2.11: Solutions

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

EXERCISE 2–7

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

PROBLEM 2–4

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. 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

2. 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