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4.11: Problems

  • Page ID
    30652
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    • Contributed by Henry Dauderis and David Annand
    • Athabasca University
    • Sourced from Lyryx Learning

    PROBLEM 4–1 (LO2) Classified Balance Sheet

    The following list of accounts is taken from the records of the Norman Company Ltd. at December 31, 2015:

    Account Title Balance
    Accounts Payable $125
    Accounts Receivable 138
    Building 400
    Cash 250
    Share Capital 400
    Equipment 140
    Land 115
    Mortgage Payable (due 2022) 280
    Bank Loan, due within 90 days 110
    Notes Receivable, due within 90 days 18
    Prepaid Insurance 12
    Retained Earnings 214
    Salaries Payable 14
    Unused Office Supplies 70

    Required: Prepare a classified balance sheet.

    PROBLEM 4–2 (LO2) Classified Balance Sheet

    The following adjusted trial balance has been extracted from the records of Dark Edge Sports Inc. at December 31, 2015, its second fiscal year-end.

    Account Balances
    Dr. Cr.
    Accounts Payable $8,350
    Accounts Receivable $18,700
    Accumulated Depreciation – Equipment 2,000
    Advertising Expense 7,200
    Bank Loan, due May 31, 2016 10,000
    Cash 1,500
    Depreciation Expense 1,100
    Dividends 600
    Equipment 12,500
    Income Taxes Expense 2,300
    Income Taxes Payable 4,600
    Insurance Expense 1,200
    Interest and Bank Charges Expense 1,300
    Prepaid Insurance 1,300
    Prepaid Rent 600
    Retained Earnings 2,000
    Rent Expense 17,950
    Revenue 80,000
    Salaries Expense 39,000
    Share Capital 3,000
    Telephone Expense 1,100
    Utilities Expense 3,600

    Totals

    $109,950

    $109,950

    Note: No shares were issued during 2015.

    Required:

    1. Calculate net income for year ended December 31, 2015.
    2. Prepare a statement of changes in equity for the year ended December 31, 2015.
    3. Prepare a classified balance sheet at December 31, 2015.
    4. By what amounts do total current liabilities exceed total current assets at December 31, 2015?
    5. Assume a $5,000 bank loan is received, payable in six months. Will this improve the negative working capital situation calculated in (4) above? Calculate the effect on your answer to (4) above?
    6. As the bank manager, what questions might you raise regarding the loan?

    PROBLEM 4–3 (LO2) Closing Entries and Financial Statements

    Below is the adjusted trial balance with accounts in alphabetical order for MayBee Services Ltd. All accounts have normal balances.

    MayBee Services Ltd.

    Trial Balance

    At June 30, 2016

    Accounts payable $32,550
    Accounts receivable 149,520
    Accrued salaries payable 12,180
    Accumulated depreciation, building 280
    Accumulated depreciation, equipment 4,480
    Advertising expense 5,670
    Building 145,400
    Cash 122,220
    Cash dividends 7,000
    Depreciation expense 3,332
    Equipment 21,000
    Income tax expense 6,300
    Income taxes payable 6,300
    Insurance expense 5,180
    Interest expense 210
    Interest payable 210
    Notes payable, due 2018 42,000
    Office supplies 2,520
    Prepaid insurance expense 17,906
    Rent expense 31,500
    Repairs expense 10,920
    Retained earnings 343,058
    Revenue 135,000
    Salaries expense 58,380
    Share capital 2,100
    Shop supplies expense 1,050
    Trademark 10,000
    Unearned revenue 52,500
    Utilities expense 32,550

    Additional Information: For the note payable, its account balance will be reduced by $14,000 as at June 30, 2017.

    Required:

    1. Prepare the closing entries.
    2. Prepare a classified balance sheet.
    3. Prepare a post-closing trial balance.

    PROBLEM 4–4 (LO2) Challenge Question – Closing Entries and Financial Statements

    Below is the unadjusted trial balance with accounts in alphabetical order for Jennette Ltd. All accounts have normal balances.

    Jennette Ltd.

    Unadjusted Trial Balance

    At September 30, 2016

    Accounts payable $39,983
    Accounts receivable 321,468
    Accrued salaries payable 21,909
    Accumulated depreciation, building 9,632
    Accumulated depreciation, vehicle 602
    Advertising expense 12,191
    Building 312,610
    Cash 262,773
    Cash dividends 15,050
    Copyright 21,500
    Depreciation expense 7,164
    Income tax expense 13,545
    Income taxes payable 13,545
    Insurance expense 11,137
    Interest expense 452
    Interest payable 4,730
    Mortgage payable, due 2019 90,300
    Office supplies 5,418
    Prepaid insurance expense 8,498
    Rent expense 67,725
    Repairs expense 23,478
    Retained earnings 737,575
    Revenue 290,250
    Salaries expense 155,517
    Share capital 4,515
    Shop supplies expense 2,259
    Unearned revenue 112,875
    Utilities expense 39,981
    Vehicle 45,150

    Additional information:

    Adjustments not yet recorded are:

    1. Revenue earned but not yet billed is $20,000.
    2. Depreciation expense for the vehicle is $3,000.
    3. The building's estimated residual value is $100,000 and its estimated useful life is 25 years.
    4. Salaries not yet paid are $2,500.
    5. Revenue that was paid in cash as an advance of $50,000 is now earned.
    6. Rent for October 2016 of $5,150 was paid and recorded to rent expense.
    7. One-half of the prepaid insurance is has now been used.

    Mortgage payments for the next fiscal year will total $36,000, which includes interest expense of $6,000.

    Required:

    1. Update all the account balances with appropriate adjusting entries based on the six missing adjustments above. (Hint: Use a trial balance format with adjusting entry columns.)
    2. Prepare an adjusted trial balance.
    3. Prepare a classified balance sheet.