4.7: Exercises
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EXERCISE 4–1 (LO2) Classified Balance Sheet
The following accounts and account balances are taken from the records of Joyes Enterprises Ltd. at December 31, 2024, its fiscal year-end.
| Dr. | Cr. | |
| Accounts Receivable | $8,000 | |
| Accounts Payable | $7,000 | |
| Accumulated Depreciation – Buildings | 1,000 | |
| Accumulated Depreciation – Equipment | 4,000 | |
| Bank Loan (due 2025) | 5000 | |
| Buildings | 25,000 | |
| Cash | 2,000 | |
| Dividends Declared | 1,000 | |
| Equipment | 20,000 | |
| Income Tax Payable | 3,000 | |
| Land | 5,000 | |
| Merchandise Inventory | 19,000 | |
| Mortgage Payable (due 2027) | 5,000 | |
| Prepaid Insurance | 1,000 | |
| Share Capital | 48,000 | |
| Retained Earnings, Jan. 1 2024 | -0- | 2,000 |
| Totals | $81,000 | $75,000 |
| Net Income | -0- | 6,000 |
| Totals | -0- | -0- |
Required:
- Using the above information, prepare a classified balance sheet.
- Does Joyes Enterprises Ltd. have sufficient resources to meet its obligations in the upcoming year?
- Calculate the proportion of shareholders' to creditors' claims on the assets of Joyes.
EXERCISE 4–2 (LO2,3) Classified Balance Sheet
The following balance sheet was prepared for Abbey Limited:
| Abbey Limited | |||||
| Balance Sheet | |||||
| As at November 30, 2023 | |||||
| Assets | Liabilities | ||||
| Current | Current | ||||
| Cash | $1,000 | Accounts Payable | $5,600 | ||
| Accounts Receivable | 6,000 | Notes Payable (due 2016) | 2,000 | ||
| Building | 12,000 | Bank Loan (due 2022) | 1,000 | ||
| Merchandise Inventory | 3,000 | Total Current Liabilities | $8,600 | ||
| Total Current Assets | $22,000 | ||||
| Non-current | Non-current | ||||
| Short-Term Investments | 3,000 | Mortgage Payable (due 2023) | 7,000 | ||
| Equipment | 1,500 | Retained Earnings | 1,000 | ||
| Unused Office Supplies | 100 | Salaries Payable | 250 | ||
| Truck | 1,350 | Total Non-current Liabilities | 8,250 | ||
| Total Non-current Assets | 5,950 | Total Liabilities | 16,850 | ||
| Equity | |||||
| Share Capital | 11,100 | ||||
| Total Assets | $27,950 | Total Liabilities and Assets | $27,950 | ||
Required:
- Identify the errors that exist in the balance sheet of Abbey Limited and why you consider this information incorrect.
- Prepare a corrected, classified balance sheet.
- Based on the balance sheet categories, what additional information should be disclosed in the notes to the financial statements?
EXERCISE 4–3 (LO2,3) Accounts Classifications
Below are various accounts:
| Land used in the normal course of business operations | Accrued salaries payable | ||
| Notes payable, due in four months | Prepaid advertising | ||
| Truck | Advertising expense | ||
| Land held for investment | Unearned revenue | ||
| Copyright | Service revenue | ||
| Accounts payable | Cash | ||
| Cash dividends | Mortgage payable, due in fifteen years | ||
| Building | Mortgage payable, due in six months | ||
| Furniture | Share capital | ||
| Accounts receivable, from customer sales | Shop supplies | ||
| Franchise | Accumulated depreciation, building | ||
| Utilities expense | Depreciation expense | ||
| Utilities payable | Office supplies |
Required: Classify each account as one of the following:
- current asset
- long-term investment
- property, plant and equipment
- intangible asset
- current liability
- long-term liability
- equity
- not reported on the balance sheet
EXERCISE 4–4 (LO2) Preparing Closing Entries, Balance Sheet and Post-closing Trial balance
Below are the December 31, 2024, year-end accounts balances for Abled Appliance Repair Ltd. This is the business's third year of operations.
| Cash | $80,000 | Share capital | $1,000 |
| Accounts receivable | 66,000 | Retained earnings | 116,600 |
| Office supplies inventory | 2,000 | Revenue | 35,000 |
| Prepaid insurance | 5,000 | Rent expense | 3,000 |
| Land | 20,000 | Salaries expense | 8,000 |
| Office equipment | 10,000 | Utilities expense | 500 |
| Accumulated depreciation, office equipment | 2,000 | Travel expense | 1,500 |
| Accounts payable | 35,000 | Insurance expense | 600 |
| Unearned consulting fees | 10,000 | Supplies and postage expense | 3,000 |
Required:
- Prepare the closing entries.
- Prepare a classified balance sheet.
- Prepare a post-closing trial balance.
EXERCISE 4–5 (LO2) Classified Balance Sheet
Below is the post-closing trial balance for Mystery Company Ltd. All accounts have normal balances.
| Mystery Company Ltd. | ||
| Trial Balance | ||
| November 30, 2024 | ||
| Accounts payable | $ | 95,960 |
| Accounts receivable | 99,520 | |
| Accrued salaries payable | 58,580 | |
| Accumulated depreciation, building | 43,530 | |
| Accumulated depreciation, vehicle | 8,650 | |
| Building | 270,000 | |
| Cash | 150,650 | |
| Copyright | 51,600 | |
| Current portion of long-term debt | 72,000 | |
| Income taxes payable | 32,500 | |
| Interest payable | 12,000 | |
| Notes payable, due 2025 | 145,000 | |
| Office supplies | 1,300 | |
| Prepaid insurance expense | 10,000 | |
| Prepaid rent expense | 12,000 | |
| Retained earnings | 74,850 | |
| Share capital | ?? | |
| Unearned revenue | 150,000 | |
| Vehicle | 108,000 | |
Required: Prepare a classified balance sheet.
EXERCISE 4–6 (LO2) Classified Balance Sheet
Below is the adjusted trial balance for Hitalle Heights Corp. All accounts have normal balances.
| Hitalle Heights Corp. | |
| Trial Balance | |
| May 31, 2024 | |
| Accounts payable | $ 13,020 |
| Accounts receivable | 59,808 |
| Accrued salaries and benefits payable | 4,872 |
| Accumulated depreciation, furniture | 1,792 |
| Cash | 8,888 |
| Cash dividends | 2,800 |
| Depreciation expense | 1,333 |
| Furniture | 8,400 |
| Income tax expense | 2,520 |
| Income taxes payable | 3,320 |
| Insurance expense | 2,072 |
| Interest expense | 84 |
| Interest payable | 224 |
| Land | 58,048 |
| Bank loan payable (long-term) | 16,800 |
| Shop supplies | 1,008 |
| Prepaid insurance expense | 7,162 |
| Rent expense | 12,600 |
| Travel expense | 840 |
| Retained earnings | 192,355 |
| Revenue | 94,000 |
| Salaries expense | 23,352 |
| Share capital | 840 |
| Shop supplies expense | 420 |
| Franchise | 155,868 |
| Unearned revenue | 21,000 |
| Utilities expense | 3,020 |
Additional information:
The bank loan will be reduced by $5,200 next year.
There were 200 additional shares issued during the year for $200.
Required: Prepare a classified balance sheet and a statement of changes in equity for May 31, 2024.
Problems
PROBLEM 4–1 (LO2) Classified Balance Sheet
The following list of accounts is taken from the records of the Norman Company Ltd. at December 31, 2023:
| Account Title | Balance |
| Accounts Payable | $125 |
| Accounts Receivable | 138 |
| Building | 400 |
| Cash | 250 |
| Share Capital | 400 |
| Equipment | 140 |
| Land | 115 |
| Mortgage Payable (due 2022) | 280 |
| Bank Loan, due within 90 days | 110 |
| Notes Receivable, due within 90 days | 18 |
| Prepaid Insurance | 12 |
| Retained Earnings | 214 |
| Salaries Payable | 14 |
| Unused Office Supplies | 70 |
Required: Prepare a classified balance sheet.
PROBLEM 4–2 (LO2) Classified Balance Sheet
The following adjusted trial balance has been extracted from the records of Dark Edge Sports Inc. at December 31, 2023, its second fiscal year-end.
| Account Balances | ||
| Dr. | Cr. | |
| Accounts Payable | $8,350 | |
| Accounts Receivable | $18,700 | |
| Accumulated Depreciation – Equipment | 2,000 | |
| Advertising Expense | 7,200 | |
| Bank Loan, due May 31, 2016 | 10,000 | |
| Cash | 1,500 | |
| Depreciation Expense | 1,100 | |
| Dividends | 600 | |
| Equipment | 12,500 | |
| Income Taxes Expense | 2,300 | |
| Income Taxes Payable | 4,600 | |
| Insurance Expense | 1,200 | |
| Interest and Bank Charges Expense | 1,300 | |
| Prepaid Insurance | 1,300 | |
| Prepaid Rent | 600 | |
| Retained Earnings | 2,000 | |
| Rent Expense | 17,950 | |
| Revenue | 80,000 | |
| Salaries Expense | 39,000 | |
| Share Capital | 3,000 | |
| Telephone Expense | 1,100 | |
| Utilities Expense | 3,600 | |
| Totals | $109,950 | $109,950 |
Note: No shares were issued during 2023.
Required:
- Calculate net income for year ended December 31, 2023.
- Prepare a statement of changes in equity for the year ended December 31, 2023.
- Prepare a classified balance sheet at December 31, 2023.
- By what amounts do total current liabilities exceed total current assets at December 31, 2023?
- Assume a $5,000 bank loan is received, payable in six months. Will this improve the negative working capital situation calculated in (4) above? Calculate the effect on your answer to (4) above?
- As the bank manager, what questions might you raise regarding the loan?
PROBLEM 4–3 (LO2) Closing Entries and Financial Statements
Below is the adjusted trial balance with accounts in alphabetical order for MayBee Services Ltd. All accounts have normal balances.
| MayBee Services Ltd. | |
| Trial Balance | |
| At June 30, 2024 | |
| Accounts payable | $ 32,550 |
| Accounts receivable | 149,520 |
| Accrued salaries payable | 12,180 |
| Accumulated depreciation, building | 280 |
| Accumulated depreciation, equipment | 4,480 |
| Advertising expense | 5,670 |
| Building | 145,400 |
| Cash | 122,220 |
| Cash dividends | 7,000 |
| Depreciation expense | 3,332 |
| Equipment | 21,000 |
| Income tax expense | 6,300 |
| Income taxes payable | 6,300 |
| Insurance expense | 5,180 |
| Interest expense | 210 |
| Interest payable | 210 |
| Notes payable, due 2018 | 42,000 |
| Office supplies | 2,520 |
| Prepaid insurance expense | 17,906 |
| Rent expense | 31,500 |
| Repairs expense | 10,920 |
| Retained earnings | 343,058 |
| Revenue | 135,000 |
| Salaries expense | 58,380 |
| Share capital | 2,100 |
| Shop supplies expense | 1,050 |
| Trademark | 10,000 |
| Unearned revenue | 52,500 |
| Utilities expense | 32,550 |
Additional Information: For the note payable, its account balance will be reduced by $14,000 as at June 30, 2025.
Required:
- Prepare the closing entries.
- Prepare a classified balance sheet.
- Prepare a post-closing trial balance.
PROBLEM 4–4 (LO2) Challenge Question – Closing Entries and Financial Statements
Below is the unadjusted trial balance with accounts in alphabetical order for Jennette Ltd. All accounts have normal balances.
| Jennette Ltd. | |
| Unadjusted Trial Balance | |
| At September 30, 2024 | |
| Accounts payable | $39,983 |
| Accounts receivable | 321,468 |
| Accrued salaries payable | 21,909 |
| Accumulated depreciation, building | 9,632 |
| Accumulated depreciation, vehicle | 602 |
| Advertising expense | 12,191 |
| Building | 312,610 |
| Cash | 262,773 |
| Cash dividends | 15,050 |
| Copyright | 21,500 |
| Depreciation expense | 7,164 |
| Income tax expense | 13,545 |
| Income taxes payable | 13,545 |
| Insurance expense | 11,137 |
| Interest expense | 452 |
| Interest payable | 4,730 |
| Mortgage payable, due 2019 | 90,300 |
| Office supplies | 5,418 |
| Prepaid insurance expense | 8,498 |
| Rent expense | 67,725 |
| Repairs expense | 23,478 |
| Retained earnings | 737,575 |
| Revenue | 290,250 |
| Salaries expense | 155,517 |
| Share capital | 4,515 |
| Shop supplies expense | 2,259 |
| Unearned revenue | 112,875 |
| Utilities expense | 39,981 |
| Vehicle | 45,150 |
Additional information:
Adjustments not yet recorded are:
- Revenue earned but not yet billed is $20,000.
- Depreciation expense for the vehicle is $3,000.
- The building's estimated residual value is $100,000 and its estimated useful life is 25 years.
- Salaries not yet paid are $2,500.
- Revenue that was paid in cash as an advance of $50,000 is now earned.
- Rent for October 2016 of $5,150 was paid and recorded to rent expense.
- One-half of the prepaid insurance is has now been used.
Mortgage payments for the next fiscal year will total $36,000, which includes interest expense of $6,000.
Required:
- Update all the account balances with appropriate adjusting entries based on the six missing adjustments above. (Hint: Use a trial balance format with adjusting entry columns.)
- Prepare an adjusted trial balance.
- Prepare a classified balance sheet.