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4.7: Exercises

  • Page ID
    98083
    • Henry Dauderis and David Annand
    • Athabasca University via Lyryx Learning

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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:

    1. Using the above information, prepare a classified balance sheet.
    2. Does Joyes Enterprises Ltd. have sufficient resources to meet its obligations in the upcoming year?
    3. 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:

    1. Identify the errors that exist in the balance sheet of Abbey Limited and why you consider this information incorrect.
    2. Prepare a corrected, classified balance sheet.
    3. 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:

    1. current asset
    2. long-term investment
    3. property, plant and equipment
    4. intangible asset
    5. current liability
    6. long-term liability
    7. equity
    8. 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:

    1. Prepare the closing entries.
    2. Prepare a classified balance sheet.
    3. 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:

    1. Calculate net income for year ended December 31, 2023.
    2. Prepare a statement of changes in equity for the year ended December 31, 2023.
    3. Prepare a classified balance sheet at December 31, 2023.
    4. By what amounts do total current liabilities exceed total current assets at December 31, 2023?
    5. 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?
    6. 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:

    1. Prepare the closing entries.
    2. Prepare a classified balance sheet.
    3. 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:

    1. Revenue earned but not yet billed is $20,000.
    2. Depreciation expense for the vehicle is $3,000.
    3. The building's estimated residual value is $100,000 and its estimated useful life is 25 years.
    4. Salaries not yet paid are $2,500.
    5. Revenue that was paid in cash as an advance of $50,000 is now earned.
    6. Rent for October 2016 of $5,150 was paid and recorded to rent expense.
    7. 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:

    1. 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.)
    2. Prepare an adjusted trial balance.
    3. Prepare a classified balance sheet.

    This page titled 4.7: Exercises is shared under a CC BY-NC-SA 3.0 license and was authored, remixed, and/or curated by Henry Dauderis and David Annand (Lyryx Learning) .

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