- Page ID
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|
|Share Capital||2,000||Truck Operation|
- Prepare a Trial Balance at October 31, 2015.
- Prepare an Income Statement and Statement of Changes in Equity for the year ended October 31, 2015.
- 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|
|Accounts Receivable||110||Commissions Expense||615|
- 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.
- 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.
|Accounts Receivable||3,600||Share Capital||4,350|
The following transactions occurred during April:
- Collected $2,000 cash owed by a customer.
- Billed $3,000 to customers for tables rented to date.
- Paid the following expenses: advertising, $300; salaries, $2,000; telephone, $100.
- Paid half of the accounts payable owing at April 1.
- Received a $500 bill for April truck repair expenses.
- Collected $2,500 owed by a customer.
- Billed $1,500 to customers for tables rented to date.
- Transferred $500 of prepaid rent to rent expense.
- 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:
At August 31, 2016
|Office supplies inventory||5,500|
The following errors were discovered:
- Cushio collected $5,000 from a customer and posted a debit to Cash but did not post a credit entry to accounts receivable.
- Cushio completed service work for a customer for $5,000 and debited accounts receivable but credited unearned revenue.
- Cushio received cash of $583 from a customer as payment on account and debited cash for $583, but incorrectly credited accounts receivable for $853.
- Cushio did not post an invoice of $500 received for repairs.
- Cushio purchased equipment for $5,000 on account and posted the transaction as a debit to accounts payable and a credit to equipment.
- 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.
At December 31, 2015
|Unearned service revenue||–|
Listed below are activities for Stellar Services Ltd. for the month of January, 2016:
- Stellar ordered $3,500 in new software from a software supplier. It will be paid when it is ready to install in three weeks.
- Paid $12,000 for a two-year insurance policy to begin February 1, 2016.
- Paid one half of the outstanding accounts payable.
- Hired a new employee who will start up February 1, 2016. His salary will be $2,500 every two weeks.
- Received cash of $200,000 from a client for a $1,000,000 consulting contract. Work will commence in April.
- 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.
- 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.
- Completed four electrical inspections today on credit for $3,000 each.
- Collected from two of the credit customers from item 8.
- Received $20,000 from a client in partial payment for services to be provided next year.
- Borrowed $150,000 from their bank by signing a note payable due on August 31, 2017.
- John Stellar invested $30,000 cash and engineering equipment with a fair value of $10,000 in exchange for capital shares.
- Stellar rented some additional office space and paid $18,000 for the next six month's rent.
- 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.
- 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.
- Completed $30,000 of services for a client which is payable in 30 days.
- Purchased $8,000 of equipment for $5,000 cash and a trade-in of some old equipment that originally was recorded at $3,000.
- Paid $1,000 in cash dividends.
- Refunded the client $2,000 due to a complaint about the consulting services provided in item 16.
- Paid salaries of $35,000.
- Received a bill for water and electricity in the amount of $1,800 for January, which will be paid on February 15.
- Purchased some office equipment for $5,000 and office supplies for $2,000 on account.
- Placed an order with a supplier for $10,000 of drafting supplies to be delivered February 10. This must be paid by February 25.
- Prepare all required journal entries for January.
- 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.
|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.|
- 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
Other Desc Debit Credit Credit Totals Credit Purchases Journal P1 Date Invoice # Creditor Ref
Desc Credit Debit Debit Debit Totals Cash Receipts Journal CR1 Date Billing # Customer Ref Cash
Other Desc Debit Debit Credit Credit Credit Totals Cash Disbursements Journal CD1 Date Chq # Payee Ref Cash
Desc Credit Credit Debit Debit Totals General Journal GJ1 Date Account/Explanation PR Debit Credit Totals
- 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
- 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.
- 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.