# 2.11: Solutions

• Henry Dauderis and David Annand
• Athabasca University via Lyryx Learning
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## Discussion Questions

1. The use of a transactions worksheet is impractical in actual practice because the record keeping and the calculation of totals becomes convoluted. This method is therefore not very efficient or convenient, especially for a business with a high volume of transactions.
2. An account is an accounting record designed to classify and accumulate the dollar effect of financial transactions. In a simplified account called a T-account, the term "debit" is used to describe the left side of the account, while the term "credit" refers to the right side.
3. The association of "good" and "bad" or "increase" and "decrease" with credits and debits is not a valid association. To an accountant, "debit" means only "place an amount of the left side of an account" and "credit" means only "place an amount on the right side of an account."
4. A debit, which is always on the left side, records an increase in assets and expenses. A credit, which is always on the right side, records a decrease in assets and expenses. For example,
1. If an asset like a truck is purchased for cash, the asset account "Truck" is debited and the Cash account is credited.
2. If rent expense is incurred and paid with cash, the account "Rent Expense" is debited. The Cash account is credited.
5. A debit, which is always on the left side, records a decrease in liabilities, equity, and revenue. A credit, which is always on the right side, records an increase in liabilities, equity, and revenue. For example,
1. A cash sale is made. Cash is debited, Sales is credited.
2. We incur an expense, so we debit the expense account and credit a liability account like Accounts Payable.
3. We issue some share capital for cash. The general ledger account Share Capital is credited and Cash is debited.
6.  Assets, Expenses Liabilities, Equity, Revenues Increases are debited. Increases are credited. Decreases are credited. Decreases are debited.
7. A trial balance is a list of each account contained in the general ledger of an entity, together with its individual debit or credit balance. It is prepared in order to establish the equality of debits with credits before the preparation of the financial statements
8. A trial balance is used to prepare the financial statements. It shows the totals of each revenue and expense account that will appear on the income statement and the asset, liability, and equity balances that will appear on the balance sheet.
9. A general journal is a chronological record of an entity's financial transactions. It is often called a book of original entry because each transaction is recorded in the general journal first before it is posted to the entity's accounts.
10. The positioning of a debit-credit entry in the journal is similar in some respects to programming methods. In the following entry,
 General Journal Date Account/Explanation F Debit Credit Dec. 1 Accounts Receivable XX Sales XXX To record a sale on account.

The positions represent the instructions "Post $XX to the debit side of the Accounts Receivable account" (thus increasing the accounts receivable) and "Post$XXX to the credit side of the Sales account" (thus increasing sales).

11. A general ledger is a book that contains the separate asset, liability, equity, revenue, and expense accounts of an entity. It is often referred to as a book of final entry and it is prepared so that the balance of each account can be found easily at any time.
12. A chart of accounts is a list of account names and numbers used in the general ledger, normally listed in the order of presentation on the financial statements. For example, accounts that appear on the balance sheet or on the income statement are grouped together. This facilitates the preparation of the financial statements.
13. The steps in the accounting cycle involve analyzing transactions, journalizing them in the general journal, posting from the general journal into the general ledger, preparing the trial balance, and generating financial statements are steps followed each accounting period. These steps form the core of the accounting cycle. Additional steps involved in the accounting cycle will be introduced in Chapter 3.

## Exercises

### EXERCISE 2–1

 a. b. L CR Unearned consulting fees A DR Vehicles A DR Prepaid insurance E DR Depreciation expense A DR Office supplies R CR Interest income A DR Notes receivable E DR Interest expense R CR Insurance fee revenue A DR Furniture L CR Unearned insurance fee revenue L CR Utilities payable E DR Salary and benefits expense L CR Unearned rent revenue A DR Small tools and supplies E CR Retained earnings R CR Service fees earned L CR Salaries and benefits payable R CR Service fees revenue E DR Compensation expense L CR Notes payable R CR Interest earned A DR Buildings E DR Meals and mileage expense L CR Rent payable L CR Unearned service fees E CR Share capital A DR Equipment

### EXERCISE 2–2

 a. b. L DR Unearned consulting fees A CR Vehicles A CR Prepaid insurance E CR Depreciation expense A CR Office supplies R DR Interest income A CR Notes receivable E CR Interest expense R DR Insurance fee revenue A CR Furniture L DR Unearned insurance fee revenue L DR Utilities payable E CR Salary and benefits expense L DR Unearned rent revenue A CR Small tools and supplies E DR Retained earnings R DR Service fees earned L DR Salaries and benefits payable R DR Service fees revenue E CR Compensation expense L DR Notes payable R DR Interest earned A CR Buildings E CR Meals and mileage expense L DR Rent payable L DR Unearned service fees E DR Share capital A CR Equipment

### EXERCISE 2–3

 Assets Liabilities Equity Debit Credit Debit Credit Debit Credit (increase) (decrease) (decrease) (increase) (decrease) (increase) 2. Borrowed $5,000 from the bank. 5,000 5,000 3. Paid$2,000 of the bank loan. 2,000 2,000 4. Paid $600 in advance for a one-year insurance policy. 600 600 5. Received$500 in advance for next month's rental of office space. 500 500

### EXERCISE 2–4

 Debit Credit 2. Purchased equipment on credit. Equipment Accounts Payable 3. Paid for a one-year insurance policy. Prepaid Expenses Cash 4. Billed a customer for repairs completed today. Accounts Receivable Repair Revenue 5. Paid this month's rent. Rent Expense Cash 6. Collected the amount billed in transaction 4 above. Cash Accounts Receivable 7. Collected cash for repairs completed today. Cash Repair Revenue 8. Paid for the equipment purchased in transaction 2 above. Accounts Payable Cash 9. Signed a union contract. No Entry No Entry 10. Collected cash for repairs to be made for customers next month. Cash Unearned Revenue 11. Transferred this month's portion of prepaid insurance that was used to Insurance Expense. Insurance Expense Prepaid Expenses

### EXERCISE 2–5

 Office Supplies # Cash # Accounts Receivable # Prepaid Rent # Inventory # Equipment 1 3,000 6 12,000 22 5,000 19 3,000 8 1,000 3 10,000 7 7,000 4 2,000 9 12,000 8 1,000 13 5,000 9 12,000 20 8,000 10 5,000 Bal 10,000 Bal 5,000 Bal 3,000 Bal 1,000 11 1,500 12 25 # Vehicle # Furniture # Computer # Accounts Payable 13 5,000 14 30,000 16 3,000 21 2,500 2 200 14 10,000 15 200 15 200 16 3,000 17 2,000 19 3,000 18 2,000 Bal 30,000 Bal 3,000 Bal 2,500 Bal 6,000 22 5,000 Bal 9,275 # Loan Payable # Notes Payable # Unearned Service Revenue # Share Capital # Service Revenue 3 10,000 5 5,000 18 2,000 1 3,000 6 12,000 11 1,350 14 20,000 7 7,000 21 2,500 17 2,000 20 8,000 Bal 8,650 Bal 27,500 Bal 2,000 Bal 3,000 Bal 29,000 Vehicle/Travel # Electricity Expense # Vehicle/Travel Expense # Repairs Expense # Rent Expense # Salaries Expense 2 200 12 25 5 5,000 10 5,000 4 2,000 Bal 200 Bal 25 Bal 5,000 Bal 5,000 Bal 2,000 # Interest Expense 11 150 Debits 76,150 Bal 150 Credits 76,150

### EXERCISE 2–6

 BOLA Co. Trial Balance At August 31, 2016 Debit Credit Cash $9,275 Accounts receivable 10,000 Prepaid rent 5,000 Office supplies inventory 3,000 Equipment 1,000 Vehicle 30,000 Furniture 3,000 Computer 2,500 Accounts payable$6,000 Loan payable 8,650 Notes payable 27,500 Unearned service revenue 2,000 Share capital 3,000 Service revenue 29,000 Electricity expense 200 Vehicle/travel expense 25 Repairs expense 5,000 Rent expense 5,000 Salaries expense 2,000 Interest expense 150 $76,150$76,150

 BOLA Co. Income Statement For the Month Ended August 31, 2016 Revenues Service revenue $29,000 Expenses Electricity expense$200 Vehicle/Travel expense 25 Repairs expense 5,000 Rent expense 5,000 Salaries expense 2,000 Interest expense 150 12,375 Net income $16,625  BOLA Co. Statement of Changes in Equit For the Month Ended August 31, 2016 Share Capital Retained Earnings Total Equity Opening balance$ – $–$– Shares issuance 3,000 3,000 Net income 16,625 16,625 Ending balance $3,000$16,625 $19,625  BOLA Co. Balance Sheet At August 31, 2016 Assets Liabilities Cash$9,275 Accounts payable $6,000 Accounts receivable 10,000 Loan payable 8,650 Prepaid rent 5,000 Note payable 27,500 Office supplies inventory 3,000 Unearned service revenue 2,000 Equipment 1,000 Total liabilities$44,150 Vehicle 30,000 Equity Furniture 3,000 Share capital $3,000 Computer 2,500 Retained earnings 16,625 Total equity 19,625 Total assets$63,775 Total liabilities and equity $63,775 ### EXERCISE 2–8  Cash Bank Loan Share Capital Repair Revenue (1) 5,000 (2) 900 (8) 2,500 (5) 7,500 (1) 5,000 (3) 1,500 (5) 7,500 (8) 2,500 (6) 500 (10) 2,000 Accounts Receivable Accounts Payable Electricity Expense (3) 1,500 (6) 500 (10) 2,000 (4) 2,000 (7) 200 (7) 200 Prepaid Expense Rent Expense (2) 900 (11) 300 (11) 300 Unused Supplies Supplies Expense (4) 2,000 (9) 800 (9) 800 ### EXERCISE 2–9  Cross Corporation Trial Balance At December 31, 2015 Account Balances Debits Credits Cash$120,400 Accounts Receivable 26,000 Unused Supplies 6,000 Land 8,000 Building 120,000 Accounts Payable $30,000 Loan Payable 80,000 Share Capital 170,000 Commissions Earned 5,000 Insurance Expense 100 Rent Expense 1,000 Salaries Expense 3,000 Supplies Expense 300 Telephone Expense 200 – Total$285,000 $285,000 ### EXERCISE 2–10  General Journal Date Account/Explanation F Debit Credit Cash Share Capital (a) To record the issuance of share capital. 3,000 3,000 Equipment Accounts Payable (b) To record the purchase of equipment on account. 2,000 2,000 Rent Expense Cash (c) To record the payment of rent for the month. 400 400 4,000 Supplies Accounts Payable (d) To record the purchase of supplies. 4,000 4,000 Accounts Receivable Repair Revenue (e) To record repair revenue. 2,500 2,500 Accounts Payable Cash (f) To record the payment on account. 2,000 2,000 Cash Accounts Receivable (g) To record collection of an amount owed. 500 500 Cash Equipment (h) To record the sale of equipment. 1,000 1,000 ### EXERCISE 2–11  General Journal Date Account/Explanation F Debit Credit Cash Share Capital (1) To record issuance of share capital XX XX Unused Supplies Cash Accounts Payable (2) To record the purchase of supplies. XX XX XX Cash Repair Revenue (3) To record revenue earned. XX XX Accounts receivable Repair Revenue (4) To record revenue earned. XX XX Prepaid Expense Cash (5) To record expense paid in advance. XX XX Supplies Expense Accounts Payable (6) To record supplies purchased and used. XX XX Rent Expense Accounts Payable (7) To record rent expense. XX XX Cash Unused Supplies (8) To record the sale of supplies. XX XX Electricity Expense Prepaid Expense (9) To record electricity expense for the month. XX XX Accounts Payable Cash (10) To record payment on account. XX XX Cash Bank Loan (11) To record the issuance of a bank loan. XX XX ### EXERCISE 2–12 1. General Ledger T-accounts with transactions:  Cash Accounts Payable Share Capital Service Revenue Jan. 1 10,000 Jan. 5 200 Jan. 28 450 Jan. 1 10,000 Jan. 11 1,300 11 1,300 4 4,000 31 1,600 30 1,800 Bal. 5,300 Bal. 2,900 Accounts Receivable Rent Expense Jan. 31 1,600 Jan. 5 200 Unused Supplies Truck Operation Expense Jan. 9 4,000 Jan. 31 200 Jan. 28 450 Bal. 3,800 Salaries Expense Jan. 30 1,800 Supplies Expense Jan. 31 200 2. Trial balance is as follows:  Elgert Corporation Trial Balance January 31, 2015 Debit Credit Cash$5,300 Accounts receivable 1,600 Unused supplies 3,800 Accounts payable $450 Share capital 10,000 Service revenue 2,900 Rent expense 200 Truck operation expense 450 Salaries expense 1,800 Supplies expense 200 Total$13,350 $13,350 3. Income statement, statement of changes in equity, and the balance sheet are as follows:  Elgert Corporation Income Statement For the Month Ended January 31, 2015 Revenue Service revenue$2,900 Expenses Rent expense $200 Truck operation expense 450 Salaries expense 1,800 Supplies expense 200 Total expenses 2,650 Net income$250
 Elgert Corporation Statement of Changes in Equity For the Month Ended January 31, 2015 Share Capital Retained Earnings Total Equity Opening balance $0$0 $0 Shares issued 10,000 0 10,000 Net income 0 250 250 Ending balance$10,000 $250$10,250
 Elgert Corporation Balance Sheet At January 31, 2015 Assets Cash $5,300 Accounts receivable 1,600 Unused supplies 3,800 Total assets$10,700 Liabilities Accounts payable $450 Equity Share capital$10,000 Retained earnings 250 10,250 Total liabilities and equity $10,700 ### EXERCISE 2–13 1. Adjusting Entry required to correct the error:  General Journal Date Account/Explanation F Debit Credit Cash Accounts payable Advertising expense 1,500 150 1,350 2. Adjusting Entry required to correct the error:  General Journal Date Account/Explanation F Debit Credit Salaries expense Cash 4,400 4,400 3. Adjusting Entry required to correct the error:  General Journal Date Account/Explanation F Debit Credit Repairs expense Prepaid repairs 1,500 1,500 4. Adjusting Entry required to correct the error:  General Journal Date Account/Explanation F Debit Credit Accounts receivable Revenue 3,400 3,400 5. Adjusting Entry required to correct the error:  General Journal Date Account/Explanation F Debit Credit Rent expense Cash 5,500 5,500 6. Adjusting Entry required to correct the error:  General Journal Date Account/Explanation F Debit Credit Revenue Unearned revenue 4,000 4,000 7. Adjusting Entry required to correct the error:  General Journal Date Account/Explanation F Debit Credit Accounts receivable Accounts payable 8,000 8,000 8. Adjusting Entry required to correct the error:  General Journal Date Account/Explanation F Debit Credit Prepaid rent Rent expense 10,000 10,000 ## Problems ### PROBLEM 2–1 1. The trial balance is as follows:  Fox Creek Service Limited Trial Balance At October 31, 2015 Account Balances Debit Credit Cash$1,000 Accounts Receivable 6,000 Equipment 7,000 Truck 9,000 Bank Loan $5,000 Accounts Payable 9,000 Wages Payable 1,500 Share Capital 2,000 Repair Revenue 19,000 Advertising Expense 2,200 Commissions Expense 4,500 Insurance Expense 500 Supplies Expense 800 Telephone Expense 250 Truck Operation Expense 1,250 Wages Expense 4,000$36,500 $36,500 2. The income statement and statement of changes in equity are as follows:  Fox Creek Service Limited Income Statement For the Year Ended October 31, 2015 Revenue Repair revenue$19,000 Expenses Advertising expense $2,200 Commissions expense 4,500 Insurance expense 500 Supplies expense 800 Telephone expense 250 Truck operation expense 1,250 Wages expense 4,000 Total expenses 13,500 Net income$5,500
 Fox Creek Service Limited Statement of Changes in Equity For the Year Ended October 31, 2015 Share Capital Retained Earnings Total Equity Opening Balance $-0-$-0- $-0- Shares Issued 2,000 -0- 2,000 Net Income -0- 5,500 5,500 Ending Balance$2,000 $5,500$7,500
3. The balance sheet is as follows:
 Fox Creek Service Limited Balance Sheet At October 31, 2015 Assets Cash $1,000 Accounts receivable 6,000 Equipment 7,000 Truck 9,000 Total assets$23,000 Liabilities Bank loan $5,000 Accounts payable 9,000 Wages payable 1,500 15,500 Equity Share capital 2,000 Retained earnings 5,500 7,500 Total liabilities and equity$23,000

### PROBLEM 2–2

1. The general journal is as follows:
 General Journal Date Account/Explanation F Debit Credit May 1 Cash Share Capital To record issuance of share capital. 5,000 5,000 5 Accounts Receivable Service Revenue To record billings to customers. 3,000 3,000 6 Cash Service Revenue To record cash payment by customers for work completed. 2,000 2,000 10 Cash Accounts Receivable To record collections on account. 1,500 1,500 11 Equipment Cash Accounts Payable To record purchase of equipment partially paid by cash, remainder on account. 2,000 1,000 1,000 15 Cash Accounts Receivable To record payment received on account. 1,200 1,200 16 Prepaid Advertising Cash To record payment of advertising in advance. 500 500 18 Accounts Receivable Service Revenue To record billings to customers. 2,500 2,500 20 Unused Supplies Cash To record purchase of supplies for inventory. 300 300 21 Cash Equipment To record sale of equipment at cost. 800 800 22 Accounts Payable Cash To record payment of amounts owing. 600 600 23 Telephone Expense Accounts Payable To record receipt of telephone bill. 150 150 24 Commissions Expense Accounts Payable To record receipt of commissions bill. 1,100 1,100 28 Rent Expense Cash To record payment of rent for May. 400 400 29 Salaries Expense Cash To record payment of wages incurred. 3,500 3,500 30 Supplies Expense Unused Supplies To record supplies used during the month. 100 100 31 Advertising Expense Prepaid Advertising To record expiry of prepaid advertising. 250 250
2. The Trial Balance is as follows:
 Davidson Tools Rentals Corporation Trial Balance May 31, 2015 Account Balances Debit Credit Cash $4,200 Accounts Receivable 2,800 Prepaid Advertising 250 Unused Supplies 200 Equipment 1,200 Accounts Payable$1,650 Share Capital 5,000 Service Revenue 7,500 Advertising Expense 250 Commissions Expense 1,100 Rent Expense 400 Supplies Expense 100 Salaries Expense 3,500 Telephone Expense 150 – $14,150$14,150
 Cash 101 Accounts Payable 210 Share Capital 320 Service Revenue 460 5,000 1,000 600 1,000 5,000 3,000 2,000 500 150 2,000 1,500 300 1,100 2,500 1,200 600 Bal. 1,650 Bal. 7,500 800 400 – 3,500 Bal. 4,200 Advertising Expense 610 250 Accounts Receivable 110 3,000 1,500 Commissions Expense 615 2,500 1,200 1,100 Bal. 2,800 Rent Expense 654 Prepaid Advertising 160 400 500 250 Bal. 250 Salaries Expense 656 3,500 Unused Supplies 173 300 100 Supplies Expense 668 Bal. 200 100 Equipment 183 Telephone Expense 669 2,000 800 150 Bal. 1,200

### PROBLEM 2–3

 General Journal Date Account/Explanation F Debit Credit Apr. 2015 Cash Accounts receivable (a) To record a collection on account. 2,000 2,000 Accounts Receivable Service Revenue (b) To record billings to customers. 3,000 3,000 Advertising Expense Salaries Expense Telephone Expense Cash (c) To record payment of expenses incurred. 300 2,000 100 2,400 Accounts payable Cash (d) To record payment made on account. 1,000 1,000 Truck Operation Expense Accounts Payable (e) To record bill received for truck repair expense. 500 500 Cash Accounts Receivable (f) To record payment received on account. 2,500 2,500 Accounts Receivable Service revenue (g) To record billings to customers. 1,500 1,500 Rent Expense Prepaid Rent (h) To record expiry of a portion of prepaid rent. 500 500 Supplies Expense Unused Supplies (i) To record supplies used, based on count of unused supplies at end of month. 150 150

 General Journal Date Account/Explanation F Debit Credit Aug. 1 Cash Share Capital To record issuance of share capital. 3,000 3,000 1 Cash Bank Loan To record amount borrowed from bank. 10,000 10,000 1 Truck Cash To record purchase of a used truck. 8,000 8,000 4 Prepaid Insurance Cash To record payment of a one-year insurance policy. 600 600 5 Cash Fees Earned To record collection of cash fees from a customer. 2,000 2,000 7 Accounts Receivable Fees Earned To record billings to customers. 5,000 5,000 9 Supplies Expense Cash To record payment of supplies used. 250 250 12 Unused Supplies Accounts Payable To record purchase of supplies on account. 500 500 15 Cash Accounts Receivable To record collection of customer accounts. 1,000 1,000 16 Advertising Expense Cash To record payment of advertising expense. 200 200 20 Accounts Payable Cash To record payment made on account. 250 250 25 Rent Expense Salaries Expense Telephone Expense Truck Operation Expense Cash To record cash payment of expenses. 350 2,150 50 250 2,800 29 Accounts Receivable Fees Earned To record billings to customers. 6,000 6,000 31 Insurance Expense Prepaid Insurance To record insurance expired for August ($600/12 months). 50 50 31 Supplies Expense Unused Supplies To record supplies used;$500 purchased on Aug. 12 less $100 still on hand. 400 400 NOTE: No entry is recorded for August 28 because a transaction did not occur. ### PROBLEM 2–5  Cushio Corp. Trial Balance At August 31, 2016 Incorrect Adjustments Correct Balance Debit Credit Debit Credit Debit Credit Cash 102,000 102,000 Accounts receivable 59,730 3 270 1 5,000 55,000 Prepaid expenses 2,000 6 6,000 8,000 Office supplies inventory 5,500 5,500 Equipment 115,000 5 10,000 125,000 Accounts payable 74,500 4 500 85,000 5 10,000 Unearned revenue 50,000 2 5,000 45,000 Share capital 25,000 25,000 Retained earnings 50,500 50,500 Revenue 245,000 2 5,000 250,000 Repairs expense 1,000 4 500 1,500 Rent expense 25,000 25,000 Advertising expense 24,500 6 6,000 18,500 Salaries expense 115,000 115,000 449,730 445,000 21,770 26,500 455,500 455,500 ### PROBLEM 2–6 1. No entry 2.  General Journal Date Account/Explanation F Debit Credit Prepaid expense Cash 12,000 12,000 3.  General Journal Date Account/Explanation F Debit Credit Accounts payable Cash ($115,000×50%) 57,500 57,500
4. No entry
5.  General Journal Date Account/Explanation F Debit Credit Cash Unearned service revenue 200,000 200,000
6. No entry
7. No entry
8.  General Journal Date Account/Explanation F Debit Credit Accounts receivable Service revenue 12,000 12,000
9.  General Journal Date Account/Explanation F Debit Credit Cash Accounts receivable 6,000 6,00
10.  General Journal Date Account/Explanation F Debit Credit Cash Unearned service revenue 20,000 20,000
11.  General Journal Date Account/Explanation F Debit Credit Cash Note payable 150,000 150,000
12.  General Journal Date Account/Explanation F Debit Credit Cash Equipment Share capital 30,000 10,000 40,000
13.  General Journal Date Account/Explanation F Debit Credit Prepaid rent Cash 18,000 18,000
14.  General Journal Date Account/Explanation F Debit Credit Land Building/Warehouse Note payable Cash 250,000 60,000 260,000 50,000
15. No entry
16.  General Journal Date Account/Explanation F Debit Credit Accounts receivable Service revenue 30,000 30,000
17.  General Journal Date Account/Explanation F Debit Credit Equipment Equipment Cash 8,000 3,000 5,000
18.  General Journal Date Account/Explanation F Debit Credit Retained earnings Cash 1,000 1,000
19.  General Journal Date Account/Explanation F Debit Credit Service revenue Accounts receivable 2,000 2,000
20.  General Journal Date Account/Explanation F Debit Credit Salaries expense Cash 35,000 35,000
21.  General Journal Date Account/Explanation F Debit Credit Utilities expense Accounts payable 1,800 1,800
22.  General Journal Date Account/Explanation F Debit Credit Office equipment Office supplies Accounts payable 5,000 2,000 7,000
23. No entry
1.  Stellar Services Ltd. Income Statement For the Two Months Ended January 31, 2016 Revenues Service revenue $65,000 Expenses Repairs expense$500 Salaries expense 67,000 Utilties expense 6,300 73,800 Net loss $(8,800)  Stellar Services Ltd. Statement of Changes in Equity For the Two Months Ended January 31, 2016 Share Capital Retained Earnings Total Equity Opening balance, December 31, 2015$108,000 $90,000$198,000 Shares issued 40,000 40,000 Net loss (8,800) (8,800) Dividends*** (1,000) (1,000) Ending balance $148,000$80,200 $228,200  Stellar Services Ltd. Balance Sheet At January 31, 2016 Assets Liabilities Cash$377,500 Accounts payable $66,300 Accounts receivable 119,000 Note payable 430,000 Office supplies 9,000 Unearned consulting fees 220,000 Prepaid expenses 30,000 Total liabilities$716,300 Land 250,000 Building/Warehouse 60,000 Equipment 60,000 Equity Office equipment 5,000 Share capital $148,000 Furniture 15,000 Retained earnings 80,200 Vehicle 19,000 Total equity Total liabilities and equity 228,200 Total assets$944,500 $944,500 ### PROBLEM 2–7  Date Transaction Journal Subledger Dec 1 Issued shares to the company's founder for cash CR 1 Issued a cheque for rent to the building owner CD 2 Purchased 100 books on credit from the publisher P AP and MI 4 Borrowed money from bank (i.e. a note payable) CR 5 Purchased office furniture on account P AP 6 Return 5 books to the publisher due to missing pages P AP and MI 12 Sold 20 books to Fred's Cigar Store on account (credit) S AR and MI 13 Paid cash for a two-year insurance policy effective immediately CD 15 Paid cash for some office supplies CD 19 Issued a cheque to the bank for the note payable interest CD 20 Hired an employee and paid her first week's salary in cash CD 22 Sold 10 books for cash CR MI 27 Fred's Cigar Store returned five of the books purchased earlier and the amount owing was adjusted (accounts receivable) S AR and MI 27 Received cash from Fred's Cigar Store for amount owing CR AR 28 Found an error in the accounting records and recorded a correcting entry GJ 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 CR MI 30 A cheque was issued for rent for January, 2018 CD 30 Dividends were paid in cash to the company founder CD ### PROBLEM 2–8 1.  Credit Sales Journal S1 Date Billing # Customer Ref Accounts Receivable Consulting Services Revenue Vintage Model Plane Sales Other Desc Debit Credit Credit Jun 2 17001 Cooper Co.$8,000 $8,000 Jun 6 17002 Mr. F. Scott 12,500$12,500 Jun 25 17003 Boyzee Villages Corp. 35,000 35,000 Totals $55,500$43,000 $12,500  Credit Purchases Journal P1 Date Inv # Creditor Ref Accounts Payable Equipment Purchases Advertising Expense Other Purchases Desc Credit Debit Debit Debit Jun 1 Bradley & Co.$12,000 $12,000 Equipment Jun 10 Daily Gazette 1,200$1,200 Advertising exp Totals $13,200$12,000 $1,200  Cash Receipts Journal CR1 Date Billing # Customer Ref Cash Sales Discount Accounts Receivable Cash Sales Other Desc Debit Debit Credit Credit Credit Jun 7 Cash sale$2,000 $2,000 Jun 8 17001 Cooper Co. 7,920$80 $8,000 Jun 11 Dep Ft Robbins Br Builders 5,000$5,000 Unearned Consulting Fees Jun 14 Bank of Trust 10,000 10,000 Note Payable Jun 18 17002 F. Scott 5,000 5,000 Jun 22 Shares Issued 5,000 5,000 Share Capital Totals $34,920$80 $13,000$2,000 $20,000  Cash Disbursements Journal CD1 Purchase Accounts Other Date Chq # Payee Ref Cash Purchase Discount Accounts Payable Other Disbursements Desc Credit Credit Debit Debit Jun 3 601 LRS Properties Ltd.$3,500 $3,500 Rent expense Jun 4 602 Office Supplies Ltd. 1,240 1,240 Office supplies Jun 9 603 Salary 1,400 1,400 Salary expense Jun 10 604 Bradley & Co. 2,400$2,400 Jun 23 605 HTC Power Corp. 350 350 Utilities expense Jun 28 606 Daily Gazette 1,188 $12 1,200 Jun 29 607 Bill Sloan 200 200 Cash dividends Jun 30 608 Bank of Trust 1,000 30 Interest expense 970 Note payable Jun 30 609 Salary 1,600 1,600 Salary expense Totals$12,878 $12$3,600 $9,290  General Journal GJ1 Date Account/Explanation F Debit Credit Jun 30 Interest expense 5 Note payable 5 Correction to Interest expense for the bank loan Totals 5 5 2.  Accounts Receivable Subledger Name: Cooper Co. Date Ref Debit Credit Balance Jun 2 17001 8,000 8,000 Jun 8 17001 8,000 – Name: Mr. F. Scott Date Ref Debit Credit Balance Jun 6 17002 12,500 12,500 Jun 18 17002 5,000 7,500 Name: Boyzee Villages Corp. Date Ref Debit Credit Balance Jun 25 17003 35,000 35,000  Accounts Payable Subledger Name: Bradley & Co. Date Ref Debit Credit Balance Jun 1 12,000 12,000 Jun 10 2,400 9,600 Name: Daily Gazette Date Ref Debit Credit Balance Jun 10 1,200 1,200 Jun 28 1,200 –  General Ledger Name: Cash Date Ref Debit Credit Balance Jun 30 CR1 34,920 DR 34,920 Jun 30 CD1 12,878 DR 22,042 Name: Accounts Receivable Date Ref Debit Credit Balance Jun 30 S1 55,500 DR 55,500 Jun 30 CR1 13,000 DR 42,500 Name: Office Supplies Date Ref Debit Credit Balance Jun 30 CD1 1,240 DR 1,240 Name: Equipment Date Ref Debit Credit Balance Jun 30 P1 12,000 DR 12,000 Name: Accounts Payable Date Ref Debit Credit Balance Jun 30 P1 13,200 CR 13,200 Jun 30 CD1 3,600 CR 9,600 Name: Unearned Consulting Fees Date Ref Debit Credit Balance Jun 30 CR1 5,000 CR 5,000 Name: Note Payable Date Ref Debit Credit Balance Jun 30 CR1 10,000 CR 10,000 Jun 30 CD1 970 CR 9,030 Jun 30 GJ1 5 CR 9,035 Name: Share Capital Date Ref Debit Credit Balance Jun 30 CR1 5,000 CR 5,000 Name: Cash Dividends Date Ref Debit Credit Balance Jun 30 CD1 200 DR 200  General Ledger Name: Consulting Services Revenue Date Ref Debit Credit Balance Jun 30 S1 43,000 CR 43,000 Name: Vintage Model Plane Sales Date Ref Debit Credit Balance Jun 30 S1 12,500 CR 12,500 Jun 30 CR1 2,000 CR 14,500 Name: Sales Discount Date Ref Debit Credit Balance Jun 30 CR1 80 DR 80 Name: Advertising Expenses Date Ref Debit Credit Balance Jun 30 P1 1,200 DR 1,200 Jun 30 CD1 12 DR 1,188 Name: Rent Expense Date Ref Debit Credit Balance June 30 CD1 3,500 DR 3,500 Name: Salary Expense Date Ref Debit Credit Balance Jun 30 CD1 3,000 DR 3,000 Name: Utilities Expense Date Ref Debit Credit Balance Jun 30 CD1 350 DR 350 Name: Interest Expense Date Ref Debit Credit Balance Jun 30 CD1 30 DR 30 Jun 30 GJ1 5 DR 35 3.  Harmand Ltd. Trial Balance As at June 30th, 20XX Debit Credit Cash$22,042 Accounts receivable 42,500 Office supplies 1,240 Equipment 12,000 Accounts payable 9,600 Unearned consulting fees 5,000 Note payable 9,035 Share capital 5,000 Cash dividends 200 Consulting services revenue 43,000 Vintage Model Plane Sales 14,500 Sales discount 80 Advertising expense 1,188 Rent expense 3,500 Salary expense 3,000 Utilities expense 350 Interest expense 35 $86,135$86,135

4.

 Harmand Ltd. Income Statement For the Month Ended June 30, 20XX Revenues Consulting services revenue $43,000 Vintage Model Plane Sales 14,500$57,500 Expenses Sales discount $80 Advertising expense 1,188 Rent expense 3,500 Salary expense 3,000 Utilities expense 350 Interest expense 35 8,153 Net income$49,347
 Harmand Ltd. Statement of Changes in Equity For the Month Ended June 30, 20XX Share Capital Retained Earnings Total Equity Balance, beginning of period $–$ – $– Shares Issued 5,000 5,000 Net Income 49,347 49,347 Dividends (200) (200) Ending Balance$5,000 $49,147$54,147
 Harmand Ltd. Balance Sheet At June 30, 20XX Assets Cash $22,042 Accounts receivable 42,500 Office supplies 1,240 Equipment 12,000 Total assets$77,782 Liabilities Accounts payable 9,600 Unearned consulting fees 5,000 Note payable 9,035 Total liabilities 23,635 Equity Share capital 5,000 Retained earnings 49,147 Total equity 54,147 Total liabilities and equity 77,782

This page titled 2.11: Solutions is shared under a CC BY-NC-SA license and was authored, remixed, and/or curated by Henry Dauderis and David Annand (Lyryx Learning) .