3.12: Solutions

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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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).
11. 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.

12. 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.
13. 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.
14. 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.
15. 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.
16. 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.

17. 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.
18. 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.
19. 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.
20. 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.
21. 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. 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

2. 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. 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.

2. 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