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3.12: Solutions

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    30388
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    • Contributed by Henry Dauderis and David Annand
    • Athabasca University
    • Sourced from Lyryx Learning

    Discussion Questions

    1. The sequence of financial transactions that occurs continuously during an accounting time period is called the operating cycle. Operations begin with some cash on hand. The cash is used to purchase supplies and pay expenses while revenue is being generated. When revenue is earned, cash is collected, beginning the cycle over again. While some transactions are being completed, others are only beginning.
    2. No, the operating cycle does not have to be complete before income can be measured. Revenue can be recorded as earned when the product is sold or the service performed regardless of whether cash is collected. To measure income, expenses must be matched to revenues or the relevant time period. This usually can be done whether or not the operating cycle is complete.
    3. Accrual accounting matches expenses to revenues for a particular time period. The accrual method is the basis on which accounts are adjusted to reach this objective. Under this method, expenses are matched to the revenues during the period that the revenues are generated. The revenue recognition assumption helps determine when revenues are earned, thus allowing expenses to be matched to these revenues. Revenues are not generally matched to expenses by convention. The rationale is that revenues are recognised before expenses; therefore expenses should be matched to revenues.
    4. Under the going concern concept, it is assumed that operating cycles that are incomplete at the end of financial periods will be completed during the (assumed) unlimited life of the entity. Since accountants must prepare financial statements even though operating cycles are incomplete, accrual accounting techniques are employed to more accurately measure economic activity during a given time period.
      1. The cost of goods that are transferred to customers (such as items sold); these expenses can be matched to revenue generated relatively easily.
      2. The cost of assets only partially consumed during the time period like trucks and equipment; these expenses are as easily matched with revenue.
      3. Some expenses incurred during the accounting period are not easily identified with revenue generated, such as salaries of administrative staff. These are matched to the period in which they are incurred, rather than to related revenue.
    5. Adjusting entries are changes made at the end of an operating cycle to more accurately reflect economic activity during the period. For instance, depreciation is calculated on plant and equipment assets and charged to the income statement.
    6. At the end of the accounting period, an accountant must determine the amount of future benefits (assets like Prepaid Insurance) that belong on the balance sheet and how much should be recorded in the income statement (as Insurance Expense, in this example). The appropriate amounts must be transferred by means of adjusting entries.
    7. Plant and equipment accounts and are handled differently than other asset accounts. The expired portion of the cost of such an asset is estimated based on its useful life and recorded as depreciation expense. This requires no cash outlay, despite being an expense. Plant and equipment asset accounts themselves are not reduced by the depreciation expense; rather, a contra asset account is set up in order to show a reduced balance on the balance sheet.
    8. A contra account is used to reduce the value of a related balance sheet item. For instance, the account Accumulated Depreciation-Equipment is credited by the amount of depreciation expense recorded each year. The balance in this account is netted against the related account (Equipment, in this example) so that the asset is shown at carrying amount on the balance sheet.
    9. At the end of the accounting period, the amount of the liability that belongs on the balance sheet must be determined. The account balance is adjusted through the use of an adjusting entry to the related revenue account (Repair Revenue, in this example).
    10. Accruals are assets and liabilities that increase during an accounting period but are not recognised in the normal course of recording financial transactions. They are recorded through the use of accrual adjusting entries at the end of the accounting period. Examples of accounts that accrue are:

      Examples of Income

      Statement Account

      Related Balance

      Sheet Account

      Revenues: Interest Earned Interest Receivable
      Rent Earned Unearned Rent
      Revenue
      Expenses: Interest Expense Interest Payable
      Rent Expense Prepaid Rent
      Insurance Expense Prepaid Insurance
      Salaries Expense Salaries Payable

      Related balance sheet accounts are eventually reduced when cash is received or paid, as applicable.

    11. An adjusted trial balance is prepared after posting the adjusting entries in order to establish the equality of debits and credits, and before preparing the financial statements.
    12. The adjusted trial balance conveniently summarises the general ledger accounts in order of their appearance in the financial statements. This facilitates preparation of the financial statements.
    13. The eight steps in the accounting cycle are:
      1. Transactions are analysed and recorded in the general journal.
      2. The journal entries are posted to general ledger accounts.
      3. An unadjusted trial balance is prepared to ensure debits equal credits.
      4. The account balances are analysed, and adjusting entries are prepared and posted.
      5. An adjusted trial balance is prepared to prove the equality of debits and credits.
      6. The adjusted trial balance is used to prepare financial statements.
      7. Closing entries are journalized and posted.
      8. A post-closing trial balance is prepared to ensure closing entries have been appropriately recorded and to ensure equality of debits and credits.
    14. The first two steps in the accounting cycle occur continuously throughout the accounting period:
      1. Transactions are analysed and recorded in the general journal.
      2. The journal entries are posted to general ledger accounts.
    15. The next six steps in the accounting cycle occur only at the end of the accounting period:
      1. An unadjusted trial balance is prepared to ensure debits equal credits.
      2. The account balances are analysed, and adjusting entries are prepared and posted.
      3. An adjusted trial balance is prepared to prove the equality of debits and credits.
      4. The adjusted trial balance is used to prepare financial statements.
      5. Closing entries are journalized and posted.
      6. A post-closing trial balance is prepared to ensure closing entries have been appropriately recorded and to ensure equality of debits and credits.

      These steps differ from the others because they don't deal with individual transactions but address account balances. The adjusted balances are used to prepare financial statements.

    16. Revenues must be accrued during the current accounting period if they have been earned and even if they have not yet been satisfied with cash during in the current accounting period. An account receivable is an example. Expenses must be accrued during the current accounting period if they relate to the revenue recognised during the current period or the current time period itself (for example, salaries) even if they have not yet been paid in cash. An account payable is an example. Cash outlays are recorded as prepaid expenses if cash is paid in advance of expense recognition. Prepaid Insurance is an example. For each such asset and liability, the accountant must determine at the end of the accounting period the appropriate balance that should be recorded on the balance sheet. These accounts are adjusted as appropriate through adjusting entries.
    17. The need for regular financial information requires that revenue and expense accounts of a business be accumulated for usually no more than one year by convention, and that financial statements be prepared for that period. Using a consistent time period allows revenue and expenses for one period to be compared to a preceding period. A one-year cycle reduces effects of seasonal variations in business activity, for instance, but also allows for business performance to be evaluated by owners and creditors regularly and predictably.
    18. Temporary accounts include all revenues and expense categories that are reduced to zero at the end of the fiscal year when they are closed to the Retained Earnings account. Permanent accounts have a continuing balance from one fiscal year to the next: these include all balance sheet accounts.
    19. An income summary account is an account used only at year-end to accumulate all revenue and expense balances, and to reduce their general ledger accounts to zero at the end of the fiscal year. This account summarises the Net Income (or Net Loss) for the period. It is closed to the Retained Earnings account at year-end.
    20. A post-closing trial balance is a listing of balance sheet accounts and their balances after all temporary accounts have been closed. It proves the equality of general ledger debit and credit balances before the next accounting period commences.

    Exercises

    EXERCISE 3–1

    a. and c.

    Graham Corporation

    General Ledger

    ASSETS = LIABILITIES + EQUITY
    Interest Receivable Interest Payable Interest Earned
    (a) 110 (c) 90 (a) 110
    Prepaid Insurance Salaries Payable Rent Earned

    1,800

    (d) 450 (e) 500
    (b) 1,200
    Bal. 600 Unearned Rent Insurance Expense
    700 (b) 1,200
    (e) 500
    Bal. 200 Interest Expense
    (c) 90
    Salaries Expense
    (d) 450

    b.

    General Journal
    Date Account/Explanation F Debit Credit
    Interest Receivable 110
    Interest Earned 110
    (a)
    Insurance Expense 1,200
    Prepaid Insurance 1,200
    (b)
    Interest Expense 90
    Interest Payable 90
    (c)
    Salaries Expense 450
    Salaries Payable 450
    (d)
    Unearned Rent 500
    Rent Earned 500
    (e)

    d.

    Revenues

    Interest Earned

    $110

    Rent Earned

    500

    Expenses

    Insurance Expense

    $1,200

    Interest Expense

    90

    Salaries Expense

    450

    EXERCISE 3–2

    1. The adjustments column is as follows:
      Lauer Corporation
      Trial Balance Adjustments Adjusted Trial Balance
      Dr. Cr. Dr. Cr. Dr. Cr.
      Cash $4,000 $4,000
      Accounts Receivable 5,000 5,000
      Prepaid Insurance 3,600 (a) $300 3,300
      Prepaid Rent 1,000 (b) 500 500
      Truck 6,000 6,000
      Accumulated
      Depreciation – Truck (c) 1,500 $1,500
      Accounts Payable $7,000 (d) 400 7,400
      Salaries Payable (e) 1,000 1,000
      Unearned Rent 1,200 (f) $600 600
      Share Capital 2,700 2,700
      Revenue 25,000 25,000
      Rent Earned (f) 600 600
      Advertising Expense 700 700
      Commissions Expense 2,000 2,000
      Depreciation Expense (c) 1,500 1,500
      Insurance Expense (a) 300 300
      Interest Expense 100 (d) 400 500
      Rent Expense 5,500 (b) 500 6,000
      Salaries Expense 8,000 (e) 1,000 9,000

      Totals

      $35,900

      $35,900

      $4,300

      $4,300

      $38,800

      $38,800

    2. The general journal is as follows:
      General Journal
      Date Account/Explanation F Debit Credit
      Insurance Expense 300
      Prepaid Insurance 300
      (a) To record expiry of prepaid insurance.
      Rent Expense 500
      Prepaid Rent 500
      (b) To record expiry of prepaid rent.
      Depreciation Expense 1,500
      Accumulated Depreciation – Truck 1,500
      (c) To record truck depreciation.
      Interest Expense 400
      Accounts Payable 400
      (d) To accrue interest.
      Salaries Expense 1,000
      Salaries Payable 1,000
      (e) To accrue unpaid salaries.
      Unearned Rent 600
      Rent Earned 600
      (f) To record expiry of unearned rent.

    EXERCISE 3–3

    1. The general journal is as follows:
      General Journal
      Date Account/Explanation F Debit Credit
      Rent Expense 200
      Prepaid Rent 200
      (a) To adjust prepaid rent account to the proper balance.
      Office Supplies Expense 400
      Unused Office Supplies 400
      (b) To record the ending balance of supplies on hand.
      Income Taxes Expense 5,000
      Income Taxes Payable 5,000
      (c) To record income taxes for the period.
      Unearned Commissions 1,000
      Commissions Earned 1,000
      (d) To record the proper balance in the Unearned Commissions account.
      Salaries Expense 300
      Salaries Payable 300
      (e) To accrue salaries for the period.
    2. Assets would be overstated by $600 [(a): 200 + (b): 400].

      Liabilities would be understated by $4,300 [(c): 5,000 − (d): 1,000 + (e): 300].

      Revenue would be understated by $1,000 (d).

      Expenses would be understated by $5,900 [(a): 200 + (b): 400 + (c): 5,000 + (e): 300].

      Equity would be overstated by $4,900 [(a):200 + (b):400 + (c):5,000 − (d):1,000 + (e):300].

    EXERCISE 3–4

    General Journal
    Date Account/Explanation F Debit Credit
    Dec. 31 Advertising Expense 500
    Prepaid Advertising 500
    To record the expired portion of advertising for the period.
    31 Supplies Expense 400
    Unused Supplies 400
    To record the remaining amount of supplies on hand.
    31 Depreciation Expense – Equipment 250
    Accumulated Depreciation – Equipment 250
    To record the depreciation for the period.
    31 Maintenance Expense 200
    Telephone Expense 100
    Utilities Expense 400
    Commissions Expense 800
    Accounts Payable 1,500
    To record expenses incurred but not yet paid for the period.
    31 Salaries Expense 700
    Salaries Payable 700
    To record salaries accrued for the period.
    31 Unearned Subscriptions 5,000
    Subscription Revenue 5,000
    To record subscriptions earned for the period.

    EXERCISE 3–5

    General Journal
    Date Account/Explanation F Debit Credit
    Dec. 31 Depreciation Expense – Truck 1,200
    Accumulated Depreciation – Truck 1,200
    To record additional truck depreciation for the year ($2,500 − 1,300) ($10,000/4 years = $2,500/year).

    EXERCISE 3–6

    Interest expense for the year should be $12,000 × 10% = $1,200. The needed adjusting entry is:

    General Journal
    Date Account/Explanation F Debit Credit
    Dec. 31 Interest Expense 100
    Interest Payable 100
    To record interest accrued at December 31 ($1,200 − 1,100).

    EXERCISE 3–7

    General Journal
    Date Account/Explanation F Debit Credit
    Insurance Expense 600
    Prepaid Insurance 600
    (a) To record expiry of 6 months insurance.
    Supplies Expense 200
    Unused Supplies 200
    (b) To adjust supplies on hand to physical count.
    Telephone Expense 50
    Accounts Payable 50
    (c) To record account payable at year end.

    EXERCISE 3–8

    1. General Journal
      Date Account/Explanation F Debit Credit
      Accounts receivable Dr
      Revenue Cr
    2. General Journal
      Date Account/Explanation F Debit Credit
      Cash Dr
      Unearned revenue Cr
    3. General Journal
      Date Account/Explanation F Debit Credit
      Unearned revenue Dr
      Revenue Cr
    4. General Journal
      Date Account/Explanation F Debit Credit
      Repairs expense Dr
      Accounts payable Cr
    5. General Journal
      Date Account/Explanation F Debit Credit
      Prepaid repairs expense Dr
      Cash Cr
    6. General Journal
      Date Account/Explanation F Debit Credit
      Repairs expense Dr
      Prepaid repairs expense Cr
    7. General Journal
      Date Account/Explanation F Debit Credit
      Salaries expense Dr
      Accrued salaries payable Cr
    8. General Journal
      Date Account/Explanation F Debit Credit
      Depreciation expense Dr
      Accumulated depreciation, equipment Cr

    EXERCISE 3–9

    1. Last pay date was Monday, March 28, 2016, for work done until Friday, March 25, 2016.

      Number of remaining business days from last pay date to March 31, 2016 is 4 days.

      Total payroll per day: 65 employees×$80 day=$5,200 per day

      Total accrued salaries to March 31, 2016: $5,200 per day×4 days=$20,800

      Total payroll per week: $5,200×5 working days per week=$26,000 per week

    2. General Journal
      Date Account/Explanation F Debit Credit
      Mar 31, 2016 Salaries expense 20,800
      Accrued salaries payable 20,800
    3. General Journal
      Date Account/Explanation F Debit Credit
      Apr 4, 2016 Salaries expense* 5,200
      Accrued salaries payable 20,800
      Cash 26,000

      * 5 days per week−4 days accrued=1 day not yet expensed×$5,200 per day=$5,200

    EXERCISE 3–10

    1. Adjusting entry for $70,000 of revenue earned but not yet billed to the customer.
      General Journal
      Date Account/Explanation F Debit Credit
      Accounts receivable 70,000
      Revenue 70,000
    2. Adjusting entry for $4,500 of salaries from the last pay date of October 14.
      General Journal
      Date Account/Explanation F Debit Credit
      Salaries expense 4,500
      Accrued salaries payable 4,500
    3. Adjusting entry for $40,000 of cash received from a customer for revenue not yet earned.
      General Journal
      Date Account/Explanation F Debit Credit
      Cash 40,000
      Unearned revenue 40,000
    4. Adjusting entry for $500 of utilities for October, but not yet paid.
      General Journal
      Date Account/Explanation F Debit Credit
      Utilities expense 500
      Accounts payable 500
    5. Adjusting entry for $1,300 of cash paid to a supplier for advertising not yet published.
      General Journal
      Date Account/Explanation F Debit Credit
      Prepaid advertising expenses 1,300
      Cash 1,300
    6. Adjusting entry for October depreciation expense for equipment.
      General Journal
      Date Account/Explanation F Debit Credit
      Depreciation expense 1,000
      Accumulated depreciation, equipment 1,000

    Self-Check Trail balance accounts:

    Quertin Quick Fix Ltd.

    Trial Balance

    At October 31, 2016

    Unadjusted Trial Balance Adjustments Adjusted Trial Balance
    Debit Credit Debit Credit Debit Credit
    Accounts payable $225,000 $500 $225,500
    Accounts receivable $325,000 $70,000 $395,000
    Accrued salaries payable 5,000 4,500 9,500
    Accumulated depreciation,
    equipment 1,500 1,000 2,500
    Advertising expense 1,500 1,500
    Cash 80,000 40,000 1,300 118,700
    Depreciation expense 800 1,000 1,800
    Equipment 150,000 150,000
    Land 150,000 150,000
    Maintenance service expenses 1,000 1,000
    Notes payable 210,000 210,000
    Office supplies 5,000 5,000
    Prepaid expenses 15,000 1,300 16,300
    Rent expense 14,000 14,000
    Retained earnings 37,800 37,800
    Salaries expense 45,000 4,500 49,500
    Service revenue 300,000 70,000 370,000
    Share capital 10,000 10,000
    Unearned service revenue 10,000 40,000 50,000
    Utilities expense 12,000 500 12,500
    $799,300 $799,300 $117,300 $117,300 $915,300 $915,300

    EXERCISE 3–11

    Bernard Inc.

    Adjusted Trial Balance

    December 31, 2015

    Debits Credits
    Prepaid advertising $1,000
    Supplies 750
    Equipment 21,750
    Accumulated depreciation – equipment $1,500
    Accounts payable 13,250
    Salaries payable 700
    Unearned subscriptions 10,000
    Share capital 8,000
    Subscription revenue 5,000
    Advertising expense 500
    Commissions expense 800
    Depreciation expense – equipment 250
    Maintenance expense 200
    Salaries expense 10,200
    Supplies expense 2,500
    Telephone expense 100
    Utilities expense 400

    Totals

    $38,450

    $38,450

    EXERCISE 3–12

    1. Close revenue accounts to income summary account.
      General Journal
      Date Account/Explanation F Debit Credit
      Services revenue 276,000
      Income summary 276,000
    2. Close expense accounts to income summary account.
      General Journal
      Date Account/Explanation F Debit Credit
      Income summary 110,780
      Salaries expense 41,700
      Insurance expense 3,700
      Interest expense 150
      Shop supplies expense 750
      Advertising expense 4,050
      Depreciation expense 2,380

      Repairs expenses

      7,800
      Rent expense 22,500
      Income tax expense 4,500
      Utilities expense 23,250
    3. Close the income summary account to retained earnings.
      General Journal
      Date Account/Explanation F Debit Credit
      Income summary 165,220
      Retained earnings 165,220
    4. Close dividends to retained earnings.
      General Journal
      Date Account/Explanation F Debit Credit
      Retained earnings 5,000
      Cash dividends 5,000

    EXERCISE 3–13

    General Journal
    Date Account/Explanation F Debit Credit
    Dec. 31 Commissions Earned 20,000
    Subscriptions Revenue 17,630
    Income Summary 37,630
    To close revenue accounts to income summary.
    31 Income Summary 58,400
    Depreciation Expense – Machinery 900
    Depreciation Expense – Warehouse 1,200
    Insurance Expense 1,800
    Interest Expense 2,365
    Salaries Expense 33,475
    Supplies Expense 15,800
    Utilities Expense 2,860
    To close expense accounts to income summary.
    31 Retained Earnings 20,770
    Income Summary 20,770
    To close net loss in income summary to retained earnings.
    31 Retained Earnings 14,000
    Dividends 14,000
    To close dividends to retained earnings.

    Willis Inc.

    Post-Closing Trial Balance

    December 31, 2015

    Debits Credits
    Accounts payable $4,400
    Accounts receivable $3,600
    Accumulated depreciation – machinery $2,800
    Accumulated depreciation – warehouse 8,000
    Bank loan 47,600
    Cash 12,000
    Interest payable 1,200
    Land 15,000
    Machinery 20,000
    Retained earnings* 1,230
    Salaries payable 1,970
    Share capital 52,100
    Supplies 2,500
    Unearned fees 800
    Warehouse 67,000

    Totals

    $120,100

    $120,100

    *calculated as $36,000 adjusted retained earnings balance +$37,630 total revenues closed to retained earnings −$58,400 total expenses closed to retained earnings −$14,000 dividends closed to retained earnings.

    Problems

    PROBLEM 3–1

    General Journal
    Date Account/Explanation F Debit Credit
    Rent Expense 300
    Prepaid Rent 300
    (a) To record rent expense at year end.
    Wages Expense 200
    Wages Payable 200
    (b) To record accrued wages at year-end.
    Income Taxes Expense 1,000
    Income Taxes Payable 1,000
    (c) To record income taxes.
    Unearned Commissions Revenue 1,000
    Commissions Earned 1,000
    (d) To record commissions earned at year-end.
    Other Unearned Revenue 5,000
    Revenue 5,000
    (e) To adjust unearned revenue to actual at year end.
    Prepaid Advertising 1,500
    Advertising Expense 1,500
    (f) To correct advertising expense and record prepaid advertising at year-end.
    Depreciation Expense – Equipment 500
    Accumulated Depreciation – Equipment 500
    (g) To record depreciation expense.
    Unused Supplies 225
    Supplies Expense 225
    (h) To correct supplies expense and adjust for unused supplies.
    Truck Expense 500
    Accounts Payable 500
    (i) To record accounts payable at year-end.

    PROBLEM 3–2

    General Journal
    Date Account/Explanation F Debit Credit
    Unused Supplies 100
    Supplies Expense 100
    (a)
    Telephone Expense 75
    Accounts Payable 75
    (b)
    Wages Expense 125
    Wages Payable 125
    (c)
    Depreciation Expense – Equipment 100
    Accumulated Depreciation – Equipment 100
    (d)
    Rent Expense 500
    Prepaid Rent 500
    (e)
    Unearned Advertising Revenue 500
    Other Revenue 500
    (f)
    Prepaid Insurance* 525
    Insurance Expense 525
    (g)

    *$900/12 months = $75/month; 5 months have been used (August 1 to December 31 = 5 months); therefore 7 months × $75/month = $525 remains unused.

    PROBLEM 3–3

    General Journal
    Date Account/Explanation F Debit Credit
    Interest Receivable 250
    Interest Earned 250
    (a)
    Insurance Expense 200
    Prepaid Insurance 200
    (b)
    Supplies Expense 200
    Unused Supplies 200
    (c)
    Interest Expense 25
    Interest Payable 25
    (d)
    Subscription Revenue 7,500
    Unearned Subscription Revenue 7,500
    (e) ($9,000 × 5/6 mos. = $7,500)
    Salaries Expense 300
    Salaries Payable 300
    (f)
    Prepaid Rent 300
    Rent Expense 300
    (g)
    Truck Operation Expense 400
    Accounts Payable 400
    (h)

    PROBLEM 3–4

    General Journal
    Date Account/Explanation F Debit Credit
    Depreciation Expense – Truck 150
    Accumulated Depreciation – Truck 150
    (a) ($6,000 × 6/48 mos. = $750 − 600 = $150)
    (b) No Entry Required
    Unused Supplies 300
    Supplies Expense 300
    (c)
    Rent Expense 400
    Prepaid Rent 400
    (d)
    Wages Expense 250
    Wages Payable 250
    (e)
    Interest Expense 200
    Interest Payable 200
    (f) ($8,000 × 10% = $800 − 600 = $200)
    Utilities Expense 150
    Utilities Payable 150
    (g)
    Insurance Expense 500
    Prepaid Insurance 500
    (h) ($1,200 × 1/12 mos. = $100 prepaid; $600 − 100 = $500)
    Unearned Rent Revenue 600
    Rent Earned 600
    (i)
    Commissions Earned 2,000
    Other Unearned Revenue 2,000
    (j)

    PROBLEM 3–5

    1., 3., 4., and 6.

    Roth Contractors Corporation
    Cash 101 Accounts Payable 210 Share Capital 320 Repair Revenue 450 Rent Expense 654
    (a) 5,000 (b) 1,200 (c) 10,000 (a) 5,000 (r) 2,000 (f) 4,500
    (g) 800 (e) 1,800 (d) 1,000 (g) 800 (p) 400
    (i) 2,000 (h) 3,450 (n) 100 (j) 6,500
    (m) 2,000 (l) 3,225 Bal. 11,100 (m) 2,000 Supplies Expense 668
    Bal 125 (d) 1,000 (q) 350
    Bal. 11,800 Bal. 650
    Account Receivable 110 Wages Payable 237
    (f) 4,500 (i) 2,000 (s) 1,500
    (j) 6,500 Advertising Expense 610 Telephone Expense 669
    Bal 9,000 Unearned Revenue 249 (h) 350 (h) 75
    (r) 2,000 (l) 200
    Bal. 550
    Truck Operation Expense 670
    Prepaid (h) 425
    Prepaid Insurance 161 Depreciation Expense – Truck 624 (l) 375
    (e) 1,800 (o) 150 (t) 208 Bal. 800
    Bal 1,650
    Prepaid Rent 162 Insurance Expense 631 Utilities Expense 676
    (b) 1,200 (p) 400 (o) 150 (n) 100
    Bal 800
    Supplies 173 Interest Expense 632 Wages Expense 677
    (q) 350 (h) 100 (h) 2,500
    (l) 150 (l) 2,500
    Bal. 250 (s) 1,500
    Truck 184 Accum. Dep'n Truck 194 Bal. 6,500
    (c) 10,000 (t) 208

    2.

    General Journal
    Date Account/Explanation F Debit Credit
    Cash 5,000
    Share Capital 5,000
    (a)
    Prepaid Rent 1,200
    Cash 1,200
    (b)
    Truck 10,000
    Accounts Payable 10,000
    (c)
    Supplies Expense 1,000
    Accounts Payable 1,000
    (d)
    Prepaid Insurance 1,800
    Cash 1,800
    (e)
    Accounts Receivable 4,500
    Repair Revenue 4,500
    (f)
    Cash 800
    Repair Revenue 800
    (g)
    Advertising Expense 350
    Interest Expense 100
    Telephone Expense 75
    Truck Operation Expense 425
    Wages Expense 2,500
    Cash 3,450
    (h)
    Cash 2,000
    Accounts Receivable 2,000
    (i)
    Accounts Receivable 6,500
    Repair Revenue 6,500
    (j)
    Advertising Expense 200
    Interest Expense 150
    Truck Operation Expense 375
    Wages Expense 2,500
    Cash 3,225
    (l)
    Cash 2,000
    Repair Revenue 2,000
    (m)
    Utilities Expense 100
    Accounts Payable 100
    (n)

    5.

    General Journal
    Date Account/Explanation F Debit Credit
    Insurance Expense 150
    Prepaid Insurance 150
    (o)
    Rent Expense 400
    Prepaid Rent 400
    (p)
    Supplies 350
    Supplies Expense 350
    (q)
    Repair Revenue 2,000
    Unearned Revenue 2,000
    (r)
    Wages Expense 1,500
    Wages Payable 1,500
    (s)
    Depreciation Expense – Truck 208
    Accumulated Depreciation – Truck 208
    (t) $10,000/48 mos. = $208 per month*

    *Recall that depreciation is always rounded to the nearest whole dollar because it is not 'exact'; depreciation is based on estimated useful life and estimated residual value.

    7.

    Roth Contractors Corporation

    Adjusted Trial Balance

    December 31, 2015

    Account Balances
    Debit Credit
    Cash $125
    Accounts Receivable 9,000
    Prepaid Insurance 1,650
    Prepaid Rent 800
    Supplies 350
    Truck 10,000
    Accumulated Depreciation – Truck $208
    Accounts Payable 11,100
    Wages Payable 1,500
    Unearned Revenue 2,000
    Share Capital 5,000
    Repair Revenue 11,800
    Advertising Expense 550
    Depreciation Expense – Truck 208
    Insurance Expense 150
    Interest Expense 250
    Rent Expense 400
    Supplies Expense 650
    Telephone Expense 75
    Truck Expense 800
    Utilities Expense 100
    Wages Expense 6,500

    Totals

    $31,608

    $31,608

    PROBLEM 3–6

    1. The general journal is as follows:
      General Journal
      Date Account/Explanation F Debit Credit
      Dec. 31 Repair Revenue 11,800
      Income Summary 11,800
      To close revenue account to income summary.
      31 Income Summary 9,683
      Advertising Expense 550
      Depreciation Expense – Truck 208
      Insurance Expense 150

      Interest Expense

      250
      Rent Expense 400
      Supplies Expense 650
      Telephone Expense 75
      Truck Expense 800
      Utilities Expense 100
      Wages Expense 6,500
      To close expense accounts to income summary.
      31 Income Summary 2,117
      Retained Earnings 2,117
      To close net income in income summary to retained earnings.
    2. The post-closing trial balance is as follows:

      Roth Contractors Corporation

      Post-Closing Trial Balance

      December 31, 2015

      Debits Credits
      Cash $125
      Accounts receivable 9,000
      Prepaid insurance 1,650
      Prepaid rent 800
      Supplies 350
      Truck 10,000
      Accumulated depreciation – truck $208
      Accounts payable 11,100
      Wages payable 1,500
      Unearned revenue 2,000
      Share capital 5,000
      Retained earnings 2,117
      Totals $21,925 $21,925

    PROBLEM 3–7

    1., 3., 6., and 8.

    Packer Corporation
    Cash 101 Furniture 182
    12,000 3,000 Accounts Payable 210 Share Capital 320 Commissions Earned 410

    Insurance Expense

    631
    4,400 52,100 37,900 1,800 (a) 900
    Equipment 183 (g) 750 Bal.900
    Accounts Receivable 110 20,000 (j) 38,650 Bal. 38,650 (k) 900
    3,600 Interest Payable 222 Retained Earnings 340 Bal. 0 Bal.0
    (f) 208 (l) 6,967
    Prepaid Insurance 161 Accumulated Depreciation – Building 191 Subscription Revenue 480 Interest Expense 632
    (a) 900 (c) 1,200 SalariesPayable 226 Income Summary 360 (h) 2,000 32,700 2,365
    (i) 325 (k) 62,383 (j) 69,350 Bal. 30,700 (f) 208
    (l) 6,967 (j) 30,700 Bal. 2,573
    Supplies 173 Bal 0 (k) 2,573
    2,500 Accumulated Depreciation – Furniture 192 Unearned Commissions Revenue 242 Bal. 0 Bal.0
    (b) 350 (d) 300 (g) 750 1,200
    Bal. 2,850 Bal.450 Advertising Expense 610
    4,300 (k) 4,300 Salaries Expense 656
    Land 180 Bal. 0 33,475
    15,000 Accumulated Depreciation – Equipment 193 Unearned Subscriptions Revenue 250 (i) 325
    (e) 1,000 800 Bal. 33,800
    Building 181 (h) 2,000 Depreciation Expense– Building 621 (k) 33,800
    60,000 Bal. 2,800 (c) 1,200 (k) 1,200 Bal. 0
    Bal. 0
    Bank Loan Long Term 271 Supplies Expense 668
    47,600 Depreciation Expense– Furniture 622 15,800 (b) 350
    (d) 300 (k) 300 Bal. 15,450
    Bal. 0 (k) 15,450
    Bal. 0
    Depreciation Expense Equipment 623
    (e) 1,000 (k) 1,000 Utilities Expense 676
    Bal. 0 2,860 (k) 2,860
    Bal. 0

    2. Adjusting entries:

    General Journal
    Date Account/Explanation F Debit Credit
    Aug. 31 Prepaid Insurance 900
    Insurance Expense 900
    (a) ($1,800 × 6/12 mos. = $900)
    31 Supplies 350
    Supplies Expense 350
    (b)
    31 Depreciation Expense – Building 1,200
    Accumulated Depreciation – Building 1,200
    (c) ($60,000 × 12/600 mos. = $1,200)
    31 Depreciation Expense – Furniture 300
    Accumulated Depreciation – Furniture 300
    (d) ($3,000 × 12/120 mos. = $300)
    31 Depreciation Expense – Equipment 1,000
    Accumulated Depreciation – Equipment 1,000
    (e) ($20,000 × 12/240 mos. = $1,000)
    31 Interest Expense 208
    Interest Payable 208
    (f)
    31 Unearned Commissions Revenue 750
    Commissions Earned 750
    (g)
    31 Subscription Revenue 2,000
    Unearned Subscriptions Revenue 2,000
    (h)
    31 Salaries Expense 325
    Salaries Payable 325
    (i)

    4. The adjusted trial balance is as follows:

    Packer Corporation

    Adjusted Trial Balance

    August 31, 2015

    Account Balances
    Debit Credit
    Cash $12,000
    Accounts Receivable 3,600
    Prepaid Insurance 900
    Supplies 2,850
    Land 15,000
    Building 60,000
    Furniture 3,000
    Equipment 20,000
    Accumulated Depreciation – Building $1,200
    Accumulated Depreciation – Furniture 300
    Accumulated Depreciation – Equipment 1,000
    Accounts Payable 4,400
    Interest Payable 208
    Salaries Payable 325
    Unearned Commissions Revenue 450
    Unearned Subscriptions Revenue 2,800
    Bank Loan- Long Term 47,600
    Share Capital 52,100
    Commissions Earned 38,650
    Subscription Revenue 30,700
    Advertising Expense 4,300
    Depreciation Expense – Building 1,200
    Depreciation Expense – Furniture 300
    Depreciation Expense – Equipment 1,000
    Insurance Expense 900
    Interest Expense 2,573
    Salaries Expense 33,800
    Supplies Expense 15,450
    Utilities Expense 2,860
    $179,733 $179,733

    5. The income statement, statement of changes in equity, and balance sheet are as follows:

    Packer Corporation

    Income Statement

    For the Year Ended August 31, 2015

    Revenue

    Commissions

    $38,650

    Subscriptions

    30,700

    Total Revenue

    $69,350

    Expenses

    Advertising

    4,300

    Depreciation – Building

    1,200

    Depreciation – Furniture

    300

    Depreciation – Equipment

    1,000

    Insurance

    900

    Interest

    2,573

    Salaries

    33,800

    Supplies

    15,450

    Utilities

    2,860

    Total Expenses

    62,383
    Net Income $6,967

    Packer Corporation

    Statement of Changes in Equity

    For the Year Ended August 31, 2015

    Share Capital Retained Earnings Total Equity
    Opening Balance $-0- $-0- $-0-
    Shares Issued 52,100 -0- 52,100
    Net Income -0- 6,967 6,967
    Ending Balance $52,100 $6,967 $59,067

    Packer Corporation

    Balance Sheet

    At August 31, 2015

    Assets
    Cash $12,000
    Accounts Receivable 3,600
    Prepaid Insurance 900
    Supplies 2,850
    Land 15,000
    Buildings $60,000
    Less: Accum. Depreciation 1,200 58,800
    Furniture $3,000
    Less: Accum. Depreciation 300 2,700
    Equipment $20,000
    Less: Accum. Depreciation 1,000 19,000

    Total Assets

    $114,850

    Liabilities
    Accounts Payable $4,400
    Interest Payable 208
    Salaries Payable 325
    Unearned Commissions Revenue 450
    Unearned Subscriptions 2,800
    Bank Loan – Long-Term 47,600

    Total Liabilities

    55,783

    Equity
    Share Capital $52,100
    Retained Earnings 6,967

    Total Equity

    59,067

    Total Liabilities and Equity

    $114,850

    6. Closing entries:

    General Journal
    Date Account/Explanation F Debit Credit
    Aug. 31 Commissions Earned 38,650
    Subscription Revenue 30,700
    Income Summary 69,350
    (j)
    31 Income Summary 62,383
    Advertising Expense 4,300
    Depreciation Expense – Building 1,200
    Depreciation Expense – Furniture 300
    Depreciation Expense – Equipment 1,000
    Insurance Expense 900
    Interest Expense 2,573
    Salaries Expense 33,800
    Supplies Expense 15,450
    Utilities Expense 2,860
    (k)
    31 Income Summary 6,967
    Retained Earnings 6,967
    (l)

    Note: The closing entries were posted into the T-accounts as (j), (k), and (l).

    7. The post-closing trial balance:

    Packer Corporation

    Post-Closing Trial Balance

    August 31, 2015

    Account Balances
    Debit Credit
    Cash $12,000
    Accounts Receivable 3,600
    Prepaid Insurance 900
    Unused Supplies 2,850
    Land 15,000
    Building 60,000
    Furniture 3,000
    Equipment 20,000
    Accumulated Depreciation – Building $1,200
    Accumulated Depreciation – Furniture 300
    Accumulated Depreciation – Equipment 1,000
    Accounts Payable 4,400
    Interest Payable 208
    Salaries Payable 325
    Unearned Commissions Revenue 450
    Unearned Subscriptions Revenue 2,800
    Bank Loan – Long-Term 47,600
    Share Capital 52,100
    Retained Earnings 6,967
    $117,350 $117,350

    PROBLEM 3–8

      1. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Accounts receivable 45,000
        Service revenue 45,000
      2. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Advertising expense 500
        Prepaid advertising expense 500
      3. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Shop supplies expense 300
        Shop supplies 300
        ($1,500−$1,200)
      4. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Depreciation expense 79
        Accumulated depreciation, equipment 79
        ($10,000−$500)÷120 months
      5. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Unearned service revenue 5,000
        Service revenue 5,000
      6. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Salaries expense 5,800
        Accrued salaries payable 5,800
      7. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Utilities expense 3,500
        Accounts payable 3,500
      8. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Cash 7,800
        Accounts receivable 7,800
      9. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Depreciation expense 107
        Accumulated depreciation, building 107
        ($74,000−$10,000)÷600 months
      10. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Prepaid rent expense 5,000
        Rent expense 5,000
      11. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Interest expense 100
        Interest payable 100
        ($20,000×6%×1÷12)
      12. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Income tax expense 3,000
        Income taxes payable 3,000
      13. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Accounts receivable 9,000
        Service revenue 9,000
      14. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Insurance expense 75
        Prepaid insurance 75
        ($1,800×1÷24)
      15. General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Insurance expense 2,400
        Prepaid insurance 2,400
        ($4,500−$1,800)=$2,700−$300
    1. Quertin Quick Fix Ltd.

      Trial Balance

      At October 31, 2016

      Unadjusted Trial Balance Adjustments Adjusted Trial Balance
      Debit Credit Debit Credit Debit Credit
      Cash $50,400 $7800 $58,200
      Accounts receivable 25,000 45,000 7,800 71,200
      9,000
      Shop supplies 1,500 300 1,200
      Prepaid insurance expense 4,500 75 2,025
      2,400
      Prepaid advertising expense 2,000 500 1,500
      Prepaid rent expense 5,000 5,000
      Building 74,000 74,000
      Accumulated depreciation, building 107 107
      Equipment 10,000 10,000
      Accumulated depreciation, equipment $2,000 79 2,079
      Accounts payable 12,000 3,500 15,500
      Accrued salaries payable 5,800 5,800
      Interest payable 100 100
      Income taxes payable 3,000 3,000
      Notes payable 20,000 20,000
      Unearned service revenue 30,000 5,000 25,000
      Share capital 1,000 1,000
      Retained earnings 40,400 40,400
      Service revenue 125,000 45,000 184,000
      5,000
      9,000
      Salaries expense 22,000 5,800 27,800
      Insurance expense 75 2,475
      2,400
      Interest expense 100 100
      Shop supplies expense 200 300 500
      Advertising expense 2,200 500 2,700
      Depreciation expense 1,400 79 1,586
      107
      Maintenance service expenses 5,200 5,200
      Rent expense 20,000 5,000 15,000
      Income tax expense 3,000 3,000
      Utilities expense 12,000 3,500 15,500
      $230,400 $230,400 $87,661 $87,661 $296,986 $296,986

    PROBLEM 3–9

    Smith and Smith Co.

    Income Statement

    For the Month Ended June 30, 2016

    Revenues
    Service revenue $184,000
    Expenses
    Salaries expense $27,800
    Insurance expense 2,475
    Interest expense 100
    Shop supplies expense 500
    Advertising expense 2,700
    Depreciation expense 1,586
    Maintenance service expense 5,200
    Rent expense 15,000
    Income tax expense 3,000
    Utilities expense 15,500 73,861
    Net loss $110,139

    Smith and Smith Co.

    Statement of Changes in Equity

    For the Month Ended June 30, 2016

    Share Capital Retained Earnings Total Equity
    Opening balance, June 1, 2016 $1,000 $40,400 $41,400
    Net income 110,139 110,139
    Ending balance $1,000 $150,539 $151,539

    Smith and Smith Co.

    Balance Sheet

    At June 30, 2016

    Assets Liabilities
    Cash $58,200 Accounts payable $15,500
    Accounts receivable 71,200 Accrued salaries 5,800
    Shop supplies 1,200 Interest payable 100
    Prepaid insurance expense 2,025 Income taxes payable 3,000
    Prepaid advertising expense 1,500 Note payable 20,000
    Repaid rent expense 5,000 Unearned consulting fees 25,000
    Building 74,000

    Total liabilities

    $69,400

    Accumulated depreciation, building (107) 73,893
    Equipment 10,000 Equity
    Accumulated depreciation, equipment (2,079) 7,921 Share capital $1,000
    Retained earnings 150,539

    Total equity

    Total liabilities and equity 151,539
    Total assets $220,939 $220,939

    PROBLEM 3–10

      1. Close revenue accounts to income summary account.
        General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Services revenue 184,000
        Income summary 184,000
      2. Close expense accounts to income summary account.
        General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Income summary 73,861
        Salaries expense 27,800
        Insurance expense 2,475
        Interest expense 100
        Shop supplies expense 500
        Advertising expense 2,700
        Depreciation expense 1,586
        Maintenance service expenses 5,200
        Rent expense 15,000
        Income tax expense 3,000
        Utilities expense 15,500
      3. Close the income summary account to retained earnings.
        General Journal
        Date Account/Explanation F Debit Credit
        Jun 30 Income summary 110,139
        Retained earnings 110,139
      4. Close dividends to retained earnings: No entry required.
    1. Smith and Smith Co.

      Trial Balance

      At June 30, 2016

      Post-Closing Trial Balance

      Debit Credit
      Cash $58,200
      Accounts receivable 71,200
      Shop supplies 1,200
      Prepaid insurance expense 2,025
      Prepaid advertising expense 1,500
      Prepaid rent expense 5,000
      Building 74,000
      Accumulated depreciation, building $107
      Equipment 10,000
      Accumulated depreciation, equipment 2,079
      Accounts payable 15,500
      Accrued salaries payable 5,800
      Interest payable 100
      Income taxes payable 3,000
      Notes payable 20,000
      Unearned service revenue 25,000
      Share capital 1,000
      Retained earnings 150,539
      $223,125 $223,125
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