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2.11: Solutions

  • Page ID
    28736
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    • Contributed by Henry Dauderis and David Annand
    • Athabasca University
    • Sourced from Lyryx Learning

    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. 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
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