# 3.12: Solutions

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

 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

This page titled 3.12: Solutions is shared under a CC BY-NC-SA license and was authored, remixed, and/or curated by Henry Dauderis and David Annand (Lyryx Learning) .