revenue (or other revenue account) ..... Performed work for a client on account.
35,000
Cash ...................................................................................... Unearned Revenue ....................................................... Collected cash from a customer for work to be done in April.
8,000
Hotel Expense or Travel Expense ...................................... Cash ............................................................................... Paid for a hotel regarding a business meeting.
240
15
19
20
28
Page 1 Credit
450
450
35,000
8,000
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
240
2-71
Last revised: October 26, 2012
Problem 2-2B (concluded) March
29
30
30
30
Cash ...................................................................................... Advertising Revenue (or other revenue account) ..... Provided advertising services and collected cash.
5,000
Salaries Expense .................................................................. Cash ............................................................................... Paid month-end salaries.
25,600
Telephone Expense ............................................................. Accounts Payable ....................................................... March telephone bill to be paid on April 14.
1,300
Cash ...................................................................................... Accounts Receivable ................................................... Collected half of the amount owed by the customer of March 19.
17,500
5,000
25,600
1,300
17,500
Note: Assume all entries were journalized on Page 1 of the General Journal.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-72
Last revised: October 26, 2012
Problem 2-3B (60 minutes) Date 2014 Sept.
General Journal Account Titles and Explanations 1
1
2
4
8
10
14
15
PR
Debit
Cash .............................................................. Office Equipment ......................................... Susan Hurley, Capital .......................... Investment by owner.
101 163 301
20,000 9,200
Prepaid Rent ................................................. Cash ....................................................... Paid two months’ rent.
131 101
5,600
Office Supplies ............................................. Office Equipment ......................................... Accounts Payable ................................ Purchased items on credit.
124 163 201
1,380 3,800
Cash .............................................................. Accounting Fees Earned ..................... Sold accounting services for cash.
101 401
2,900
Accounts Receivable ................................... Accounting Fees Earned ..................... Sold accounting services on credit.
106 401
5,080
Accounts Payable ........................................ Cash ....................................................... Paid for credit purchase.
201 101
5,180
Prepaid Insurance ........................................ Cash ...................................................... Paid insurance premium.
128 101
3,300
Professional Development Expense ..........
680
1,250
Cash ...................................................... Paid for seminar.
101
Page 1 Credit
29,200
5,600
5,180
2,900
5,080
5,180
3,300
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
1,250
2-73
Last revised: October 26, 2012
Problem 2-3B (concluded) Sept.
18
Cash .............................................................. Accounts Receivable ........................... Received cash from credit customer.
101 106
5,080 5,080
20
No entry.
24
Accounts Receivable ................................... Accounting Fees Earned ..................... Sold accounting services on credit.
106 401
5,000
Susan Hurley, Withdrawals ......................... Cash ....................................................... Owner withdrew cash.
302 101
2,500
Office Supplies ............................................. Accounts Payable ................................ Purchased supplies on credit.
124 201
450
Utilities Expense .......................................... Cash ....................................................... Paid utilities bill.
690 101
1,750
28
29
30
5,000
2,500
450
1,750
Note: The account numbers in the PR column above would be included only when these journal entries are being posted in Problem 2-4B. Assume that all entries were journalized on Page 1 of the General Journal.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-74
Last revised: October 26, 2012
Problem 2-4B Parts 1 and 2 Cash Date 2014 Sept.
Explanation 1 1 4 10 14 15 18 28 30
Date 2014 Sept. 8 18 24
Date 2014 Sept. 2 29
Date 2014 Sept.
Date 2014 Sept. 1 2
Debit
G1 G1 G1 G1 G1 G1 G1 G1 G1
20,000
Accounts Receivable Explanation PR G1 G1 G1 Office Supplies Explanation
PR G1 G1
20,000 14,400 17,300 12,120 8,820 7,570 12,650 10,150 8,400
5,600 2,900 5,180 3,300 1,250 5,080 2,500 1,750
Debit
Acct. No. 106 Credit Balance
5,080
5,080 0 5,000
5,080 5,000
Debit
Acct. No. 124 Credit Balance
1,380 450
1,380 1,830
Prepaid Insurance Explanation PR
Debit
Acct. No. 128 Credit Balance
G1
3,300
3,300
PR
Debit
Acct. No. 131 Credit Balance
G1
5,600
5,600
PR
Debit
G1 G1
9,200 3,800
14
Date 2014 Sept. 1
PR
Acct. No. 101 Credit Balance
Prepaid Rent Explanation
Office Equipment Explanation
Credit
Acct. No. 163 Balance
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
9,200 13,000
2-75
Last revised: October 26, 2012
Problem 2-4B (continued) Parts 1 and 2 Date 2014 Sept. 2 10 29
Date 2014 Sept. 1
Date 2014 Sept. 28
Date 2014 Sept. 4 8 24
Date 2014 Sept. 15
Date 2014 Sept. 30
Accounts Payable Explanation
PR G1 G1 G1
Susan Hurley, Capital Explanation PR
Debit
Acct. No. 201 Credit Balance 5,180
5,180 0 450
5,180 450
Debit
G1
Acct. No. 301 Credit Balance 29,200
29,200
Susan Hurley, Withdrawals Explanation PR
Debit
Acct. No. 302 Credit Balance
G1
2,500
2,500
Accounting Fees Earned Explanation PR
Debit
G1 G1 G1 Professional Development Expense Explanation PR Debit
Utilities Expense Explanation
G1
1,250
PR
Debit
G1
1,750
Credit
Acct. No. 401 Balance
2,900 5,080 5,000
2,900 7,980 12,980
Acct. No. 680 Credit Balance 1,250
Credit
Acct. No. 690 Balance
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
1,750
2-76
Last revised: October 26, 2012
Problem 2-4B (concluded) Part 3 SUSAN HURLEY, PUBLIC ACCOUNTANT Trial Balance September 30, 2014 Acct. No. 101 106 124 128 131 163 201 301 302 401 680 690
Account Title Cash ........................................................................ Accounts receivable .............................................. Office supplies ....................................................... Prepaid insurance .................................................. Prepaid rent ............................................................ Office equipment .................................................... Accounts payable .................................................. Susan Hurley, capital ............................................. Susan Hurley, withdrawals ................................... Accounting fees earned ........................................ Professional development expense ..................... Utilities expense ..................................................... Totals ......................................................................
Debit $ 8,400 5,000 1,830 3,300 5,600 13,000
Credit
$
450 29,200
2,500 12,980 1,250 1,750 $42,630
$42,630
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-77
Last revised: October 26, 2012
Problem 2-5B (25 minutes) SUSAN HURLEY, PUBLIC ACCOUNTANT Income Statement For Month Ended September 30, 2014 Revenues: Accounting fees earned ..................................... Operating expenses: Utilities expense .............................................. Professional development expense ............... Total operating expenses ............................ Net income ..........................................................
$12,980 $1,750 1,250 3,000 $ 9,980
SUSAN HURLEY, PUBLIC ACCOUNTANT Statement of Changes in Equity For Month Ended September 30, 2014 Susan Hurley, capital, September 1 .................. Add: Investments by owner ............................. Net income ............................................... Total ................................................................. Less: Withdrawals by owner ............................. Susan Hurley, capital, September 30 ................
The arrows are imaginary but emphasize the
$ $29,200 9,980
link between
0
statements.
39,180 $39,180 2,500 $36,680
SUSAN HURLEY, PUBLIC ACCOUNTANT Balance Sheet September 30, 2014 Assets Liabilities Cash ........................................... $ 8,400 Accounts payable .............................$ 450 Accounts receivable................. 5,000 Office supplies .......................... 1,830 Prepaid insurance .................... 3,300 Equity Prepaid rent............................... 5,600 Susan Hurley, capital ........................ 36,680 Office equipment ...................... 13,000 Total liabilities and Total assets ........................... $37,130 equity ..............................................$37,130
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-78
Last revised: October 26, 2012
Problem 2-6B (90 minutes) Part 1 Date 2014 Nov.
General Journal Account Titles and Explanations 1
2
4
8
12
13
19
22
24
Debit
Cash ................................................................. 101 Office Equipment ............................................ 163 Tait Unger, Capital .................................. 301 Owner invested in the business.
62,000 19,000
Prepaid Rent .................................................... 131 Cash ......................................................... 101 Prepaid three months’ rent.
21,000
Office Equipment ............................................ 163 Office Supplies ................................................ 124 Accounts Payable ................................... 201 Purchased equipment and supplies on credit.
9,000 1,650
Cash ................................................................. 101 Service Fees Earned ............................... 401 Received cash from client for completed work.
5,200
Accounts Receivable ...................................... 106 Service Fees Earned ............................... 401 Billed client for completed work.
4,800
Accounts Payable ........................................... 201 Cash ......................................................... 101 Paid balance due on accounts payable.
10,650
Prepaid Insurance ........................................... 128 Cash ......................................................... 101 Paid annual premium for insurance.
3,750
Cash ................................................................. 101 Accounts Receivable .............................. 106 Collected part of the amount owed by a client.
2,000
Accounts Receivable ...................................... 106 Service Fees Earned ............................... 401 Billed client for completed work.
3,600
Page 1 Credit
81,000
21,000
10,650
5,200
4,800
10,650
3,750
2,000
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
3,600
2-79
Last revised: October 26, 2012
Problem 2-6B (continued) Part 1 Nov.
28
29
30
30
Tait Unger, Withdrawals ................................. 302 Cash ......................................................... 101 Owner withdrew cash for personal use.
5,300
Office Supplies ................................................ 124 Accounts Payable ................................... 201 Purchased supplies on credit.
1,700
Wages Expense............................................... 680 Cash ......................................................... 101 Paid wages.
19,000
Utilities Expense ............................................. 690 Cash ......................................................... 101 Paid monthly utility bill.
1,650
5,300
1,700
19,000
1,650
Note: Assume all entries were journalized on Page 1 of the General Journal.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-80
Last revised: October 26, 2012
Problem 2-6B (continued) Parts 2 and 3 Date 2014 Nov. 1 2 8 13 19 22 28 30 30
Date 2014 Nov. 12 22 24
Date 2014 Nov. 4 29
Date 2014 Nov. 19
Date 2014 Nov. 2
Cash Explanation
Accounts Receivable Explanation
PR
Debit
G1 G1 G1 G1 G1 G1 G1 G1 G1
62,000
PR G1 G1 G1
Office Supplies Explanation
PR G1 G1
Prepaid Insurance Explanation
PR G1
Prepaid Rent Explanation
Acct. No. 101 Credit Balance
21,000 5,200 10,650 3,750 2,000 5,300 19,000 1,650
Debit
Acct. No. 106 Credit Balance
4,800 2,000 3,600
Debit
1,650 3,350
Acct. No. 128 Credit Balance
3,750
PR
Debit
G1
21,000
4,800 2,800 6,400
Acct. No. 124 Credit Balance
1,650 1,700
Debit
62,000 41,000 46,200 35,550 31,800 33,800 28,500 9,500 7,850
3,750 Acct. No. 131 Credit Balance
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
21,000
2-81
Last revised: October 26, 2012
Problem 2-6B (continued) Parts 2 and 3 Date 2014 Nov. 1 4
Date 2014 Nov. 4 13 29
Date 2014 Nov. 1
Date 2014 Nov. 28
Date 2014 Nov. 8 12 24
Date 2014 Nov. 30
Date 2014 Nov. 30
Office Equipment Explanation
Accounts Payable Explanation
PR
Debit
G1 G1
19,000 9,000
PR
Debit
G1 G1 G1 Tait Unger, Capital Explanation
PR
PR G1
Service Fees Earned Explanation
PR
Utilities Expense Explanation
1,700
Debit
Debit
G1
19,000
G1
5,300 Acct. No. 401 Credit Balance 5,200 4,800 3,600
Debit
Debit
81,000
Acct. No. 302 Credit Balance
5,300
Debit
10,650 0 1,700
Acct. No. 301 Credit Balance 81,000
PR
PR
Acct. No. 201 Credit Balance
10,650
G1 G1 G1 Wages Expense Explanation
19,000 28,000
10,650
G1 Tait Unger, Withdrawals Explanation
Acct. No. 163 Credit Balance
5,200 10,000 13,600
Acct. No. 680 Credit Balance 19,000 Acct. No. 690 Credit Balance
1,650
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
1,650
2-82
Last revised: October 26, 2012
Problem 2-6B (concluded) Part 4 WiCOM SERVICING Trial Balance November 30, 2011 Acct. No. 101 106 124 128 131 163 201 301 302 401 680 690
Account Title Cash ...................................................... Accounts receivable ............................ Office supplies ..................................... Prepaid insurance ............................... Prepaid rent .......................................... Office equipment ................................. Accounts payable ................................ Tait Unger, capital ............................... Tait Unger, withdrawals ...................... Service fees earned ............................. Wages expense .................................... Utilities expense .................................. Totals ....................................................
Debit $ 7,850 6,400 3,350 3,750 21,000 28,000
Credit
$ 1,700 81,000 5,300 13,600 19,000 1,650 $96,300
$96,300
Analysis component: The November 29 purchase of office supplies is recorded as a debit to an asset account because they have not yet been used. Assets are economic resources held by the business. The supplies will remain on the books as an asset until they are used. Once used, the supplies will become an expense.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-83
Last revised: October 26, 2012
Problem 2-7B (25 minutes) WiCOM SERVICING Income Statement For Month Ended November 30, 2014 Revenues: Service fees earned ............................................ Operating expenses: Wages expense ................................................ Utilities expense .............................................. Total operating expenses ............................ Net loss ................................................................
$13,600 $19,000 1,650
WiCOM SERVICING Statement of Changes in Equity For Month Ended November 30, 2014 Tait Unger, capital, November 1 ........................ Add: Investments by owner .............................. Total ................................................................. Less: Withdrawals by owner ............................. $5,300 Net loss ..................................................... 7,050 Tait Unger, capital, November 30 ......................
20,650 $ 7,050
$
0 81,000 81,000
12,350 $68,650
The arrows are imaginary but emphasize the link between statements.
WiCOM SERVICING Balance Sheet November 30, 2014 Assets Cash ........................................... Accounts receivable................. Office supplies .......................... Prepaid insurance .................... Prepaid rent............................... Office equipment ...................... Total assets ...........................
$ 7,850 6,400 3,350 3,750 21,000 28,000 $70,350
Liabilities Accounts payable……………..
$ 1,700
Equity Tait Unger, capital ............................. 68,650 Total liabilities and equity ..............................................$70,350
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-84
Last revised: October 26, 2012
Problem 2-8B (25 minutes) RUSH INNOVATIONS Income Statement For Month Ended November 30, 2014 Service fees earned ............................................ Operating expenses: Wages expense ................................................ Utilities expense .............................................. Total operating expenses ............................ Net loss ................................................................
$15,800 $16,000 2,920
RUSH INNOVATIONS Statement of Changes in Equity For Month Ended November 30, 2014 Jay Rush, capital, November 1 .......................... Add: Investments by owner .............................. Total ................................................................. Less: Withdrawals by owner ............................. $10,600 Net loss ..................................................... 3,120 Jay Rush, capital, November 30 ........................
18,920 $ 3,120
$
0 146,000 146,000
13,720 $132,280
The arrows are imaginary but emphasize the link between statements.
RUSH INNOVATIONS Balance Sheet November 30, 2014 Assets Cash ........................................... Accounts receivable................. Office supplies .......................... Prepaid insurance .................... Prepaid rent............................... Office equipment ...................... Total assets ...........................
$ 23,480 7,000 5,800 10,400 21,000 68,000 $135,680
Liabilities Accounts payable ............................. $ 3,400
Equity Jay Rush, capital ...............................132,280 Total liabilities and equity .............................................. $135,680
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2-85
Last revised: October 26, 2012
Problem 2-8B (concluded) Analysis component: 2014 Nov. 30
30
Accounts Receivable ................................................... Service Fees Earned .......................................... Did work for a customer on account.
XXX
Cash .............................................................................. Accounts Receivable ......................................... Collected an amount owing from a credit customer.
XXX
XXX
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
XXX
2-86
Last revised: October 26, 2012
Problem 2-9B (90 minutes) Part 1
Date 2014 July 1
2
3
5
9
12
15
20
General Journal Account Titles and Explanations
PR
Debit
Office Equipment ................................................. Trucks ................................................................... Long-Term Notes Payable ........................... Purchased assets on credit.
163 153 251
9,000 56,000
Land....................................................................... Cash............................................................... Long-Term Notes Payable ........................... Purchased land.
183 101 251
124,000
Building ................................................................. Cash............................................................... Purchased a building.
173 101
21,000
Prepaid Insurance ................................................ Cash............................................................... Purchased two one-year insurance policies.
128 101
9,600
Cash ...................................................................... Fees Earned .................................................. Performed services for cash.
101 401
3,200
Office Equipment ................................................. Cash............................................................... Long-Term Notes Payable ........................... Purchased office equipment.
163 101 251
6,500
Accounts Receivable ........................................... Fees Earned .................................................. Performed services on credit.
106 401
3,750
Accounts Receivable ........................................... Fees Earned .................................................. Performed services on credit.
106 401
9,200
Page 1 Credit
65,000
40,800 83,200
21,000
9,600
3,200
700 5,800
3,750
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
9,200
2-87
Last revised: October 26, 2012
Problem 2-9B (continued) Part 1
Date 2014 July 21
22
23
24
25
26
27
28
29
General Journal Account Titles and Explanations
PR
Debit
Truck Rental Expense.......................................... Accounts Payable ........................................ Rented truck on credit.
645 201
1,300
Cash ...................................................................... Accounts Receivable ................................... Collected cash from credit customer.
101 106
5,000
Wages Expense .................................................... Cash............................................................... Paid wages to assistant.
623 101
1,600
Accounts Payable ................................................ Cash............................................................... Paid for July 21 rental on account.
201 101
1,300
Repairs Expense .................................................. Cash............................................................... Paid for truck repairs.
684 101
1,425
Brett Wilson, Withdrawals ................................... Cash............................................................... Owner withdrawal.
302 101
3,875
Wages Expense .................................................... Cash............................................................... Paid wages to assistant.
623 101
1,600
Advertising Expense............................................ Cash............................................................... Paid for advertising in local newspaper.
655 101
800
Cash ...................................................................... Unearned Fees.............................................. Received cash for services to be performed in August.
101 233
1,400
Page 2 Credit
1,300
5,000
1,600
1,300
1,425
3,875
1,600
800
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
1,400
2-88
Last revised: October 26, 2012
Problem 2-9B (continued) Parts 2 and 3 Date 2014 June 30 July 2 3 5 9 12 22 23 24 25 26 27 28 29
Date 2014 June 30 July 15 20 22
Date 2014 June 30 July 5
Date 2014 June 30 July 1
Cash Explanation
PR
Debit
Account No. 101 Credit Balance
Beginning balance G1 G1 G1 G1 G1 G2 G2 G2 G2 G2 G2 G2 G2 Accounts Receivable Explanation
PR
40,800 21,000 9,600 3,200 700 5,000 1,600 1,300 1,425 3,875 1,600 800 1,400
Debit
Account No. 106 Credit Balance
Beginning balance G1 G1 G2 Prepaid Insurance Explanation
PR
3,750 9,200 5,000
Debit
Trucks Explanation
275 9,875
9,600
PR
Debit
G1
56,000
950 4,700 13,900 8,900
Account No. 128 Credit Balance
Beginning balance G1
75,000 34,200 13,200 3,600 6,800 6,100 11,100 9,500 8,200 6,775 2,900 1,300 500 1,900
Account No. 153 Credit Balance
Beginning balance
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
20,800 76,800
2-89
Last revised: October 26, 2012
Problem 2-9B (continued) Parts 2 and 3
Date 2014 June 30 July 1 12
Date 2014 June 30 July 3
Date 2014 June 30 July 2
Date 2014 June 30 July 21 24
Date 2014 June 30 July 29
Date 2014 June 30 July 1 2 12
Office Equipment Explanation
PR
Debit
Account No. 163 Credit Balance
Beginning balance G1 G1 Building Explanation
1,200 10,200 16,700
9,000 6,500
Debit
Account No. 173 Credit Balance
21,000
-021,000
PR
Debit
Account No. 183 Credit Balance
G1
124,000
PR
Beginning balance G1 Land Explanation Beginning balance
Accounts Payable Explanation
PR
Debit
-0124,000 Account No. 201 Credit Balance
Beginning balance G1 G2 Unearned Fees Explanation
PR
725 2,025 725
1,300 1,300
Debit
Account No. 233 Credit Balance
Beginning balance G2 Long-Term Notes Payable Explanation
PR
Debit
Account No. 251 Credit Balance
Beginning balance G1 G1 G1
0 1,400
1,400
65,000 83,200 5,800
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
7,000 72,000 155,200 161,000
2-90
Last revised: October 26, 2012
Problem 2-9B (continued) Parts 2 and 3 Date 2014 June 30
Date 2014 June 30 July 26
Date 2014 June 30 July 9 15 20
Date 2014 June 30 July 23 27
Date 2014 June 30 July 21
Date 2014 June 30 July 28
Date 2014 June 30 July 25
Brett Wilson, Capital Explanation
PR
Debit
Account No. 301 Credit Balance
Beginning balance Brett Wilson, Withdrawals Explanation
83,825
PR
Debit
Account No. 302 Credit Balance
Beginning balance G2 Fees Earned Explanation
PR
600 4,475
3,875
Debit
Account No. 401 Credit Balance
Beginning balance G1 G1 G1 Wages Expense Explanation
PR
3,200 3,750 9,200
Debit
Account No. 623 Credit Balance
Beginning balance G2 G2 Truck Rental Expense Explanation
PR
780 2,380 3,980
1,600 1,600
Debit
Account No. 645 Credit Balance
Beginning balance G2 Advertising Expense Explanation
PR
230 1,530
1,300
Debit
8,400 11,600 15,350 24,550
Account No. 655 Credit Balance
Beginning balance G2 Repairs Expense Explanation
PR
75 875
800
Debit
Account No. 684 Credit Balance
Beginning balance G2
1,425
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
40 1,465
2-91
Last revised: October 26, 2012
Problem 2-9B (concluded) Part 4 FROG BOX COMPANY Trial Balance July 31, 2014 Acct. No. 101 106 128 153 163 173 183 201 233 251 301 302 401 623 645 655 684
Account Title Cash ............................................................... Accounts receivable ..................................... Prepaid insurance ......................................... Trucks ............................................................ Office equipment ........................................... Building .......................................................... Land................................................................ Accounts payable ......................................... Unearned fees ............................................... Long-term notes payable ............................. Brett Wilson, capital...................................... Brett Wilson, withdrawals ............................ Fees earned ................................................... Wages expense ............................................. Truck rental expense .................................... Advertising expense ..................................... Repairs expense ........................................... Totals..............................................................
$
Debit 1,900 8,900 9,875 76,800 16,700 21,000 124,000
Credit
$
725 1,400 161,000 83,825
4,475 24,550 3,980 1,530 875 1,465 $271,500
$271,500
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Problem 2-10B FROG BOX COMPANY Income Statement For Month Ended July 31, 2014 Revenues: Fees earned ......................................................... Operating expenses: Wages expense ................................................ Truck rental expense ....................................... Repairs expense .............................................. Advertising expense ........................................ Total operating expenses ............................. Net income ..........................................................
$24,550 $3,980 1,530 1,465 875 7,850 $16,700
FROG BOX COMPANY Statement of Changes in Equity For Month Ended July 31, 2014
The arrows are imaginary but emphasize the link
Brett Wilson, capital, July 1 ............................... Add: Net income ................................................. Total ........................................................... Less: Withdrawals by owner ............................. Brett Wilson, capital, July 31 .............................
between
$ 83,825 16,700 $100,525 4,475 $ 96,050
statements.
FROG BOX COMPANY Balance Sheet July 31, 2014 Assets Cash ........................................... Accounts receivable ................. Prepaid insurance..................... Trucks ........................................ Office equipment ...................... Building ..................................... Land ........................................... Total assets ...............................
$
1,900 8,900 9,875 76,800 16,700 21,000 124,000
$259,175
Liabilities Accounts payable..............................$ 725 Unearned fees.................................... 1,400 Long-term notes payable.................. 161,000 Total liabilities ...................................$163,125 Equity Brett Wilson, capital .......................... 96,050 Total liabilities and equity .............................................$259,175
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Problem 2-11B (45 minutes) Part 1 Date 2014 Nov.
General Journal Account Titles and Explanations 1
2
3
14
20
25
30
PR
Debit
Accounts Payable ......................................... Cash ..................................................... Paid for purchase made on account.
201 101
10,000
Office Equipment .......................................... Cash ..................................................... Notes Payable ...................................... Purchased a photocopier.
163 101 205
34,000
Office Supplies .............................................. Cash ..................................................... Purchased supplies for cash.
124 101
800
Wages Expense ............................................. Cash ........................................................ Paid wages.
623 101
6,000
Cash ............................................................... Travel Revenue .................................... Collected cash for November travel.
101 401
14,000
Ike Petrov, Withdrawals ................................ Cash ........................................................ The owner withdrew cash.
302 101
2,000
Interest Expense ........................................... Cash ..................................................... Paid interest on notes payable.
633 101
150
Page 1 Credit
10,000
6,000 28,000
800
6,000
14,000
2,000
150
Note: There is no entry to record for November 4 as this does not represent an economic exchange.
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Problem 2-11B (continued) Parts 2 and 3 Cash Bal. Nov. 20
26,000 14,000
Bal.
15,050
101 10,000 6,000 800 6,000 2,000 150
Notes Payable
Office Supplies
Nov. 1 2 3 14 25 30
205
20,000 28,000 48,000
Bal. Nov. 2 Bal.
Wages Expense Bal. 38,000 Nov. 14 6,000 Bal. 44,000
623
Bal. Nov. 3
900 800
Bal.
1,700
Ike Petrov, Capital 8,000
124
Office Equipment Bal. 36,000 Nov. 2 34,000
Bal. 301 Bal.
Interest Expense Bal. 100 Nov. 30 150 Bal. 250
163
Accounts Payable Nov. 1
10,000
70,000
Ike Petrov, Withdrawals Bal. 4,000 Nov. 25 2,000 Bal. 6,000
302
Travel Revenue 34,000 14,000 48,000
201 43,000
Bal.
33,000
Bal.
401 Bal. Nov. 20 Bal.
633
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Problem 2-11B (continued) Part 4 TOUR-ALONG Trial Balance November 30, 2014 Acct. No. 101 124 163 201 205 301 302 401 623 633
Account Title Cash ................................................................. Office supplies ................................................ Office equipment ............................................. Accounts payable ........................................... Notes payable .................................................. Ike Petrov, capital ........................................... Ike Petrov, withdrawals .................................. Travel revenue ................................................. Wages expense ............................................... Interest expense .............................................. Totals ...............................................................
Debit $ 15,050 1,700 70,000
Credit
$ 33,000 48,000 8,000 6,000 48,000 44,000 250 $137,000
$137,000
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Problem 2-11B (continued) Part 5 TOUR-ALONG Income Statement For Two Months Ended November 30, 2014 Travel revenue .................................................... Operating expenses: Wages expense ................................................ Interest expense .............................................. Total operating expenses ............................. Net income ..........................................................
$48,000 $44,000 250 44,250 $ 3,750
TOUR-ALONG Statement of Changes in Equity For Two Months Ended November 30, 2014 Ike Petrov, capital, October 1 ............................ Add: Owner investment ..................................... Net income ................................................ Total ................................................................. Less: Withdrawals by owner ............................. Ike Petrov, capital, November 30 .......................
$ $8,000 3,750
-0-
11,750 $11,750 6,000 $ 5,750
The arrows are imaginary but emphasize the link between statements.
TOUR-ALONG Balance Sheet November 30, 2014 Assets Cash ........................................... Office supplies .......................... Office equipment ......................
$15,050 1,700 70,000
Total assets ...............................
$86,750
Liabilities Accounts payable.............................. $33,000 Notes payable .................................... 48,000 Total liabilities ................................... $81,000 Equity Ike Petrov, capital .............................. 5,750 Total liabilities and equity ............................................. $86,750
Analysis component: The $8,000 October 31 balance in Ike Petrov, Capital represents investments made by the owner, Ike Petrov, into the business.
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Problem 2-12B LINCOLN LANDSCAPING Income Statement For Three Months Ended July 31, 2014 Revenues: Fees earned ......................................................... Operating expenses: Wages expense ................................................ Advertising expense ........................................ Rental expense ................................................ Repairs expense .............................................. Total operating expenses ............................ Net loss ................................................................
$29,100 $59,000 1,750 1,100 930
LINCOLN LANDSCAPING Statement of Changes in Equity For Three Months Ended July 31, 2014 Brielle Lincoln, capital, May 1 ............................ Add: Investments by owner .............................. Total ................................................................. Less: Withdrawals by owner .............................. $ 8,950 Net loss ...................................................... 33,680 Brielle Lincoln, capital, July 31 .........................
62,780 $33,680
The arrows are
$
0 65,000 65,000
42,630 $22,370
imaginary but emphasize the link between statements.
Assets Cash ........................................... Accounts receivable................. Prepaid insurance .................... Equipment .................................
LINCOLN LANDSCAPING Balance Sheet July 31, 2014 Liabilities $ 23,720 Accounts payable ............................. $ 37,500 18,600 Unearned fees ................................... 2,800 13,750 Long-term notes payable ................. 58,000 64,600 Total liabilities ................................$98,300
Total assets ...............................
Equity Brielle Lincoln, capital ...................... 22,370 Total liabilities and equity ............................................. $120,670
$120,670
Analysis component: a) Assets financed by debt = ($98,300/$120,670) x 100 = 81.5% b) Assets financed by equity = ($22,370/$120,670) x 100 = 18.5%
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Problem 2-13B DANCE-A-LOT Trial Balance December 31, 2014 Account Title Cash ($37,175 - $30,540a).............................................. Accounts receivable ($7,900 - $275b)............................ Office supplies ($2,650 + 400c) ...................................... Office equipment ............................................................ Accounts payable ($9,465 + 400c) ................................. Bev Horricks, capital (a credit balance account)......... Services revenue ($23,250d not $22,350) ..................... Wages expense (a debit balance account) .................. Rent expense (a debit balance account) ...................... Advertising expense (a debit balance account) .......... Totals ............................................................................... a
Debit $ 6,635 7,625 3,050 20,500
Credit
$ 9,865 16,745 23,250 6,000 4,800 1,250 $49,860
$49,860
Note: The superscripts (a) to (d) are references to items (a) to (d) listed in Problem 2-13B.
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ANALYTICAL AND REVIEW PROBLEMS A&R Problem 2-1 (35 minutes) YOUNG ENGINEERING Trial Balance March 31, 2014 Account Title Cash ..................................................................................... Office supplies .................................................................... Prepaid insurance .............................................................. Office equipment ................................................................ Accounts payable ............................................................... Carlos Young, capital ......................................................... Carlos Young, withdrawals................................................ Consulting fees earned ...................................................... Rent expense ...................................................................... Totals ...................................................................................
Debit $26,660 660 3,200 16,500
Credit
$16,500 17,000 3,740 24,000 6,740 $57,500
1.
Purchased $660 of office supplies for cash.
2.
Paid $3,200 insurance premium in advance.
3.
Purchased $16,500 office equipment on credit.
4.
Carlos Young invested $17,000 cash in the business.
5.
Carlos Young withdrew $3,740 cash from the business for personal use.
6.
Earned $24,000 in consulting services and was paid in cash.
7.
Paid $6,740 rent expense with cash.
$57,500
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A&R 2-2 (30 minutes) Nice-n-Fresh Drycleaning Statement of Changes in Equity For Months Ended April 30, 2014 Ed Fresh, capital, beginning .............................. $ 34,400 Add: Investment by owner ................................ 0 Net income ................................................ 48,5004 Total ................................................................. $ 82,900 Less: Withdrawals by owner ............................. 25,100 Ed Fresh, capital, ending ................................... $57,800
April 30, Assets 2014 Cash ........................................... $ 7,000 Cleaning supplies ..................... 3,500 Prepaid rent............................... 12,000 Equipment ................................. 76,000
Total assets ............................... $98,500
March 31, 2014 $ 0 10,000 25,4003 $35,400 1,000 $34,400
Nice-n-Fresh Drycleaning Balance Sheet March 31, April 30, March 31, 2014 Liabilities 2014 2014 $ 3,000 Accounts payable.............................. $ 700 $ 500 900 Notes payable .................................... 40,000 15,000 16,000 Total liabilities ................................... $40,700 $15,500 30,000 Equity Ed Fresh, capital................................ 57,8002 34,4001 Total liabilities and $49,900 equity .............................................. $98,500 $49,900
Calculations: 1. 49,900 – 15,500 = 34,400 2. 98,500 – 40,700 = 57,800 3. 34,400 + 1,000 – 10,000 = 25,400 4. 57,800 + 25,100 – 34,400 = 48,500 Analysis component: a. Liabilities increased because of the $200 increase in accounts payable and the $25,000 increase in notes payable used, most probably, to finance the purchase of equipment (equipment increased by $46,000). b. Equity increased by a larger amount in March than April because the owner invested $10,000 during March and nothing during April. Also, during April, the owner made a withdrawal of $25,100 and only $1,000 in March. Net income in April was almost twice as much as that reported for March but the large withdrawal and no investments during April caused equity to increase by a smaller amount than in March.
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ETHICS CHALLENGE This problem emphasizes the importance of source documents. 1. There are advantages to the process proposed by the manager. They include improved customer service, less delays, and less work for you. However, you should have serious concerns about the potential for fraud. In particular, there is no control over the possibility of embezzlement by the manager because there are no source documents* being prepared at the time of sale. The manager could steal cash and simply prepare sales receipts to match the remaining cash. This case involves a conflict between the need for efficiency and the need for control in the form of source documents*. While it makes sense to take and process sales receipts quickly, this efficiency is being accomplished by a shortcut that greatly weakens control over cash receipts. That is, cash could be received and lost because there would be no source documents to verify the sales and cash received. *Recall from Chapter 1 that source documents identify and describe transactions entering the accounting process and are the source of accounting information, whether in paper or electronic form. 2. The manager’s explanation that the owner does not arrive until 3:00 p.m. suggests that the owner does not know about the proposed shortcut. Thus, the new employee is faced with the dilemma of deciding whether to accept the manager’s instructions, to confront the manager with the argument that the shortcut seems wrong, or to ask the owner to confirm the instructions. Each of these alternatives involves personal risk. Initially, the best thing may be to simply work as instructed for a while in order to get an idea of whether the shortcut is being abused by the manager and perhaps to find out discreetly whether the owner knows about it. The relationship that develops between you and the manager may be of a nature that will allow you to explain your concern and convince the manager that the shortcut should be avoided. Even if the manager is not abusing this shortcut, there are other reasons for doing away with it, such as maintaining accurate records for tax reports and gathering marketing information. Also, the shortcut may result in fraud by other employees who might not be as honest as you and the manager. If you conclude that the manager is committing fraud, you should report the situation to the owner as quickly as possible.
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FFS 2-1 McALLISTER SURVEYING Income Statement For Month Ended May 31, 2014 Revenue: Surveying fees earned ....................................................... Operating expenses: Advertising expense .......................................................... Rent expense ...................................................................... Salaries expense ................................................................ Insurance expense ............................................................. Telephone expense ............................................................ Utilities expense ................................................................. Total operating expenses ................................................. Net income ................................................................................
$18,000 $3,200 3,100 3,000 900 600 300 11,100 $ 6,900
McALLISTER SURVEYING Statement of Changes in Equity For Month Ended May 31, 2014 Travis McAllister, capital, May 1 ............................................. Add: Investments by owner..................................................... Net income ... ................................................................... Total .......................................................................................... Less: Withdrawals by owner .................................................. Travis McAllister, capital, May 31 ...........................................
$75,000 $3,000 6,900
9,900 $84,900 6,000 $78,900
McALLISTER SURVEYING Balance Sheet May 31, 2014 Assets Cash .......................................... Accounts receivable ............... Office supplies ......................... Prepaid insurance ................... Prepaid rent ............................. Surveying equipment .............. Buildings .................................. Land .......................................... Total assets..............................
$
3,900 2,700 300 1,800 4,200 5,400 81,000 36,000 $135,300
Liabilities Accounts payable ................................... Unearned surveying fees ....................... Short-term notes payable ...................... Total liabilities .......................................
$ 2,400 6,000 48,000 $ 56,400
Equity Travis McAllister, capital........................ Total liabilities and equity ......................
78,900 $135,300
Analysis component: Withdrawals are how an owner takes assets out of the business for personal use. McAllister Surveying realized a $6,900 net income during the month which caused equity to increase. It is reasonable for the owner to benefit from that net income by making a withdrawal even though withdrawals cause equity to decrease.
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FFS 2-2 1(a)(i) Accounts Receivable ................................................... Guest Revenues ................................................. Provided services to customers on account.
XXX
Cash .............................................................................. Guest Revenues ................................................. Provided services to customers for cash.
XXX
XXX
XXX
1(a)(ii) Revenues affect the balance sheet because they cause equity to increase. 1(a)(iii) The Revenue Recognition Principle assures us that revenues on the income statement are for the year ended December 31, 2011. 1(b)(i) Interest Expense .......................................................... Cash .................................................................... Paid interest expense..
XXX XXX
1(b)(ii) Yes, expenses affect the balance sheet because they cause equity to decrease. 2(a) Advance ticket sales represent airline tickets sold in advance to customers. 2(b) Cash .............................................................................. Advance Ticket Sales ........................................ Cash received in advance from customers for airline tickets sold
XXX
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Critical Thinking Question CT 2-1 Note to instructor: Student responses will vary and therefore the answer here is only suggested and not inclusive of all possibilities; it is presented in point form for brevity. Problem(s): — information that is available does not provide adequate detail to enable analysis and resulting decision making (from the Western Canadian Sales Division Manager’s perspective; from the perspective of the sales and admin staff, the limited detail would make recording information very straightforward/easy since there are only 2 accounts — 1 revenue and 1 expense) Goal(s)*: — Sales Division Manager would want to maximize sales, minimize costs, and at the same time accurately record and report with sufficient detail to assist decision making process Assumption(s)/Principle(s): — division results have been deteriorating but because of a lack of detail, appropriate questions were not being asked and consequently inappropriate decisions were likely being made — the disclosure principle (introduced in Chapter 6) requires that appropriate detail be provided and the materiality principle (introduced in Chapter 7) suggests that anything of significance be disclosed/reported Facts: — as presented in the sales reports — by converting the dollars to percentages, we see that from July to September, although net income is increasing in total dollars, expenses are increasing as a percentage of sales causing net income to shrink as a percentage of sales which is unfavourable Prairie Insurance – Western Canadian Division Sales Report Month Ended Sept. 30, 2014 Aug. 31, 2014 July 31, 2014 % % Sales revenue $680,000 100 $510,000 100 $440,000 Expenses 544,000 80 382,500 75 321,200 Net income $136,000 20 $127,500 25 $118,800
% 100 73 27
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CT 2-1 (concluded) Conclusion(s)/Consequence(s): — more revenue and expense accounts are required to provide sufficient detail to allow appropriate monitoring/questions and resulting decisions; this will require a restructuring of the accounting including submission of expense reports which requires resources including expertise
*The goal is highly dependent on “perspective.”
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Serial Problem, Echo Systems (120 minutes) Part A 2. General Journal Date 2014 Oct. 1
2
3
5
6
8
Page 1 Account Titles and Explanations
PR
Debit
101 163 167 301
90,000 18,000 36,000
Prepaid Rent .................................................... 131 Cash ......................................................... 101 Paid rent in advance.
9,000
Computer Supplies ......................................... 126 Accounts Payable ................................... 201 Purchased supplies on credit.
2,640
Prepaid Insurance ........................................... 128 Cash ......................................................... 101 Paid 12 months’ premium in advance.
4,320
Accounts Receivable ...................................... 106 Computer Services Revenue ................. 403 Billed customer for services.
6,600
Accounts Payable ........................................... 201 Cash ......................................................... 101 Paid balance due on account payable.
2,640
Cash ................................................................. Office Equipment ............................................ Computer Equipment ..................................... Mary Graham, Capital ............................. Owner invested in the business.
144,000
9,000
2,640
4,320
6,600
2,640
10
No entry recorded in the journal.
12
Accounts Receivable ...................................... 106 Computer Services Revenue ................. 403 Billed customer for services.
2,400
Cash ................................................................. 101 Accounts Receivable .............................. 106 Collected accounts receivable.
6,600
Repairs Expense, Computer .......................... 684 Cash ......................................................... 101 Paid for computer repairs.
1,410
Advertising Expense ...................................... 655 Cash ......................................................... 101 Purchased ad in local newspaper.
3,720
Cash ................................................................. 101 Accounts Receivable .............................. 106 Collected accounts receivable.
2,400
15
17
20
22
Credit
2,400
6,600
1,410
3,720
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Serial Problem, Echo Systems (continued) Part A General Journal Account Titles and Explanations
Date 2014 Oct.
28
31
31
PR
Debit
Accounts Receivable ...................................... 106 Computer Services Revenue ................. 403 Billed customer for services.
6,450
Wages Expense............................................... 623 Cash ......................................................... 101 Paid employee for part-time work.
1,400
Mary Graham, Withdrawals ............................ 302 Cash ......................................................... 101 Owner withdrew cash.
7,200
Page 2 Credit
6,450
1,400
7,200
1 and 3. Cash Date 2014 Oct. 1 2 5 8 15 17 20 22 31 31
Date 2014 Oct. 6 12 15 22 28
Explanation
PR G1 G1 G1 G1 G1 G1 G1 G1 G2 G2
Accounts Receivable Explanation PR G1 G1 G1 G1 G2
Debit
Acct. No. 101 Credit Balance
90,000 9,000 4,320 2,640 6,600 1,410 3,720 2,400 1,400 7,200
Debit
90,000 81,000 76,680 74,040 80,640 79,230 75,510 77,910 76,510 69,310
Acct. No. 106 Credit Balance
6,600 2,400 6,600 2,400 6,450
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Serial Problem, Echo Systems (continued) Part A
Date 2014 Oct. 3
Date 2014 Oct. 5
Date 2014 Oct. 2
Date 2014 Oct. 1
Date 2014 Oct. 1
Date 2014 Oct. 3 8
Date 2014 Oct. 1
Date 2014 Oct. 31
Computer Supplies Explanation
PR G1
Prepaid Insurance Explanation
PR G1
Prepaid Rent Explanation
PR G1
Office Equipment Explanation
Computer Equipment Explanation
Accounts Payable Explanation
Mary Graham, Withdrawals Explanation
2,640
Debit
Debit
G1
18,000
PR
Debit
G1
36,000
PR
Acct. No. 128 Credit Balance 4,320 Acct. No. 131 Credit Balance
9,000
Debit
PR
2,640
4,320
PR
G1 G1 Mary Graham, Capital Explanation
Debit
Acct. No. 126 Credit Balance
Debit
9,000 Acct. No. 163 Credit Balance 18,000 Acct. No. 167 Credit Balance 36,000 Acct. No. 201 Credit Balance 2,640
2,640
Debit
2,640 0
Acct. No. 301 Credit Balance
G1
144,000
PR
Acct. No. 302 Credit Balance
G2
Debit 7,200
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7,200
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Serial Problem, Echo Systems (continued) Part A
Date 2014 Oct. 6 12 28
Date 2014 Oct. 31
Date 2014 Oct. 20
Date 2014
Date 2014 Oct. 17
Date 2014
Computer Services Revenue Explanation
PR
Debit
G1 G1 G2 Wages Expense Explanation
PR G2
Advertising Expense Explanation
PR G1
Mileage Expense Explanation
Repairs Expense, Computer Explanation
PR
PR G1
Charitable Donations Expense Explanation
PR
Acct. No. 403 Credit Balance 6,600 2,400 6,450
Debit
Acct. No. 623 Credit Balance
1,400
Debit
6,600 9,000 15,450
1,400 Acct. No. 655 Credit Balance
3,720
3,720
Debit
Acct. No. 676 Credit Balance
Debit
Acct. No. 684 Credit Balance
1,410
Debit
1,410 Acct. No. 699 Credit Balance
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Serial Problem, Echo Systems (continued) Part A 4. ECHO SYSTEMS Trial Balance October 31, 2014 Acct. No. 101 106 126 128 131 163 167 201 301 302 403 623 655 676 684 699
Account Title Cash ............................................................... Accounts receivable ..................................... Computer supplies........................................ Prepaid insurance ......................................... Prepaid rent ................................................... Office equipment ........................................... Computer equipment .................................... Accounts payable ......................................... Mary Graham, capital .................................... Mary Graham, withdrawals .......................... Computer services revenue ......................... Wages expense ............................................. Advertising expense ..................................... Mileage expense ........................................... Repairs expense, computer ......................... Charitable donations expense ..................... Totals..............................................................
Debit $ 69,310 6,450 2,640 4,320 9,000 18,000 36,000
Credit
$ -0144,000 7,200 15,450 1,400 3,720 -01,410 -0$159,450
$159,450
NOTE: Accounts with zero balance may be omitted.
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Serial Problem, Echo Systems (continued) Part A 5. ECHO SYSTEMS Income Statement For Month Ended October 31, 2014 Revenues: Computer services revenue ............................... Operating expenses: Advertising expense ........................................ Repairs expense, computer ............................ Wages expense ................................................ Total operating expenses ............................ Net income ..........................................................
$15,450 $3,720 1,410 1,400
ECHO SYSTEMS Statement of Changes in Equity For Month Ended October 31, 2014 Mary Graham, capital, October 1 ....................... Add: Investments by owner .............................. $144,000 Net income ................................................ 8,920 Total ................................................................. Less: Withdrawals by owner ............................. Mary Graham, capital, October 31 .....................
6,530 $ 8,920
The arrows are
$
0
152,920 $152,920 7,200 $145,720
imaginary but emphasize the link between statements.
ECHO SYSTEMS Balance Sheet October 31, 2014 Assets Cash ........................................... $ 69,310 Accounts receivable................. 6,450 Computer supplies ................... 2,640 Prepaid insurance .................... 4,320 Prepaid rent............................... 9,000 Office equipment ...................... 18,000 Computer equipment ............... 36,000 Total assets ........................... $ 145,720
Liabilities Accounts payable ............................. $
-0-
Equity Mary Graham, capital ........................ 145,720 Total liabilities and equity .............................................. $145,720
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Serial Problem, Echo Systems (continued) Part B 6. 2014 Nov.
1
2
5
8
Mileage Expense ............................................. 676 Cash ......................................................... 101 Reimbursed Mary Graham for business usage.
1,000
Cash ................................................................. 101 Computer Services Revenue ................. 403 Collected cash revenue from customer.
9,300
Computer Supplies ......................................... 126 Cash ......................................................... 101 Purchased computer supplies for cash.
1,920
Accounts Receivable ...................................... 106 Computer Services Revenue ................. 403 Billed customer for services.
8,700
1,000
9,300
1,920
8,700
13
No entry recorded in the journal.
18
Cash ................................................................. 101 Accounts Receivable .............................. 106 Collected accounts receivable.
3,750
Charitable Donations Expense ...................... 699 Cash ......................................................... 101 Made a donation.
1,500
Accounts Receivable ...................................... 106 Computer Services Revenue ................. 403 Billed customer for services.
7,500
22
24
3,750
1,500
7,500
25
No entry recorded in the journal.
28
Mileage Expense ............................................. 676 Cash ......................................................... 101 Reimbursed Mary Graham for business usage.
1,200
Wages Expense............................................... 623 Cash ......................................................... 101 Paid employee for part-time work.
2,800
Mary Graham, Withdrawals ............................ 302 Cash ......................................................... 101 Owner withdrew cash.
3,600
30
30
1,200
2,800
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
3,600
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Last revised: October 26, 2012
Serial Problem, Echo Systems (continued) Part B 7. General Ledger accounts: Cash Date 2014 Oct. 1 2 5 8 15 17 20 22 31 31 Nov. 1 2 5 18 22 28 30 30
Date 2014 Oct. 6 12 15 22 28 Nov. 8 18 24
Explanation
PR G1 G1 G1 G1 G1 G1 G1 G1 G2 G2 G2 G2 G2 G2 G2 G2 G2 G2
Accounts Receivable Explanation PR G1 G1 G1 G1 G2 G2 G2 G2
Debit
Acct. No. 101 Credit Balance
90,000 9,000 4,320 2,640 6,600 1,410 3,720 2,400 1,400 7,200 1,000 9,300 1,920 3,750 1,500 1,200 2,800 3,600
Debit
90,000 81,000 76,680 74,040 80,640 79,230 75,510 77,910 76,510 69,310 68,310 77,610 75,690 79,440 77,940 76,740 73,940 70,340
Acct. No. 106 Credit Balance
6,600 2,400 6,600 2,400 6,450 8,700 3,750 7,500
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
6,600 9,000 2,400 0 6,450 15,150 11,400 18,900
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Last revised: October 26, 2012
Serial Problem, Echo Systems (continued) Part B
Date 2014 Oct. 3 Nov. 5
Date 2014 Oct. 5
Date 2014 Oct. 2
Date 2014 Oct. 1
Date 2014 Oct. 1
Date 2014 Oct. 3 8
Date 2014 Oct. 1
Date 2014 Oct. 31 Nov. 30
Computer Supplies Explanation
PR G1 G2
Prepaid Insurance Explanation
PR G1
Prepaid Rent Explanation
PR G1
Office Equipment Explanation
Computer Equipment Explanation
Accounts Payable Explanation
2,640 1,920
Debit
Debit
G1
18,000
PR
Debit
G1
36,000
PR
Debit
PR G2 G3
4,320 Acct. No. 131 Credit Balance 9,000 Acct. No. 163 Credit Balance 18,000 Acct. No. 167 Credit Balance 36,000 Acct. No. 201 Credit Balance 2,640
2,640
Debit
G1 Mary Graham, Withdrawals Explanation
Acct. No. 128 Credit Balance
9,000
Debit
PR
2,640 4,560
4,320
PR
G1 G1 Mary Graham, Capital Explanation
Debit
Acct. No. 126 Credit Balance
Acct. No. 301 Credit Balance 144,000
Debit
2,640 0
144,000
Acct. No. 302 Credit Balance
7,200 3,600
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
7,200 10,800
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Last revised: October 26, 2012
Serial Problem, Echo Systems (continued) Part B
Date 2014 Oct. 6 12 28 Nov. 2 8 24
Date 2014 Oct. 31 Nov. 30
Date 2014 Oct. 20
Date 2014 Nov. 1 28
Date 2014 Oct. 17
Date 2014 Nov. 22
Computer Services Revenue Explanation
PR
Debit
G1 G1 G2 G2 G2 G2 Wages Expense Explanation
PR G2 G2
Advertising Expense Explanation
PR G1
Mileage Expense Explanation
PR G2 G2
Repairs Expense, Computer Explanation
PR G1
Charitable Donations Expense Explanation
PR G2
Acct. No. 403 Credit Balance 6,600 2,400 6,450 9,300 8,700 7,500
Debit
Acct. No. 623 Credit Balance
1,400 2,800
Debit
1,400 4,200 Acct. No. 655 Credit Balance
3,720
Debit
3,720 Acct. No. 676 Credit Balance
1,000 1,200
Debit
1,000 2,200 Acct. No. 684 Credit Balance
1,410
Debit
6,600 9,000 15,450 24,750 33,450 40,950
1,410 Acct. No. 699 Credit Balance
1,500
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
1,500
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Last revised: October 26, 2012
Serial Problem, Echo Systems (continued) Part B 8. ECHO SYSTEMS Trial Balance November 30, 2014 Acct. No. 101 106 126 128 131 163 167 201 301 302 403 623 655 676 684 699
Account Title Cash ............................................................... Accounts receivable ..................................... Computer supplies........................................ Prepaid insurance ......................................... Prepaid rent ................................................... Office equipment ........................................... Computer equipment .................................... Accounts payable ......................................... Mary Graham, capital .................................... Mary Graham, withdrawals .......................... Computer services revenue ......................... Wages expense ............................................. Advertising expense ..................................... Mileage expense ........................................... Repairs expense, computer ......................... Charitable donations expense ..................... Totals..............................................................
Debit $ 70,340 18,900 4,560 4,320 9,000 18,000 36,000
Credit
$ -0144,000 10,800 40,950 4,200 3,720 2,200 1,410 1,500 $184,950
$184,950
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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Last revised: October 26, 2012
Serial Problem, Echo Systems (concluded) Part B 9. ECHO SYSTEMS Income Statement For Two Months Ended November 30, 2014 Computer services revenue ............................... Operating expenses: Wages expense ................................................ Advertising expense ........................................ Mileage expense .............................................. Charitable donations expense ........................ Repairs expense, computer ............................ Total operating expenses ............................ Net income ..........................................................
$40,950 $4,200 3,720 2,200 1,500 1,410
ECHO SYSTEMS Statement of Changes in Equity For Two Months Ended November 30, 2014 Mary Graham, capital, October 1 ....................... Add: Investments by owner .............................. $144,000 Net income ................................................ 27,920 Total ................................................................. Less: Withdrawals by owner ............................. Mary Graham, capital, November 30 .................
13,030 $27,920
$
-0-
171,920 $171,920 10,800 $161,120
ECHO SYSTEMS Balance Sheet November 30, 2014 Assets Cash ........................................... Accounts receivable................. Computer supplies ................... Prepaid insurance .................... Prepaid rent............................... Office equipment ...................... Computer equipment ............... Total assets ...........................
$ 70,340 18,900 4,560 4,320 9,000 18,000 36,000 $161,120
Liabilities Accounts payable .............................
$
Equity Mary Graham, capital ........................
161,120
Total liabilities and equity ..............................................
$161,120
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
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