1.10: Problems

PROBLEM 1–1 (LO4,5) Preparing Financial Statements

Following are the asset, liability, and equity items of Dumont Inc. at January 31, 2015, after its first month of operations.

ASSETS		=	LIABILITIES		+	EQUITY
Cash	$1,300		Bank Loan	$8,000		Share Capital	$2,000
Accounts Receivable	2,400		Accounts Payable	1,000		Service Revenue	7,500
Prepaid Expenses	550					Advertising Expense	500
Unused Supplies	750					Commissions Expense	720
Truck	9,000					Insurance Expense	50
						Interest Expense	80
						Rent Expense	400
						Supplies Expense	100
						Telephone Expense	150
						Wages Expense	2,500

Required:

1. Prepare an income statement and statement of changes in equity for Dumont's first month ended January 31, 2015.
2. Prepare a balance sheet at January 31, 2015.

PROBLEM 1–2 (LO4) Preparing Financial Statements

Laberge Sheathing Inc. began operations on January 1, 2015. The office manager, inexperienced in accounting, prepared the following statement for the business's most recent month ended August 31, 2015.

Laberge Sheathing Inc. Financial Statement Month Ended August 31, 2015
Cash	$400	Accounts Payable	$7,800
Accounts Receivable	3,800	Share Capital	3,200
Unused Supplies	100	Service Revenue	2,000
Equipment	8,700	Retained Earnings	4,000
Advertising Expense	300
Interest Expense	500
Maintenance Expense	475
Supplies Used	125
Wages Expense	2,600
	$17,000		$17,000

Required:

1. Prepare an income statement and statement of changes in equity for the month ended August 31, 2015, and a balance sheet at August 31, 2015. No shares were issued in August.
2. Using the information from the balance sheet completed in Part 1, calculate the percentage of assets financed by equity.

PROBLEM 1–3 (LO5) Transaction Analysis

The following transactions of Larson Services Inc. occurred during August 2015, its first month of operations.

Aug.	1	Issued share capital for $3,000 cash
	1	Borrowed $10,000 cash from the bank
	1	Paid $8,000 cash for a used truck
	3	Signed a contract with a customer to do a $15,000 job beginning in November
	4	Paid $600 for a one-year truck insurance policy effective August 1
	5	Collected fees of $2,000 for work to be performed in September
	7	Billed a client $5,000 for services performed today
	9	Paid $250 for supplies purchased and used today
	12	Purchased $500 of supplies on credit
	15	Collected $1,000 of the amount billed August 7
	16	Paid $200 for advertising in The News that ran the first two weeks of August
	20	Paid $250 of the amount owing regarding the credit purchase of August 12
	25	Paid the following expenses: rent for August, $350; salaries, $2,150; telephone, $50; truck operation, $250
	28	Called clients for payment of the balances owing from August 7
	31	Billed a client $6,000 for services performed today
	31	$500 of the amount collected on August 5 has been earned as of today

Required:

1. Create a table like the one below by copying the headings shown.

   ASSETS

   =

   LIABILITIES

   +

   EQUITY

   Acct.

   Ppd.

   Unused

   Bank

   Acct.

   Unearned

   Share

   Retained

   Cash

   +

   Rec.

   +

   Exp.

   +

   Supplies

   +

   Truck

   =

   Loan

   +

   Pay.

   +

   Revenue

   +

   Capital

   +

   Earnings

2. Use additions and subtractions in the table created in Part 1 to show the effects of the August transactions. For non-transactions that do not impact the accounting equation items (such as August 3), indicate 'NE' for 'No Effect'.
3. Total each column and prove the accounting equation balances.

PROBLEM 1–4 (LO4) Preparing Financial Statements

Required: Refer to your answer for Problem 1–3. Prepare an income statement and a statement of changes in equity for the month ended August 31, 2015. Label the revenue earned as Fees Earned. Prepare a balance sheet at August 31, 2015.

PROBLEM 1–5 (LO5) Transaction Analysis and Table

The following transactions occurred for Olivier Bondar Ltd., an restaurant management consulting service, during May, 2016:

May 1	Received a cheque in the amount of $5,000 from TUV Restaurant Ltd., for a restaurant food cleanliness assessment to be conducted in June.
May 1	Paid $5,000 for office rent for the month of May.
May 2	Purchased office supplies for $3,000 on account.
May 3	Completed a consultation project for McDanny's Restaurant and billed them $27,000 for the work.
May 4	Purchased a laptop computer for $3,000 in exchange for a note payable due in 45 days.
May 5	Olivier Bondar was a little short on cash, so the manager made an application for a bank loan in the amount of $20,000. It is expected that the bank will make their decision regarding the loan next week.
May 6	Received an invoice from the utilities company for electricity in the amount of $300.
May 10	Bank approved the loan and deposited $20,000 into Olivier Bondar's bank account. First loan payment is due on June 10.
May 11	Paid for several invoices outstanding from April for goods and services received for a total of $8,000. The breakdown of the invoice costs are: telephone expense $500; advertising expense $3,000; office furniture $2,000; office supplies $2,500.
May 13	Paid employee salaries owing from May 1 to May 13 in the amount of $3,000.
May 14	Completed consulting work for a U.S. client and invoiced $18,000 US (US funds). The Canadian equivalent is $25,000 CAD.
May 15	Received $25,000 cash for work done and invoiced in April.
May 18	Hired a new employee who will begin work on May 25. Salary will be $2,500 every two weeks.
May 21	Placed an order request for new shelving for the office. Catalogue price is $2,500.
May 27	Paid employee salaries owing from May 14 to May 27 in the amount of $3,500.
May 29	The bookkeeper was going to be away for two weeks, so the June rent of $5,000 was paid.
May 31	Reimbursed $50 in cash to an employee for use of his personal vehicle for company business on May 20.
May 31	Shelving unit ordered on May 21 was delivered and installed. Total cost was $3,000, including labour.

Required: Create a table with the following column headings and opening balances. Below the opening balance, number each row from 1 to 18:

	Cash	Accounts receivable	Office supplies	Prepaid expenses	Equipment	Office furniture	Accounts payable	Note/Loan payable	Unearned revenue	Share capital	Retained earnings
Open Bal	+10,000	+25,000	+2,000	0	+25,000	+15,000	+35,000	0	0	+8,000	+34,000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Bal

Using the table as shown in Figure 1.3 of the text, complete the table for the 18 items listed in May and total each column. If any of the items are not to be recorded, leave the row blank.

PROBLEM 1–6 (LO5) Transaction Analysis and Table

Required: Using the data from the table in PROBLEM 1–5, prepare the balance sheet as at May 31, 2016.