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2.10: Problems

  • Page ID
    • Henry Dauderis and David Annand
    • Athabasca University via Lyryx Learning
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    PROBLEM 2–1 (LO3)

    The following account balances are taken from the records of Fox Creek Service Limited at October 31, 2015 after its first year of operation:

    Accounts Payable $9,000 Insurance Expense $500
    Accounts Receivable 6,000 Repair Revenue 19,000
    Advertising Expense 2,200 Supplies Expense 800
    Bank Loan 5,000 Telephone Expense 250
    Cash 1,000 Truck 9,000
    Share Capital 2,000 Truck Operation
    Commissions Expense 4,500


    Equipment 7,000 Wages Expense 4,000
    Wages Payable 1,500


    1. Prepare a Trial Balance at October 31, 2015.
    2. Prepare an Income Statement and Statement of Changes in Equity for the year ended October 31, 2015.
    3. Prepare a Balance Sheet at October 31, 2015.

    PROBLEM 2–2 (LO1,2,3,4)

    The following ledger accounts were prepared for Davidson Tool Rentals Corporation during the first month of operation ending May 31, 2015. No journal entries were prepared in support of the amounts recorded in the ledger accounts.

    Cash 101 Accounts Payable 210 Share Capital 320 Service Revenue 470
    May 1 5,000


    11 1,000 May 22 600 May 11 1,000 May 1 5,000 May 5 3,000
    6 2,000 16 500 23 150 6 2,000
    10 1,500 20 300 24 1,100 18 2,500
    15 1,200 22 600
    21 800 28 400 Advertising Expense 610
    29 3,500 May 31 250
    Accounts Receivable 110 Commissions Expense 615
    May 5 3,000 May 10 1,500 May 24 1,100
    18 2,500 15 1,200
    Rent Expense 654
    Prepaid Advertising 160 May 28 400
    May 16 500 May 31 250
    Salaries Expense 656
    Unused Supplies 173 May 29 3,500
    May 20 300 May 30 100
    Supplies Expense 668
    Equipment 183 May 30 100
    May 11 2,000 May 21 800
    Telephone Expense 669
    May 23 150


    1. Reconstruct the transactions that occurred during the month and prepare journal entries to record these transactions, including appropriate descriptions. Include accounts numbers (Folio) using the Chart of Accounts provided. Calculate the balance in each account.
    2. Total the transactions in each T-account above. Prepare a Trial Balance in proper order (list assets, liabilities, equity, revenue, then expenses) at May 31, 2015.

    PROBLEM 2–3 (LO1,2,4)

    The following balances appeared in the General Ledger of Fenton Table Rentals Corporation at April 1, 2015.

    Cash $1,400 Accounts Payable $2,000
    Accounts Receivable 3,600 Share Capital 4,350
    Prepaid Rent 1,000
    Unused Supplies 350

    The following transactions occurred during April:

    1. Collected $2,000 cash owed by a customer.
    2. Billed $3,000 to customers for tables rented to date.
    3. Paid the following expenses: advertising, $300; salaries, $2,000; telephone, $100.
    4. Paid half of the accounts payable owing at April 1.
    5. Received a $500 bill for April truck repair expenses.
    6. Collected $2,500 owed by a customer.
    7. Billed $1,500 to customers for tables rented to date.
    8. Transferred $500 of prepaid rent to rent expense.
    9. Counted $200 of supplies on hand at April 30; recorded the amount used as an expense.

    Required: Prepare journal entries to record the April transactions.

    PROBLEM 2–4 (LO1,2,4)

    The following transactions occurred in Thorn Accounting Services Inc. during August 2015, its first month of operation.

    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.
    4 Paid $600 for a one-year truck insurance policy effective August 1.
    5 Collected $2,000 fees in cash from a client for work performed today (recorded as Fees Earned).
    7 Billed $5,000 fees to clients for services performed to date (recorded as Fees Earned).
    9 Paid $250 for supplies used to date.
    12 Purchased $500 of supplies on credit (recorded as Unused Supplies).
    15 Collected $1,000 of the amount billed on August 7.
    16 Paid $200 for advertising in The News during the first two weeks of August.
    20 Paid half of the amount owing for the supplies purchased on August 12.
    25 Paid cash for the following expenses: rent for August, $350; salaries, $2,150; telephone, $50; truck repairs, $250.
    28 Called clients for payment of the balance owing from August 7.
    29 Billed $6,000 of fees to clients for services performed to date (recorded as Fees Earned).
    31 Transferred the amount of August's truck insurance ($50) to Insurance Expense.
    31 Counted $100 of supplies still on hand (recorded the amount used as Supplies Expense).

    Required: Prepare journal entries to record the August transactions.

    PROBLEM 2–5 (LO4) Challenge Question – Errors in the Trial Balance

    Below is the trial balance for Cushio Corp. which contains a number of errors:

    Cushio Corp.

    Trial Balance

    At August 31, 2016


    Debit Credit
    Cash $102,000
    Accounts receivable 59,730
    Prepaid expenses 2,000
    Office supplies inventory 5,500
    Equipment 115,000
    Accounts payable $74,500
    Unearned revenue 50,000
    Share capital 25,000
    Retained earnings 50,500
    Revenue 245,000
    Repairs expense 1,000
    Rent expense 25,000
    Advertising expense 24,500
    Salaries expense 115,000
    $449,730 $445,000

    The following errors were discovered:

    1. Cushio collected $5,000 from a customer and posted a debit to Cash but did not post a credit entry to accounts receivable.
    2. Cushio completed service work for a customer for $5,000 and debited accounts receivable but credited unearned revenue.
    3. Cushio received cash of $583 from a customer as payment on account and debited cash for $583, but incorrectly credited accounts receivable for $853.
    4. Cushio did not post an invoice of $500 received for repairs.
    5. Cushio purchased equipment for $5,000 on account and posted the transaction as a debit to accounts payable and a credit to equipment.
    6. Cushio purchased advertising services for cash of $6,000 that will be published in the newspapers over the next six months. This transaction was posted as a debit to advertising expense and a credit to cash for $6,000.

    Required: Prepare a corrected trial balance. (Hint: Using T-accounts would be helpful.)

    PROBLEM 2–6 (LO4) Challenge Question – Transactions, Trial Balance, and Financial Statements

    Stellar Services Ltd. is an engineering firm that provides electrical engineering consulting services to various clients. Below are the account balances in its General Ledger as at December 31, 2015 which is its first month of operations. All accounts have normal balances as explained in the text.

    Stellar Services Ltd.

    Trial Balance

    At December 31, 2015

    Accounts payable $115,000
    Accounts receivable 85,000
    Cash 150,000
    Equipment 45,000
    Furniture 15,000
    Notes payable 20,000
    Office equipment
    Office supplies 7,000
    Prepaid expenses
    Repairs expense 500
    Retained earnings 90,000
    Salaries expense 32,000
    Service revenue 25,000
    Share capital 108,000
    Unearned service revenue
    Utilities expense 4,500
    Vehicle 19,000

    Listed below are activities for Stellar Services Ltd. for the month of January, 2016:

    1. Stellar ordered $3,500 in new software from a software supplier. It will be paid when it is ready to install in three weeks.
    2. Paid $12,000 for a two-year insurance policy to begin February 1, 2016.
    3. Paid one half of the outstanding accounts payable.
    4. Hired a new employee who will start up February 1, 2016. His salary will be $2,500 every two weeks.
    5. Received cash of $200,000 from a client for a $1,000,000 consulting contract. Work will commence in April.
    6. Booked a conference room at a hotel for a presentation to potential customers scheduled for February 15. The $600 rental fee will be paid February 1.
    7. Met with a client's lawyer about a fire that destroyed a portion of the client's building. The client is planning to sue Stellar for $300,000 based on some previous consulting services Stellar provided to the client.
    8. Completed four electrical inspections today on credit for $3,000 each.
    9. Collected from two of the credit customers from item 8.
    10. Received $20,000 from a client in partial payment for services to be provided next year.
    11. Borrowed $150,000 from their bank by signing a note payable due on August 31, 2017.
    12. John Stellar invested $30,000 cash and engineering equipment with a fair value of $10,000 in exchange for capital shares.
    13. Stellar rented some additional office space and paid $18,000 for the next six month's rent.
    14. Purchased land and a small warehouse for $50,000 cash and a long-term note payable for the balance. The land was valued at $250,000 and the warehouse at $60,000.
    15. Signed an agreement with a supplier for equipment rental for a special project to begin on February 23, 2016. A deposit for $300 is to be paid on February 1.
    16. Completed $30,000 of services for a client which is payable in 30 days.
    17. Purchased $8,000 of equipment for $5,000 cash and a trade-in of some old equipment that originally was recorded at $3,000.
    18. Paid $1,000 in cash dividends.
    19. Refunded the client $2,000 due to a complaint about the consulting services provided in item 16.
    20. Paid salaries of $35,000.
    21. Received a bill for water and electricity in the amount of $1,800 for January, which will be paid on February 15.
    22. Purchased some office equipment for $5,000 and office supplies for $2,000 on account.
    23. Placed an order with a supplier for $10,000 of drafting supplies to be delivered February 10. This must be paid by February 25.


    1. Prepare all required journal entries for January.
    2. Prepare the income statement, the statement of changes in equity and the balance sheet as at January 31, 2016. (Hint: Using T-accounts would be helpful.)

    PROBLEM 2–7 (LO4) Special Journals and Subledgers

    The following are selected transactions from December, 2017 for Readem & Weep Sad Books Co. Ltd., who purchases and sells books for a profit.

    Required: Complete the schedule based on the information in Section 2.4, Special Journals and Subledgers from this chapter. If a transaction has no applicable subledger, leave answer blank.

    Sales S
    Purchases P
    Cash Receipts CR
    Cash Disbursements CD
    General Journal GJ
    Accounts Receivable AR
    Accounts Payable AP
    Merchandise Inventory MI
    Date Transaction Journal Subledger
    Dec 1 Issued shares to the company's founder for cash
    1 Issued a cheque for rent to the building owner
    2 Purchased 100 books on credit from the publisher
    4 Borrowed money from bank (i.e. a note payable)
    5 Purchased office furniture on account
    6 Return 5 books to the publisher due to missing pages
    12 Sold 20 books to Fred's Cigar Store on account (credit)
    13 Paid cash for a two-year insurance policy effective immediately
    15 Paid cash for some office supplies
    19 Issued a cheque to the bank for the note payable interest
    20 Hired an employee and paid her first week's salary in cash
    22 Sold 10 books for cash
    27 Fred's Cigar Store returned five of the books purchased earlier and the amount owing was adjusted (accounts receivable)
    27 Received cash from Fred's Cigar Store for amount owing
    28 Found an error in the accounting records and recorded a correcting entry
    29 Received cash from a customer for 100 books. 50% of the books will be sent immediately and the remained to be sent in January
    30 A cheque was issued for rent for January, 2018
    30 Dividends were paid in cash to the company founder

    PROBLEM 2–8 (LO4) Special Journals and Subledgers

    Listed below are transactions for the first month of operations for Harmand Ltd., a consulting company who provides engineering consulting services and also sells vintage model airplanes (cost of goods sold ignored for simplicity).

    June 1 Purchased equipment on credit from Bradley & Co., $12,000.
    2 Billed consulting services completed for Cooper Co., Invoice #17001 for $8,000.
    3 Issued cheque #601 to LRS Properties Ltd., for office rent for June, $3,500.
    4 Purchased office supplies from Office Supplies Ltd., cheque #602 for $1,240.
    6 Sold five vintage model airplanes to Mr. F. Scott on account, Invoice #17002 for $2,500 each.
    7 Sold one vintage model airplane as a cash sale, $2,000.
    8 Received cash from Cooper Co., for Invoice #17001 for $7,920. Cooper was entitled to an early payment discount of $80 because they paid their account within 10 days of being billed.
    9 Paid salary for one employee, cheque #603 for $1,400.
    10 Received an invoice from the Daily Gazette for advertising, payable in 30 days; $1,200.
    10 Paid 20% of the June 1 equipment purchase; cheque #604.
    11 Received a cheque for $5,000 from Fort Robbins Bridge Builders Ltd., for consulting work that will begin July 1;
    14 Borrowed $10,000 from the bank as a loan.
    18 Issued a receipt for $5,000 for cash payment from F. Scott as a partial payment of their account.
    22 Issued 500 additional shares to owner and shareholder for $5,000 cash.
    23 Paid utilities bill from last month to HTC Power Corp., cheque #605 for $350.
    25 Billed $35,000 of consulting services rendered to Boyzee Villages Corp. Invoice #17003.
    28 Paid Daily Gazette amount owing early and received a discount of $12, reducing payment to $1,188, cheque #606.
    29 Paid $200 in dividends to Bill Sloan, owner and sole shareholder, cheque #607.
    30 Paid $1,000 to pay the interest owing to date of $30 (interest expense) and reduce the bank loan for the balance, cheque #608.
    30 Paid salary for employee up to date, cheque #609 for $1,600.
    30 Corrected an error in the payment to the bank. Interest expense should be $35 and $965 to reduce the bank loan.


    1. Prepare a sales journal, purchases journal, cash receipts journal, cash disbursements journal, and general journal as shown below. Record the June transactions into these journals. (Ignore GST and account codes for simplicity.)
      Credit Sales Journal S1
      Date Billing # Customer Ref








      Plane Sales

      Other Desc
      Debit Credit Credit
      Credit Purchases Journal P1
      Date Invoice # Creditor Ref









      Credit Debit Debit Debit
      Cash Receipts Journal CR1
      Date Billing # Customer Ref Cash







      Other Desc
      Debit Debit Credit Credit Credit
      Cash Disbursements Journal CD1
      Date Chq # Payee Ref Cash







      Credit Credit Debit Debit
      General Journal GJ1
      Date Account/Explanation PR Debit Credit
    2. Prepare an accounts receivable subledger, accounts payable subledger, and a general ledger as shown below. Post the journals from part 1 to the subledgers and general ledger as shown in Section 2.6 of this chapter. You will need to create multiple Accounts Receivable and Accounts Payable subledgers, as well as general ledgers.
      Accounts Receivable Subledger
      Date Ref Debit Credit Balance
      Accounts Payable Subledger
      Date Ref Debit Credit Balance
      General Ledger
      Date Ref Debit Credit Balance
    3. Prepare a trial balance from the general ledger accounts. Use the format shown in Section 2.5 of this chapter. Ensure that the trial balance debits equal the credits and that the subledgers balance to their respective accounts receivable and accounts payable control accounts.
    4. Prepare an income statement, statement of changes in equity and a balance sheet as at June 30, 20XX. Use the format shown in Section 2.5 of this chapter.

    This page titled 2.10: Problems is shared under a CC BY-NC-SA license and was authored, remixed, and/or curated by Henry Dauderis and David Annand (Lyryx Learning) .

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