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Business LibreTexts

1.10: Problems

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    • Contributed by Henry Dauderis and David Annand
    • Athabasca University
    • Sourced from Lyryx Learning

    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.

    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


    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


    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

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    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


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

    Watch Video

    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

    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.

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