2.10: Problems

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	Expense	1,250
Equipment	7,000	Wages Expense	4,000
		Wages Payable	1,500

Required:

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	May	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

Required:

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
		Incorrect
		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
Building/warehouse	–
Equipment	45,000
Furniture	15,000
Land	–
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.

Required:

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.

Journals
Sales	S
Purchases	P
Cash Receipts	CR
Cash Disbursements	CD
General Journal	GJ

Subledgers
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.

Required:

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

   Accounts Receivable

   Consulting Services Revenue

   Vintage Model Plane Sales

   Other

   Desc

   Debit

   Credit

   Credit

   Totals

   Credit Purchases Journal

   P1

   Date

   Invoice #

   Creditor

   Ref

   Accounts Payable

   Equipment Purchases

   Advertising Expense

   Other Purchases

   Desc

   Credit

   Debit

   Debit

   Debit

   Totals

   Cash Receipts Journal

   CR1

   Date

   Billing #

   Customer

   Ref

   Cash

   Sales Discount

   Accounts Receivable

   Cash Sales

   Other

   Desc

   Debit

   Debit

   Credit

   Credit

   Credit

   Totals

   Cash Disbursements Journal

   CD1

   Date

   Chq #

   Payee

   Ref

   Cash

   Purchase Discount

   Accounts Payable

   Other Disbursements

   Desc

   Credit

   Credit

   Debit

   Debit

   Totals

   General Journal				GJ1
   Date	Account/Explanation	PR	Debit	Credit
   Totals

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
   Name:
   Date	Ref	Debit	Credit	Balance

   Accounts Payable Subledger
   Name:
   Date	Ref	Debit	Credit	Balance

   General Ledger
   Name:
   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.