2.9: Exercises

EXERCISE 2–1 (LO1) Accounts

Below is a list of various accounts:

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

Required:

1. Identify each account as either an asset (A), liability (L), equity (E), revenue (R), or expense (E).
2. Identify whether the normal balance of each account is a debit (DR) or credit (CR).

EXERCISE 2–2 (LO1) Accounts

Required: Using the list from EXERCISE 2–1, identify if a debit or credit is needed to decrease the normal balance of each account.

EXERCISE 2–3 (LO2)

Required: Record the debit and credit for each of the following transactions (transaction 1 is done for you):

	Assets		Liabilities		Equity
	Debit	Credit	Debit	Credit	Debit	Credit
	(increase)	(decrease)	(decrease)	(increase)	(decrease)	(increase)
1. Purchased a $10,000 truck on credit.	10,000			10,000
2. Borrowed $5,000 cash from the bank.
3. Paid $2,000 of the bank loan in cash.
4. Paid $600 in advance for a one-year insurance policy.
5. Received $500 in advance from a renter for next month's rental of office space.

EXERCISE 2–4 (LO2)

Required: Record the debit and credit in the appropriate account for each of the following transactions (transaction 1 is done for you):

	Debit	Credit
1. Issued share capital for cash.	Cash	Share Capital
2. Purchased equipment on credit.
3. Paid for a one-year insurance policy.
4. Billed a customer for repairs completed today.
5. Paid this month's rent.
6. Collected the amount billed in transaction 4 above.
7. Collected cash for repairs completed today.
8. Paid for the equipment purchased in transaction 2 above.
9. Signed a union contract.
10. Collected cash for repairs to be made for customers next month.
11. Transferred this month's portion of prepaid insurance that was used to Insurance Expense.

EXERCISE 2–5 (LO2) Using T-accounts

Below are various transactions for the month of August, 2016, for BOLA Co. This is their first month of operations.

1. Issued share capital in exchange for $3,000 cash.
2. Received an invoice from the utilities company for electricity in the amount of $200.
3. Bank approved a loan and deposited $10,000 into the company's bank account.
4. Paid employee salaries in the amount of $2,000.
5. Received repair services worth $5,000 from a supplier in exchange for a note due in thirty days.
6. Completed service work for a European customer. Invoiced $8,000 EURO (European funds). The Canadian currency equivalent is $12,000 CAD. (hint: Recall the monetary unit principle.)
7. Completed $7,000 of service work for a customer on account.
8. Purchased $1,000 of equipment, paying cash.
9. Received $8,000 EURO ($12,000 CAD) cash for service work done regarding item (6).
10. Rent of $5,000 cash was paid for the current month's rent.
11. Made a payment of $1,500 cash as a loan payment regarding item (3). The payment covered $150 for interest expense and the balance of the cash payment was to reduce the loan balance owing.
12. Reimbursed $25 in cash to an employee for use of his personal vehicle for company business for a business trip earlier that day.
13. Received a cash of $5,000 regarding the service work for item (7).
14. Vehicle worth $30,000 purchased in exchange for $10,000 cash and $20,000 note due in six months.
15. Paid the full amount of the utilities invoice regarding item (2).
16. Purchased $3,000 of furniture on account.
17. Completed $2,000 of service work for a customer and collected cash.
18. Received a cheque in the amount of $2,000 from a customer for service work to be done in two months.
19. Purchased office supplies for $3,000 on account.
20. Completed a project for a customer and billed them $8,000 for the service work.
21. Purchased a laptop computer for $2,500 in exchange for a note payable.
22. September rent of $5,000 was paid two weeks in advance, on August 15.

Required: Create a separate T-account for each asset, liability, equity, revenue and expense account affected by the transactions above. Record the various transactions debits and credits into the applicable T-account (similar to the two T-accounts shown in Section 2.1, under the heading T-accounts, for Cash and Accounts payable). Calculate and record the ending balance for each T-account. (Hint: Include the reference to the transaction number for each item in the T-accounts, to make it easier to review later, if the accounts contain any errors.)

EXERCISE 2–6 (LO3) Preparing a Trial Balance

Required: Using the T-accounts prepared in EXERCISE 2–5, prepare an August 31, 2016, trial balance for the company based on the balances in the T-accounts.

EXERCISE 2–7 (LO3) Preparing Financial Statements

Required: Using the trial balance in EXERCISE 2–6, prepare the August 31, 2016, income statement, statement of changes in equity and the balance sheet for the company based on the balances in the T-accounts.

EXERCISE 2–8 (LO2)

Required: Post the following transactions to the appropriate accounts:

1. Issued share capital for $5,000 cash (posted as an example).
2. Paid $900 in advance for three months' rent, $300 for each month.
3. Billed $1,500 to customers for repairs completed today.
4. Purchased on credit $2,000 of supplies to be used next month.
5. Borrowed $7,500 from the bank.
6. Collected $500 for the amount billed in transaction (3).
7. Received a $200 bill for electricity used to date (the bill will be paid next month).
8. Repaid $2,500 of the bank loan.
9. Used $800 of the supplies purchased in transaction (4).
10. Paid $2,000 for the supplies purchased in transaction (4).
11. Recorded the use of one month of the rent paid for in transaction (2).

Cash		Bank Loan		Share Capital		Repair Revenue
(1) 5,000					(1) 5,000
Accounts Receivable		Accounts Payable				Electricity Expense
Prepaid Expense						Rent Expense
Unused Supplies						Supplies Expense

EXERCISE 2–9 (LO3)

The following Trial Balance was prepared from the books of Cross Corporation at its year-end, December 31, 2015. After the company's bookkeeper left, the office staff was unable to balance the accounts or place them in their proper order. Individual account balances are correct, but debits may be incorrectly recorded as credits and vice-versa.

Account Title	Account Balances
	Debits	Credits
Cash	$120,400
Commissions Earned	5,000
Share Capital		$170,000
Accounts Payable	30,000
Insurance Expense	100
Land		8,000
Building		120,000
Rent Expense		1,000
Accounts Receivable		26,000
Unused Supplies	6,000
Supplies Expense		300
Loan Payable		80,000
Salaries Expense		3,000
Telephone Expense	200
Totals	$161,700	$408,300

Required: Prepare a corrected Trial Balance showing the accounts in proper order and balances in the correct column. List expenses in alphabetical order. Total the columns and ensure total debits equal total credits.

EXERCISE 2–10 (LO4)

Required: Prepare journal entries for each of the following transactions:

1. Issued share capital for $3,000 cash.
2. Purchased $2,000 of equipment on credit.
3. Paid $400 cash for this month's rent.
4. Purchased on credit $4,000 of supplies to be used next month.
5. Billed $2,500 to customers for repairs made to date.
6. Paid cash for one-half of the amount owing in transaction (d).
7. Collected $500 of the amount billed in transaction (e).
8. Sold one-half of the equipment purchased in transaction 2 above for $1,000 in cash.

EXERCISE 2–11 (LO2,4)

Required: Prepare the journal entries and likely descriptions of the eleven transactions that were posted to the following General Ledger accounts for the month ended January 31, 2015. Do not include amounts. For instance, the first entry would be:

General Journal
Date	Account/Explanation	F	Debit	Credit
	Cash		XX
	Share Capital			XX
	(1) To record issuance of share capital

Cash		Bank Loan		Share Capital		Repair Revenue
1	2		11		1		3
3	5						4
8	10
11
Accounts Receivable		Accounts Payable				Electricity Expense
4		10	2			9
			6
			7
Prepaid Expense						Rent Expense
5	9					7
Unused Supplies						Supplies Expense
2	8					6

EXERCISE 2–12 (LO2,3,4)

The following journal entries were prepared for Elgert Corporation for its first month of operation, January 2015.

General Journal
Date	Account/Explanation	F	Debit	Credit
Jan. 1	Cash		10,000
	Share Capital			10,000
	To record the issuance of shares.
5	Rent Expense		200
	Cash			200
	To record the payment of rent for the month.
9	Unused Supplies		4,000
	Cash			4,000
	To record the purchase of supplies.
11	Cash		1,300
	Service Revenue			1,300
	To record service revenue earned.
28	Truck Operation Expense		450
	Accounts Payable			450
	To record truck repairs.
30	Salaries Expense		1,800
	Cash			1,800
	To record payment of salaries for the month.
31	Accounts Receivable		1,600
	Service Revenue			1,600
	To record service revenue earned during the month.
31	Supplies Expense		200
	Unused Supplies			200
	To record supplies used during the month.

Required:

1. Prepare necessary General Ledger T-accounts and post the transactions.
2. Prepare a Trial Balance at January 31, 2015.
3. Prepare an Income Statement and Statement of Changes in Equity for the month ended January 31, 2015 and a Balance Sheet at January 31, 2015.

EXERCISE 2–13 (LO4) Correcting Errors in Journal Entries

Below are transactions that contain errors in the journal entry.

1. Received an invoice from a supplier for advertising in the amount of $150.

   General Journal
   Date	Account/Explanation	F	Debit	Credit
   	Advertising expense		1,500
   	Cash			1,500

2. Paid employee salaries in the amount of $2,200.

   General Journal
   Date	Account/Explanation	F	Debit	Credit
   	Cash		2,200
   	Salaries expense			2,200

3. Received repair services worth $1,500 from a supplier in exchange for a note due in sixty days.

   General Journal
   Date	Account/Explanation	F	Debit	Credit
   	Prepaid repairs		1,500
   	Note payable			1,500

4. Completed service work for a British customer. Invoiced $5,000 GBP (British pounds Sterling funds). The Canadian currency equivalent is $8,400 CAD. (Hint: Recall the monetary unit principle.)

   General Journal
   Date	Account/Explanation	F	Debit	Credit
   	Accounts receivable		5,000
   	Revenue			5,000

5. Rent of $5,000 cash was paid for the current month's rent.

   General Journal
   Date	Account/Explanation	F	Debit	Credit
   	Cash		500
   	Rent expense			500

6. Received a cheque in the amount of $4,000 from a customer for service work to be started in three months.

   General Journal
   Date	Account/Explanation	F	Debit	Credit
   	Cash		4,000
   	Revenue			4,000

7. Completed a project for a customer and billed them $8,000 for the service work.

   General Journal
   Date	Account/Explanation	F	Debit	Credit
   	Accounts payable		8,000
   	Revenue			8,000

8. Rent of $10,000 for the next six months was paid in advance.

   General Journal
   Date	Account/Explanation	F	Debit	Credit
   	Rent expense		10,000
   	Cash			10,000

Required: Record the correcting journal entries. (Hint: One method is to reverse the incorrect entry and record the correct entry and a second method is to record the correcting amounts to the applicable accounts only.)