4.11: Problems

• Henry Dauderis and David Annand
• Athabasca University via 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.

This page titled 4.11: Problems is shared under a CC BY-NC-SA license and was authored, remixed, and/or curated by Henry Dauderis and David Annand (Lyryx Learning) .