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Kieso, Weygandt, Warfield, Young, Wiecek

Intermediate Accounting, Ninth Canadian Edition

CHAPTER 3 THE ACCOUNTING INFORMATION SYSTEM


ASSIGNMENT CLASSIFICATION TABLE
Topics Transaction identification. Trial balance. Adjusting entries and error corrections. Closing. 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 1, 15, 16 Brief Exercises 2, 3 Exercises 1, 2, 3, 4, 5 2, 3, 4,16 8, 10, 11, 12, 13, 14, 15, 16 9, 17, 18, 19 20, 21, 23 17, 20, 21, 22, 24, 25, 26 13 1, 4, 5, 6, 12, 16 1, 2, 3, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15,16, 17 1, 4, 5, 6, 7, 8, 9, 10, 12, 13 15 1, 2, 4, 5, 6, 7, 8, 9, 10 1, 6 Problems

Inventory and cost 15 of goods sold. Work sheet and/or 11 financial statements. Comprehensive accounting cycle. Alternate treatment & adj. Reversing entries.* 4, 5, 6, 7, 13 17

6, 7, 12 8, 9, 10

17 14, 15

*This topic is dealt with in Appendix 3A to the Chapter.


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ASSIGNMENT CHARACTERISTICS TABLE

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Ite m E 31 E 32 E 33 E 34 E 35 E 36 E 37 *E 38 *E 39 *E 310 E 311 E 312 E 313

Description

Level of Diffic ulty Simpl e Simpl e Simpl e Simpl e Mode rate Mode rate Mode rate Mode rate Simpl e Mode rate Mode rate Mode rate Comp lex

Time (min utes)

Transaction analysisservice company. Corrected trial balance. Corrected trial balance. Corrected trial balance. Transactions of a corporation including investment and dividend. Alternate method of recoding prepayments and unearned revenue Alternate method of recoding prepayments and unearned revenue Prepare adjusting and reversing entries. Closing and reversing entries. Adjusting and reversing entries. Adjusting entries. Adjusting entries both treatments. Analyze adjusted data.

15-20 10-15 15-20 15-20 20-25 20-25 20-25 1520 1520 15-20 15-20 15-20 15-20

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E 314 E 315 E 316 E 317 E 318 E 319 E 320 E 321 E 322 E 323 E 324 E 325 E 326

Adjusting entries. Adjusting entries. Adjusting entries and trial balance. Closing entries. Closing entries. Closing entries for a corporation. Calculate missing amounts. Find missing amountsperiodic. Completing work sheet. Prepare cost of goods sold periodic. Work sheet preparation. Work sheet and balance sheet presentation. Partial work sheet preparation.

Mode rate Mode rate Comp lex Simpl e Mode rate Mode rate Simpl e Mode rate Simpl e Mode rate Mode rate Mode rate Mode rate

10-15 15-20 25-30 10-15 10-15 15-20 10-15 15-20 10-15 10-15 15-20 20-25 15-20

*This topic is dealt with in Appendix 3A to the Chapter.

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ASSIGNMENT CHARACTERISTICS TABLE (CONTINUED)

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P 31 P 32 P 33 P 34 P 35 P 36 P 37 P 38 P 39 P 31 0

Transactions, financial statements service company. Adjusting entries and financial statements. Prepare adjusting entries.

Mode rate Mode rate Mode rate Mode rate Mode rate Mode rate Mode rate Mode rate Mode rate Mode rate

35-40

35-40

25-30

Prepare financial statements and closing entries. Worksheet, balance sheet, adjusting and closing entries. Financial statements, adjusting and closing entries. Financial statements, adjusting and closing entries. Adjusting entries.

35-40

40-50

40-50

40-50

15-20

Adjusting entries and financial statements. Adjusting entries and financial statements.

25-30

25-35

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Intermediate Accounting, Ninth Canadian Edition

Adjusting entries. P 31 1 Adjusting and closing. P 31 2 Adjusting and closing. P 31 3 Adjusting and reversing entries. P 31 4 Adjusting and reversing entries.. P 31 5 P3-16 P3-17

Mode rate

25-30

Mode rate

30-40

Mode rate

30-35

Comp lex

30-35

Mode rate

30-35

Correction of errors. Alternate method of recording prepayments and unearned revenue.

Mode rate Mode rate

30-35 15-20

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SOLUTIONS TO BRIEF EXERCISES


BRIEF EXERCISE 3-1 (a) (b) No change Before closing, balances exist in the account; after closing, no balances exist. (c) Before closing, balances exist in the account; after closing, no balances exist. (d) Before closing, a balance exists in this account exclusive of the income or loss for the period and dividends declared; after closing, the balance has been increased or decreased by the amount of net income or net loss and has been decreased by the amount of dividends paid during the period. (e) No change. BRIEF EXERCISE 3-2 May 1 3 13 21 Cash Common Shares Equipment Accounts Payable Rent Expense Cash Accounts Receivable Service Revenue 12,000 12,000 4,500 4,500 800 800 750 750

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BRIEF EXERCISE 3-3 Aug. 2 Cash Equipment Common Shares Supplies Accounts Payable Cash Accounts Receivable Service Revenue Rent Expense Cash Supplies Expense Supplies 12,000 2,500 14,500 600 600 1,300 670 1,970 600 600 330 330

7 12

15 19

BRIEF EXERCISE 3-4 Treat expenditure as asset: July 1 Prepaid Insurance Cash Dec. 31 Insurance Expense Prepaid Insurance ($18,000 x 1/2 x 1/3) 18,000 18,000 3,000 3,000

Treat expenditure as expense: July 1 Insurance Expense Cash Dec. 31 Prepaid Insurance Insurance Expense ($18,000 x 2.5/3)

18,000 18,000 15,000 15,000

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BRIEF EXERCISE 3-5 Treat cash receipt as unearned insurance revenue: July 1 Cash 18,000 Unearned Insurance Revenue Dec. 31 Unearned Insurance Revenue 3,000 Insurance Revenue ($18,000 x 1/2 x 1/3) 3,000 3,000

18,000

Treat cash receipt as insurance revenue: July 1 Cash Insurance Revenue Dec. 31 Insurance Revenue 3,000 Unearned Insurance Revenue ($18,000 x 2.5/3)

18,000 18,000 15,000 15,000

BRIEF EXERCISE 3-6 Treat expenditure as asset: Aug. 1 Prepaid Expense Cash Dec. 31 Membership Expense Prepaid Expense ($12,600 x 5/24) 12,600 12,600 2,625 2,625

Treat expenditure as expense: Aug. 1 Membership Expense Cash Dec. 31 Prepaid Expense Membership Expense ($12,600 x 19/24)

12,600 12,600 9,975 9,975

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BRIEF EXERCISE 3-7 Treat cash receipt as unearned rent revenue: Sept. 1 Cash Unearned Rent Revenue Dec. 31 Unearned Rent Revenue Rent Revenue ($12,000 x 2/3) 12,000 12,000 8,000 8,000

Treat cash receipt as rent revenue: Sept. 1 Cash Rent Revenue Dec. 31 Rent Revenue Unearned Rent Revenue ($12,000 x 1/3)

12,000 12,000 4,000 4,000

BRIEF EXERCISE 3-8 Dec. 31 Salaries Expense Salaries Payable ($40,000 x 1/2) Salaries Payable Salaries Expense Cash 20,000 20,000 20,000 20,000 40,000

Jan.

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BRIEF EXERCISE 3-9 Dec. 31 Interest Expense Interest Payable (20,000 X 12% X 3/12) Note Payable Interest Payable Interest Expense Cash 600 600 20,000 600 1,000 21,600

June

BRIEF EXERCISE 3-10 Dec. 31 31 31 31 Interest Receivable Interest Income Accounts Receivable Service Revenue Salaries Expense Salaries Payable Bad Debt Expense Allowance for Doubtful Accounts 600 600 1,800 1,800 1,200 1,200 900 90 0

BRIEF EXERCISE 3-11 Depreciation Expense Accumulated DepreciationEquipment Equipment Less: Accumulated DepreciationEquipment 4,000 4,000 $20,000 4,000 $16,000

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BRIEF EXERCISE 3-12 On the balance sheet, the effects of the error are (1) the equipment account is overstated, (2) accumulated depreciation is overstated (if depreciation was recorded), and (3) the Retained Earnings is overstated. On the income statement, (1) purchases and cost of goods sold are understated, (2) depreciation expense is overstated (if depreciation was recorded), and (3) net income is overstated. BRIEF EXERCISE 3-13 (a) 1. May 1 Prepaid Rent Cash Rent Expense Prepaid Rent Rent Expense Cash No entry required 1,200 1,200 1,200 1,200 1,200 1,200

2. May 31 (b) 1. May 1 2. May 31

(c) The ending balances are the same under both alternatives.

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BRIEF EXERCISE 3-14 The formula to calculate the amount of depreciation for the year using the straight-line method is: (Cost less residual value) divided by useful life X pro-rated period used in the fiscal year. Cost of mower and accessories - zero Useful life $ 9,600 8 = $ 600 BRIEF EXERCISE 3-15 Beginning inventory Purchases Less: Purchase returns Purchase discounts Net purchases Add: Freight-in Cost of goods purchased Cost of goods available for sale Ending inventory Cost of goods sold $ 76,000 $486,000 $5,800 5,000 10,800 475,200 16,200 491,400 567,400 69,500 $497,900 X X 6 12 6 12

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BRIEF EXERCISE 3-16 Sales Interest Income Income Summary Income Summary Cost of Goods Sold Operating Expenses Income Tax Expense Income Summary Retained Earnings Retained Earnings Dividends *BRIEF EXERCISE 3-17 (a) (b) (c) Salaries Payable Salaries Expense Salaries Expense Cash Salaries Payable Salaries Expense Cash 2,700 2,700 5,000 5,000 2,700 2,300 5,000 928,900 17,500 946,400 590,300 406,200 129,000 55,100 356,100 356,100 15,900 15,900

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SOLUTIONS TO EXERCISES
EXERCISE 3-1 (15-20 minutes) Apr. 2 Cash Equipment Bill Rosenberg, Capital No entrynot a transaction. Supplies Accounts Payable Rent Expense Cash Accounts Receivable Service Revenue Cash Unearned Service Revenue Cash Service Revenue Insurance Expense Cash Salaries Expense Cash Supplies Expense Supplies Equipment Bill Rosenberg, Capital 1,200 1,200 750 750 1,500 1,500 4,200 4,200 2,900 2,900 180 180 1,920 1,920 220 220 4,100 4,100 15,000 10,000 25,000

2 3 7 11 12 17 21 30 30 30

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EXERCISE 3-2 (10-15 minutes) MANY HAPPY RETURNS COMPANY Trial Balance April 30, 2010 Debit Cash Accounts Receivable Prepaid Insurance ($700 + $200) Equipment Accounts Payable ($4,500 $200) Property Tax Payable Happy Tremblay, Capital ($11,200 + $1,500) Happy Tremblay, Drawings Service Revenue Salaries Expense Advertising Expense ($1,100 + $300) Supplies Expense Property Tax Expense ($800 + $200) $ 4,800 3,290 900 8,000 $ 4,300 560 12,700 1,500 8,860 4,200 1,400 1,330 1,000 _______ $26,420 $26,420 Credit

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EXERCISE 3-3 (15-20 minutes) The ledger accounts are reproduced below, and corrections are shown in the accounts. Bal. (3) Bal. Cash 3,238 45 3,283 Accounts Payable Bal. 3,212

Accounts Receivable Bal. 15,799 (5) 3,600 Bal. 12,199 Supplies on Hand 1,122

Common Shares Bal. 6,000

Bal.

Retained Earnings Bal. 9,450

Furniture and Equipment Bal. 9,650 (4) 1,200 Bal. 10,850 Wages Payable Bal.

Service Revenue Bal. 10,722 (2) 1,700 Bal. 12,422

850 Bal. Bal.

Office Expense 2,410 (4) 1,200 1,210

Wage Expense Bal. 3,000 (1) 270 3,270


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EXERCISE 3-3 (Continued) BLUES AROUND THE CORNER CORPORATION Trial Balance (corrected) April 30 Debit Cash Accounts Receivable Supplies on Hand Furniture and Equipment Accounts Payable Wages Payable Common Shares Retained Earnings Service Revenue Office Expense Wage Expense $ 3,283 12,199 1,122 10,850 $ 3,212 850 6,000 9,450 12,422 1,210 3,270 $31,934 ______ $31,934 Credit

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EXERCISE 3-4 (15-20 minutes) Trial Balance June 30, 2010 Debit Cash ($2,870 + $1,320* $65 $65) Accounts Receivable ($3,231 $1,320) Supplies ($800 $500) Equipment ($3,800 + $500) Accounts Payable ($2,666 $206 $260) Unearned Service Revenue ($1,200 $325) Common Shares Retained Earnings Dividends Service Revenue ($2,380 + $801 + $325) Wages Expense ($3,400 + $670 $575) Office Expense $ 4,060 1,911 300 4,300 $ 2,200 875 6,000 3,000 575 3,506 3,495 940 _______ $15,581 $15,581 Credit

* $570 + $750 = $1,320

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EXERCISE 3-5 (20-25 minutes)


Date Mar. 1 Cash Common Shares (Investment of cash in business) 3 Land Buildings Equipment Cash (Purchased Tiger Mickelsons Golf Land) 5 Advertising Expense Cash (Paid for open house) 6 Prepaid Insurance Cash (Paid for one-year insurance policy) 10 Equipment Accounts Payable (Purchased equipment on account) 18 Cash Service Revenue (Received cash for service performed) 25 Dividends Cash (Declared and paid a $1,500 cash dividend) 30 Wages Expense Cash (Paid wages expense) 30 Prepaid Rent Cash (Paid April rent) 31 Cash Service Revenue (Received cash for services performed) 1,500 1,500 20,000 32,000 16,000 68,000 6,800 6,800 2,400 2,400 5,500 5,500 3,700 3,700 Account Titles and Explanation
Ref.

Debit 80,000

J1 Credit 80,000

1,900 1,900 2,500 2,500 750 750

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EXERCISE 3-6 (20-25 minutes) (a) Jan. 2 Insurance Expense Cash 10 Supplies Expense Cash 15 Cash Service Revenue (b) Jan. 31 Prepaid Insurance In Insurance Expense ($300 X 11 months) 31 Supplies Supplies Expense 31 Service Revenue Unearned Service Revenue ($11,100 - $3,500) (a), (b) and (c) Insurance Expense Jan. 2 3,600 Jan. 31 3,300 Bal. 300 Supplies Expense Jan. 10 5,700 Jan. 31 2,800 Bal. 2,900 3,600 3,600 5,700 5,700 11,100 11,100 3,300 3,300

2,800 2,800 7,600 7,600

Cash Jan.15 11,100 Jan. 2 Jan. 10 Bal. 1,800

3,600 5,700

Service Revenue Jan. 31 7,600 Jan. 15 11,100 Bal. 3,500

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EXERCISE 3-6 (Continued) Prepaid Insurance Jan.31 3,300 Supplies Jan. 31 2,800

Unearned Service Revenue Jan.31 7,600

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EXERCISE 3-7 (20-25 minutes) (a) May 1 Oct. 1 Oct. 15 Dec. 1 Various Insurance Expense Cash Rent Expense Cash Advertising Expense Cash Legal Expense Cash Cash Gift Certificate Sales Prepaid Insurance Insurance Expense ($9,600 X 4/12 = $3,200) Prepaid Rent Rent Expense ($9,200 X 2/5 = $3,680) Prepaid Expense Advertising Expense ($9,000 X18/36 = $4,500) Dec. 31 Prepaid Expense Legal Expense... ($13,500 X 2/3) Gift Certificate Sales Unearned Gift Cert. Sales 9,000 9,000 475 475 9,600 9,600 9,200 9,200 9,000 9,000 13,500 13,500 1,500 1,500 3,200 3,200 3,680 3,680 4,500 4,500

(c)

Dec. 31

Dec. 31

Dec. 31

Dec. 31

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EXERCISE 3-7 (Continued) (b) and (d) Prepaid Insurance Dec 31 3,200 Insurance Expense May 1 9,600 Dec. 31 3,200 Bal. 6,400 Rent Expense 9,200 Dec. 31 5,520

Prepaid Rent Dec.31 3,680 Prepaid Expense Dec 31 4,500 Dec 31 9,000 Bal. 13,500

Oct. 1 Bal.

3,680

Advertising Expense Oct 15 9,000 Dec. 31 4,500 Bal. 4,500 Legal Expense 13,500 Sept.15 4,500

Dec.1 Bal. Unearned Gift Certificate Sales Dec. 31 475

9,000

Gift Certificate Sales Dec.31 475 Various Bal. 1,500 1,025

(e)

If Black-Eyed decided to record initial payments of prepaid costs as assets and unearned revenues as liabilities, the required adjusting entries at December 31, 2010 would be different but the ending balances would remain the same.

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*EXERCISE 3-8 (15-20 minutes) (a) 1. Depreciation ExpenseEquipment Accumulated Depr.Equipment 2. Business Tax Expense Business Tax Payable 3. Wages Expense Wages Payable 4. Service Revenue Unearned Service Revenue 5. Interest Expense Interest Payable (b) Business Tax Payable Business Tax Expense Wages Payable Wages Expense Interest Payable Interest Expense 3,400 3,400 2,525 2,525 3,900 3,900 5,500 5,500 200 200 2,525 2,525 3,900 3,900 200 200

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*EXERCISE 3-9 (15-20 minutes) (a) Dec. 31 Service Revenue Income Summary 31 Income Summary Interest Expense (b) Jan. 1 Service Revenue Accounts Receivable 1 Interest Payable Interest Expense (c) & (e) Accounts Receivable Dec. 31 Adjusting 9,700 Jan. 1 Reversing 9,700 110,000 110,000 12,800 12,800 9,700 9,700 6,400 6,400

Service Revenue Dec. 31 Jan. 1 Closing Reversing 110,000 Dec. 9,700 Jan. 31 Balance 10 110,000 9,700

Interest Payable Jan. 1 Reversing 6,400 Dec. 31 Adjusting 6,400

Interest Expense Dec. 31 Jan. 15 (d) (1) (2) Balance Jan. 10 Jan. 15 12,800 Dec. 6,400 Jan. 31 Closing 1 Reversing 9,700 9,700 6,400 6,400 12,800 6,400

Cash Service Revenue Interest Expense Cash

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*EXERCISE 3-10 (15-20 minutes) (a) (1) Adjusting Entries: 1. Rent Expense Prepaid Rent ($7,200 / 6 X 5) 2. 3. Services Revenue Unearned Services Revenue Prepaid Expenses Memberships and Subscriptions ($6,000 / 24 X 17) Interest Expense Interest Payable

3,600 3,600 2,400 2,400 4,250 4,250 1,270 1,270

4. (2)

Reversing Entries: 1. No reversing entry required. 2. 3. 4. No reversing entry required. No reversing entry required. Interest Payable Interest Expense 1,270 1,270

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EXERCISE 3-11 (10-15 minutes) 1. Depreciation Expense Accumulated Depreciation Equipment ($350 X 3) Unearned Rent Revenue Rent Revenue ($9,300 / 2) Interest Expense Interest Payable Supplies Expense Supplies ($2,800 $950) Insurance Expense Prepaid Insurance ($300 X 3) 1,050 1,050

2.

4,650 4,650 550 550 1,850 1,850 900 900

3. 4.

5.

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EXERCISE 3-12 (15-20 minutes) (a) 1. 2. 3. Accounts Receivable Service Revenue Membership Expense Accounts Payable Depreciation Expense Accumulated Depreciation Computer Equipment Interest Expense Interest Payable 4. Insurance Expense Prepaid Insurance ($12,000 / 12) Supplies Expense Supplies 6,000 6,000 60 60 350 350 50 50 1,000 1,000 500 500

5.

(b) Entries 1, 2 and 3 would be the same as in (a) above. 4. 5. Prepaid Insurance Insurance Expense Supplies Supplies Expense 11,000 11,000 3,300 3,300

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EXERCISE 3-13 (15-20 minutes) (a) Ending balance of supplies Add: Adjusting entry Deduct: Purchases Beginning balance of supplies Total annual insurance Present balance $600 950 650 900 $28,800 2,400 ($2,400 X 12)

(b)

The policy was purchased eleven months ago (March 1, 2010) (c) The entry in January to record salary expense was: Salaries Expense 1,800 Salaries Payable 700 Cash The T account for salaries payable is Paid January Salaries Payable 700 Beg. Bal. End Bal. ? 800 $ 800 700 $1,500 $3,000 1,600 $1,400 $1,000 1,400 $2,400

2,500

The beginning balance is therefore: Ending balance of salaries payable Plus: Reduction of salaries payable Beginning balance of salaries payable (d) Service revenue Cash received Unearned revenue reduced Ending unearned revenue January 31, 2011 Plus: Unearned revenue reduced Beg. unearned revenue December 31, 2010

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EXERCISE 3-14 (10-15 minutes) 1. August 31, 2010 Wages Expense Wages Payable (To record wages payable at 8/31) August 31, 2010 Utilities Expense Accounts Payable (To record utility expense for August) August 31, 2010 Interest Receivable ($60,000 x 5% x 1/12) Interest Income (To record interest income for August) August 31, 2010 Prepaid Rent Rent Expense (To record rent payment for September) 6,000 6,000

2.

900 900

3.

250 250

4.

1,200 1,200

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EXERCISE 3-15 (15-20 minutes) (a) 10/15 Salaries Expense Cash (To record payment of October 15 payroll) 10/17 Accounts Receivable Service Revenue (To record service performed for which payment has not yet been received) Cash Unearned Service Revenue (To record receipt of cash for services not yet performed) Supplies Expense Supplies (To record the use of supplies during October) Accounts Receivable Service Revenue (To record revenue for service performed) Salaries Expense Salaries Payable (To record liability for payroll)

800 800

2,400 2,400

10/20

650 650

(b)

10/31

470 470

10/31

1,650 1,650

10/31

600 600

10/31

Unearned Service Revenue 400 Service Revenue (To reduce Unearned Service Revenue account for service performed)

400

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EXERCISE 3-16 (25-30 minutes) (a) 1. Rent Expense ($3,500 x 1/2) Prepaid Rent 2. Supplies Expense ($1,800 $650) Supplies 3. Depreciation ExpenseCottages Accumulated Depreciation Cottages ($142,000 $14,200 = $127,800; $127,800 x 4% = $5,112 per year; $5,112 x 1/4 = $1,278) Depreciation ExpenseFurniture Accumulated Depreciation Furniture ($16,000 $1,600 = $14,400; $14,400 x 10% = $1,440; $1,440 x 1/4 = $360) 4. Unearned Rent Revenue Rent Revenue Rent Revenue Unearned Rent Revenue 5. Salaries Expense Salaries Payable 6. Accounts Receivable Rent Revenue 7. Interest Expense Interest Payable [($77,000 x 8%) x 1/4] 1,750 1,750 1,150 1,150 1,278 1,278

360 360

2,300 2,300 8,000 8,000 375 375 800 800 1,540 1,540

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EXERCISE 3-16 (Continued) HANNA RESORT LIMITED Adjusted Trial Balance August 31, 2010 Debit Cash Accounts Receivable Prepaid Rent ($3,500 $1,750) Supplies ($1,800 $1,150) Land Cottages Accumulated DepreciationCottages Furniture Accumulated DepreciationFurniture Accounts Payable Unearned Rent Revenue ($4,600 $2,300 + $8,000) Salaries Payable Interest Payable Loan Payable Common Shares Retained Earnings Dividends Rent Revenue ($88,450 + $800 + $2,300 $8,000) Salaries Expense ($43,200 + $375) Utilities Expense Rent Expense ($12,250+$1,750) Repair Expense Supplies Expense Depreciation ExpenseCottages Depreciation ExpenseFurniture Interest Expense ($1,600 + $1,540) $ 6,700 800 1,750 650 20,000 142,000 $ 16,000 360 4,800 10,300 375 1,540 77,000 81,000 9,000 5,000 83,550 43,575 9,200 14,000 3,600 1,150 1,278 360 3,140 $269,203 1,278 Credit

________ $269,203

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EXERCISE 3-17 (10-15 minutes) (a) Sales Less: Sales returns and allowances Sales discounts Net sales $1,250,000 $ 4,000 15,000 1,250,000 1,250,000 19,000 4,000 15,000 19,000 $1,231,000

(b) Sales Income Summary Income Summary Sales Returns and Allowances Sales Discounts EXERCISE 3-18 (10-15 minutes) Sales Sales Returns and Allowances Sales Discounts Income Summary Income Summary Cost of Goods Sold Freight-out Insurance Expense Rent Expense Salary Expense Interest Expense Advertising & Promotion Income Summary Retained Earnings

364,000 1,000 7,000 356,000 334,400 228,000 9,000 12,000 20,000 61,000 1,200 3,200 29,600 29,600

(Note: These entries can be combined into one or two entries.)

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EXERCISE 3-19 (10-15 minutes) Sales Cost of Goods Sold Sales Returns and Allowances Sales Discounts Selling Expenses Administrative Expenses Income Tax Expense Income Summary (or) Sales Income Summary Income Summary Cost of Goods Sold Sales Returns and Allowances Sales Discounts Selling Expenses Administrative Expenses Income Tax Expense Income Summary Retained Earnings Retained Earnings Dividends 390,000 390,000 316,700 222,700 2,000 5,000 26,000 31,000 30,000 73,300 73,300 18,000 18,000 390,000 222,700 2,000 5,000 26,000 31,000 30,000 73,300

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EXERCISE 3-20 (10-15 minutes) (a) Sales *Sales returns Net sales $192,000 (30,000) $162,000 $162,000 (55,500) $106,500 $106,500 (35,000) $ 71,500 $81,000 (16,000) $65,000 $65,000 (28,000) $37,000

(b) Net sales Cost of goods sold *Gross profit (c) Gross profit (b) above Operating expenses *Net income

(d) *Sales Sales returns Net sales (e) Net sales *Cost of goods sold Gross profit

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EXERCISE 3-21 (20-25 minutes) (a) Sales *Sales returns Net sales $98,000 (24,000) $74,000 $21,000 63,000 (6,000) 78,000 (14,000) $64,000 $106,000 (5,000) $101,000 $ 25,000 105,000 (10,000) 120,000 (48,000) $ 72,000 $ 44,000 108,000 (8,000) 144,000 (30,000) $114,000 $132,000 (114,000) $ 18,000

(b) Beginning inventory Purchases Purchase returns Goods available for sale *Ending inventory Cost of goods sold (c) *Sales Sales returns Net sales

(d) *Beginning inventory Purchases Purchase returns Goods available for sale Ending inventory Cost of goods sold (e) Beginning inventory *Purchases Purchase returns Goods available for sale Ending inventory Cost of goods sold (from (f) below) Net sales *Cost of goods sold Gross profit

(f)

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EXERCISE 3-21 (Continued) (g) Sales Sales returns *Net sales Beginning inventory Purchases *Purchase returns Goods available for sale Ending inventory Cost of goods sold Net sales Cost of goods sold *Gross profit $120,000 (9,000) $111,000 $ 24,000 90,000 (14,000) 100,000 (28,000) $ 72,000 $111,000 (72,000) $39,000

(h)

(i)

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EXERCISE 3-22 (10-15 minutes)


Accounts Cash Merchandise Inventory Accounts Payable Sales Sales Returns and Allowances Sales Discounts Cost of Goods Sold Wage Expense Interest Income Adjusted Trial Balance Dr. 9,000 80,0 00 Cr. Income Statement Dr. Cr. Balance Sheet Dr. 9,000 80,0 00 Cr.

26,000 480,000 10,000 5,000 290,000 62,000 12,000 10,000 5,000 290,000 62,000

26,000 480,000

12,000

EXERCISE 3-23 (10-15 minutes) Inventory, September 1, 2009 Purchases Less: Purchase returns and allowances Net purchases Add: Freight-in Cost of goods purchased Cost of goods available for sale Inventory, August 31, 2010 Cost of goods sold $ 22,800 $151,600 21,000 130,600 4,000 134,600 157,400 21,500 $135,900

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EXERCISE 3-24 (15-20 minutes)


AIRBOURNE TRAVEL INC. Work Sheet For the Month Ended March 31, 2010 Account Titles
Trial Balance Adjustments
Adj. Trial Balance

Income Stat.

Balance Sheet

Dr. Cr. Dr. Cash 1,800 Accounts Receivable 2,600 Roofing Supplies 600 (a) Equipment 6,000 Accumulated Depr. 400 (b) Accounts Payable 1,100 Unearned Ticket Rev. 500 (c) 400 Common Shares 6,400 Retained Earnings 600 Ticket Revenue 2,600 (c) Salaries Expense 500 (d) 850 Miscellaneous Exp. 100 Totals 11,600 11,600 Supplies Expense (a) 80 Depreciation Expense (b) 120 Salaries Payable (d) Totals 1,450 Net Income Totals Key: (a) Record supplies expense (b) Record depreciation expense (c) Unearned Ticket revenue adjusted (d) Salaries accrued

Cr.

80 120

Dr. 1,800 2,600 520 6,000

Cr.

Dr.

Cr.

Dr. 1,800 2,600 520 6,000

Cr.

400 1,350 100 80 120 850 1,450

520 1,100 100 6,400 600 3,000 1,350 100 80 120 1,650 1,350 3,000

520 1,100 100 6,400 600 3,000

850 12,570 12,570

850 3,000 10,920 9,570 1,350 3,000 10,920 10,920

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EXERCISE 3-25 (20-25 minutes) WEST KAYNE COMPANY Work Sheet (partial) For the Month Ended April 30, 2010
Adjusted Trial Balance Account Title Cash Accounts receivable Prepaid rent Equipment Accumulated depreciation Notes payable Accounts payable Interest payable Bradley, Capital Bradley, Drawings Service revenue Salaries expense Rent expense Depreciation expense Interest expense Totals Net income Totals Dr. 17,672 8,520 3,280 18,050 4,89 5 6,700 4,472 83 34,960 13,190 8,040 2,260 14 5 83 64,300 8,040 2,260 14 5 83 10,528 2,662 13,190 Cr. Income Statement Dr. Cr. Balance Sheet Dr. 17,672 8,520 3,280 18,050 4,895 6,700 4,472 83 34,960 Cr.

_____ 6,250

_____

_____ 13,190

_____ 6,250

64,300

13,190 _____ 13,190

53,772 _____ 53,772

51,110 2,662 53,772

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EXERCISE 3-25 (Continued) WEST KAYNE COMPANY Balance Sheet April 30, 2010 Assets Current Assets Cash Accounts receivable Prepaid rent Total current assets Property, plant, and equipment Equipment Less: accumulated depreciation Total assets Liabilities and Owners Equity Current liabilities Accounts payable Interest payable Notes payable Total current liabilities Owners equity Bradley, Capital Total liabilities and owners equity

$17,672 8,520 3,280 29,472 $18,050 (4,895) 13,155 $42,627

$ 4,472 83 6,700 11,255 31,372* $42,627

*Beg. Balance Drawings + Net Income = Ending Balance $34,960 $6,250 + $2,662 = $31,372

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EXERCISE 3-26 (10-15 minutes)


LAZY DOG INC. Worksheet (partial) For Month Ended February 28, 2010
Adjusted Trial Balance Dr. Cr Income Statement Dr. Cr.

Trial Balance Acc. Titles Dr. Cr.

Adjustments
Dr. Cr.

Balance Sheet Dr. Cr.

Supplies Accumulated depreciation Interest payable Supplies expense Depreciation expense Interest expense Totals

3,256 6,682 100 (a) (b) (c) 1,500 257 50 1,807

(a) (b) (c)

1,500 257 50

1,756 6,939 150 1,500 257 50 1,500 257 50

1,756 6,939 150

1,807

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TIME AND PURPOSE OF PROBLEMS


Problem 3-1 (Time 35-40 minutes)
Purposeto provide an opportunity for the student to post daily transactions to a T account ledger, take a trial balance, prepare an income statement, a balance sheet and a statement of owners equity, close the ledger, and take a postclosing trial balance. The problem deals with routine transactions of a professional service firm and provides a good integration of the accounting process.

Problem 3-2

(Time 35-40 minutes)

Purposeto provide an opportunity for the student to prepare adjusting entries, and prepare financial statements (income statement, balance sheet and statement of retained earnings).

Problem 3-3

(Time 25-30 minutes)

Purposeto provide an opportunity for the student to prepare adjusting entries. The adjusting entries are fairly complex in nature.

Problem 3-4

(Time 35-40 minutes)

Purposeto provide an opportunity for the student to prepare an income statement, retained earnings statement, and a classified balance sheet. In addition, closing entries must be made and a post-closing trial balance prepared.

Problem 3-5

(Time 40-50 minutes)

Purposeto provide an opportunity for the student to complete a worksheet and then prepare a classified balance sheet. In addition, adjusting and closing entries must be made and a post-closing trial balance prepared.

Problem 3-6

(Time 40-50 minutes)

Purposeto provide an opportunity for the student to complete a work sheet and then prepare a multi-step income statement, retained earnings statement, and a classified balance sheet. In addition, adjusting and closing entries must be made and a post-closing trial balance prepared.

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TIME AND PURPOSE OF PROBLEMS (CONTINUED)


Problem 3-7 (Time 40-50 minutes)

Purposeto provide the opportunity for the student to prepare a multiple-step income statement, a retained earnings statement, and a classified balance sheet. Also, adjusting and closing entries must be prepared.

Problem 3-8

(Time 15-20 minutes)

Purposeto provide the student with an opportunity to determine what adjusting entries need to be prepared to specific accounts listed in a partial trial balance. The student is also required to determine the amounts of certain revenue and expense items to be reported in the income statement.

Problem 3-9

(Time 25-30 minutes)

Purposeto provide the student with an opportunity to prepare year-end adjusting entries from a trial balance and related information presented. The problem also requires the student to prepare an income statement, a balance sheet, and a statement of owners equity. The problem covers the basics of the end-of-period adjusting process.

Problem 3-10

(Time 25-35 minutes)

Purposeto provide an opportunity for the student to figure out the year-end adjusting entries that were made from a trial balance and an adjusted trial balance. The student is also required to prepare an income statement, a statement of retained earnings, and a balance sheet. In addition, the student needs to answer a number of questions related to specific accounts.

Problem 3-11

(Time 25-30 minutes)

Purposeto provide an opportunity for the student to prepare adjusting entries.

Problem 3-12

(Time 30-40 minutes)

Purposeto provide an opportunity for the student to prepare adjusting and closing entries. The student is also required to post the entries to T account ledger, and take a pre-closing trial balance. This problem presents basic adjustments including a number of accruals and deferrals. It provides the student with an integrated flow of the year-end accounting process.

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TIME AND PURPOSE OF PROBLEMS (CONTINUED)


Problem 3-13 (Time 30-35 minutes)

Purposeto provide an opportunity for the student to prepare adjusting and closing entries from a trial balance and related information. The student is also required to post the entries to T accounts.

Problem 3-14

(Time 30-35 minutes)

Purposeto provide an opportunity for the student to determine what adjusting entries need to be made to specific accounts listed in a trial balance. The student is also required to determine which adjusting journal entries could be reversed.

Problem 3-15

(Time 30-35 minutes)

Purposeto provide an opportunity for the student to determine what adjusting entries need to be made to specific accounts listed in a trial balance. The student is also required to determine which adjusting journal entries could be reversed.

Problem 3-16

(Time 30-35 minutes)

Purposeto provide an opportunity for the student to analyze errors and prepare the necessary correcting entries for several errors in the original recording of transactions. The student must first document the incorrect entry that was made, the entry that should have been made and conclude with the correcting entry. The student is also required to arrive at a corrected trial balance.

Problem 3-17

(Time 15-20 minutes)

Purposeto provide an opportunity for the student to deal with the alternate method of recording prepayments when recording cash receipts and disbursements. The student must adapt the adjustment process at the end of the year to deal with this alternate method. This is a short question.

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SOLUTIONS TO PROBLEMS
PROBLEM 3-1
(a) (Explanations are omitted) and (d)
Sep. 1 8 20 Cash 32,000 Sept. 4 3,560 5 2,100 10 18 19 30 30 30 Bal 24,995 Sep. Bal. Sept. Bal Sep. Bal. 14 25 30 Accounts Receivable 4,740 Sep. 20 2,780 5,420 Prepaid Rent 1,300 Sept. 30 650 2,100 Sep. 650 Service Revenue 11,080 Sep. 8 14 25 11,080 18 Accounts Payable 6,300 Sep. 2 Bal. 30 12,500 6,200 1,300 900 680 6,300 2,000 1,400 85 Sep. Bal Furniture and Equipment 2 12,500 30 12,500 Emily Cain, Capital Sep. 1 2,000 30 Bal. 30 32,000 7,727 37,727

Sep. 30

4 30

Supplies on Hand 5 900 Sep. 30 30 570

330

Sep. Sep 30

30

3,560 4,740 2,780 11,080

Sep. Bal Sep.

Miscellaneous Office Expense 10 680 30 85 30 765 30 Office Salaries Expense 1,400 Sep. 30 Supplies Expense 330 Sep. 30

Accumulated Depreciation Sep. 30 765 1,400

208

Sep.

30

330

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PROBLEM 3-1 (Continued)


Sep. Depreciation Expense 30 208 Sep. 30 208 Sep. Income Summary 30 650 Sep. 30 30 765 30 1,400 30 330 30 208 30 Inc. 7,727 11,080 11,080

11,080

Sep. 30 Sep. 30 Bal

Rent Expense 650 650 Sep. 30 Bal

650

Sep. 19

Emily Cain, Drawings 2,000 Sep. 30 2,000

(b)

EMILY CAIN, D.D.S. Adjusted Trial Balance September 30 Debit Credit

Cash Accounts Receivable Supplies on Hand Prepaid Rent Furniture and Equipment Accumulated Depreciation Accounts Payable Emily Cain, Capital Emily Cain, Drawings Service Revenue Rent Expense Miscellaneous Office Expense Office Salaries Expense Supplies Expense Depreciation Expense PROBLEM 3-1 (Continued)

$24,995 5,420 570 650 12,500 $208 6,200 32,000 2,000 11,080 650 765 1,400 330 208 $49,488

_ ____ $49,488

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(c)

EMILY CAIN, D.D.S. Income Statement For the Month of September $11,080 $ 650 330 1,400 208 765 3,353 $7,727

Service revenue Expenses: Rent expense Supplies expense Office salaries expense Depreciation expense Miscellaneous office expense Total expenses Net income EMILY CAIN, D.D.S. Balance Sheet As of September 30 Assets Cash Accounts receivable Supplies Prepaid rent Furniture and equip. Accum. depreciation Total assets $24,995 5,420 570 650 12,500 (208) $43,927

Liabilities Accounts payable

$6,200

Owners Equity Emily Cain, Capital 37,727 Total liabilities and owners equity $43,927

EMILY CAIN, D.D.S. Statement of Owners Equity For the Month of September Cain, Capital September 1 Add: Investment by owner Net income for September Deduct: Withdrawal by owner Cain, Capital September 30

$ 0 32,000 7,727 39,727 2,000 $37,727

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PROBLEM 3-1 (Continued) (e) EMILY CAIN, D.D.S. Post-closing Trial Balance September 30 Debit Cash Accounts Receivable Supplies on Hand Prepaid Rent Furniture and Equipment Accumulated Depreciation Accounts Payable Emily Cain, Capital Totals $24,995 5,420 570 650 12,500 ______ $44,135 $208 6,200 37,727 $44,135 Credit

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PROBLEM 3-2 (a) Dec. 31 Accounts Receivable...................... Advertising Revenue............... 31 Advertising Revenue...................... Unearned Advertising Revenue........................................... 31 Art Supplies Expense..................... Art Supplies............................. 31 Art Supplies Expense..................... Accounts Payable.................... 5,000 5,000 2,200 2,200 5,400 5,400 6,000 6,000

31 Depreciation Expense.................... 11,500 Accumulated Depreciation..... 11,500 31 Interest Expense............................. Interest Payable....................... 31 Insurance Expense......................... Prepaid Insurance................... 31 Salaries Expense............................ Salaries Payable...................... 650 650 9,400 9,400 9,600 9,600

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PROBLEM 3-2 (Continued) (b) YANCY ADVERTISING AGENCY LIMITED Income Statement For the Year Ended December 31, 2010 $70,000 $19,600 11,500 4,000 11,400 9,400 1,000 $56,900 $13,100

Revenues Advertising revenue............................ Expenses Salaries expense.................................. Depreciation expense.......................... Rent expense....................................... Art supplies expense........................... Insurance expense.............................. Interest expense.................................. Total expenses.............................. Net income.....................................................

YANCY ADVERTISING AGENCY LIMITED Statement of Retained Earnings For the Year Ended December 31, 2010 Retained Earnings, January 1, 2010............................. Add: Net income............................................................. Retained Earnings, December 31, 2010....................... $ 3,500 13,100 $16,600

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PROBLEM 3-2 (Continued) YANCY ADVERTISING AGENCY LIMITED Balance Sheet December 31, 2010 Assets Cash............................................................. Accounts receivable................................... Art supplies................................................. Prepaid insurance....................................... Printing equipment..................................... $60,000 Less: Accumulated depreciation 39,50 printing equipment 0 Total assets............................................. Liabilities and Shareholders Equity Liabilities Notes payable............................................. Accounts payable....................................... Interest payable.......................................... Unearned advertising revenue.................. Salaries payable......................................... Total liabilities....................................... Shareholders equity Common shares......................................... $10,000 Retained earnings...................................... 16,600 Total liabilities and shareholders equity $ 5,000 11,000 650 20,600 9,600 46,850 26,600 $73,450 $10,750 35,000 5,000 2,200 20,50 0 $73,450

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PROBLEM 3-3 1. Dec. 31 Salaries Expense........................... Salaries Payable..................... (5 X $1,200 X 2/5) = $2,400 (3 X $800 X 2/5) = 960 Total accrued salaries $3,360 3,360 3,360

2.

31 Unearned Rent Revenue............... 82,200 Rent Revenue......................... 82,200 (5 X $4,100 X 2) = $41,000 (4 X $10,300 X 1) = 41,200 Total rent earned $82,200 31 Advertising Expense..................... Prepaid Advertising............... (A650 $600 per month for 8 months) = $4,800 (B974 $375 per month for 3 months) = 1,125 Total adv. expense $5,925 31 Interest Expense............................ Interest Payable...................... ($80,000 X 9% X 7/12) 5,925 5,925

3.

4.

4,200 4,200

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PROBLEM 3-4 (a) CANNED HEAT LIMITED Income Statement For the Year Ended December 31, 2010 $142,000 $106,600 3,500 13,200 38,800 8,800 170,900 $(28,900)

Revenues Service revenue................................. Expenses Salaries expense............................... Utilities expense................................ Repair expense.................................. Depreciation expense....................... Insurance expense............................ Total expenses............................ Net loss........................................................

CANNED HEAT LIMITED Statement of Retained Earnings For the Year Ended December 31, 2010 Retained Earnings, January 1 Less: Net loss Retained Earnings, December 31 $66,800 28,900 $37,900

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PROBLEM 3-4 (Continued) CANNED HEAT LIMITED Balance Sheet December 31, 2010 Assets Current assets Cash....................................................... Accounts receivable............................. Prepaid insurance................................. Total current assets...................... Property, plant, and equipment Equipment............................................. Less: Accumulated depreciation......... Total assets................................... $ 18,000 67,500 1,800 87,300 $98,000 28,600

69,400 $156,700

CANNED HEAT LIMITED Balance Sheet (Continued) December 31, 2010 Liabilities and Shareholders Equity Current liabilities Accounts payable.................................. $31,600 Salaries payable..................................... 7,200 Total current liabilities................... 38,800 Shareholders equity Common shares..................................... $80,000 Retained earnings.................................. 37,900 117,900 Total liabilities and shareholders equity $156,700

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PROBLEM 3-4 (Continued) (b)


Date

General Journal
Account Titles and Explanation Ref. Debit Credit

Dec.

31 Service Revenue Income Summary 31 Income Summary Repair Expense Depreciation Expense Insurance Expense Salaries Expense Utilities Expense 31 Retained Earnings Income Summary

400 350 350 622 711 722 726 732 306 350

142,000 142,000 170,900 13,200 38,800 8,800 106,600 3,500 28,900 28,900

(c) CANNED HEAT LIMITED Post-Closing Trial Balance December 31, 2010 Debit Cash Accounts Receivable Prepaid Insurance Equipment Accumulated Depreciation Accounts Payable Salaries Payable Common Shares Retained Earnings $ 18,000 67,500 1,800 98,000 $ 28,600 31,600 7,200 80,000 37,900 $185,300 Credit

______ $185,300

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PROBLEM 3-5
NOAH'S FOODS Work Sheet For the Year Ended September 30, 2010
Adjusted Trial Income Trial Balance Adjustments Balance Statement Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 37,400 37,400 37,400 Supplies 18,600 (b) 17,100 1,500 1,500 Prepaid Insurance 31,900 (a) 28,300 3,600 3,600 Land 80,000 80,000 80,000 Equipment 120,000 120,000 120,000 Accum. Depr. 36,200 (c) 4,800 41,000 41,000 Accounts Payable 14,600 14,600 14,600 Unearned Ad. Rev. 2,700 (d) 1,000 1,700 1,700 Mortgage Payable 50,000 50,000 50,000 Interest Payable (f) 6,200 6,200 6,200 Prop. Taxes Payable (e) 3,000 3,000 3,000 N. Y. Berge, Capital 109,700 109,700 109,700 N. Y. Berge, Drawings 14,000 14,000 14,000 Admissions Revenue 278,500 (d) 1,000 279,500 279,500 Salaries Expense 109,000 109,000 109,000 Repair Expense 30,500 30,500 30,500 Advertising Expense 9,400 9,400 9,400 Utilities Expense 16,900 16,900 16,900 Prop. Taxes Expense 18,000 (e) 3,000 21,000 21,000 Interest Expense 6,000 (f) 6,200 12,200 12,200 Totals 491,700 491,700 Account Titles
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PROBLEM 3-5 (Continued)


Adjusted Trial Income Adjustments Balance Statement Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. (a) 28,300 28,300 28,300 (b) 17,100 17,100 17,100 (c) 4,800 4,800 4,800 60,400 60,400 505,700 505,700 249,200 279,500 256,500 226,200 30,300 30,300 279,500 279,500 256,500 256,500

Account Titles

Trial Balance Dr. Cr.

Insurance Expense Supplies Expense Depr. Expense Totals Net Income Totals Key: (a) Expired Insurance (b) Supplies Used (c) Depreciation Expense (d) Admissions Revenue (e) Accrued Taxes Payable (f) Accrued Interest Payable

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PROBLEM 3-5 (Continued) (b) NOAHS FOODS Balance Sheet September 30, 2010 Assets $ 37,400 1,500 3,600 42,500 $80,000 $120,000 41,000 79,000 159,000 $201,500

Current assets Cash Supplies Prepaid insurance Total current assets Property, plant, and equipment Land Equipment Less: Accum. depreciation Total assets

Liabilities and Owners Equity Current liabilities Current portion of long-term debt...................... Accounts payable................................................ Unearned admissions revenue........................... Interest payable.................................................... Property taxes payable........................................ Total current liabilities............................... Long-term liabilities Mortgage payable, net of current portion.......... Total liabilities............................................. Owners equity N.Y. Berge, Capital ($109,700 + $30,300 $14,000)................................................................. Total liabilities and owners equity........... (c) Sep. 30 Insurance Expense Prepaid Insurance 30 Supplies Expense Supplies 28,300 28,300 17,100 17,100 $ 10,000 14,600 1,700 6,200 3,000 35,500 40,000 75,500 126,000 $201,500

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PROBLEM 3-5 (Continued) Sep.30 Depreciation Expense Accumulated Depreciation 30 Unearned Admissions Revenue Admissions Revenue 30 Property Taxes Expense Property Taxes Payable 30 Interest Expense Interest Payable (d) Sep. 30 Admissions Revenue Income Summary 30 Income Summary Salaries Expense Repair Expense Insurance Expense Property Taxes Expense Supplies Expense Utilities Expense Interest Expense Advertising Expense Depreciation Expense 30 Income Summary N. Y. Berge, Capital 30 N. Y. Berge, Capital N. Y. Berge, Drawings 4,800 4,800 1,000 1,000 3,000 3,000 6,200 6,200 279,500 279,500 249,200 109,000 30,500 28,300 21,000 17,100 16,900 12,200 9,400 4,800 30,300 30,300 14,000 14,000

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PROBLEM 3-5 (Continued) (e) NOAHS FOODS Post-Closing Trial Balance September 30, 2010 Debit Cash .......................................................... Prepaid Insurance.................................... Supplies.................................................... Land .......................................................... Equipment................................................. Accumulated Depreciation...................... Accounts Payable.................................... Unearned Admissions Revenue............. Property Taxes Payable........................... Interest Payable........................................ Mortgage Payable..................................... N. Y. Berge, Capital.................................. $ 37,400 3,600 1,500 80,000 120,000 $ 41,000 14,600 1,700 3,000 6,200 50,000 126,000 $242,500 Credit

_______ $242,500

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PROBLEM 3-6
SLUM DOG FASHION CENTRE INC. Work Sheet For the Year Ended November 30, 2010
Account Titles Trial Balance Dr. Cr. Cash 29,200 Accounts Receivable 82,000 Merchandise Inventory 105,000 Store Supplies 8,600 Store Equipment 225,000 Accumulated Depr.Store Equipment 86,000 Delivery Equipment 128,000 Accumulated Depr. Delivery Equipment 39,000 Notes Payable 85,000 Accounts Payable 78,500 Common Shares 300,000 Retained Earnings 38,000 Sales 950,200 Sales Returns and Allowances 24,200 Cost of Goods Sold 611,500 Adjustments Dr. Cr. Adjusted Trial Balance Dr. Cr. 29,200 82,000 105,000 3,100 225,000 126,000 128,000 (c) 30,000 69,000 85,000 78,500 300,000 38,000 950,200 24,200 611,500 24,200 611,500 128,000 69,000 85,000 78,500 300,000 38,000 950,200 Income Statement Dr. Cr. Balance Sheet Dr. Cr. 29,200 82,000 105,000 3,100 225,000 126,000

(a)

5,500

(b)

40,000

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PROBLEM 3-6 (Continued)


Account Titles Trial Balance Dr. Cr. Salaries Expense 150,000 Advertising Expense 46,400 Utilities Expense 24,000 Repair Expense 32,100 Delivery Expense 46,700 Rent Expense 64,000 Totals 1,576,700 1,576,700 Store Supplies Expense Depreciation ExpenseStore Equipment Depreciation ExpenseDelivery Equipment Interest Expense Interest Payable Totals Net Loss Totals Key: Adjustments Dr. Cr. Adjusted Trial Balance Dr. Cr. 150,000 46,400 24,000 32,100 46,700 64,000 Income Statement Dr. Cr. 150,000 46,400 24,000 32,100 46,700 64,000 Balance Sheet Dr. Cr.

(a)

5,500

5,500 40,000 30,000 9,000 (d) 9,000 84,500 1,655,700

5,500 40,000 30,000 9,000 9,000 1,655,7001,083,400 950,200 572,300 133,200 133,200 1,083,4001,083,400 705,500 9,000 705,500 705,500

(b) 40,000 (c) 30,000 (d) 9,000 84,500

(a) Store supplies used (b) Depreciation expense-store equipment

(c) Depreciation expense-delivery equipment (d) Accrued interest payable

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PROBLEM 3-6 (Continued) (b) SLUM DOG FASHION CENTRE INC. Income Statement For the Year Ended November 30, 2010
$950,200 24,200 926,000 611,500 314,500 $90,000 46,400 57,600 46,700 21,600 40,000 30,000 5,500 $337,800 60,000 32,100 6,400 2,400 100,90 0 438,700 124,200 9,000 $133,200

Sales revenue Sales...................................................... Less: Sales returns and allowances... Net sales.......................................................... Cost of goods sold......................................... Gross profit..................................................... Operating expenses Selling expenses Salaries expense........................ ($150,000 x 60%) Advertising expense.................. Rent expense............................. ($64,000 x 90%) Delivery expense....................... Utilities expense........................ ($24,000 x 90%) Depr. exp.store equipment.... Depr. exp.deliv. equipment.... Stores supplies expense........... Total selling expenses....... Administrative expenses Salaries expense........................ ($150,000 x 40%) Repair expense.......................... Rent expense............................. ($64,000 x 10%) Utilities expense........................ ($24,000 x 10%) Total admin. expenses...... Total oper. expenses Loss from operations..................................... Other expenses and losses Interest expense................................... Net loss............................................................ .........................................................................

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PROBLEM 3-6 (Continued) SLUM DOG FASHION CENTRE INC. Statement of Retained Earnings and Deficit For the Year Ended November 30, 2010 Retained Earnings, December 1, 2009 Less: Net loss Deficit, November 30, 2010 SLUM DOG FASHION CENTRE INC. Balance Sheet November 30, 2010
Assets Current assets Cash Accounts receivable Merchandise inventory Store supplies Total current assets Property, plant, and equipment Store equipment Accumulated depreciationstore equipment Delivery equipment Accumulated depreciation delivery equipment Total assets $ 29,200 82,000 105,000 3,100 219,300 $225,000 126,00 0 128,000 69,000

$38,000 133,200 ($95,200)

$99,00 0 59,00 0 __158,000 $377,300

Liabilities and Shareholders Equity Current liabilities Current portion of notes payable....................... $ 35,000 Accounts payable............................................... 78,500 Interest payable.................................................. 9,000 Total current liabilities............................. 122,500 Long-term liabilities Notes payable, net of current portion................ 50,000 Total liabilities.......................................... 172,500 Shareholders equity Common Shares................................................. $300,000 Deficit................................................................... (95,200) 204,800 Total liabilities and shareholders equity.......... $377,300
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PROBLEM 3-6 (Continued) (c) Store Supplies Expense Store Supplies Depr. ExpenseStore Equipment Accumulated Depreciation Store Equipment Depr. ExpenseDelivery Equipment Accumulated Depreciation Delivery Equipment Interest Expense Interest Payable (d) Sales Income Summary Income Summary Sales Returns and Allowances Cost of Goods Sold Salaries Expense Advertising Expense Utilities Expense Repair Expense Delivery Expense Rent Expense Store Supplies Expense Depreciation ExpenseStore Equipment Depreciation ExpenseDelivery Equipment Interest Expense Retained Earnings Income Summary 5,500 5,500 40,000 40,000 30,000 30,000 9,000 9,000 950,200 950,200 1,083,400 24,200 611,500 150,000 46,400 24,000 32,100 46,700 64,000 5,500 40,000 30,000 9,000 133,200 133,200

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PROBLEM 3-6 (Continued) (e) SLUM DOG FASHION CENTRE INC. Post-Closing Trial Balance November 30, 2010 Debit Cash .............................................................. Accounts Receivable................................... Merchandise Inventory................................ Store Supplies.............................................. Store Equipment.......................................... Accumulated DepreciationStore Equipment................................................ Delivery Equipment..................................... Accumulated DepreciationDelivery Equipment................................................ Notes Payable.............................................. Accounts Payable........................................ Interest Payable........................................... Common Shares.......................................... Retained Earnings (Deficit)......................... $ 29,200 82,000 105,000 3,100 225,000 $126, 000 128,000 69,000 85,000 78,500 9,000 300,000 ________ $667,500 Credit

95,200 $667,500

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PROBLEM 3-7
(a) SECOND HAND ALMOST NEW DEPARTMENT STORE INCORPORATED Income Statement For the Year Ended December 31, 2010 $718,000 8,000 710,000 412,700 297,300 $76,000 14,500 13,300 6,600 4,320 $114,720 32,000 10,400 4,800 4,400 2,880 54,480 169,200 128,100 4,000 11,000 7,000 $121,100

Sales revenue Sales Less: Sales returns and allowances Net sales Cost of goods sold Gross profit Operating expenses Selling expenses Sales salaries expense Sales commissions expense Depreciation expenseequipment Utilities expense ($11,000 x 60%) Insurance expense ($7,200 x 60%) Total selling expenses Administrative expenses Office salaries expense Depreciation expensebuilding Property tax expense Utilities expense ($11,000 x 40%) Insurance expense ($7,200 x 40%) Total admin. expenses Total oper. expenses Income from operations Other revenues and gains Interest revenue Other expenses and losses Interest expense Net income

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PROBLEM 3-7 (Continued) SECOND HAND ALMOST NEW DEPARTMENT STORE INCORPORATED Statement of Retained Earnings For the Year Ended December 31, 2010 Retained Earnings, January 1 Add: Net income Less: Dividends Retained Earnings, December 31 $16,600 121,100 137,700 28,000 $109,700

SECOND HAND ALMOST NEW DEPARTMENT STORE INCORPORATED Balance Sheet December 31, 2010 Assets Current assets Cash Accounts receivable Merchandise inventory Prepaid insurance Total current assets Property, plant, and equipment Building Less: Accumulated depreciationbuilding Equipment Less: Accumulated depreciationequipment Total assets $ 68,000 95,300 75,000 2,400 240,700 $190,000 52,500 $137,500 110,000 42,900 67,100 204,600 $445,300

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PROBLEM 3-7 (Continued) SECOND HAND ALMOST NEW DEPARTMENT STORE INCORPORATED Balance Sheet (Continued) December 31, 2010 Liabilities and Shareholders Equity Current liabilities Accounts payable.............................. Mortgage payable due next year...... Property taxes payable..................... Sales commissions payable............. Interest payable................................. Total current liabilities............. Long-term liabilities Mortgage payable.............................. Total liabilities.......................... Shareholders equity Common Shares................................ $160,000 Retained Earnings............................. 109,700 Total liabilities and shareholders equity.........

$ 79,300 20,000 4,800 3,500 8,000 115,600 60,000 175,600 269,700 $445,30 0

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PROBLEM 3-7 (Continued) (b) Depreciation ExpenseBuilding Accumulated Depreciation Building Depreciation ExpenseEquipment Accumulated Depreciation Equipment Insurance Expense Prepaid Insurance Interest Expense Interest Payable Property Tax Expense Property Taxes Payable Sales Commissions Expense Sales Commissions Payable 10,400 10,400 13,300 13,300 7,200 7,200 8,000 8,000 4,800 4,800 3,500 3,500

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PROBLEM 3-7 (Continued) (c) Sales Interest Revenue Income Summary Income Summary Sales Returns and Allowances Cost of Goods Sold Office Salaries Expense Sales Salaries Expense Sales Commissions Expense Property Taxes Expense Utilities Expense Depreciation ExpenseBuilding Depreciation Expense Equipment Insurance Expense Interest Expense Income Summary Retained Earnings Retained Earnings Dividends 718,000 4,000 722,000 600,900 8,000 412,700 32,000 76,000 14,500 4,800 11,000 10,400 13,300 7,200 11,000 121,100 121,100 28,000 28,000

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PROBLEM 3-8 (a) -1Depreciation Expense- Equipment Accumulated Depreciation Equipment (1/16 X ($960,000$40,000)) -2Interest Expense Interest Payable ($186,000 X 10% X 72/365) -3Admissions Revenue Unearned Admissions Revenue -4Prepaid Advertising Advertising Expense -5Salaries Expense Salaries Payable 11,800 11,800 1,100 1,100 50,000 50,000 3,669 3,669 57,500 57,5 00

(b)

1.
2. 3. 4.

Interest expense, $12,669 ($9,000+3,669). Admissions revenue, $700,000 ($750,000 $50,000). Advertising expense, $60,900 ($62,000 $1,100). Salaries expense, $91,800 ($80,000 + $11,800).

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PROBLEM 3-9 (a) -1Service Revenue............................................ Unearned Service Revenue................... -2Accounts Receivable..................................... Service Revenue..................................... -3Bad Debt Expense.......................................... Allowance for Doubtful Accounts......... -4Unexpired Insurance...................................... Insurance Expense................................. -5Depreciation ExpenseFurniture and Equipment................................................... Accum. Depr. Furniture and Equipment........................................... -6Interest Expense.............................................. Interest Payable....................................... ($7,200 X 12% X 30/365) -7Prepaid Rent.................................................... Rent Expense........................................... -8Office Salaries Expense............................... Salaries Payable.................................... 6,900 6,900 7,300 7,300 6,300 6,300 6,000 6,000 7,08 8 7,08 8 71 71

750 750 2,510 2,510

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PROBLEM 3-9 (Continued) -9Retained Earnings........................................ Dividends Payable................................ (b)

80,000 80,000

MUSTANG ROVERS CONSULTING LIMITED Income Statement For the Year Ended December 31, 2010 $100,400 $31,010 1,080 9,000 12,500 6,300 7,088 720 71 67,769 $32,631

Service Revenue........................................... Expenses: Office salaries expense....................... Heat, light, and water expense........... Rent expense....................................... Insurance expense.............................. Bad debt expense................................ Depreciation expense.......................... Miscellaneous office expense............ Interest expense.................................. Total expenses............................. Net income.....................................................

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PROBLEM 3-9 (Continued) MUSTANG ROVERS CONSULTING LIMITED Balance Sheet December 31, 2010 Assets Current assets Cash ................................................. Accounts receivable.......................... Less: Allowance for doubtful accounts............... Engineering supplies inventory....... Unexpired insurance......................... Prepaid rent....................................... Total current assets.................... Furniture and equipment.................. Less: Accumulated depreciation...... Total assets Liabilities and Owners Equity Current liabilities Unearned service revenue............... Interest payable................................ Salaries payable............................... Dividends payable............................ Notes payable................................... Total liabilities............................. Shareholdersequity Common shares.................................... Retained earnings................................. Total liabilities and owners equity

$83,700 $88,400 (7,050) 81,350 1,960 4,900 750 $172,660 71,662 $244,322

85,000 (13,338)

$ 6,900 71 2,510 80,000 7,200 $ 96,681 35,010 112,631 $244,322

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PROBLEM 3-9 (Continued) MUSTANG ROVERS CONSULTING LIMITED Statement of Retained Earnings For the Year Ended December 31, 2010 Retained Earnings, January 1 Add: Net income Less: Dividends Retained Earnings, December 31 $160,000 32,631 192,631 80,000 $112,631

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PROBLEM 3-10 (a) Dec. 31 Account Receivable....................... Service Revenue..................... 31 Unearned Service Revenue.......... Service Revenue..................... 31 Art Supplies Expense.................... Art Supplies............................ 31 Art Supplies.................................... Accounts Payable.................. 31 Rent Expense................................. Prepaid Rent........................... 31 Depreciation Expense................... Accumulated Depreciation.... t 31 Cash................................................ Interest Income....................... 31 Insurance Expense........................ Prepaid Insurance.................. 31 Salaries Expense........................... Salaries Payable..................... 12,800 12,800 1,400 1,400 3,150 3,150 150 150 2,000 2,000 6,750 6,750 1,000 1,000 750 750 1,500 1,500

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PROBLEM 3-10 (Continued) (b) BROOK CORPORATION Income Statement For the Year Ended December 31, 2010 $72,800 ___ 1,000 73,800 $11,850 8,150 6,750 6,000 ____ 750 33,500 $40,300

Revenues Service revenue............................... Interest income............................... Expenses Salaries expense............................. Art supplies expense...................... Depreciation expense..................... Rent expense................................... Insurance expense.......................... Total expenses........................ Net income................................................

BROOK CORPORATION Statement of Retained Earnings For the Year Ended December 31, 2010 Retained Earnings, January 1 Add: Net income Retained Earnings, December 31 $ 4,500 40,300 $44,800

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PROBLEM 3-10 (Continued)

BROOK CORPORATION Balance Sheet December 31, 2010 Assets Current Assets Cash .......................................................... Accounts receivable..................................... Note receivable............................................. Art supplies................................................... Prepaid rent................................................... Prepaid insurance......................................... Total current assets................................. Printing equipment............................................ Less: Accumulated depreciation..................... Total assets............................................... Liabilities Accounts payable..................................... Unearned service revenue....................... Salaries payable....................................... Total liabilities................................. Shareholders equity Common Shares....................................... Retained Earnings.................................... Total shareholders equity............. Total liabilities and shareholders equity....................................... $ 8,000 25,800 10,000 5,500 4,000 2,500 55,800 $50,000 33,750 16,250 $72,050

Liabilities and Shareholders Equity $ 5,150 5,600 1,500 12,250 $15,000 44,800 59,800 $72,05 0

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PROBLEM 3-11 (a) -1Prepaid Advertising Expense Advertising Expense -2Interest Expense Interest Payable ($15,000 X 10% X 2/12) -3Sales Salaries Expense Office Salaries Expense Salaries Payable -4Interest Receivable Interest Revenue -5Bad Debt Expense Allowance for Doubtful Accounts -6Stationery and Postage Supplies Stationery and Postage Expense -7Rent Expense Rent Payable -8Insurance Expense Prepaid Insurance (2/12 X $1,170) 195 195 1,000 1,000 1,560 1,560 110 110 500 500 1,420 1,060 2,480 250 250 335 335

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PROBLEM 3-11 (Continued) -9Property Tax Expense Property Tax Payable -10Interest Expense Interest Payable ($6,000 X 15% X 1/12) -11Unearned Rent Revenue Rent Revenue (2/6 X $2,580) -12Rent Expense Prepaid Rent Expense (4/6 X $8,300) -13Utilities Expense Utilities Payable -14Depreciation ExpenseFurniture and Equipment Accum. Depr.Furniture and Equipment 510 510 1,40 0 1,40 0 5,533 5,533 860 860 75 75 1,670 1,670

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PROBLEM 3-12 (a), (b), (d)


Bal. Cash 115,000 Accounts Receivable 63,000 Allow. for Doubtful Accts. Bal. 9,000 Adj. 6,120 Bal. 15,120 Bal. Buildings 600,000 Accum. Depr. - Buildings Bal. 40,000 Adj. 20,000 Bal. 60,000 Unearned Dues Revenue Adj. 9,900 Common Shares Bal. 880,000 Adj. Rent Receivable 4,000 Unexpired Insurance 12,000 Adj. 5,300 6,700 Land 350,000

Bal.

Bal. Bal. Bal.

Bal.

Equipment 300,000 Accum. Depr. - Equipment Bal. 120,000 Adj. 18,000 Bal. 138,000 Salaries Payable Adj. 3,600

Retained Earnings Bal. 152,000 Cl. 180,080 Bal. 332,080 Adj. Close Dues Revenue 9,900 Bal. 345,100 355,000 Rental Revenue 48,000 Bal. _____ Adj. 48,000 355,000 ______ 355,000

Close

Green Fees Revenue 58,000 Bal. 58,000

Close

44,000 4,000 48,000

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PROBLEM 3-12 (Continued) (a), (b), (d)


Adj. Bad Debts Expense 6,120 Close 6,120 Bal. Utilities Expense 74,000 Close Insurance Expense 5,300 Close 74,000

Bal.

Maintenance Expense 54,000 Close 54,000 Salaries Expense 90,000 Close 3,600 93,600

Adj.

5,300

Bal. Adj.

93,600 _____ 93,600

Adj.

Depr. ExpenseBuildings 20,000 Close 20,000 Depr. ExpenseEquipment 18,000 Close 18,000

Adj.

Exp. Cl.

Income Summary 271,020 Rev. 180,080 451,100

451,100 ______ 451,100

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PROBLEM 3-12 (Continued) (b) -1Depreciation ExpenseBuildings Accumulated Depreciation Buildings (1/30 X $600,000) -2Depreciation ExpenseEquipment Accumulated Depreciation Equipment 10% X ($300,000-$120,000) -3Insurance Expense Unexpired Insurance -4Rent Receivable Rental Revenue (1/11 X $44,000) -5Bad Debts Expense Allowance for Doubtful Accounts (24% X $63,000 = $15,120 less existing balance of $9,000) -6Salaries Expense Salaries Payable -7Dues Revenue Unearned Dues Revenue 9,900 9,900 3,600 3,600 6,120 6,120 4,000 4,000 5,300 5,300 20,000 20,0 00

18,000 18,00 0

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PROBLEM 3-12 (Continued) (c) MASTERS GOLF CLUB, INC. Adjusted Trial Balance December 31, 2010 Dr. $115,000 63,000 Cr.

Cash............................................................. Accounts Receivable.................................. Allowance for Doubtful Accounts............. $15,120 Rent Receivable.......................................... 4,000 Unexpired Insurance.................................. 6,700 Land............................................................. 350,000 Buildings..................................................... 600,000 Accumulated DepreciationBuildings.... 60,000 Equipment................................................... 300,000 Accumulated DepreciationEquipment. . 138,000 Salaries Payable......................................... 3,600 Unearned Dues Revenue........................... 9,900 Common Shares......................................... 880,000 Retained Earnings...................................... 152,000 Dues Revenue............................................. 345,100 Green Fees Revenue.................................. 58,000 Rental Revenue........................................... 48,000 Utilities Expense......................................... 74,000 Bad Debts Expense.................................... 6,120 Salaries Expense........................................ 93,600 Maintenance Expense................................ 54,000 Depreciation ExpenseBuildings............ 20,000 Depreciation ExpenseEquipment.......... 18,000 Insurance Expense..................................... _ 5,300 _ _______ $1,709,720 $1,709,720

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PROBLEM 3-12 (Continued) (d) Dues Revenue Green Fees Revenue Rental Revenue Income Summary -31Income Summary Utilities Expense Bad Debts Expense Salaries Expense Maintenance Expense Depreciation ExpenseBuildings Depreciation ExpenseEquipment Insurance Expense -31Income Summary Retained Earnings 180,080 180,080 271,020 74,000 6,120 93,600 54,000 20,000 18,000 5,300 -Dec. 31345,100 58,000 48,000 451,100

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PROBLEM 3-13 (a), (b) and (c)


Bal. Cash 18,500 Inventory 80,000 Prepaid Insurance 5,100 Adj. Common Shares Bal. Bal. Adj. Bal. Accounts Receivable 42,000

Bal.

Furniture & Equipment Bal. 84,000 Notes Payable Bal. Cls. Bal. Sales 600,000 Bal.

Bal.

2,100 80,600

28,000 600,000

Sales Salaries Expense 50,000 Close 58,000 8,000 _____ 58,000 58,000 Bad Debts Expense 3,800 Close 3,800

Advertising Expense 6,700 Adj. 750 ____ Close 5,950 6,700 6,700 Office Expense 5,000 Adj. _____ Close 5,000 3,500 1,500 5,000

Adj.

Bal.

Interest Payable Adj.

6,420

Depr. Exp.Furn. & Equip. Adj. 8,400 Close 8,400

Adj.

Office Supplies 3,500

Salaries Payable Adj.

8,000

Retained Earnings Bal. I.S. Bal.

10,000 50,830 60,830

Bal.

Cost of Goods Sold 398,000 Close 398,000

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PROBLEM 3-13 (Continued) (a), (b) and (c)


Allow. for Doubtful Accts. Bal. 700 Adj. 3,800 4,500 Accum. Depr. of F. & E. Bal. 35,000 Adj. 8,400 43,400 Bal. Adj. Adj. Admin. Salaries Expense 65,000 Close 65,000 Insurance Expense 2,100 Close Interest Expense 6,420 Close 2,100 6,420

Adj.

Prepaid Advertising Expense 750

Exp. R.E.

Income Summary 549,170 Sales 50,830 600,000

600,000 ______ 600,000

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PROBLEM 3-13 (Continued) (b) -1Bad Debts Expense...................................... Allowance for Doubtful Accounts........ -2Depreciation ExpenseFurniture and Equipment................................................. Accum. Depr.Furniture and Equipment........................................ -3Insurance Expense....................................... Prepaid Insurance................................. -4Interest Expense........................................... Interest Payable..................................... -5Sales Salaries Expense................................ Salaries Payable.................................... -6Prepaid Advertising Expense...................... Advertising Expense............................. -7Office Supplies ............................................. Office Expense...................................... 3,800 3,800

8,400 8,400 2,100 2,100 6,420 6,420 8,000 8,000 750 750 3,500 3,500

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PROBLEM 3-13 (Continued) (c) Dec. 31 Income Summary Cost of Goods Sold Advertising Expense Administrative Salaries Expense Sales Salaries Expense Office Expense Insurance Expense Bad Debt Expense Depreciation ExpenseFurniture and Equipment Interest Expense Dec. 31 Sales Income Summary Dec. 31 Income Summary Retained Earnings 50,830 50,830 600,000 600,000 549,170 398,000 5,950 65,000 58,000 1,500 2,100 3,800 8,400 6,420

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PROBLEM 3-14 (a) 1. Prepaid Advertising Advertising Expense ($1,500 X 3) Depreciation ExpenseBuilding Accumulated Depreciation Building ($124,000 / 21 years) Insurance Expense Prepaid Insurance ($960 X 8*/12) + [($1,980 / 3 X 9/12)] * the first 4 months were expensed in 2009 Rental Revenue Unearned Rental Income ($7,200 X 6/12) or ($10,800 $7,200) Allowance for Doubtful Accounts Accounts Receivable Bad Debts Expense Allowance for Doubtful Accounts [4% X ($103,000 - $2,700)] ($3,500 $2,700) 6. 7. Employee Advances Receivable Sales Salary Expense Interest Expense Interest Payable ($180,000 X 7% X 2/12) 4,500 4,500 5,905 5,90 5 1,135 1,135

2.

3.

4.

3,600 3,600 2,700 2,700 3,212 3,212

5.

600 600 2,100 2,100

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PROBLEM 3-14 (Continued) 8. Depreciation ExpenseEquipment Accumulated Depreciation Equipment ($33,600 / 12 years) Interest Receivable Interest Revenue ($40,000 X 9% X 5/12) 2,800 2,80 0 1,500 1,500 67,100 90,000 900 98,000 60,000

9.

10. Cost of Goods Sold Merchandise Inventory (ending) Purchase Discounts Purchases Merchandise Inventory (beginning) (b) Reverse entries: 1, 4, 6, 7 and 9

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PROBLEM 3-15 (a) 1. Rent Revenue Unearned Rent Revenue ($10,200 X 10/12) Sales Accounts Receivable Bad Debts Expense Allowance for Doubtful Accounts 7% X ($56,500 - $1,000) $750 3. Cost of Goods Sold Merchandise Inventory (ending) Purchase Discounts Purchases Transportation-in Merchandise Inventory (beginning) Insurance Expense Prepaid Insurance [($1,320 X 4/24) + ($1,620 X 9/36)] Depreciation Expense Accumulated Depreciation ($90,000 X 10%) + ($14,000 X 5%) Interest Expense Interest Payable ($50,000 X 11% X 3/12) Interest Receivable Interest Revenue ($18,000 X 12% X 5/12) 8,500 8,500 1,000 1,000 3,135 3,135 152,100 77,000 2,400 170,000 3,500 58,000 625 625 9,700 9,700 1,375 1,375 900 900

2.

4.

5.

6.

7.

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PROBLEM 3-15 (Continued) 8. Rent Expense Prepaid Rent ($13,200 X 7/12) 7,700 7,700

(b) Reverse entries: 1, 6, and 7 PROBLEM 3-16 (a) 1. 2. 3. 4. 5. (1) Incorrect entry: Cash Accounts Receivable Supplies Accounts Payable Utilities Expense Cash Salaries Expense Cash Equipment Cash (2) Correct entry: Cash Accounts Receivable Equipment Accounts Payable Advertising Expense Cash 570 570 900 900 30 30 1,800 1,800 90 90 750 750 900 900 30 30

1. 2. 3.

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PROBLEM 3-16 (Continued) 4. Salaries Expense Salaries Payable Cash Repair Expense Cash (3) Correcting entry: Cash Accounts Receivable Equipment Supplies Advertising Expense Utilities Expense Salaries Payable Salaries Expense Repair Expense Equipment 1,200 600 1,800 90 90 180 180 900 900 30 30 600 600 90 90

5.

1. 2. 3. 4. 5.

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PROBLEM 3-16 (Continued) (b) DOWNTOWN TV REPAIR LTD. Trial Balance March 31, 2010 Debit $ 7,380 3,320 15,810 Credit

Cash ($7,200 + $180) Accounts Receivable ($3,500 - $180) Equipment ($15,000 + $900 $90) Accumulated DepreciationEquipment Accounts Payable Salaries Payable ($600 - $600) Unearned Fees Revenue Common Shares Retained Earnings Repair Service Revenue Salaries Expense ($3,600 - $600) Advertising Expense ($800 + $30) Utilities Expense ($310 - $30) Depreciation Expense Repair Expense ($1,200 + $90)

$3,000 5,950 0 1,500 10,000 4,160 8,000 3,000 830 280 700 1,290 $32,610

__ ____ $32,610

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PROBLEM 3-17 (a) 1. Jan. 1 Dec. 31 2. Aug. 1 Dec. 31 Office Supplies............................... Cash......................................... Supplies Expense.......................... Office Supplies....................... Prepaid Insurance.......................... Cash......................................... Insurance Expense........................ Prepaid Insurance.................. ($6,000 X 5/12 = $2,500) Cash................................................ Service Revenue..................... Service Revenue............................ Unearned Service Revenue... ($1,200 X 1/3 = $400) Cash................................................ Rent Revenue......................... Rent Revenue................................. Unearned Rent Revenue........ ($1,100 / 2 = $550) 4,100 4,100 2,200 2,200 6,000 6,000 2,500 2,500 1,200 1,200 400 400 1,100 1,100 550 550

3.

Nov.15 Dec. 31

4.

Dec. 1 Dec. 31

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PROBLEM 3-17 (Continued) (b) It is possible to initially record prepayment as assets in some divisions or departments of a business while recording them as expenses in others. Management could do this intentionally. It might also be done as a result of managements decision to allow staff to continue the practices under which they were originally trained. This latter decision might be to accommodate certain corporate cultures following mergers for example, or simply to avoid staff errors from changes in practices. The adjustment process at the end of the accounting period accommodates for the differences and practices and ensures the proper reporting of balances at the end of each of the accounting periods irrespective of the differences in the original recording entries. The GAAP foundational concept of consistency does not apply to methods of recording prepayments since the same financial results are achieved on the companys financial statements. Consistency is required for accounting policies and methods of accounting for prepayments are not accounting policies.

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RESEARCH AND FINANCIAL ANALYSIS


RA 3-1
The Financial Statements of Eastern Platinum Limited for the three months ended March 31, 2009 (see Appendix 5B) were reviewed. All numbers are in thousands of US dollars. a. The total assets were $562,887 and $596,570 for March 31, 2009 and 2008, respectively. b. Cash and cash equivalents was $7,740 at March 31, 2009, and $25,806 at March 31, 2008. c. The total revenues for March 31, 2009 and March 31, 2008 were $ 24,903 and $55,795, respectively. The three sources of revenue are: sale of platinum and other metals, rental income and interest income. d. The following may require adjusting entries for accruals at each reporting period: Consumables used in the production process these have been included in inventory see Note 5. Accrual of employee and payroll liabilities (including pension plans, leave pay); Accrual of interest on finance leases; Accrual for the environmental liabilities Accrual for income taxes payable e. As described in Note 3 (c), the company uses the US dollar as its presentation currency, even though its functional currency is the South African Rand and Canadian dollar. The statements are translated into US dollars using the exchange rate at the period end and income and cash flows items are translated using the transaction date exchange rate or an average for the period. Sales of the metals are made in US dollars, and therefore, using US dollars for presentation may minimize volatility due to currency changes.

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RA 3-2
a. On page 1 of Saputo Inc.s 2009 annual report, the company reports Financial Highlights. The company highlights selective financial data that would be useful to the readers of the financial statements, for example: revenues, cash flows from operations, working capital, earnings per share.

In assessing a companys performance, many companies present EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) in their annual report. This helps investors compare companies and industries as it is a commonly quoted among companies. However, EBITDA is a non-GAAP measure and therefore should not be relied on by shareholders/investors in assessing performance. Other GAAP measures should be consulted. b. On page 42 of the annual report, there are two reports presented: Managements Statement of Responsibility For Financial Reporting and the Auditors Report. Managements Statement of Responsibility For Financial Reporting includes responsibility statements as follows: It is managements responsibility to prepare all the financial and nonfinancial information presented in the annual report It is managements responsibility to select accounting policies, practices, and to make judgements and estimates It is managements responsibility to maintain systems of internal control to ensure assets are safeguarded and to ensure that relevant and reliable financial information is provided It is the responsibility of the Board of Directors to ensure that management fulfills their responsibilities, and to review and approve the financial statements The Auditors Report indicates the following: The financial statements are the responsibility of management It is the auditors responsibility to express an opinion on the financial statements based on their audit It describes the audit procedures The audit is prepared in accordance with Generally Accepted Audit Standards In the final paragraph an opinion is provided with respect to the fair presentation of the financial statements in accordance with GAAP

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RA 3-3 FINANCIAL STATEMENT DATES


(a) Industry and Company (b) Year-End Date 1 BANKS Royal Bank of Canada Bank of Nova Scotia Bank of Montreal Canadian Imperial Bank of Commerce Toronto Dominion 2 INSURANCE Manulife Financial Corporation Sun Life Assurance Company of Canada Great-West Company Canada Life Assurance Company Power Financial Corp 3 REAL ESTATE Brookfield Properties Corporation BPO Properties MI Developments Inc. H&R Real Estate Investment Trust Homburg Invest Inc. 4 PHARMACEUTICAL Bioval Corporation Patheon Inc. Paladin Labs Inc. Cangene Corp Dragon Pharmaceuticals Inc. 31-Dec-08 31-Oct-08 31-Dec-08 31-Jul-08 31-Dec-08 25-Feb-09 10-Dec-08 4-Feb-09 3-Oct-08 25-Mar-09 56 40 35 64 84 31-Dec-08 31-Dec-08 31-Dec-08 31-Dec-08 31-Dec-08 6-Mar-09 6-Mar-09 30-Mar-09 3-Mar-09 20-Apr-09 65 65 89 62 110 5 6 31-Oct-08 31-Oct-08 31-Oct-08 31-Oct-08 31-Oct-08 31-Dec-08 31-Dec-08 31-Dec-08 31-Dec-08 31-Dec-08 (b) Release Date 4-Dec-08 2-Dec-08 25-Nov-08 4-Dec-08 3-Dec-08 17-Mar-09 11-Feb-09 12-Feb-09 12-Feb-09 11-Mar-09 (d) Average Number by of Days Industry 32 34 32 25 34 33 55 76 42 43 43 70 7 8 (d)

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RA 3-3 FINANCIAL STATEMENT DATES (Continued)


(c) Refer to table above. All of the companies in insurance and real estate have December 31 year-ends. The banks have an October 31 year-end because they are regulated by the Office of the Superintendent for Financial Institutions and the Bank Act which stipulate an October 31 yearend. Insurance companies are regulated by the Insurance Act of Canada but there is no prescribed year-end date. Refer to table above. The time frames are shortest and closest among the banking companies, probably due to the regulatory environment of the banking industry. The time frames are longest on average for the real estate industry. This could be due to the measurement issues associated with assets such as real estate properties, given the recession of 2008 and the downturn in prices of real estate. It may take longer to perform and audit the valuations and impairment tests for such assets causing longer lead times between financial statement dates and the issue dates. Other reasons for differences in time frames among industries might be differing market expectations for particular industries.

(d)

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RA 3-4 ERP
An Enterprise Resource Planning (ERP) software system is an integrated real-time computer system that uses a single database with integrated modules for such areas of operations as accounting, human resources, logistics, production, capital asset management, and treasury functions. Full use of such a system offers the potential for a fully integrated system response to various transactions ranging from customer orders to supplier purchases to new staff hires. When the use of such systems is combined with web-based software and executive decision support software, it becomes a powerful and progressive operational and management tool. ERP systems have gained attention recently because they represent a big stride forward in allowing companies to operate as an integrated whole as opposed to each functional area of a company operating somewhat independently and often causing goal incongruence in the process. Earlier systems often consisted of each functional area using a stand-alone system which may have worked well for that particular function but did not necessarily encourage focus on the overall picture. It was difficult and time consuming to coordinate and process activities that involved more than one sub-system and reports generated out of each system for the same activities often did not directly or easily tie into each other. The fact that each system often operated on its own database also meant that data was often duplicated by being stored in more than one system. This not only resulted in unnecessarily large amounts of data but also resulted in problems with respect to data integrity. A piece of data that got updated in one system might not be updated in another system resulting in inconsistent results and reports. The common database used in ERPs allows more flexible reporting as all functions can design and use reports that fit their needs while using many of the same data elements. Companies find ERPs so useful because they have allowed operating, recording, processing and reporting functions to become more streamlined, saving personnel time and effort and resulting in higher quality, more efficient reporting. They often result in reduced inventory levels, shorter lead times for customers, and other operational advantages. As discussed above, the pros of ERP systems include better integration of related functions, lower data requirements, better data integrity, and more flexible and higher quality reporting.

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RA 3-4 ERP (Continued)


The cons of ERP systems include high cost, both in terms of initial installation and implementation and ongoing support and maintenance. There is a requirement for more highly trained staff and for more cross training among staff with respect to related functional areas. The results from an integrated system are only as good as the inputs and thus it is critical that the various functional areas come to some agreement with respect to issues of data definitions, policies and procedures surrounding updating common data elements, etc. This can be a time consuming and difficult process, and requires the commitment and involvement of top management in order to be successful. One of the problems with ERP systems is that the integration is often not as smooth and flawless as one would hope. These systems can be extremely complex and the integration issues alone can be overwhelming to deal with. Another con is that although the single database is a positive thing in most contexts, it can be a negative in the sense that all the eggs are in one basket. If there is a problem with the database in an ERP system, it affects all functional areas, rather than being isolated to one area as in the case when each function is operating with a separate system.

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RA 3-5 XBRL
XBRL stands for eXtensible Business Reporting Language which is a form of electronic communication that is used and recognized internationally. Being an open standard, it works with most software and hardware systems. The way that it works is rather than presenting financial statements and information in text form (the form we are familiar with in pdf files), it provides an identifying tag for each unique piece of information. This allows the information to be easily stored, analyzed, processed and exchanged, assisting users with comparison analyses between companies, or trends of historical data from the same company. (b) The advantages are the following: For preparers - It is more efficient to prepare the reports, and the information is more accurate. Using XRBL eliminates the manual reentering information into a different reporting format. Investors can use the information in this format to more quickly analyze and compare across companies and with the same company. It is a more useable format than pdf files for corporate reports, again eliminating the re-keying of information. The XRBL language is an open language allowing it to be easily and freely adopted around the world. It can handle different foreign languages and accounting standards. It can easily be used for other types of reporting including: earnings press releases and corporate tax returns, for example. The disadvantages for using XRBL are as follows: There will be upfront costs to implement this change for preparers and training required. The tagging process is not error free since the user must determine (judgmentally in some cases) how the financial item will be tagged and mapped. Initially this could result in a misrepresentation of data, errors and a lack of comparability. Preparers may have to customize tags if the nature of the financial data is unique and does not fit within the standard conventions. This will make it more complex and less comparable across companies.
(a)

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LEGAL NOTICE
Copyright 2010 by John Wiley & Sons Canada, Ltd. or related companies. All rights reserved.

The data contained in these files are protected by copyright. This manual is furnished under licence and may be used only in accordance with the terms of such licence. The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified, made available on a network, used to create derivative works, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permission of John Wiley & Sons Canada, Ltd.

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