Académique Documents
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Chapter 2 Financial
Statements and
Accounting
Transactions
Questions
1. The four financial statements are: the income statement, the balance sheet, the statement of
ownersequity, andthe cashflowstatement.
2. An income statement reports on the businesss performance during the period. It shows
whether the businessearneda net income(also called profit). The statementdoes not simply
report the amount of net incomeor loss but lists the types and amounts of the revenuesand
expenses.
3. A revenue is an inflow of assets received in exchange for goods or services provided to
customers as part of the major or central operations of the business. A revenue also may
occuras a decreasein liabilitiesas whena serviceor productis deliveredhavingbeenpaid for
in advance.
4. An income statement user must know what time period is covered to judge whether the
companys performance is satisfactory. For example, a statement user would not be able to
assess whether the amounts of revenue and net income are satisfactory without knowing
whetherthey wereearnedover a week,a month,or a year.
5. A businesss equity is increasedby investmentsinto the businessmade by the owner and by
net income. It is decreasedby withdrawalsmadeby the owner and by a net loss, which is the
excessof expensesoverrevenues.
6. The balancesheet reports on the financial positionof a businessat a specific point in time. It
is often called the statement of financial position. It provides information that helps users
understanda companysfinancial status. The balancesheet lists the typesand dollar amounts
of assets,liabilities, andequityof the business.
7. (a) Assets are probable future economicbenefits obtained or controlled by a particular entity
as a result of past transactions or events. (b) Liabilities are probable future sacrifices of
economicbenefits arising from present obligations of a particular entity to transfer assets or
provide services to other entities in the future as a result of past transactions or events. (c)
Equity is the residual interest in the assets of an entity that remains after deducting its
liabilities. (d) The term net assetsmeansthe samething as equity, whichis also determined
as assetsless liabilities.
8. The equity section of the balance sheet reports a Carol Finlay, Capital account. The presence
of the owners capital account indicates that Finlay Interiors has been organized as a sole
proprietorship.
9. The objectivity principle requires financial statementinformationto be supportedby evidence
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
other than someones opinion or imagination (such as source documents). This principle
increasesthe reliabilityof the financialstatements.
10. This treatmentis requiredby the cost and going-concernprinciples.
11. The revenue recognition principle provides guidance that managers and auditors need for
knowing when to recognize revenue. For example, if revenue is recognized too early, the
incomestatementreportsincomeearlier than it shouldand the businesslooksmoreprofitable
than it really is. On the other hand, if the revenue is not recognized on time, the income
statement shows lower amounts of revenue and net income than it should and the business
looksless profitablethanit really is. Basically, this principlerequiresrevenueto be recognized
whenit is earnedand can be measuredreliably. The amountof revenueshouldequal the value
of the assetsreceivedfromthe customers.
QUICK STUDY
Quick Study 2-1
1.
2.
3.
4.
5.
6.
7.
SP
C
P
SP
C
C
P
Revenue Recognition
Objectivity and Cost
Business Entity
Going Concern
Monetary Unit
Revenue
2 Delco collected $180,000 from a customer
Recognition . on December 20, 2011 for work to be done
in February, 2012. The $180,000 was
recorded as revenue during 2011. Delcos
year end is December 31.
Going
Concern
Cost
Objectivity
Business
Entity
$ 34,500
b. Liabilities =$300,000
$ 85,500
$214,500
c. Assets
=$187,500
+$ 95,400
$ 40,500 =
=
=
$282,900
Quick Study 2-6
a. Owners equity
=$374,700
$252,450
=$122,250
b. Liabilities =$150,900
$126,000 =
$
24,900
c. Assets
=$ 37,650
+$112,500 =
$150,150
5
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
5
Fundamental Accounting Principles, Twelfth Canadian
Edition
b.
Allin Servicing
Allin Servicing
Income Statement
Income Statement
Revenues
$300
Revenues
$135
Expenses
125
Expenses
85
175
$ 50
Allin Servicing
Allin Servicing
$ 50
Add: Investments by
owner
$ 30
Net income
175
Total
Less: Withdrawals by owner
$240
$ 60
Net income
205
$255
1
50 $110
Total
350
75
5
Tim Allin, capital, April 30
$240
Allin Servicing
Balance Sheet
April 30, 2011
Assets
Cash
Equipment
Liabilities
$ 60
205
Accounts payable
$ 25
Owner's equity
Tim Allin, capital
240
$26
5
owner's equity
$265
Liabilitie +
s
Equity
a.
Increase/Decrease
b.
Increase
c.
Decrease
d.
e.
Increas
e
Decrea
se
Increase
Decrease
Decrease
Decrease
1.
Supplies.......................... $1
0
2.
Supplies expense.................. 22
3.
Accounts receivable.............. 25
4.
Accounts payable.................. 12
5.
Equipment............................. 40
6.
7.
Notes payable....................... 30
8. Utilities expense............... 10
9. Furniture................................. 20
10 Fees earned............................ 70
.
11 Rent revenue.......................... 35
.
12 Salaries expense.................... 45
.
a+ 14 Net income*........................... 28
b
.
*Calculated as: 70 + 35 22 10 45 = 28
70 + 35 = 105
22 + 10 + 45 =
77
3 Net income...............................
.
105 77 = 28
4 Total assets..............................
.
10 + 25 + 40 +
20 = 95
5 Total liabilities..........................
.
12 + 30 = 42
60 35 + 28 =
53
42 + 53 = 95
1. Net loss..........................
2 Income statement
2. Rent expense.......................
2 Income statement
2
3. Rent payable........................
4. Accounts receivable.............
1
4
3 Statement of owners
0 equity
6. Interest revenue...................
2 Income statement
0 Statement of owners
equity
10
8. Repair supplies................
9. Notes payable.......................
2
5
5 Statement of owners
equity
a 11 Truck.....................................
.
1
5
1 Income statement
8
a 14 Cash......................................
.
2
0
$18
2
$20
22
$ 2
10
11
$ 0
30
$30
$5
2
7
$23
BENNISH CONSULTING
Balance Sheet
May 31, 2011
Assets Liabilities
Cash..........................
Accounts receivable....
Repair supplies..........
.............................
$20
14
5
Owners Equity
Truck.........................
15
........................ 23
Total liabilities and
Total assets...............
$54
Rent payable..........
Notes payable.........
Total liabilities........
$ 6
25
$31
$54
11
12
EXERCISES
Exercise 2-1 (10 minutes)
a) $80,000 Revenue $65,000 Expenses = $15,000 Net Income
b) $92,000 Revenue $149,000 Expenses = $57,000 Net Loss
c) $86,000 Ending Equity - $10,000 Beginning Equity = $76,000 Net
Income
(no Withdrawals and no Investment)
Proofs:
Owners equity,
January 1..........................
(b)
(c)
(d)
(e)
$
0
$
0
$
0
$ $92,00
0
0
Owners investments
during the year.........
Net income (loss) for
the year............................
40,50
0
(4,50) 21,000
0
(8,000)
Owners withdrawals
during the year ........ (24,750) (27,00) (15,00) (15,75) (63,00)
12
13
Owners equity,
$51,000 $49,50 $12,00 $42,75 $171,0
December 31....................
0
0
0
00
13
14
$18,000
10,890
$ 7,110
$
0
84,000
91,110
$91,110
3,360
$87,750
Analysis component:
14
15
Analysis component:
$4,200
300
$ 4,500
4,620
$
120
15
16
$ 7,400
1,200
$ 8,600
1,120
$ 7,480
Analysis component:
Withdrawals of $1,000 by the owner, George Pelzer, caused equity to
decrease during July, 2011. Also, the net loss of $120 caused equity
to decrease in July. The total decrease in equity during the month of
July was $1,120 (calculated as $1,000 + $120).
NOTE: Students might point out that equity increased by
$1,200 of owner investments which, in combination with the
total decrease of $1,120, caused a net increase in equity of
$80.
Exercise 2-8 (15 minutes)
EXCEL LEARNING SERVICES
Balance Sheet
July 31, 2011
Assets Liabilities
Cash..........................$ 1,600
1,400
Accounts receivable.... 2,680
Supplies.....................
600
Furniture................... 1,800
...............
7,480
Accounts payable....
Owners Equity
George Pelzer, capital
16
17
Computer equipment. .
Total assets........................
2,200
$8,880
owners equity............
$8,880
Analysis component:
$1,400 or 15.77% (calculated as $1,400/$8,880 100) of the total
$8,880 assets held by Excel Learning Services are financed by debt.
17
18
Description
Assets Liabilities=
Owners
Equity
Beginning of the year. . .$ 150,000
$60,000
=
........................$90,000
End of the year.............$240,000$92,000 = 148,000
Net increase in owners equity........................ $58,000
Net income..................................................... $58,000
42,000
An alternative calculation:
$90,000 + x - $42,000 = $148,000; x = $100,000
c. Net increase in owners equity....... $58,000
Less: Additional investment........... 65,000
Net loss......................................... $ 7,000
An alternative calculation:
$90,000 + $65,000 + x = $148,000; x = ($7,000) where the
negative represents a loss.
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
18
19
42,000
An alternative calculation:
$90,000 + $50,000 - $42,000 + x = $148,000; x = $50,000
Exercise 2-11 (10 minutes)
a.
If assets decreased by $5,000 during August, then
$20,000 + $5,000 = $25,000 Assets at August 1, 2011.
Therefore, Owners Equity at August 1, 2011 = $25,000 - $1,000 =
$24,000
b.
If liabilities increased by $3,000 during August, then
$1,000 + $3,000 = $4,000 Liabilities at August 31, 2011.
Therefore, Owners Equity at August 31, 2011 = $20,000 - $4,000 =
$16,000
Exercise 2-12 (15 minutes)
Assets
Cash
a)
Total
s
Liabilities +
Owners
Equity
Accounts
Receivab
Office
Accounts
Noel Bridges,
+
le
+ Supplies = Payable +
Capital
+
$2,500
+ $2,500
2,500
2,500
19
20
b)
Total
s
c)
Total
s
2,500
+
+ $200
+ $200
200
200
600
2,500
+
600
3,100
200
200
3,100
3,100
200
200
3,100
d)*
Total
s
e)
Total
s
1,500
1,600
f)
Total
s
1,500
200
200
+
$1,250
$1,600
$1,250
$3,050
1,600
+ 1,250
$200
$200
$2,850
$3,050
20
21
Cash
Liabilitie +
s
Owners
Equity
Accounts
Parts
Receivabl
Supplie
Equipme
Accounts
+
e
+
s
+
nt
= Payable +
Janine
Commry,
Capital
a)
+ $7,000
+ $ 7,000
b)
- 2,500
- 2,500
Totals
$4,500
$ 4,500
c)
Totals
$4,500
d)
Totals
e)
Totals
+ $1,200
+ $1,200
$1,200
$1,200
+ $3,400
$4,500
$3,400
+ $ 3,400
$1,200
$ 950
$3,550
$ 4,500
$1,200
$7,900
$1,200
$7,900
$1,200
$ 7,900
+ $950
$3,400
$1,200
$950
f)*
Totals
g)
Totals
h)
Totals
i)
Totals
$3,550
$3,400
$1,200
$950
$1,200
$2,350
$1,200
$3,400
$1,200
$950
+ $1,400
$3,750
+ $ 1,400
$3,400
$1,200
$950
$2,700
$1,050
$7,900
$9,300
$ 2,700
$3,400
$1,200
$6,600
$950
$6,600
$6,600
21
22
22
23
$5,000
b. 1,300
Expense
$23,700
$5,000
c.
$23,700
d.
+6,000
+6,000
$11,000
$6,000
$11,000
$6,000
+$1,000
$1,000
f. 4,000
$20,200
h. +
250
Rent
$28,700
500
$11,000
Revenue
$29,200
+ 1,000
$6,000
$30,200
$6,000
$30,200
Revenue
+ 4,000
$1,000
$15,000
g. 1,200
Expense
$19,000
$1,300
$24,200
$24,200
Investment
$28,700
+ 500
e.
$30,000
1,200
$1,000
$15,000
$6,000
Wages
$29,000
250
23
24
$19,250
i.
$750
$15,000
$6,000
6,000
$13,250
j.
$29,000
6,000
$750
$15,000
$29,000
250
$13,000
$28,750
$750
$28,750
Revenue
($500 + $1,000)
$15,000
250
Withdrawal
$28,750
Expenses
=
Net loss
($1,300 + $1,200) =
$1,000
24
25
Liabiliti +
es
a)
b)
Total
s
d)
Owner
+$2,500 Investment
+ $2,500
+ $4,000
$4,000
+$4,000 Revenue
$
c)
Total
s
Owners Equity
$2,500
+ $150
$4,000
$150
$6,500
+ $150
$2,500
$150
$ 450
$6,500
$ 450 Sal.
Expense
25
26
Total
s
$3,550
$150
$2,500
$150
$6,050
$3,550
$150
$2,500
$150
$6,050
e)*
Total
s
f)
Total
s
$
1,400
$2,150
g)
Total
s
$ 1,400 Rent
Expense
$
$150
$2,500
$150
+ $2,000
$2,150
$2,000
$6,800
$4,650
+$2,000 Revenue
$150
$2,500
$150
$6,650
$6,800
26
27
Revenues:
Freelance writing revenue
$6,000
Operating expenses:
Salaries expense
Rent expense
450
1,40
0
1,85
0
Net income
$4,1
50
Investment by owner
Net income
$2,500
4,15
0
6,65
0
27
28
$6,6
50
Liabilities
$2,1
50
Accounts payable
$
150
Accounts 2,00
receivable
0
Supplies
Equipment
150
2,50
0
Owners Equity
Annie Deweerd, capital
Total assets
$6,8
00
6,65
0
28
29
a)
+
$500
+$400
$500
Owner
+$15,500 Investment
+$15,000
c)
Total
s
Owners Equity
b)
Total
s
Liabiliti +
es
$400
+$400
$15,000
+$600
$400
$15,500
+$600
$500
$1,000
$15,000
$1,000
$15,500
$500
$1,000
$15,000
$1,000
$15,500
d)*
Total
s
e)
Total
s
+$550
$500
f)
Total
s
$550
+$550 Revenue
$1,000
$15,000
$1,000
+$600
$500
$1,150
$16,050
+$600 Revenue
$1,000
$15,000
$1,000
$16,650
29
30
g)
-$200
Total
s
$300
h)
-$250
Total
s
$50
-$200
$1,150
$1,000
$15,000
$800
$16,650
-$250 Adv.
Expense
$1,150
$1,000
$17,200
$15,000
$800
$16,400
$17,200
30
31
$1,150
Operating expenses:
Advertising expense
250
Net income
$
900
Petes Yard Care
Statement of Owners Equity
For Month Ended March 31, 2011
Investment by owner
$15,500
Net income
900
16,40
0
$16,4
00
Liabilities
$
50
Accounts payable
31
32
800
Accounts 1,150
receivable
Supplies
Equipment
1,000
15,000
Owners Equity
Pete Jong, capital
16,40
0
$17,20
0
owners equity
$17,2
00
Analysis component:
The $900 of net income does not represent cash because all of the
revenues ($550 + $600 = $1,150) were on account. The $250 of
advertising expense was paid in cash. The net income or net loss on
an income statement represents accrual net income (loss) as
opposed to a cash basis net income (loss). Recall that accrual basis
net income represents revenues and expenses that occurred
regardless of when cash is actually received/paid.
32
33
Bal.
$1,200
+$1,000
-$1,000
Total
s
$5,000
$200
b)
-$2,000
Total
s
$3,000
c)
+$700
Total
s
$3,700
d)
-$500
Total
s
$3,200
e)
-$1,200
Total
s
$2,000
f)
-$600
Total
s
$1,400
g)
Total
s
Owners Equity
$4,000
a)
Liabiliti +
es
$900
$7,500
$4,000
$9,600
$900
$7,500
$4,000
$9,600
-$2,000
$200
$900
$7,500
$2,000
$9,600
+$700 Revenue
$200
$900
$7,500
$2,000
$10,300
-$500 Wage
Exp.
$200
$900
$7,500
$2,000
$9,800
-$1,200 Rent Exp.
$200
$900
$7,500
$2,000
$8,600
-$600 Utilities
Exp.
$200
$900
$7,500
$2,000
+$400
$1,400
Explanati
on
$600
$8,000
+$400 Revenue
$900
$7,500
$2,000
$8,400
h)*
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
33
34
Total
s
$1,400
$600
$900
$10,400
$7,500
$2,000
$8,400
$10,400
34
35
$1,100
Operating expenses:
Rent expense
$ 1,200
Wages expense
500
Utilities expense
600
2,30
0
$1,2
00
$ 9,600
1,200
$
8,400
35
36
Assets
Cash
Accounts
receivable
Supplies
Equipment
Liabilities
$1,400
Accounts payable
$
2,000
600
900
7,500
Owners Equity
Otto Ingles, capital
8,400
$10,40
0
owners equity
$10,4
00
Analysis component:
$8,400 or 80.77% (calculated as $8,400/$10,400 100) of the
assets are financed by Otto Ingles, the owner. $2,000 or
19.23% (calculated as $2,000/$10,400 100) of the assets are
financed by debt.
36
37
PROBLEMS
Problem 2-1A (20 minutes)
Year
2011
Beginning
capital
+
Owner
investment
+ Net
(loss)
income
2010
125,0001
0
(5,000)
Owner
withdrawals
= Ending capital
120,000
2009
28,0003
10,000
175,000
60,0005
78,000
42,000
125,0002
28,0004
Note: The superscripts show the order in which the answers were
calculated.
Calculations:
1. $120,000 + 5,000 = $125,000
2. $125,000 (The beginning capital balance for one period is the
ending capital balance of the previous period)
3. $125,000 + $78,000 - $175,000 = $28,000
4. $28,000 (The beginning capital balance for one period is the
ending capital balance of the previous period)
5. $28,000 + $42,000 - $10,000 = $60,000
Problem 2-2A (30 minutes)
BEE-CLEAN
Income Statement
For Year Ended July 31, 2011
Revenues:
Service revenue.....................
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
$142,000
37
38
Repair revenue......................
Total revenues....................
Operating expenses:
Wages expense..................... $52,000
Rent expense........................ 24,000
Supplies expense................... 11,400
Utilities expense....................
9,800
Interest expense....................
500
Total operating expenses....
Net income................................
6,000
$148,000
97,700
$ 50,300
38
39
$79,300
$
-050,300
$129,600
34,000
$95,600
BEE-CLEAN
Balance Sheet
July 31, 2011
Assets
Cash........................
Accounts receivable.
Supplies..................
Prepaid rent............
Office equipment.........
Furniture.................
Total assets.............
$
11,
800
56,00
0
2,400
12,00
0
29,200
19,0
00
$130,
400
Liabilities
Accounts payable...
Notes payable........
Total liabilities . . . .
$
14,
800
20,0
00
$
34,800
Owners Equity
Bee Cummins,
capital...............
95,60
0
39
40
Liabilities
Cash...................$ 26,250
Accounts payable.....
$
3,750
Accounts receivable
14,250
Office supplies.....
2,250
Trucks................. 27,000
Owners Equity
Office equipment. 69,000
Jess Brandon, capital
1
135,000
Total liabilities and
Total assets
$138,750
owners equity.....
$138,750
_____________________
Calculations:
1. $138,750 $3,750
unknown amount)
$135,000
(calculation
of
40
41
Liabilities
Cash................... $ 9,375
Accounts payable.....
$
18,750
Accounts receivable
11,175Notes payable
.......... 52,500
Office supplies.....
1,650
Total liabilities...... $71,250
Trucks................. 27,000
Office equipment. 73,500
Land................... 22,500
Owners Equity
Building.............. 90,000
Jess Brandon, capital
2
163,950
Total liabilities and
Total assets.........$235,200
owners equity.....
........$235,200
Calculations:
2. $235,200 $71,250 = $163,950
Part 2
Calculation of net income for 2011:
Owners equity, December 31, 2011.....
$163,950
Owners equity, December 31, 2010.....
135,000
Increase in owners equity during 2011
$ 28,950
Less: Additional investment.................
17,500
Net increase in owners equity during 2011,
apart from new investment..............
$ 11,450
Add: Withdrawals ($1,500 12)...........
18,000
Net income earned in 2011..................
$ 29,450
OR
41
42
Analysis component:
Assets increased by $96,450 ($235,200 - $138,750). $67,500
of the increase in assets were financed by an increase in debt
(total liabilities went from $3,750 at December 31, 2010 to
$71,250 at December 31, 2011). The remaining $28,950
increase in assets ($96,450 - $67,500) resulted from equity
financing (equity increased to $163,950 at December 31,
2011 from $135,000 at December 31, 2010 because of
$17,500 owner investment plus $29,450 net income less
$18,000 of withdrawals during 2011).
42
43
$90,000
47,000
$43,000
10,000
15,000
5,000
$63,000
63,000
$33,000
Part 2
Company B:
(a) and (b)
Owners equity:
31, 2011
Assets....................................
Liabilities...............................
Owners equity.......................
Dec.
$82,000
55,000
$27,000
3,000
?
6,000
43
44
?
24,000
0
44
45
45
46
$225,000
150,000
$ 75,000
$
?
9,000
36,000
18,000
$75,000
46
47
Liabilities
Owners Equity
Dan
= Accounts
Building Payable
(a) +$160,000
+$60,000
Investment
(b) 100,000
+$600,000
Bal. $ 60,000
$60,000 $600,000
(c)
8,000
+ $8,000
Bal.
$ 52,000
$8,000 $60,000 $600,000
$220,000
(d)
+72,000
+$72,000
Bal. $ 52,000
$8,000
$132,000 $600,000
$ 220,000
(e)*
Bal. $ 52,000
$8,000
$132,000
$600,000
$220,000
(f)
+$3,000
Revenue
Bal. $ 52,000
$3,000 $8,000
$132,000 $600,000
$223,000
(g)
2,000
Advertising Expense
Bal. $ 50,000
$3,000 $8,000
$132,000 $600,000
$221,000
(h) +
4,000
Service Revenue
Bal. $ 54,000
$3,000 $8,000
$132,000 $600,000
Payable
+
+$500,000
$500,000
Capital
$220,000
$ 220,000
$500,000
$72,000
$500,000
$72,000
$500,000
+3,000
$72,000
$500,000
$72,000
2,000
$500,000
+
$72,000
Service
4,000
$500,000
39
48
$225,000
(i)
4,000
Bal. $ 50,000
$225,000
(j) +
1,000
Bal. $ 51,000
$225,000
(k)
7,000
Wages Expense
Bal. $ 44,000
$218,000
(l)
3,600
Withdrawal
Bal. $ 40,400
$3,000
$8,000
$132,000
4,000
$600,000
1,000
$2,000
$8,000
$132,000
$600,000
$68,000
$500,000
$68,000
$500,000
$2,000
$8,000
$132,000
$600,000
$68,000
7,000
$500,000
3,600
$782,400
49
$7,000
Operating expenses:
Wages expense
$7,000
Advertising expense
2,00
0
9,000
Net loss
$2,000
Murray Enterprises
Statement of Owners Equity
For Month Ended March 31, 2011
220,0
00
Total
Less: Withdrawal by owner
$220,0
00
$ 3,600
49
50
Net loss
2,00
0
5,600
$214,4
00
Murray Enterprises
Balance Sheet
March 31, 2011
Assets
Cash
Liabilities
$
40,400
Accounts
receivable
2,000
Office supplies
8,000
Office
equipment
Building
Total assets
Accounts payable
$
68,000
Notes payable
500,00
0
Total liabilities
$568,0
00
132,00
0
600,00
0
$782,4
00
Owners Equity
Dan Murray, capital
$214,4
00
$782,4
00
50
51
51
52
= Liabilities
+
Office
= Accounts +
Supplies Payable
Owners Equity
Bev Ng,
Explanation
Capital
of
Change
Apr.1
1
3
5
Expense
8
Revenue
12
Revenue
15
Expense
20
22
Revenue
23
28
29
30
Expense
30
Expense
30
Expense
30
+$120,000
6,400
3,360
1,600
+
+ $3,360
9,200
+$6,000
1,700
+6,000
+5,600
2,000
6,000
+5,600
5,600
+ 2,000
+$120,000
6,400
Investment
Rent Expense
1,600
Cleaning
9,200
Consulting
6,000
Consulting
1,700
Salaries
5,600
Consulting
+ $2,000
2,000
120
120
Advertising
400
400
Telephone
960
960
Utilities
1,700
Salaries
1,700
52
53
Expense
30
2,400
$120,280 +$
$125,640
$5,360= $
120
2,400
$125,520
$125,640
53
Withdrawal
54
$20,800
$6,400
3,400
1,600
960
400
120
12,880
$ 7,920
KEEP-SAFE
Statement of Owners Equity
For Month Ended April 30, 2011
Bev Ng, capital, April 1................
Add: ...........Investments by owner
Net income............................
127,920
Total.........................................
Less: Withdrawals by owner..........
Bev Ng, capital, April 30...............
$
0
$120,000
7,920
$127,920
2,400
$125,520
KEEP-SAFE
Balance Sheet
April 30, 2011
Assets
Liabilities
54
55
Cash...................$120,280
Office supplies..... 5,360
Total assets........$125,640
Problem 2-6A (concluded)
Accounts payable.........$
120
Owners Equity
Bev Ng, capital............ 125,520
Total liabilities and
owners equity.......... $125,640
Analysis component:
99.9% of Keep-Safes total assets at April 30, 2011 were
financed by equity ($125,520/$125,640 x 100 = 99.904%).
Specifically, equity transactions that created assets were
$120,000 invested by the owner during the month plus net
income of $7,920 less owner withdrawals of $2,400. The
sum of these three equity transactions resulted in a net
increase in equity of $125,520 (since there was a $0
beginning balance in equity). Only $120 or 0.1% of the
total assets were financed by debt ($120/$125,640 x 100 =
0.0955% or 0.1%).
55
56
Cash
Bal
.
Oct.
31
$80,0
00
Nov. 1
-5,600
Bal
.
$74,4
00
3
+21,6
00
21,60
0
Bal
.
$74,4
00
5
Bal
.
Bal
.
Office
Equip.
Electric
al
Equip.
Account
s
Payable
Larry
Power,
Capital
$7,000
$1,900
$28,000
$14,000
$18,000
$112,900
Explanation
of Change
$1,900
$28,000
$14,000
$18,000
$107,300
Owner
+21,600 investment
$7,000
$1,900
+
$28,000
+
$6,400
$28,000
$42,000
$24,400
$128,900
$28,000
$42,000
$24,400
$128,900
+1,800
$7,000
$3,700
+2,00
0
$74,6
00
Office
Supplies
-1,800
$72,6
00
Accounts
Receivab
le
Electrical fees
+2,000 earned
$7,000
$3,700
$28,000
+7,600
$42,000
$24,400
+7,600
$130,900
45
57
Bal
.
$74,60
0
15
Bal
.
$7,000
$3,700
$35,600
$42,000
$32,000
$130,900
Electrical fees
+6,000 earned
+6,000
$74,6
00
$13,000
$3,700
$35,600
$42,000
$32,000
$136,900
$74,6
00
$13,000
$3,700
$35,600
$42,000
$32,000
$136,900
*16
Bal
.
18
Bal
.
+1,000
$74,6
00
20
Bal
.
24
28
Bal
.
30
$4,700
$35,600
$42,000
-7,600
$67,0
00
Bal
.
$13,000
+1,000
$33,000
-7,600
$13,000
$4,700
$35,600
$42,000
$25,400
$67,0
00
$14,200
+
6,000
-6,000
$73,0
00
$8,200
$136,900
Electrical fees
+1,200 earned
+1,200
-4,400
$136,900
$4,700
$35,600
$42,000
$25,400
$138,100
$4,700
$35,600
$42,000
$25,400
$138,100
-4,400 Salaries expense
58
Bal
.
$68,6
00
30
Bal
.
$4,700
$35,600
$42,000
$25,400
$133,700
-1,400
$67,2
00
30
$8,200
$4,700
$35,600
$42,000
$25,400
$132,300
Owner
-1,400 withdrawals
-1,400
$65,8
00
$8,200
$4,700
$156,30
0
$35,600
$42,000
$25,400
$130,900
=
$156,300
*Note: For November 16, since no exchange has occurred, no entry is required.
59
$9,200
$5,600
4,400
1,400
11,400
POWER ELECTRICAL
Statement of Owners Equity
For Month Ended November 30, 2011
Larry Power, capital, November 1....
Add: Investments by owner.............
Total ...........................................
$134,500
Less: Withdrawals by owner............
Net loss....................................
Larry Power, capital, November 30. .
$112,900
21,600
$1,400
2,200
3,600
$130,900
59
60
Liabilities
2
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
60
61
Acquire services on
3 credit..........................
Pay wages with cash. . .
4
Owner withdraws cash.
5
Borrow cash with note
6 payable.......................
Sell services on credit.
7
Buy office equipment
8 for cash......................
Collect receivable from
9 (7)..............................
1 Buy asset with note
0 payable.......................
+/
+/
+
61
62
2011
146,0001
Beginning
capital
+
Owner
investment
2010
35,0003
income
183,000
163,000
Owner
withdrawals
69,000
52,000
= Ending capital
260,000
+ Net
(loss)
146,0002
0
50,000
(15,000)5
0
35,000
$ 70,000
33,000
$ 103,000
62
63
Operating expenses:
Wages expense.................
$46,000
Fireworks supplies expense. . 41,000
Utilities expense................... 17,800
Advertising expense..............
4,500
Office supplies expense........
1,800
Total operating expenses....
Net loss.....................................
111,100
$ 8,100
63
64
$202,600
34,100
FIREWORKS FANTASIA
Balance Sheet
December 31, 2011
Assets
Cash.....................$ 14,000
Accounts receivable
Fireworks supplies 16,000
Office supplies...... 1,500
Tools.................... 9,000
Building................ 62,000
Land..................... 56,000
168,500
Office equipment. . 12,000
Total assets..........$177,500
..........$177,500
Liabilities
Accounts payable $
7,000
9,000
Owners Equity
Wes Gandalf, capital
Total liabilities and
. owners equity
64
65
25,000
Office supplies.....
Office equipment.....
10,000
60,000
Machinery...............
134,5001
30,500
Liabilities
Accounts payable............$
5,000
Owners Equity
Joseph Stiller, capital.......
Total liabilities and
owners equity..............
STILLER CO.
Balance Sheet
December 31, 2011
Assets
Cash................... $
15,000
Accounts receivable
10,000
Liabilities
Accounts payable...
30,000
Office supplies.....
Office equipment.....
12,500
60,000
Total liabilities....275,000
Machinery...........
Building...................
30,500
260,000
Land.......................
193,0002
65,000
Owners Equity
Joseph Stiller, capital.
Total liabilities and
Total assets.............
$468,000
owners equity.......$468,000
65
66
_____________________
Calculations:
1. $139,500 $5,000 = $134,500 (calculation of unknown
amount)
2. $468,000 $275,000 = $193,000 (calculation of
unknown amount)
66
67
12/31/11
$49,000
26,000
$23,000
6,000
?
4,500
67
68
..........................$23,000
Therefore, the net income must have been $6,500.
68
69
$70,000
50,000
$20,000
10,000
30,000
2,000
$90,000
58,000
$32,000
Part 3
Company X:
First, calculate the beginning and ending equity balances:
12/31/10
12/31/11
Assets..............................$121,500
$136,500
Liabilities.......................... 58,500
55,500
Owners equity..................$ 63,000
$ 81,000
Then, find the amount of owner investments during 2011 by
completing this table:
Owners equity, December 31, 2010
............................$63,000
Add: Owner investments. . .
?
Net income.................. 16,500
Less: Owner withdrawals...
0
Owners equity, December 31, 2011
............................$81,000
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
69
70
70
71
$21,000
38,100
$65,100
71
72
$160,000
52,000
$108,000
?
40,000
$108,000
72
73
(a)
(b)
Bal
.
(c)
Bal
.
(d)
+
$50,0
00
10,00
0
$40,0
00
9,000
$31,0
00
_______
$31,0
00
1,500
Bal $29,5
.
00
(f) _______
$29,5
00
+
Liabilities
+
$5,00
0
Bal
.
(e)
Bal
.
(g)
+
$3,00
0
$3,00
0
______
Owners Equity
Judith
Grimm,
Capital
+
$55,00
0
_______
+
$120,0
00
$120,0
00
________
+
$110,0
00
$110,0
00
________
$120,0
00
________
$110,0
00
________
$55,00
0
_______
$110,0
00
________
$55,00
0
1,500
$53,50
0
+
3,000
+$2,0
00
$5,00
0
+
9,000
$14,0
00
+
3,200
$2,00
0
______
$17,2
00
_______
$120,0
00
________
+
$5,20
0
$5,20
0
______
$2,00
0
______
$17,2
00
_______
$120,0
00
________
$5,20
0
______
$110,0
00
________
$2,00
0
______
$17,2
00
_______
$120,0
00
________
$5,20
0
______
$110,0
00
________
Explanation of Changes
Investment
$55,00
0
_______
$56,50
0
+
Advertising Expense
Consulting
Revenue
Services
Consulting
Services
55
55
Bal
.
(h)
Bal
.
(i)*
Bal
.
(j)
Bal
.
(k)
Bal
.
(l)
Bal
.
5,400
$34,9 $3,00 $2,00
00
0
0
______ ______
2,750
$32,1 $3,00 $2,00
50
0
0
______ ______ ______
$32,1 $3,00 $2,00
50
0
0
+
______
1,200 1,200
$33,3 $1,80 $2,00
50
0
0
______ ______
900
$32,4 $1,80 $2,00
50
0
0
______ ______
1,900
$30,5 + $1,80 + $2,00 +
50
0
0
74
$17,2
00
_______
$120,0
00
________
$5,20
0
______
$110,0
00
________
$17,2
00
_______
$17,2
00
_______
$120,0
00
________
$120,0
00
________
$5,20
0
______
$5,20
0
______
$110,0
00
________
$110,0
00
________
5,400
$61,90
0
2,750
$59,15
0
_______
$59,15
0
_______
$17,2
00
_______
$120,0
00
________
$110,0
00
________
$59,15
0
_______
$17,2
00
_______
$120,0
00
________
$5,20
0
900
$4,30
0
______
$59,15
0
1,900
$17,2 + $120,0 = $4,30 + $110,0 + $57,25
00
00
0
00
0
$171,550
$110,0
00
________
$171,550
Revenue
Withdrawal
Wages Expense
75
$8,400
Operating expenses:
Wages expense
$1,900
Advertising expense
1,500
3,40
0
Net income
$5,0
00
Southwest Consulting
Statement of Owners Equity
For Year Ended December 31, 2011
Judith Grimm, capital, January 1
Add: Investment by owner
Net income
$55,000
5,00
0
Total
Less: Withdrawal by owner
60,00
0
$60,000
2,750
75
76
$57,2
50
Southwest Consulting
Balance Sheet
December 31, 2011
Assets
Cash
Liabilities
$
30,55
0
Accounts 1,800
receivable
Office supplies
2,000
Office equipment
17,20
0
Building
120,0
00
Accounts payable
Notes payable
Total liabilities
$171,
550
110,00
0
$114,3
00
Owners Equity
Judith Grimm, capital
Total assets
$
4,300
Total
liabilities
owners equity
57,250
and $171,5
50
76
77
77
78
Cash
Jun
e
1
1
4
6
8
1
4
1
6
2
0
2
1
Liabili
Owners
Assets
= ties
+ Equity
Accoun
Clean
Accou
Andrew
+
ts
+ ing
= nts
+ Martin,
Receiv
Suppl
Payabl
Capital
able
ies
e
+
$120,0
00
4,500
2,400
+
$120,0
00
4,500
Investment
2,250
+
750
+
5,300
1,900
Advertising
Expense
Service
Revenue
Service
Revenue
Salaries
Expense
+
3,500
Service
Revenue
Rent Expense
+
$2,40
0
2,250
+
750
+
$5,300
1,900
+
5,300
Explanation of
Change
5,300
+
3,500
78
2
2
2
4
2
9
2
9
3
0
3
0
3
0
3
0
79
+
750
+
$750
+
825
3,500
+
3,500
375
120
525
1,900
2,000
$113,5 + $
80
+825
Service
Revenue
375
825 +
$117,555
$3,15 =
0
=
$375 +
120
525
1,900
2,000
$117,1
80
$117,555
79
Telephone
Expense
Utilities
Expense
Salaries
Expense
Withdrawal
80
$10,375
$4,500
3,800
2,250
525
120
11,195
$ 820
$
0
120,000
$120,000
$2,000
820
2,820
$117,180
Liabilities
Accounts payable.......
825
Owners Equity
Andrew Martin, capital
117,180
Total assets.........$117,555
80
81
.............$117,555
81
82
82
June 3
0
July 1
Bal.
1
Bal.
1
Bal.
6
Bal.
8
Bal.
Bal.
Bal.
1
0
1
5
83
Asset
= Liabilit + Owners Equity
s
ies
Accoun
Office
Offic
Excav
Accoun
Explanation
+
+
+
+
=
+ Robert
ts
e
at.
ts
Cantu,
Cash
Receiva
Suppl
Equi
Equip
Payabl
Capital
of Change
ble
ies
p.
.
e
$ + $2,300 + $780 +$4,80 + $17,0 = $3,100 +
$27,780
6,000
0
00
60,000
60,000 Investment
$66,00
$87,780
0
+
+ 3,200
_______
800
4,000
$64,70
$21,0
$6,300
$87,280
0
00
+
______
______
_______
500
500
$64,20
$1,28
$21,0
$6,300
$87,280
0
0
00
+
_____
______
______
+ 2,200 Excavating Fees
2,200
Earned
$66,40
$1,28
$21,0
$6,300
$89,480
0
0
00
______
_____
+
______
+
_______
3,800
3,800
$66,40
$1,28
$8,60
$21,0
$10,10
$89,480
0
0
0
00
0
______
+ 2,400
_____
______
______
______
+ 2,400 Excavating Fees
Earned
$66,40
$4,700
$1,28
$8,60
$21,0
$10,10
$91,880
61
Bal.
1
7
0
______
______
$66,40
$4,700
0
2
______
3 3,800
Bal.
$62,60
$4,700
0
2
______ + 5,000
5
Bal.
$62,60
$9,700
0
2
+
2,400
8 2,400
Bal.
$65,00
$7,300
0
3
______
1 1,260
Bal.
$63,74
$7,300
0
3
______
1
260
Bal.
$63,48
$7,300
0
3
______
1 1,200
Bal.
$62,28 + $7,300 +
0
$8,60
0
______
$21,0
00
______
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
______
_______
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
$96,880
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
$3,20
0
+$8,60 +
0
$102,380
0
______
84
0
+
1,920
$3,20
0
______
00
______
0
+
1,920
$12,02
0
3,800
______
______
______
_______
$91,880
$91,880
+
5,000 Excavating
Earned
$96,880
$95,620
260 Utilities Expense
$95,360
$21,0 = $8,220 +
00
Fees
1,200 Withdrawal
$94,160
$102,380
$9,600
$1,260
500
260
2,020
$7,580
CANTU EXCAVATING
Statement of Owners Equity
For Month Ended July 31, 2011
Robert Cantu, capital, June 30. . . .
Add: Investments by owner........
Net income...........................
Total.......................................
Less: Withdrawals by owner.......
Robert Cantu, capital, July 31......
$ 27,780
$60,000
7,580
67,580
$95,360
1,200
$94,160
85
$62,280
Accounts receivable
7,300
Office supplies.........
3,200
Office equipment.....
8,600
Excavating equipment
.................... 94,160
Liabilities
Accounts payable....... $ 8,220
Owners Equity
21,000Robert Cantu, capital
Total liabilities and
Total assets.............
$102,380
Analysis component:
The owner of Cantu Excavating invested $60,000 during the
month ended July 31, 2011 therefore having a positive impact
on equity. Equity increased during July largely because of
this additional investment by the owner. As a sole
proprietor, a goal is to increase equity because of positive
earnings; not through owner investment.
Problem 2-9B (25 minutes)
Balance
Sheet
Total Tot
Asset
al
s
Lia
b.
+
Inco
me
Stmn
t
Net
Equi Inco
ty
me
+
86
1
Pay wages with cash.....
2
Acquire services on
3 credit...........................
Buy store equipment for
4 cash.............................
Borrow cash with note
5 payable........................
Sell services for cash....
6
Sell services on credit...
7
Pay rent with cash........
8
Owner withdraws cash. .
9
1 Collect receivable from
0
(7)...........................
+
+/
+
+/
87
Cash........................
Liabilities
$
6,300
Accounts payable...
$34,650
Accounts
47,25
receivable...............
0
Mortgage payable. .
28,350
Total liabilities.....
$63,000
Equipment............... 22,05
0
Owners Equity
Jack Tasker, capital
26,775
owners equity....
$89,775
Note to Instructors:
To reinforce students understanding of the nature of doubleentry bookkeeping and the accounting equation, it may be
advantageous to use this problem to demonstrate the
importance of recording transactions correctly because
neither double-entry bookkeeping nor the accounting
equation guarantee the correctness of information; they only
prove arithmetic accuracy.
Accordingly, the best way to explain this seemingly
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
88
89
3,780
Liabilities
Accounts payable
2,100
1,050
8,400
2,100
Owners Equity
Susan Huang, capital
Total liabilities and
owners equity.$17,430
90
91
Income Statement
Revenues Expense
s
1.
$14,
000
Balance Sheet
Assets
$14,
000
2.
$5,
000
3.
$25,
000
4.
5.
Liabilities
$
500
$14,
000
$25,
000
5
00
5
00
Owners
Equity
5
00
500
6.
10,0
00
10,0
00
7.
5,00
0
5,0
00
92
8.
20
0
9.
2,0
00
1
0.
12,
000
45
1
1.
1
2.
2
00
900
45
45
9
00
900
93
Ethics Challenge
1. The accounting principle most relevant to this situation
is the revenue recognition principle.
The revenue
recognition principle provides guidance on when
revenue should be recognized on the income
statement. The principle states that revenue should be
recognized when earned. In this case, the earliest the
revenue could be considered earned is when the
product is shipped to customers.
2. If Sue is aware of the revenue recognition principle she
faces a dilemma of applying GAAP, which will result in
different revenue recognition than her supervisor is
advocating.
Sue faces a dilemma of following the
guidance of her profession or following her supervisor.
If Sue does not conform to her supervisors wishes she
may face the consequence of losing her job. If Sue
does what her supervisor requests she may face
internal anguish of doing something that she knows is
not professionally correct and which may negatively
affect any users of the financial statements that she is
helping produce.
3. Students
should
support
their
decision
with
appropriate reasons likely echoing the discussion in 2)
above.
4. Sue may be able to discuss the situation she is facing
with someone else in the firm and find support for not
following the supervisors directive. If the intent to
violate accounting principles is a commonplace
occurrence in the skateboard company Sue may wish to
seek employment elsewhere as the problem will likely
reoccur in the future.
94
FFS 2-1
Parts 1 and 2
June 2011
Assets
June 1
5
7
9
15
17
+ Account +
s
Cash
Receiva
ble
+20,0
00
+3,000
-1,500
+1,00
-1,000
0
-5,000
+2,00
0
= Liabiliti + Owners
Equ
ity
Office = Accoun +
Diane
ts
Towbell,
Equip.
Payabl
Capital
e
+6,000
+26,000
Explanation of
Change
in Owners
Equity
Owner
investment
+3,000 Service revenue
-1,500 Rent expense
-5,000 Wages expense
+2,000 Service revenue
29
30 -1,500
Totals 15,00 +
0
+300
2,000 +
6,000 =
23,000
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
300 +
-300 Utilities
expense
-1,500 Wages expense
22,700
23,000
95
96
97
Liabiliti + Owners
Equi
ty
Diane
Explanation of
+ Accoun + Office = Accou +
ts
nts
Towbell,
Change
Cash
Receiv
Equip.
Payabl
Capital
in Owners
able
e
Equity
Balance 15,0
2,000
6,000
300
22,700
June 30
00
July 5
+3,500
+3,500 Service revenue
8 +2,0
-2,000
00
9
-1,500 Rent expense
1,50
0
12
+1,800
+1,80
0
14
-1,000
1,00
0
15
-2,500 Wages expense
2,50
0
17 +4,8
+4,800 Service revenue
00
69
98
25 -600
1,70
0
31
2,00
0
Totals 12,5 +
00
-300
-300
31
-1,700
-2,000
3,500 +
23,800
7,800 =
800 +
23,000
23,800
Utilities
expense
Wages expense
Owner
withdrawals
99
$5,000
Operating expenses:
Wages expense..................... $6,500
Rent expense........................
1,500
Utilities expense....................
300
Total operating expenses....
Net loss.....................................
$3,300
8,300
GLENROSE SERVICING
Statement of Owners Equity
For Month Ended June 30, 2011
Diane Towbell, capital, June 1..
Add:.....Investments by owner
26,000
Total ..................................
Less: Withdrawals by owner....
Net loss ........................
Diane Towbell, capital, June 30
-0-
$26,000
$ -03,300
3,300
$22,700
GLENROSE SERVICING
Balance Sheet
June 30, 2011
Assets Liabilities
Cash..........................$15,000
Accounts receivable.... 2,000
Office equipment........ 6,000
Diane Towbell, capital
Total liabilities and
Total assets...............$23,000
Accounts payable.... $
300
Owners Equity
.................. 22,700
owners equity.... $23,000
100
101
$8,300
Operating expenses:
Wages expense..................... $4,200
Rent expense........................
1,500
Utilities expense....................
300
Total operating expenses....
6,000
Net income................................
$2,300
GLENROSE SERVICING
Statement of Owners Equity
For Month Ended July 31, 2011
Diane Towbell, capital, July 1...
Add:.....Investments by owner
Net income......................
Total ..................................
Less: Withdrawals by owner....
Diane Towbell, capital, July 31.
2,300
$22,700
$
-02,300
$25,000
2,000
$23,000
GLENROSE SERVICING
Balance Sheet
July 31, 2011
Assets Liabilities
Cash..........................$12,500
Accounts receivable.... 3,500
Office equipment........ 7,800
Diane Towbell, capital
Total liabilities and
Total assets...............$23,800
Accounts payable.... $
800
Owners Equity
.............
23,000
owners equity.... $23,800
101
102
102
103
103
104
CT 2-1
Note to instructor: Student responses will vary therefore the
answer here is only suggested and not inclusive of all
possibilities; it is presented in point form for brevity.
Goal(s)*:
Correctly state sales reports*
Problem(s):
Misclassification of items under GAAP
Assumption(s)/Principle(s):
The report should be prepared in accordance with GAAP to
protect users of the information so that users know on what
basis amounts have been recorded/reported.
Facts:
as shown in the September sales report prepared by the sales
person
Conclusion(s)/Consequence(s):
August 28 sale should be in August and not in September;
consequence of current reporting is that August revenue, net income,
and equity was understated and September revenue, net income,
and equity are overstated
September 10 purchase of desk is to be recorded as an asset and
not expensed; consequence of current reporting is that September
expenses will be overstated causing net income, assets, and equity
to be understated.
September 230 lunch costs should have been expensed;
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
104
105
*This should be the goal since it is assumed that the owner(s) of the
business want accurate reports. However, the salesperson might
want to overstate the sales to make himself/herself look good; the
marketing manager might want to overstate sales for the same
reason. The goal is highly dependent on perspective.
105
106
(a)
Answers
Proofs:
Owners equity,
January 1..........................
(b)
(c)
(d)
(e)
$
0
$
0
$
0
$ $92,00
0
0
Owners investments
during the year.........
Net income (loss) for
the year............................
40,50
0
(4,50) 21,500
0
(8,000)
Owners withdrawals
during the year ........ (24,750) (27,00) (15,00) (15,75) (63,00)
0
0
0
0
Owners equity,
$51,000 $49,50 $12,00 $42,75 $171,0
December 31....................
0
0
0
00
106
107
$18,000
10,890
$ 7,110
$
0
84,000
91,110
$91,110
3,360
$87,750
Analysis component:
107
108
Analysis component:
$4,200
300
$ 4,500
4,620
$
120
108
109
$ 7,400
1,200
$ 8,600
1,120
$ 7,480
Analysis component:
Withdrawals of $1,000 by the owner, George Pelzer, caused equity to
decrease during July, 2011. Also, the net loss of $120 caused equity
to decrease in July. The total decrease in equity during the month of
July was $1,120 (calculated as $1,000 + $120).
NOTE: Students might point out that equity increased by
$1,200 of owner investments which, in combination with the
total decrease of $1,120, caused a net increase in equity of
$80.
Exercise 2-8 (15 minutes)
EXCEL LEARNING SERVICES
Balance Sheet
July 31, 2011
Assets Liabilities
Cash..........................$ 1,600
1,400
Accounts receivable.... 2,680
Supplies.....................
600
Furniture................... 1,800
...............
7,480
Accounts payable....
Owners Equity
George Pelzer, capital
109
110
Computer equipment. .
Total assets........................
2,200
$8,880
owners equity............
$8,880
Analysis component:
$1,400 or 15.77% (calculated as $1,400/$8,880 100) of the total
$8,880 assets held by Excel Learning Services are financed by debt.
110
111
Description
Assets Liabilities=
Owners
Equity
Beginning of the year. . .$ 150,000
$60,000
=
........................$90,000
End of the year.............$240,000$92,000 = 148,000
Net increase in owners equity........................ $58,000
Net income..................................................... $58,000
42,000
An alternative calculation:
$90,000 + x - $42,000 = $148,000; x = $100,000
c. Net increase in owners equity....... $58,000
Less: Additional investment........... 65,000
Net loss......................................... $ 7,000
An alternative calculation:
$90,000 + $65,000 + x = $148,000; x = ($7,000) where the
negative represents a loss.
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
111
112
42,000
An alternative calculation:
$90,000 + $50,000 - $42,000 + x = $148,000; x = $50,000
Exercise 2-11 (10 minutes)
a.
If assets decreased by $5,000 during August, then
$20,000 + $5,000 = $25,000 Assets at August 1, 2011.
Therefore, Owners Equity at August 1, 2011 = $25,000 - $1,000 =
$24,000
b.
If liabilities increased by $3,000 during August, then
$1,000 + $3,000 = $4,000 Liabilities at August 31, 2011.
Therefore, Owners Equity at August 31, 2011 = $20,000 - $4,000 =
$16,000
Exercise 2-12 (15 minutes)
Assets
Cash
a)
Total
s
Liabilities +
Owners
Equity
Accounts
Receivab
Office
Accounts
Noel Bridges,
+
le
+ Supplies = Payable +
Capital
+
$2,500
+ $2,500
2,500
2,500
112
113
b)
Total
s
c)
Total
s
2,500
+
+ $200
+ $200
200
200
600
2,500
+
600
3,100
200
200
3,100
3,100
200
200
3,100
d)*
Total
s
e)
Total
s
1,500
1,600
f)
Total
s
1,500
200
200
+
$1,250
$1,600
$1,250
$3,050
1,600
+ 1,250
$200
$200
$2,850
$3,050
113
114
Cash
Liabilitie +
s
Owners
Equity
Accounts
Parts
Receivabl
Supplie
Equipme
Accounts
+
e
+
s
+
nt
= Payable +
Janine
Commry,
Capital
a)
+ $7,000
+ $ 7,000
b)
- 2,500
- 2,500
Totals
$4,500
$ 4,500
c)
Totals
$4,500
d)
Totals
e)
Totals
+ $1,200
+ $1,200
$1,200
$1,200
+ $3,400
$4,500
$3,400
+ $ 3,400
$1,200
$ 950
$3,550
$ 4,500
$1,200
$7,900
$1,200
$7,900
$1,200
$ 7,900
+ $950
$3,400
$1,200
$950
f)*
Totals
g)
Totals
h)
Totals
i)
Totals
$3,550
$3,400
$1,200
$950
$1,200
$2,350
$1,200
$3,400
$1,200
$950
+ $1,400
$3,750
+ $ 1,400
$3,400
$1,200
$950
$2,700
$1,050
$7,900
$9,300
$ 2,700
$3,400
$1,200
$6,600
$950
$6,600
$6,600
114
115
115
116
$5,000
b. 1,300
Expense
$23,700
$5,000
c.
$23,700
d.
+6,000
+6,000
$11,000
$6,000
$11,000
$6,000
+$1,000
$1,000
f. 4,000
$20,200
h. +
250
Rent
$28,700
500
$11,000
Revenue
$29,200
+ 1,000
$6,000
$30,200
$6,000
$30,200
Revenue
+ 4,000
$1,000
$15,000
g. 1,200
Expense
$19,000
$1,300
$24,200
$24,200
Investment
$28,700
+ 500
e.
$30,000
1,200
$1,000
$15,000
$6,000
Wages
$29,000
250
116
117
$19,250
i.
$750
$15,000
$6,000
6,000
$13,250
j.
$29,000
6,000
$750
$15,000
$29,000
250
$13,000
$28,750
$750
$28,750
Revenue
($500 + $1,000)
$15,000
250
Withdrawal
$28,750
Expenses
=
Net loss
($1,300 + $1,200) =
$1,000
117
118
Liabiliti +
es
a)
b)
Total
s
d)
Owner
+$2,500 Investment
+ $2,500
+ $4,000
$4,000
+$4,000 Revenue
$
c)
Total
s
Owners Equity
$2,500
+ $150
$4,000
$150
$6,500
+ $150
$2,500
$150
$ 450
$6,500
$ 450 Sal.
Expense
118
119
Total
s
$3,550
$150
$2,500
$150
$6,050
$3,550
$150
$2,500
$150
$6,050
e)*
Total
s
f)
Total
s
$
1,400
$2,150
g)
Total
s
$ 1,400 Rent
Expense
$
$150
$2,500
$150
+ $2,000
$2,150
$2,000
$6,800
$4,650
+$2,000 Revenue
$150
$2,500
$150
$6,650
$6,800
119
120
Revenues:
Freelance writing revenue
$6,000
Operating expenses:
Salaries expense
Rent expense
450
1,40
0
1,85
0
Net income
$4,1
50
Investment by owner
Net income
$2,500
4,15
0
6,65
0
120
121
$6,6
50
Liabilities
$2,1
50
Accounts payable
$
150
Accounts 2,00
receivable
0
Supplies
Equipment
150
2,50
0
Owners Equity
Annie Deweerd, capital
Total assets
$6,8
00
6,65
0
121
122
a)
+
$500
+$400
$500
Owner
+$15,500 Investment
+$15,000
c)
Total
s
Owners Equity
b)
Total
s
Liabiliti +
es
$400
+$400
$15,000
+$600
$400
$15,500
+$600
$500
$1,000
$15,000
$1,000
$15,500
$500
$1,000
$15,000
$1,000
$15,500
d)*
Total
s
e)
Total
s
+$550
$500
f)
Total
s
$550
+$550 Revenue
$1,000
$15,000
$1,000
+$600
$500
$1,150
$16,050
+$600 Revenue
$1,000
$15,000
$1,000
$16,650
122
123
g)
-$200
Total
s
$300
h)
-$250
Total
s
$50
-$200
$1,150
$1,000
$15,000
$800
$16,650
-$250 Adv.
Expense
$1,150
$1,000
$17,200
$15,000
$800
$16,400
$17,200
123
124
$1,150
Operating expenses:
Advertising expense
250
Net income
$
900
Petes Yard Care
Statement of Owners Equity
For Month Ended March 31, 2011
Investment by owner
$15,500
Net income
900
16,40
0
$16,4
00
Liabilities
$
50
Accounts payable
124
125
800
Accounts 1,150
receivable
Supplies
Equipment
1,000
15,000
Owners Equity
Pete Jong, capital
16,40
0
$17,20
0
owners equity
$17,2
00
Analysis component:
The $900 of net income does not represent cash because all of the
revenues ($550 + $600 = $1,150) were on account. The $250 of
advertising expense was paid in cash. The net income or net loss on
an income statement represents accrual net income (loss) as
opposed to a cash basis net income (loss). Recall that accrual basis
net income represents revenues and expenses that occurred
regardless of when cash is actually received/paid.
125
126
Bal.
$1,200
+$1,000
-$1,000
Total
s
$5,000
$200
b)
-$2,000
Total
s
$3,000
c)
+$700
Total
s
$3,700
d)
-$500
Total
s
$3,200
e)
-$1,200
Total
s
$2,000
f)
-$600
Total
s
$1,400
g)
Total
s
Owners Equity
$4,000
a)
Liabiliti +
es
$900
$7,500
$4,000
$9,600
$900
$7,500
$4,000
$9,600
-$2,000
$200
$900
$7,500
$2,000
$9,600
+$700 Revenue
$200
$900
$7,500
$2,000
$10,300
-$500 Wage
Exp.
$200
$900
$7,500
$2,000
$9,800
-$1,200 Rent Exp.
$200
$900
$7,500
$2,000
$8,600
-$600 Utilities
Exp.
$200
$900
$7,500
$2,000
+$400
$1,400
Explanati
on
$600
$8,000
+$400 Revenue
$900
$7,500
$2,000
$8,400
h)*
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
126
127
Total
s
$1,400
$600
$900
$10,400
$7,500
$2,000
$8,400
$10,400
127
128
$1,100
Operating expenses:
Rent expense
$ 1,200
Wages expense
500
Utilities expense
600
2,30
0
$1,2
00
$ 9,600
1,200
$
8,400
128
129
Assets
Cash
Accounts
receivable
Supplies
Equipment
Liabilities
$1,400
Accounts payable
$
2,000
600
900
7,500
Owners Equity
Otto Ingles, capital
8,400
$10,40
0
owners equity
$10,4
00
Analysis component:
$8,400 or 80.77% (calculated as $8,400/$10,400 100) of the assets are
financed by Otto Ingles, the owner. $2,000 or 19.23% (calculated as
$2,000/$10,400 100) of the assets are financed by debt.
Chapter 3
EXERCISES
129
130
Cash
Accounts Payable
(a)
25,500
750 (b)
(d)
3,000
14,10 (e)
0
(h)
(e)
14,100 (c)
0 Balance
2,000 (i)
Balance
14,100
12,850
25,500 (a)
25,500 Balance
Accounts Receivable
(f)
5,400
Balance
3,150
2,250 (h)
(i)
2,000
Balance
2,000
Office Supplies
(b)
750
Balance
750
Fees Earned
3,000 (d)
5,400 (f)
Office Equipment
(c)
14,100
Balance
14,100
8,400 Balance
Rent Expense
(g)
1,050
Balance
1,050
130
131
Cash
Jan.
31
Feb.
700
4,000
Feb.
14
2,800
60
23
2,400
1,000
25
800
26
800 Jan. 31
800 Bal.
2
20
Bal.
40
Accounts Receivable
Jan.
31
Feb.
1,200
2,40
0
Feb.
20
Jan.
31
Feb.
25
Bal.
-01,000
1,000
15,000
12
18
Bal.
1,90
0
Service Revenue
15,700
2,600 Jan. 31
2,800 Feb. 2
Prepaid Insurance
15,000
12
131
132
Jan.
31
Feb.
-0-
1,900
4,000
18
22,300 Bal.
14
Bal.
4,000
Wages Expense
Computer Equipment
Jan.
31
Feb.
480
7,600
Jan. 31
1,080
Feb. 26
800
Bal.
1,880
10
Bal.
8,080
Accounts Payable
Feb.
60
60 Jan. 31
NOTE:
There
is
no
entry
to be recorded
23
for February 21.
-0- Bal.
Notes Payable
-0- Jan. 31
7,600 Feb.
10
7,600 Bal.
Analysis component:
Revenue recognition requires that when a transaction has occurred, it must be
recorded whether cash has been received or not. A transaction has occurred
when there has been an economic exchange when something has been given
up or received. On February 12, services were performed and, although cash will
not be received until a future date, a revenue must be recorded because an
economic exchange has occurred.
132
133
Cash
Mar.
31
Apr.
2
19
Bal.
1,800
400 Apr.
780
300
10
15
2,000
1,000
29
Mar.
31
Apr.
29
Bal.
500
1,000
1,500
2,880
Repair Revenue
14,000 Mar.
Accounts Receivable
Mar.
31
Apr.
18
4,800
Bal.
4,000
31
2,000 Apr.
780 Apr. 2
19
1,200
1,200
18
15,980 Bal.
Repair Supplies
Mar.
31
Apr.
9
1,400
Bal.
2,290
Rent Expense
Mar.
31
Apr.
25
Bal.
890
950
250
1,200
Equipment
Mar.
31
Apr.
15
Bal.
7,400
300
7,700
Accounts Payable
Apr.
10
400
500 Mar.
31
133
134
890 Apr.
250
9
25
1,240 Bal.
2,350 Mar.
31
2,350 Bal.
134
135
GENERAL JOURNAL
Account Titles and
PR
Explanations
Dat
e
201
1
Jul
Cash..............................
y
1
Sue Ware, Capital.....
To record investment
by owner.
Debit
101
5,000
301
1 Equipment.....................
0
Accounts Payable.....
Purchased equipment
on credit.
150
1 Cash..............................
2
Revenue...................
Performed services for
cash.
101
1 Expenses.......................
4
Cash.........................
Paid expenses.
501
106
302
Page 1
Credit
5,000
2,500
201
2,500
10,000
401
10,000
3,500
101
3,500
1,500
401
1,500
250
135
136
Cash.........................
Owner withdrew cash.
101
250
136
137
Cash
July 1
12
Balance
101
5,000
10,000
3,500 July 14
250
31
11,250
Accts. Receivable
July
15
106
1,500
Equipment
July 10
150
2,500
Accounts Payable
201
2,500
Sue Ware,
Capital
5,000
July 10
301
July 1
137
138
Sue Ware,
Withdrawals
July 31
302
250
Revenue
401
10,000
1,500
11,500
July 12
15
Balance
Expenses
501
July 14
3,500
138
139
Cash
Date
Explanation
PR
Debit
Credit
Balance
2011
July
G1
5,000
5,000
12
G1
10,000
15,000
14
G1
3,500
11,500
31
G1
250
11,250
Accounts Receivable
Date
Explanation
PR
Debit
Credit
Balance
2011
July 15
G1
1,500
Equipment
Date
Explanation
1,500
PR
Debit
Credit
Balance
2011
July 10
G1
2,500
Accounts Payable
Date
Explanation
2,500
PR
Debit
Credit
Balance
2011
July 10
G1
2,500
Date
Explanation
2,500
PR
Debit
Credit
Balance
139
140
2011
July
G1
5,000
Date
Explanation
5,000
PR
Debit
Credit
Balance
2011
July 31
G1
250
Revenue
Date
Explanation
250
PR
Debit
Credit
Balance
2011
July 12
G1
10,000
10,000
15
G1
1,500
11,500
Expenses
Date
Explanation
PR
Debit
Credit
Balance
2011
July 14
G1
3,500
3,500
DelaWare
Trial Balance
July 31, 2011
Acct
. No.
Account Title
101Cash.........................
106Accounts receivable .
150Equipment................
Credi
Debit
t
$11,
250
1,50
0
2,50
0
140
141
201Accounts payable......
$
2,50
0
5,00
0
5.
250
11,5
00
3,
500
$19,
000
$19,
000
DelaWare
Income Statement
For Month Ended July 31, 2011
Revenue................................
$11,
500
3,
500
$8,0
00
Expenses...............................
Net income............................
DelaWare
Statement of Owners Equity
For Month Ended July 31, 2011
Sue Ware, capital, July 1........
Add: ....Investments by owner
Net income......................
Total...................................
$5,0
00
8,0
00
$
0
13,
000
13,0
00
141
142
$12,
750
142
143
DelaWare
Balance Sheet
July 31, 2011
Assets
Liabilities
Cash..................................
$11,25
0
Accounts receivable..........
1,500
Equipment.........................
2,500
Accounts payable.....................
$
2,500
Owners Equity
12,75
0
$15,25
0
owners equity......................
$15,25
0
Analysis component:
Accounts receivable result from credit sales to customers
(debit accounts receivable and credit a revenue). Sales, or
revenue, is part of equity. As revenues on account are
recorded, assets on the one side of the accounting
equation increase and equity on the opposite side of the
accounting equation also increases. Therefore, accounts
receivable are financed by, or created by, an equity
transaction.
Exercise 3-5 (10 minutes)
Note: Students could choose any account number within the specified range.
Account
Number
Account Name
110
Cash
143
144
115
Accounts Receivable
160
Office Equipment
210
Accounts Payable
215
Unearned Revenue
310
320
410
Consulting Revenues
510
Salaries Expense
520
Rent Expense
530
Utilities Expense
144
145
Bal
Feb
1
10
Bal
11
Accounts
0
Receivable
11,5 2,00 Feb Bal 6,00
00
0
5
0
8,50 500
17
0
2,50 10,0
28
0
00
10,0
00
Unearned
21
Revenue
5
500 Bal
Wes Bosse,
Capital
9,50
0
11
5
31
0
Bal
2,50 Feb
0 10
3,00 Bal
0
Salaries
Expense
Bal
10,0
00
Feb
10,0
28
00
Bal
20,0
00
51
0
Rent
Expense
Bal 7,50
0
52
0
Office Equipment 16
0
Bal
12,5
00
Wes Bosse,
Withdrawals
Bal
2,00
0
Feb
500
17
Bal
2,50
0
32
0
Utilities
Expense
Bal
1,00
0
53
0
Accounts
21
Payable
0
Feb 2,00 3,00 Bal
5
0
0
1,00 Bal
0
Consulting
Revenues
37,5
00
8,50
0
46,0
00
41
0
Bal
Feb
1
Bal
91
146
147
General Journal
Account Titles and
PR
Explanations
Cash.............................
Consulting
Revenues.....................
Performed work for
cash.
Accounts Payable..........
Cash.......................
Paid account.
1
0
Cash.............................
Unearned Revenue. .
Received cash in
advance.
1
2
No entry.
1
7
Wes Bosse,
Withdrawals.................
Cash.......................
Owner withdrew cash.
2
8
Salaries Expense...........
Cash.......................
Paid salaries.
Debit
10
1
41
0
8,500
21
0
10
1
2,000
10
1
21
5
2,500
32
0
10
1
500
51
0
10
1
10,000
Page G1
Credit
8,500
2,000
2,500
500
10,000
3.
147
148
Bosse Advisors
Trial Balance
February 28, 2011
Acct.
No.
Account Title
Debit
Credit
101 Cash.....................................
$
10,000
115 Accounts receivable .............
6,000
160 Office equipment.................. 12,500
210 Accounts payable.................
$
1,000
215 Unearned revenue................
3,000
310 Wes Bosse, capital................
9,500
320 Wes Bosse, withdrawals........
2,500
410 Consulting revenues.............
46,00
0
510 Salaries expense.................. 20,000
520 Rent expense.......................
7,500
530 Utilities expense...................
1,00
0
Totals................................... $59,50 $59,5
0
00
148
149
Assets
Cash..................
Accounts
receivable..............
Office
equipment.............
Bosse Advisers
Balance Sheet
February 28, 2011
Liabilities
$10,00
Accounts payable....
0
6,000
Unearned revenue...
12,50
0
Total liabilities........
Owners Equity
Wes Bosse, capital. .
Total assets........
$28,50
0
$
1,000
3,00
0
$
4,000
24,500
$28,50
0
Capital = 9,500
Opening Balance
+ 46,000 Revenues
28,500 Salaries, Rent and Utilities expenses
2,500 Withdrawals
= 24,500 Closing Balance
Analysis component:
Unearned revenue occurs when cash is received from a customer in
advance of the work being done. The collection is not recorded as a
revenue because it has not been earned until the work is done.
Unearned revenue is therefore a liability because the business owes
the customer a service (or work). For example, WestJet receives
cash from customers in advance of the customer actually flying.
These cash collections are recorded as unearned revenue, a liability,
because the cash doesnt belong to WestJet until they have earned it
which occurs when the customer takes their flight.
149
150
Cash.......................................................................
7,000
Equipment.............................................................
5,600
Automobiles...........................................................
11,000
3,600
3,600
c. Office Supplies..................................
600
Cash................................................................
600
d. Office Supplies..................................
200
Equipment.............................................................
9,400
Accounts Payable............................................
9,600
e. Cash.................................................
2,500
2,500
f. Accounts Payable..............................
Cash................................................................
2,400
2,400
700
700
150
151
1,500
Surgical Revenues....................
1,500
8 Supplies........................................
3,000
Accounts Payable........................................
3,000
15 Salaries Expense...............................................
57,000
Cash............................................................
57,000
Paid salaries.
20 Accounts Payable..............................................
3,000
Cash............................................................
3,000
21 No entry.
22 Accounts Receivable.........................................
9,000
Surgical Revenues......................................
9,000
29 Cash..................................................................
Accounts Receivable.................................
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
3,000
3,000
151
152
30 Utilities Expense................................................
Cash............................................................
1,800
1,800
152
153
2,700
c. Cash..................................................
Services Revenue..........................
Provided services for cash.
3,150
2,700
3,150
1,125
d. Utilities Expense...............................
Cash............................................
Paid the utilities for the office.
930
1,125
930
153
154
154
155
Cash
Date
Explanation
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
850
2011
Jan.
G1
3,500
2
0
G1
3
1
G1
3
1
G1
3,000
4,350
3
1
G1
750
3,600
2,000
5,000
Explanation
2,350
7,350
Accounts Receivable
Date
4,350
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
300
2011
Jan.
1
2
G1
3
1
G1
9,000
9,300
5,000
4,300
155
156
Equipment
Date
Explanation
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
1,500
2011
Jan.
2
0
G1
12,000
Accounts Payable
Date
Explanation
13,500
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
325
2011
Jan.
2
0
G1
10,000
Date
Explanation
10,325
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
2,325
2011
Jan.
G1
3,500
5,825
156
157
Date
Explanation
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
300
2011
Jan.
3
1
G1
750
Fees Earned
Date
Explanation
1,050
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
1,800
2011
Jan.
1
2
G1
9,000
Salaries Expense
Date
Explanation
10,800
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
1,500
2011
Jan.
3
1
G1
3,000
4,500
157
158
Date
Page 1
Debit
Credit
2011
Jan. 1 Cash..................................................................
10
1
30
1
3,500
3,500
10
6
Fees Earned................................................
40
1
9,000
9,000
16
7
12,000
Cash............................................................
10
1
2,000
Accounts Payable........................................
20
1
10,000
10
1
Accounts Receivable...................................
10
6
5,000
5,000
62
3,000
158
159
2
Cash............................................................
10
1
3,000
30
2
Cash............................................................
10
1
750
750
Page
G1
159
160
Date
2011
Aug.
PR
Debit
Cash.........................................
10
1
15,000
Photography Equipment....................
16
7
17,000
30
1
Credit
32,000
Prepaid Rent......................................
13
1
Cash............................................
10
1
6,500
6,500
Office Supplies...................................
12
4
Cash............................................
10
1
1,800
1,800
Cash..................................................
10
1
40
1
9,200
9,200
Utilities Expense.......................
69
0
Cash...................................
10
1
1,100
1,100
160
161
161
162
Explanation
Debit
Credit
Balance
G1
15,000
G1
6,500
8,500
G1
1,800
6,700
2
0
G1
3
1
G1
2011
Aug.
9,200
Explanation
15,900
1,100
14,800
Office Supplies
Date
15,000
PR
Debit
Credit
Balance
2011
Aug.
G1
1,800
Prepaid Rent
Date
Explanation
1,800
PR
Debit
Credit
Balance
2011
Aug.
G1
6,500
Photography Equipment
Date
Explanation
6,500
PR
Debit
G1
17,000
Credit
Balance
2011
Aug.
17,000
162
163
Date
Explanation
PR
Debit
Credit
Balance
2011
Aug.
G1
32,000
Date
Explanation
32,000
PR
Debit
Credit
Balance
2011
Aug.
2
0
G1
9,200
Utilities Expense
Date
Explanation
9,200
Debit
Credit
Balance
2011
Aug.
3
1
G1
1,100
1,100
163
164
Acct
No.
Account Title
Debit Credit
1,800
6,500
17,000
$32,000
9,200
1,100
Totals................................. $41,200
$41,200
Analysis component:
164
165
Aug.
1
101
Photography Fees 40
Earned 1
9,2 Aug.
00 20
Office
Supplies
Aug. 1,80
5
0
124
Prepaid
Rent
Aug. 6,50
1
0
13
1
Aug.
31
Utilities
Expense
1,10
0
690
Acct.
No.
Account Title
Debit Credit
101
Cash...............................................
$ 14,800
124
Office supplies................................
1,800
131
Prepaid rent...................................
6,500
167
Photography equipment.................
17,000
301
401
690
Utilities expense.............................
1,100
165
166
Totals.............................................
$41,200
$41,200
Analysis component:
$46,
000
$37,
000
14,0
00
51,0
00
$
5,00
0
Hogans Consulting
Statement of Owners Equity
For Year Ended December 31, 2011
$
0
166
167
50,0
00
$50,
000
Total...................................
Less: Withdrawals by owner...
Net loss........................
$2,0
00
5,00
0
7,00
0
$43,
000
Hogans Consulting
Balance Sheet
December 31, 2011
Assets
Liabilities
Cash..................................
$12,00
0
Accounts payable.....................
Cleaning supplies..............
8,300
Notes payable..........................
53,500
Prepaid rent.......................
5,000
Total liabilities..........................
$54,30
0
Equipment.........................
72,00
0
Owners Equity
800
43,000
$97,30
0
owners equity......................
$97,30
0
Analysis component:
Losses cause equity to decrease. If equity decreases, either assets have to
decrease and/or liabilities must increase to keep the balance sheet in
balance. Therefore, if Hogans Consulting continues to experience losses,
there are two short-term alternatives available to prevent a decrease in
assets. First, the business could borrow which would increase liabilities and
temporarily increase assets until payments had to be made. Longer term,
the cash to make the payments cannot be borrowed. Second, Lisa Hogan,
the owner, could invest additional assets into the business which would
increase equity and assets. However, for the long-term, the owner does not
want to support the business through continual investments; the business
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
167
168
Income Statement
For Month Ended March 31, 2011
Revenues:
Service revenue...........................................................
$1,900
Operating expenses:
Salaries expense..........................................................
$
800
Interest expense..........................................................
10
810
Net income........................................................................
$1,090
JenCo
Statement of Owners Equity
For Month Ended March 31, 2011
$2,05
0
Net income..............................................................
1,09
0
$3,140
Total.............................................................................
$3,140
1,500
$1,640
JenCo
Balance Sheet
March 31, 2011
Assets
Liabilities
168
169
Cash................................
$1,00
0
Accounts payable..........
$
260
Accounts receivable.......
950
250
Prepaid insurance...........
300
Notes payable............................
80
0
Equipment......................
70
0
Total liabilities......................
$1,31
0
Owners Equity
Total assets....................
$2,95
0
1,64
0
$2,95
0
169
170
Revenues:
Fees earned.........................................................
$170,0
00
Operating expenses:
Wages expense....................................................
$166,0
00
7,00
0
173,0
00
Net loss.....................................................................
$
3,000
$112,00
0*
10,0
00
Total....................................................................
$122,0
00
$
18,000
Net loss..........................................................
3,000
21,00
0
$101,0
00
170
171
Liabilities
Assets
Cash...............
$
30,000
Accounts receivable
...............................
14,000
146,00
0
Office supplies........
3,000
Total liabilities......................
$
192,000
Building...................
80,000
Land........................
116,00
0
Machinery...............
50,0
00
Total assets............
$293,0
00
Owners Equity
Dee Bentley, capital..................
101,00
0
171
172
Description
(1)
Difference
between
Debit and
Credit
Columns
$810
b. A $42,000 debit to
Machinery was posted as
a debit to Accounts
Payable.
$0
(2)
(3)
Colum
Identify
n with account(s)
the
incorrectly
Larger
stated
Total
(4)
Amount that
account(s) is
overstated or
understated
Credit
Rent
Expense
Rent Expense is
understated by
$810
Machinery
Machinery is
understated by
$42,000 and
Accounts
Payable is
understated by
$42,000
Accounts
Payable
c. A $4,950 credit to
Services Revenue was
posted as a $495 credit.
$4,455
Debit
Services
Revenue
Services
Revenue is
understated by
$4,455
$1,440
Credit
Store
Supplies
Store Supplies is
understated by
$1,440
$0
Prepaid
Insurance
Prepaid
Insurance is
understated by
$2,250 and
Insurance
Expense is
overstated by
$2,250
Insurance
Expense
$4,050
$0
Credit
Cash
Cash is
understated by
$4,050
Owners
Capital
Owners Capital
account is
understated by
$9,900
172
173
account.
Owners
Owners
Withdrawal Withdrawals is
s
understated by
$9,900
173
174
by
$2,000
and
174
175
Through a process of elimination, the incorrect value is Cash for $59. The correct
value must be $95.
175
176
Chapter 4
EXERCISES
7.
2.
8.
3.
9.
4.
10.
5.
11.
6.
12.
176
177
a
)
201
1
Dec
.
32,000
Accumulated Amortization,
Equipment.........................................
To record amortization expense for
the year.
32,000
b
)
31 Insurance Expense............................
c
)
d
)
e
)
31 Insurance Expense............................
f)
31 Wages Expense.................................
Wages Payable............................
To record wages accrued but not
yet paid.
8,000
6 Wages Payable..................................
8,000
Wages Expense.................................
12,000
g
)
11,920
Prepaid Insurance........................
To record insurance coverage that
expired
during the year; $14,000 $2,080.
11,920
5,252
Office Supplies............................
To record office supplies
consumed during
the year; $600 + $5,360 $708.
5,252
20,000
Fee Revenue...............................
To record earned portion of fee
received in
advance; $30,000 2/3 = $20,000.
20,000
9,200
Prepaid Insurance........................
To record insurance coverage that
expired
during the year.
201
2
Jan.
9,200
8,000
177
178
Cash..........................................
To record the payment of wages.
20,000
178
179
Dec.
31 Unearned Revenue.........................
16,0
00
Revenue...........................................
16,000
b
)
10,5
00
c
)
10,500
350
350
d
)
31 Accounts Receivable...............................
3,55
0
Revenue...........................................
3,550
e
)
31 Utilities Expense....................................
Utilities Payable (or Accounts
Payable)................................................
1,30
0
1,300
179
180
201
2
f)
Jan.
4 Cash......................................................
3,55
0
Accounts Receivable.......................
3,550
g
)
1,30
0
Cash...............................................
1,300
Sept
.
30 Unearned Revenue................................
12,0
00
Revenue..........................................
12,000
b)
150
150
180
181
c)
Sep
t.
5,00
0
Office Supplies...............................
5,000
d)
30 Accounts Receivable............................
28,0
00
Revenue........................................
28,000
e)
30 Rent Expense......................................
7,00
0
7,000
f)
Oct.
3 Cash.................................................
28,0
00
Accounts Receivable..................
28,000
g)
7,00
0
Cash.........................................
7,000
a
)
Ma
r.
31 Unearned Rent................................................................
7,500
181
182
Rent Earned......................................
7,500
31 Rent Receivable.....................................
2,700
Rent Earned......................................
2,700
c
)
Apr
.
22 Cash......................................................
4,050
Rent Receivable................................
2,700
Rent Earned......................................
1,350
182
183
Dec.
31 Accounts Receivable.........................................................
2,00
0
2,00
0
31 Rent Expense..........................................
8,00
0
Prepaid Rent......................................
8,00
0
400
40
0
31 Unearned Fees........................................
2,80
0
2,80
0
31 Salaries Expense.....................................
Salaries Payable.................................
5,00
0
5,00
0
183
184
(a)
(b)
(c)
(d)
$ 300
$1,600
$
1,360
$1,375
2,100
5,400
10,08
0
6,000
$7,000
$11,44
0
$7,375
(5,700)
(1,84)
0
$1,300
$
9,600
(750)
(800)
$6,575
184
185
Wages Expense.........................................
1,000
Wages Payable.....................................
1,000
Adjusting entry to record accrued wages for one
day; 5 $200.
Payday entry:
2013
Jan. 4
Wages Expense.........................................
3,000
Wages Payable..........................................
1,000
Cash.....................................................
4,000
Paid employees' accrued and current wages;
5 employees x $200/day x 4 days = $4,000.
Apr
.
30 Interest Expense..........................
2,080
Interest Payable..............................
2,080
May
20 Interest Payable...................................
2,080
Interest Expense...................................
4,160
Cash...............................................
6,240
201
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 5
185
186
1
b)
Apr
.
30 Salaries Expense...................................
3,600
Salaries Payable..............................
3,600
May
3 Salaries Payable...................................
3,600
Salaries Expense...................................
5,400
Cash...............................................
9,000
Apr
.
2,50
0
2,50
0
May
2,50
0
2,50
0
186
187
2011
Dec.31
Accounts Receivable..................................
Fees Earned..........................................
To record unbilled fees; 30% $12,000.
3,600
31
Unearned Fees...........................................
Fees Earned..........................................
To record earned fees that had been
collected in advance; 70% $12,000.
8,400
31
3,000
31
3,500
31
Salaries Expense........................................
Salaries Payable...................................
To record accrued salaries.
4,900
31
Insurance Expense.....................................
Prepaid Insurance.................................
To record expired prepaid insurance.
2,600
31
960
31
Utilities Expense..........................................
Utilities Payable.....................................
To record unpaid utility costs.
3,600
8,400
3,000
3,500
140
4,900
2,600
960
140
187
188
Account
Unadjusted
Trial Balance
Debit
Cred
it
Adjustments
Debi
t
Cred
it
Cash.................................. 5,000
Debi
t
Cred
it
5,000
Prepaid insurance..............
Adjusted Trial
Balance
5,900
c)
1,40
0
700
b)
250
Equipment......................... 12,00
0
450
12,000
a)
2,400
Accumulated amortization,
equipment..........................................
6,000
Accounts payable...............
1,200
1,200
9,000
9,000
3,000
45,00
0
c)
1,400
a)
2,400
8,400
46,40
0
2,400
29,000
b) 250
7,250
7,000
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 5
188
189
4,05
0
189
190
$46,400
Operating expenses:
Salaries expense...........................................
$29,00
0
Insurance expense........................................
7,250
2,40
0
38,650
Net income........................................................
$ 7,750
Ayotte Music
Statement of Owners Equity
For Year Ended February 28, 2011
$ 9,000
7,750
Total.............................................................
$16,750
3,000
$13,750
190
191
Ayotte Music
Balance Sheet
February 28, 2011
Assets
Cash.................................................................
$ 5,000
Accounts receivable...........................................
5,900
Prepaid insurance..............................................
450
Office equipment...........
$12,00
0
8,4
00
3,600
$14,950
Liabilities
Accounts payable...............................................
$ 1,200
Owners Equity
Jane Adams, capital...........................................
13,750
$14,950
191
192
Cash.....................................................
Accounts Payable............................
1,800
1,800
192
193
OR
1,800
Cash.............................................
1,800
Office Supplies........................
1,800
Office Supplies.............................
193
194
1,800
Accounts Payable....................
Revenue...............................................
Accounts Receivable........................
4,500
4,500
194
195
OR
4,500
Revenue.......................................
4,500
Cash.......................................
4,500
Cash.............................................
195
196
4,500
Accounts Receivable................
Withdrawals..........................................
Salaries Expense.............................
1,500
1,500
196
197
OR
Cash.....................................................
1,500
Salaries Expense............................
1,500
Withdrawals.........................................
1,500
197
198
Cash..............................................
1,500
198
199
Accounts Receivable.........................................
750
Revenue.................................................
750
750
Cash.......................................................
750
Cash.................................................................
Revenue.................................................
750
750
Analysis component:
If the error in (b) is not corrected, revenue and net income on the
income statement will be overstated each by $4,500. On the balance
sheet, assets (accounts receivable) and equity will be overstated each
by $4,500.
199
200
e)
f)
2,400
16,800
200
201
Cash................................................
Unearned Fees...........................
Received fees for work to be done.
8,400
12
Unearned Fees................................
Fees Earned...............................
Completed work for customer.
2,000
18
Cash................................................
Unearned Fees...........................
Received fees for work to be done.
7,500
27
Unearned Fees................................
Fees Earned...............................
Completed work for customer.
8,400
31
No entry.
Cash................................................
Fees Earned...............................
Received fees for work to be done.
8,400
2,000
8,400
2,000
7,500
8,400
2,000
8,400
12
No entry.
18
Cash................................................
Fees Earned...............................
Received fees for work to be done.
27
No entry.
31
Fees Earned....................................
7,500
Unearned Fees...........................
7,500
Adjusting entry to reflect unearned fees for unfinished
7,500
7,500
201
202
job.
*Exercise 4-15 (concluded)
c) Under the first method:
Unearned fees = $2,000 + $8,400 $2,000 + $7,500 $8,400 =
$7,500
Fees earned = $2,000 + $8,400 = $10,400
Under the second method:
Unearned fees = $7,500
Fees earned = $2,000 + $8,400 + $7,500 $7,500 = $10,400
Chapter 5
EXERCISES
5.
9. C
13. C
2.
6.
10. C
14. A
3.
7.
11. D
15. A
4.
8.
12. D
16. C
Balance Sheet
and
Statement of
Owners Equity
Credit Debit Credit
3,000
13,100
41,000
16,500
202
203
15,000
7,000
1,600
1,300
37,750
7,200
49,000 49,000
5,500
18,500
6,000
3,850
Totals....................113,150113,15033,85049,000 79,300
64,150
Net income...............
15,150
15,150
Totals....................
49,000 49,000 79,300
79,300
203
204
Musical Sensations
Work Sheet
For Year Ended December 31, 2011
Unadjusted
Trial
Balance
Account
Adjustments
Adjusted
Trial
Balance
Income
Statement
Balance
Sheet &
Statement
of Owners
Equity
Debit Credi Debit Credit Debit Credi Debit Credi Debit Credi
t
t
t
t
Cash................... 14,00
0
14,00
0
14,00
0
Accounts
26,00
receivable...........
0
26,00
0
26,00
0
520
520
212,0
00
212,0
00
Office supplies....
950
d)
430
Musical
212,0
equipment..........
00
Accum. amort.
musical equip.
16,20
0
Accounts payable
3,350
Unearned
performance
revenue......
12,40
0
b)
16,20
0
a)
10,60
0
32,40
0
32,40
0
3,350
3,350
1,800
1,800
204
205
272,0
00
Jim Daley,
52,00
withdrawals........
0
Performance
revenue..............
272,0
00
272,0
00
52,00
0
119,0
00
a)
10,60
0
c)
13,80
0
Travelling
42,00
expense..............
0
52,00
0
129,6
00
129,6
00
89,80
0
89,80
0
42,00
0
42,00
0
16,20
0
16,20
0
b)
16,20
0
Salaries payable..
c)
13,80
0
Office supplies
expense..............
d)
430
Totals...............
41,03
0
13,80
0
430
13,80
0
430
Net loss..............
18,83 18,83
0
0
205
Totals...............
206
206
or
Jim Daley,
Capital
(With.)
52,000
(Net
Loss)
18,830
272,00
0
(Beg.
bal.)
201,17
0
(End.
bal.)
(a)
Mar. Income Summary..................................
31
36,800
Capital.............................................
36,80
0
3. (a)
Capital
63,000
(Beg. bal.)
207
208
(Net
income)
(End. bal.)
(b)
June
30
Capital.................................................
Income Summary..............................
60,000
60,00
0
3. (b)
Capital
114,000 (Beg. bal.)
$114,000 $60,000 =
$54,000 OR
(Net
loss)
60,00
0
54,000 (End. bal.)
208
209
99,000
Salaries expense.........................................
35,30
0
Insurance expense......................................
4,400
12,00
0
6,220
21,50
0
Totals................................................
79,42
0
Net income............................................
19,58
0
Totals.........................................................
99,00
0
2011
Credit
99,000
99,000
Closing entries:
99,00
0
Income Summary...............................
99,000
31 Income Summary.....................................
79,42
0
Salaries Expense................................
35,300
Insurance Expense.............................
4,400
12,000
6,220
209
210
21,500
31 Income Summary....................................
19,58
0
19,580
18,00
0
18,000
210
211
3
0
Closing entries:
Plumbing Fees Earned....................
39,500
Income Summary.......................
39,500
3
0
Income Summary............................
31,100
5,500
Salaries Expense........................
15,750
Rent Expense.............................
6,000
Advertising Expense...................
3,850
3
0
Income Summary............................
8,400
8,400
3
0
7,200
7,200
211
212
Acc
t.
No.
Debit
Account
Credit
101
Cash
$
4,100
106
Accounts receivable............................
12,000
153
Trucks...............................................
20,500
154
193
Franchise...........................................
201
Accounts payable...............................
7,000
209
Salaries payable.................................
1,600
233
Unearned fees....................................
1,300
301
33,450*
Totals................................................
$
8,250
15,000
$51,600
$51,600
Frank Block,
Capital
*Calculated as:
32,250 + 8,400 7,200 = 33,450
(Adj. Bal,
or
7,200
212
213
Closing entries:
62,000
Interest Revenue.............................
450
Income Summary.........................
62,450
31 Income Summary.............................
65,400
2,000
Rent Expense..............................
7,400
Salaries Expense.........................
.......................................................
56,000
2,950
Income Summary.........................
To close
capital.
income
summary
2,950
to
4,000
4,000
213
214
31
4,000
Closing entries:
Services Revenue .................... 72,000
Income Summary ................
To close the revenue account to the
income summary.
72,000
31
Jo Weller, Capital.....................
1,400
Income Summary ................
To close the income summary to capital.
31
42,000
3,000
22,000
2,400
1,400
12,000
Closing entries:
68,000
Income Summary........................
68,000
30 Income Summary.............................
18,750
3,500
Rent Expense.............................
1,750
214
215
Wages Expense...........................
13,500
49,250
income
summary
49,250
to
19,000
19,000
Closing entries:
Services Revenue............................
73,000
Income Summary........................
73,000
(2)
31
Income Summary.............................
48,100
Rent Expense.............................
8,600
Salaries Expense........................
20,000
Insurance Expense.....................
3,500
Amortization Expense.................
16,000
215
216
(3)
31
Income Summary.............................
24,900
24,900
(4)
31
24,000
24,000
216
217
Rent Expense
80,000
Dec. 31
8,600
Balance
8,600 (2)
Liabilities
38,1
00
Dec. 31
24,000 41,0
00
Salaries Expense
Dec. 31
20,00
0
Balance
20,00 (2)
0
Dec. 31
24,9
00
(3)
41,9
00
Balance
Insurance Expense
Dec. 31
3,500
Balance
3,500 (2)
24,000 24,0
00
(4)
Amortization Expense
Dec. 31
16,00
0
Balance
16,00 (2)
0
Income Summary
(2)
48,100
(3)
24,900
73,0 (1)
00
24,9 Balance
00
217
218
0 Balance
Services Revenue
(1)
73,000
73,0 Dec. 31
00
0 Balance
Account
Assets................................................
Debit
Credit
$
80,000
Liabilities...........................................
$
38,100
41,900
Totals................................................
$80,000
$80,000
218
219
71,00
0
Interest Revenue..........................
1,150
72,00
0
Other Expenses........................
150
3. $216,200 $71,000
= $145,200
OR
71,00
0
145,2 (Balance
00 )
219
220
X
X
X
X
Balance
Debit Credit
$
Accounts payable.............................
11,00
0
Accounts receivable.........................
$
59,00
0
9,000
Accumulated amortization, equipment
.......................................................
21,00
Accumulated amortization, truck......
0
Amortization expense......................
3,800
Cash................................................
29,00
0
Equipment.......................................
13,00
0
Franchise.........................................
17,80
0
Gas and oil expense.........................
7,500
Interest expense..............................
4,500
750
Interest payable..............................
Land not currently used in business
52,00
operations.......................................
0
Note 1
35,00
Long-term notes payable
............
0
7,000
Notes payable, due February 1, 2012
Notes receivableNote 2........................
6,000
Patent.............................................
7,000
Prepaid rent....................................
14,00
0
Rent expense...................................
39,00
0
247,0
Repair revenue................................
00
Repair supplies................................
17,00
0
220
221
14,00
0
49,00
0
26,00
0
$358,
600
24,05
0
3,
800
$358,
600
Analysis component:
Amortization expense, gas and oil expense, interest expense, rent
expense, repair revenue, repair supplies expense, and withdrawals are
all temporary accounts and do not appear on the post-closing trial
balance because their balances were transferred to capital during the
closing process leaving each with a zero post-closing balance. The
adjusted balance of $24,050 in capital is the balance prior to closing all
temporary accounts into it. A capital account balance does appear on
the post-closing trial balance but it is the post-closing balance of
$153,250 as determined in part (b) above. Therefore, the adjusted
capital balance of $24,050 will not appear on the post-closing trial
balance
Note to instructor: Reinforce to the student that the question asks
which account balances from the adjusted trial balance will not appear
on the post-closing trial balance.
221
222
222
223
Assets
Current assets:
Cash...................................................................................
$ 5,000
Accounts receivable............................................................
13,000
Prepaid insurance..............................................................
700
Prepaid rent.......................................................................
9,000
Supplies..............................................................................
2,250
7,500
$
37,450
Long-term investments:
13,000
$64,000
17,000
Office furniture...................................................................
$ 6,500
3,600
$47,000
2,900
49,900
Intangible assets:
Copyright.........................................................................
1,0
00
Total assets...............................................................................
$101,3
223
224
50
Liabilities
Current liabilities:
Accounts payable..........................................................
$ 11,000
Salaries payable............................................................
900
23,000
Notes payable................................................................
4,000
10,000
$ 48,900
Long-term liabilities:
10,500
$59,40
0
Owners Equity
Pat Dover, capital*..............................................................
41,9
50
$101,3
50
224
225
Assets
Current assets:
Cash...............................................
$
7,000
Accounts receivable.........................
16,500
Office supplies................................
2,000
$
25,500
$
75,000
Trucks.............................................
$170,00
0
35,00
0
135,000
$210,00
0
Total assets..........................................
$235,50
0
Liabilities
Current liabilities:
Accounts payable............................
$
11,000
Interest payable..............................
3,000
$
14,000
52,000
225
226
Total liabilities...................................
$
66,000
Owners Equity
Stanley Hanson, capital .....................
169,50
0
$235,50
0
226
227
8,000
8,000
2,000
Cash...................................
2,000
July 7 Cash..........................................
9,000
Accounts Receivable............
9,000
3,000
3,000
227
228
2,00
0
9,00
0
Accounts Receivable
2,00
0
Feb
20/12
Dec
31/11
5,00
0
3,00
0
Dec
10/12
Jan.
15/12
8,00
0
Unadj
Bal
4,00
0
6,00
0
Office Equip.
Dec
31/11
Jul
07/12
20,0
00
Leda Svenson,
Capital
17,1
00
9,00
0
10,0
00
Dec
31/11
Dec
31/11
Dec
10/12
Unadj
Bal
Prepaid Rent
Dec
31/11
3,0
00
Unearned Fees
2,9
00
Dec
31/11
-0-
-0-
3,00
0
8,0
00
3,00
0
8,0
00
Dec
31/11
Jan.
15/12
Unadj
Bal
229
Rent Expense
Dec
31/11
-0-
Amortization Expense
Dec
31/11
-0-
Advertising Expense
Dec
31/11
Feb
20/12
Unadj
Bal
-02,0
00
2,0
00
$ 6,000
4,000
3,000
20,000
3,000
$10,00
0
2,900
17,100
8,000
2,000
$38,000 $38,00
0
d. Journalize adjustments:
2012
2,000
2,000
31
Unearned Fees............................
2,400
2,400
31
Rent Expense..............................
Prepaid Rent........................
3,000
3,000
230
231
231
232
2,000 2,000
9,000
3,000
Jul
07/12
Unadj
Bal
6,000
Office Equip.
Dec
31/11
20,00
0
Accounts Receivable
Feb
20/12
Dec
31/11
5,00 9,000
0
Dec
10/12
Jan.
15/12
8,00
0
Unadj
Bal
4,00
0
Jul
07/12
Prepaid Rent
Dec
31/11
3,00 3,000
0
Adj Bal
-0-
Dec
31/11
2,000
Dec
31/12
12,00
0
Adj Bal
Dec
31/12
Unearned Fees
Dec
31/12
2,40 2,900
0
Dec
31/11
500
Adj Bal
233
Leda Svenson,
Capital
17,10
0
Dec
31/11
Dec
10/12
Unadj
Bal
-0-
-0-
3,00
0
8,000
3,00
0
8,000
Dec
31/11
Jan
15/12
2,400
Unadj
Bal
Dec
31/12
10,40
0
Rent Expense
Dec
31/11
Dec
31/12
-0-
Adj Bal
3,000
3,000
Amortization Expense
Dec
31/11
Dec
31/12
Adj Bal
-02,00
0
2,00
0
Adj Bal
Advertising Expense
Dec
31/11
Feb
20/12
Unadj
Bal
-02,00
0
2,00
0
234
235
$10,400
Operating expenses:
Rent expense................................................
$3,000
Advertising expense......................................
2,00
0
Amortization expense....................................
2,000
7,000
Net income........................................................
$ 3,400
$17,100
$
0
Net income...............................................
3,40
0
3,400
Total.............................................................
$20,500
3,000
$17,500
235
236
Assets
Current assets:
Cash...........................................................................................
$ 6,000
Accounts receivable...................................................................
4,000
$
10,000
$20,000
12,000
8,000
$18,000
Total assets......................................................................................
Liabilities
Current liabilities:
Unearned fees...........................................................................
500
Owners Equity
Leda Svenson, capital...................................................................
17,500
$18,000
10,400
236
237
(2)
31 Income Summary........................
7,000
Rent Expense......................
3,000
Amortization Expense..........
2,000
Advertising Expense............
2,000
(3)
31 Income Summary........................
3,400
Leda Svenson, Capital.........
3,400
(4)
3,000
To close withdrawals to
capital.
237
2,000
3,000
Accounts Receivable
Feb
20/12
Dec
31/11
Dec
10/12
Jan.
15/12
Unadj
Bal
Office Equip.
5,000
8,000
9,00
0
Jul
07/12
4,000
10,0 Dec
00 31/11
2,00 Dec
0 31/12
12,0 Adj Bal
00
17,10 Dec
0 31/11
Dec
31/11
3,400 (3)
Dec
-03,000
Dec
31/11
Adj Bal
Prepaid Rent
3,00
3,00
0
0
Dec
31/12
-0-
Unearned Fees
Dec
31/12
2,90 Dec
2,40
0 31/11
0
239
10/12
17,50
0
Postclosing
balance
Unadj
Bal
15/12
3,000
3,00 (4)
0
8,00 Unadj
0 Bal
2,40 Dec
0 31/12
-0-
(1)
10,4
00
Rent Expense
Dec 31/11
Dec 31/12
-0-
Amortization Expense
Dec
31/11
3,000
-0-
Dec
31/11
2,000
Dec
31/12
Adj Bal
3,000
3,000 (2)
Adj Bal
-0-
Advertising Expense
Feb
20/12
2,000
2,00 (2)
0
Unadj
Bal
-0-
Income Summary
(2)
7,000
10,40 (1)
0
(3)
3,400
3,400 Bal.
239
-02,00
0
2,000 (2)
2,00
0
-0-
240
-0-
240
241
Credit
$12,00
0
500
17,500
$30,00
0
241
242
Sept.1
5,000
2,400
3,200
242
243
Chapter 6
Accounting for
Merchandising Activities
EXERCISES
Sales......................
$
240,000
$
140,000
126,000
86,000
$
114,000
Operating expenses
95,000
82,000
41,000
146,000
53,000
$ 19,000
$
(28,000)
($
8,000)
$
48,000
($
14,000)
$ $462,000 $85,000
75,000
42,000
268,000
46,000
$
39,000
1 Merchandise Inventory........................
7,000
Accounts Payable..........................
7,000
5 Merchandise Inventory........................
Cash.............................................
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 6
2,400
2,400
243
244
6 Merchandise Inventory........................
10,000
Accounts Payable..........................
10,000
9 Office Supplies....................................
900
Accounts Payable..........................
900
1 No entry.
0
1 Accounts Payable................................
1
7,000
Cash.............................................
6,930
Merchandise Inventory..................
70
2 Accounts Payable................................
4
900
Cash.............................................
900
To record payment.
Mar.
2 Accounts Payable................................
3
Cash.............................................
10,000
10,000
244
245
To record payment.
245
246
200
600
600
17
18
7,500
3,000
60
2,940
21
28
2,100
2,100
246
247
5 Accounts Receivable............................
4,000
Sales............................................
4,000
3,200
Merchandise Inventory..................
3,200
7 Cash...................................................
3,600
Sales............................................
3,600
3,000
Merchandise Inventory..................
3,000
8 Accounts Receivable............................
9,600
Sales............................................
9,600
8,200
Merchandise Inventory..................
8,200
1 Cash...................................................
5
3,960
247
248
Sales Discounts...................................
40
Accounts Receivable......................
4,000
Feb.
4 Cash...................................................
Accounts Receivable......................
9,600
9,600
To record collection.
248
249
1 Accounts Receivable............................
2,400
Sales............................................
2,400
2,000
Merchandise Inventory..................
2,000
150
Cash.............................................
150
1,200
Accounts Receivable......................
1,200
3 Merchandise Inventory........................
1,000
1,000
4 Accounts Receivable............................
Sales............................................
3,800
3,800
249
250
3,100
Merchandise Inventory..................
3,100
1 Cash...................................................
1
1,176
Sales Discounts...................................
24
Accounts Receivable......................
1,200
2 Cash...................................................
3
1,200
Sales............................................
1,200
950
Merchandise Inventory..................
950
2 Cash...................................................
8
Accounts Receivable......................
3,800
3,800
To record collection.
250
251
b.
Mar. 1 Accounts Receivable Sundown Company
Sales..................................................
Sold merchandise on account.
1
11
11,000
11,000
11,000
7,500
7,500
Cash...................................................... 10,670
Sales Discounts......................................
330
Accounts Receivable Sundown Company
Collected account receivable.
Analysis component:
Amount borrowed to pay the balance owing $10,670.00
Annual rate of interest .................................
8%
Interest per year...........................................$
853.60
Interest per day ($853.60/365).....................$
2.34
Discount taken.............................................$
Interest paid on the 50-day* loan (50 $2.34)
Net savings from borrowing to pay within
the discount period....................................$
330.00
(117.00)
213.00
251
252
May11
30,000
11
335
12
1,200
20
b.
2011
May11
30,000
30,000
11
12
12
800
20,000
800
252
253
Cash.......................................... 27,936
Sales Discounts..........................
864
Accounts Receivable Wilson Purchasing
28,800
Collected account receivable;
30,000 12,000 = 28,800; 28,800 x 3% = 864.
253
254
3.83
864.00
(306.40)
557.60
d.
6.
e.
2.
c.
7.
j.
3.
f.
8.
i.
4.
a.
9.
b.
5.
h.
10.
g.
254
255
37,000
Invoice cost of
purchases....................
190,50
0
Returns by customers . .
2,200
allowances received . . . .
4,100
Transportation-in ........
1,900
186,00
0
Shrinkage ......................
32,000
Purchase discounts
received..........................
1,600
7,900
186,000
Inventory shrinkage
recorded in December
31, 2011,
adjusting entry............
32,000
Balance ......................
215,800
2,20
0
Analysis component:
The shrinkage was $32,000. The cost of merchandise actually sold to
customers was $186,000. The cost of goods sold was $215,800.
Shrinkage therefore was 17% of the actual cost of merchandise sold
($32,000/$186,000 100) or 15% of the total cost of goods sold
($32,000/$215,800 100). As the inventory manager, I would want to
know the cause of this significant shrinkage. Is it breakage or spoilage
that can be controlled? Is it theft caused by weak internal controls?
Reviewing the numbers allows the inventory manager to ask
appropriate questions for the purpose of making good decisions.
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 6
255
256
The change in the gross profit ratio for the year ended May 31, 2010
was 2.83% (from 23% to 25.83%). This is a favourable change
because Westlawn is generating more gross profit per sales dollar
that will contribute towards the covering of operating expenses.
256
257
Company B
2010
2011
2010
256,00
Sales..................................
0
160,00
0
110,00
0
50,000
Sales discounts...................
2,560
1,600
1,100
500
16,000
5,500
2,500
202,24
Net sales............................
0
142,40
0
103,40
0
47,000
153,60
Cost of goods sold...............
0
88,000
55,000
25,000
54,400
48,400
22,000
Selling expenses.................
17,920
16,000
24,200
9,000
Administrative
expenses............................
25,600
24,000
29,700
11,000
Total operating
expenses............................
43,520
40,000
53,900
20,000
14,400
(5,500
)
2,000
24.05
Gross profit ratio................. %1
38.20
%2
46.81
%3
46.81
%4
Calculations:
1.
2.
3.
4.
Analysis component:
Company B has more favourable gross profit ratios for both 2010 and
2011. Company A is showing a lower gross profit ratio than Company B
and decreasing gross profit as a percentage of net sales.
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 6
257
258
Note to instructor:
You may wish to engage students in a discussion of other interesting
comparisons in this information. For example:
COGS as a percentage of sales is lower for Company B than
Company A.
Sales discounts as a percentage of sales is constant for both
companies.
Sales returns and allowances are higher as a percentage of sales
for Company A than Company B (which is particularly interesting
considering that Company A has a higher COGS than Company B
you might assume higher quality but then why the higher
returns/allowances?).
Company B has higher operating expenses as a percentage of
sales than Company A.
Company B has more than doubled its sales from 2010 to 2011 in
comparison to the growth for Company A.
258
259
$
90,00
0
(4,000)
(3,000)
(b)
(c)
$
160,00
0
$
122,000
(10,000)
(2,600)
(6,000)
(4,400)
Transportation-in.....................
6,40
0
14,0
00
16,00
0
$
89,400
$
158,000
$
131,000
Beginning inventory.................
$
7,000
$38,400
$
36,000
89,400
158,000
131,000
Ending inventory.....................
Cost of goods sold...................
(4,4)
00
$92,00
0
(30,0)
00
$
166,400
(30,480)
$
136,520
a.
b.
c.
259
260
Company B
2010
2011
2010
180,00
0
90,000
45,000
Merchandise
inventory
(beginning)....................
18,700
22,300
9,875
9,000
Net cost of
merchandise
purchases......................
72,000
104,40
0
49,500
26,100
Merchandise
(16,40
inventory (ending).............. 0)
(18,70
0)
(8,920
)
(9,875
)
108,00
0
50,455
25,225
72,000
39,545
19,775
Operating expenses............
36,000
54,000
27,000
13,500
18,000
12,545
6,275
38.08
Gross profit ratio................. %1
40.00
%2
43.94
%3
43.94
%4
120,00
Sales..................................
0
Cost of goods sold:
Calculations:
1.
2.
3.
4.
Analysis component:
Company B has a stable and more favourable gross profit ratio than
Company A. Company As gross profit ratio decreased from 2010 to
2011 which is unfavourable.
260
261
261
262
(b)
$
45,00
0
(2,000) (1,250)
(325)
(1,500)
(750)
(550)
Cost of transportation-in..............
3,200
1,7
50
2,0
00
$
44,700
$
19,750
$
16,375
$
3,500
$ 4,800
$
4,500
44,700
19,750
16,375
(2,2)
00
$46,00
0
$
20,00
0
(c)
(3,7)
50
$
20,800
$
15,25
0
(3,810)
$
17,065
262
263
Statement
Net sales.............................................
$26,93
5*
14,80
0
$12,13
5
Operating expenses:
Wages expense..............................
$4,20
0
Utilities expense............................
2,100
120
6,42
0
$
5,715
85
0
Net income..........................................
$
6,565
Closing entries:
263
264
Nov
.
3
0
Rent Revenue...................................
850
Sales................................................
27,70
0
Income Summary.........................
28,550
3
0
Income Summary..............................
21,98
5
720
Sales discounts............................
45
14,800
Amortization
expense,
store
equipment........................................
120
Wages expense...........................
4,200
Utilities expense..........................
2,100
3
0
Income Summary..............................
6,565
6,565
3
0
3,500
3,500
264
265
c)
Peter Delta,
Capital
$1,635 $3,500 + $6,565
= $4,700 OR
(With
.)
3,50
0
1,635
(Beg. bal.)
6,565
(Net income)
4,700
(End. bal.)
Analysis component:
The gross profit ratio for October is 40% ($32,000 - $19,200 = $12,800
gross profit; $12,800/$32,000 100 = 40%). The gross profit ratio for
November is 45% ($12,135/$26,935 100 = 45.05%). Compu-Soft
generated a higher gross profit per sales dollar in November than in
October which is favourable because this represents a greater
contribution towards the coverage of operating expenses.
265
266
Perdu Sales
Work Sheet
For Year Ended December 31, 2011
Unadjusted
Trial Balance
Adjustments
Income
Statement
Account
Debit
Credit
Debit
Credi
t
Debit
Credi
t
Balance
Sheet and
Statement of
Owners
Equity
Debi
t
Cash
26,00
0
26,0
00
Merchandise inventory
2,000
2,00
0
8,000
Store equipment
40,00
0
1,500
9,000
Accounts payable
14,84
0
6,50
0
40,0
00
Accumulated amortization,
store eq.
Salaries payable
Credit
0
45,60
2,500
11,50
0
14,84
0
3,200
3,200
45,60
267
0
Eldon Perdu, withdrawals
3,600
Sales
3,60
0
858,0
00
858,0
00
33,00
0
33,00
0
Sales discounts
8,000
8,000
424,8
40
424,8
40
94,00
0
28,00
0
3,200
97,20
0
28,00
0
2,500
2,500
70,00
0
1,500
71,50
0
190,0
00
Totals
927,4
40
Net Income
190,
000
927,4
40
7,200
7,200
855,0
40
2,9
60
858,0
00
78,1
00
75,14
0
2,96
0
268
Totals
858,0
00
858,0
00
75,6
00
75,60
0
269
$858,00
0
$33,000
Sales discounts...................................
8,000
41,00
0
Net sales................................................
$817,00
0
424,840
$392,16
0
Operating expenses:
Selling expenses:
Sales salaries expense.......................
$97,2
00
71,5
00
28,00
0
2,50
0
$199,20
0
190,00
0
389,20
0
269
270
Net income.............................................
Closing entries:
c)
2011
De
c.
$
2,960
3
1
Sales................................................................................
858,000
Income Summary......................
858,000
To close sales.
3
1
Income Summary............................................................
855,040
33,000
Sales Discounts.................................
8,000
424,840
97,200
Utilities Expense...............................
28,000
Selling Expenses...............................
71,500
2,500
Administrative Expenses...................
190,000
3
1
Income Summary...........................
Eldon Perdu, Capital..........................
2,960
2,960
270
271
3
1
3,600
3,600
271
272
SABBA CO.
Income Statement
For Year Ended January 31, 2011
Revenues:
Net sales......................................
$510,000
Expenses:
$301,0
00
Selling expenses............................
117,000
109,00
0
272
273
Interest expense............................
750
Total expenses...............................
527,750
Net loss............................................
$ 17,750
273
274
Periodic
No 1 Purchases................
v.
Perpetual
2,8
00
Accounts Payable
To record purchases
on
Accounts Payable
2,80
0
To record purchases
on
account.
account.
2)
No 5 Accounts Payable....
v.
2,8
00
Purchases Discount
..............................
Cash.................
Accounts Payable....
2,80
0
56
Merchandise
Inventory...............
56
2,74
4
Cash.................
2,74
4
To record cash
payment within
discount period;
To record cash
payment within
discount period;
2,800 x 2% = 56.
2,800 x 2% = 56.
3)
No 7 Cash.......................
v.
Purchases Returns
and
Allowances. . . .
To record cheque
received for return
of purchases
previously paid for
with discount
already taken; 200
196
Cash.........................
196
Merchandise
Inventory.................
196
196
To record cheque
received for
return of
merchandise
previously paid for
with
discount already
taken;
274
275
2% = 196.
200 2% = 196.
4)
No 1 Transportation-In....
v. 0
160
Merchandise Inventory
160
Cash.................
To record payment
of freight
charges.
160
160
Cash...................
To record payment
of freight
charges.
5)
No 1 Accounts Receivable
v. 3
Sales.................
To record sale of
merchandise
on credit.
1 No entry.
3
3,0
00
Accounts Receivable.
3,00
0
3,00
0
Sales...................
3,00
0
To record sale of
merchandise
on credit.
1,50
0
1,50
0
To record cost of
merchandise
sold.
275
276
1 No entry.
6
400
400
Accounts
Receivable..............
400
To record return of
merchandise bought
on
account.
Merchandise Inventory
Cost of Goods Sold
200
200
To record return of
merchandise by
customer.
*Exercise 6-19
Feb.
1 Purchases...........................................
7,000
Accounts Payable..........................
7,000
5 Purchases...........................................
2,400
Cash.............................................
2,400
6 Purchases...........................................
Accounts Payable..........................
10,000
10,000
276
277
9 Office Supplies....................................
900
Accounts Payable..........................
900
1 No entry.
0
1 Accounts Payable................................
1
7,000
Cash.............................................
6,930
Purchase Discounts.......................
70
2 Accounts Payable................................
4
900
Cash.............................................
900
To record payment.
Mar.
2 Accounts Payable................................
3
10,000
Cash.............................................
10,000
To record payment.
2 Purchases...........................................................................
3,600
277
278
Accounts Payable Blanton Company..................
3,600
3 Transportation-in.....................................
200
Cash...........................................
200
600
600
3,000
Purchase Discounts................................................
60
Cash...............................................
2,940
18 Purchases................................................
7,500
7,500
2,100
2,100
5,400
278
279
Purchase Discounts..........................
108
Cash...............................................
5,292
279
280
5 Accounts Receivable............................
4,000
Sales............................................
4,000
7 Cash...................................................
3,600
Sales............................................
3,600
8 Accounts Receivable............................
9,600
Sales............................................
9,600
1 Cash...................................................
5
3,960
Sales Discounts...................................
40
Accounts Receivable......................
4,000
Feb.
4 Cash...................................................
Accounts Receivable......................
9,600
9,600
To record collection.
280
281
1 Accounts Receivable............................
2,400
Sales............................................
2,400
150
Cash.............................................
150
1,200
Accounts Receivable......................
1,200
4 Accounts Receivable............................
3,800
Sales............................................
3,800
1 Cash...................................................
1
1,176
Sales Discounts...................................
24
Accounts Receivable......................
1,200
281
282
2 Cash...................................................
3
1,200
Sales............................................
1,200
2 Cash...................................................
8
Accounts Receivable......................
3,800
3,800
To record collection.
282
283
11,000
11,000
11,000
330
Cash...............................................
10,670
b)
2011
Mar. Accounts Receivable Sundown Company. .
1
11,000
Sales...............................................
11,000
11 Cash........................................................
10,670
Sales Discounts........................................
330
11,000
283
284
2011
May Purchases...........................................................................
11
30,000
30,000
11 Transportation-In................................................................
335
Cash.......................................................................
335
1,200
1,200
28,800
Purchase Discounts................................................
864
Cash...............................................
27,936
2011
284
285
30,000
Sales......................................................................
30,000
1,200
1,200
21 Cash...................................................................................
27,936
Sales Discounts........................................
864
28,800
285
286
$
$
14,000
$ 5,500
3,600
286
287
287
288
Unadjusted
Trial
Balance
No.
Account
101 Cash...................
106 Accounts
receivable...........
119 Merchandise
inventory............
125 Store supplies.....
201 Accounts payable
209 Salaries payable. .
Debit Credi
t
7,40
0
3,60
0
2,40
0
1,20
0
280
475
302 Mi Dewer,
withdrawals.........
413 Sales...................
750
290
6,40
11,5
70
12,0
00
Balance
Sheet and
Income
Statement
Adjustment
Statemen of Owners
s
t
Equity
Debit Credit Debi Credit Debi Credit
t
t
7,40
0
3,60
0
2,40 2,720 2,72
0
0
(a)
900
300
280
(b)
120
120
11,57
0
750
290
6,40
12,00
0
289
506
507
622
640
651
0
Purchase discounts.....................
250
Transportation-in.
160
Salaries expense.
1,40
0
Rent expense......
500
Store supplies
expense..............
Totals...............
24,1 24,1
00
00
Net income..........
Totals
0
(b)
120
(a)
300
4
20
160
1,52
0
500
30
0
420 11,5
70
3,40
0
14,9
70
250
14,97 15,3
0
70
11,97
0
3,400
14,97 15,3
0
70
15,37
0
290
Net Sales:
b
)
c)
Sales..................................................
Sales returns and allowances................
Sales discounts...................................
Net sales.............................................
$445,000
(25,000)
(16,000)
$404,000
Purchases................................................
Purchases returns and allowances............
Purchase discounts..................................
Transportation-in.....................................
Cost of goods purchased..........................
$286,000
(22,000)
(11,400)
8,800
$261,400
$ 15,000
261,400
$276,400
(11,000)
$265,400
FOX
Income
For Year Ended March 31, 2011
FIXTURES
CO.
Statement
265,400
$138,600
102,500
$ 36,100
1,200
$ 37,300
291
b)
$6,200 + $16,676 $110 $28 + $380 $2,460 = $20,658 Cost
of goods sold
JOHNS ELECTRONICS
Income Statement
For Month Ended April 30, 2011
Sales.............................................
$33,70
0
1,7
40
Net sales........................................
$31,96
0
$
6,200
Purchases..................................$16,676
Less: Purchase discounts....................
Purchase returns and allowances
28
..
110
Net purchases............................
.....................................................$16,538
Add: Transportation-in............
380
292
16,91
8
$23,11
8
2,460
20,65
8
$
11,302
Operating expenses:...............................
Selling expenses:
$8,000
640
340
$8,980
2,800
150
2,950
11,9
30
Operating loss........................................
$
628
1
30
Net loss..................................................
$
758
293
Closing entries:
2,460
110
Purchases Discounts..........................
28
Sales.................................................
33,700
Income Summary.....................
36,298
3 Income Summary...............................
0
37,056
Merchandise Inventory............
6,200
1,740
Purchases......................................
16,676
Transportation-In............................
380
640
2,800
8,000
150
340
Interest Expense.............................
130
294
758
Income Summary.....................
758
9,200
9,200
Part e:
(Net
loss)
758
(With.)
9,200
30,300 (Beg.
bal.)
20,342 (End.
bal.)
295
June 1
2,000
120
2,120
1,000
1,000
June 1
Purchases ...............................
GST Receivable .......................
Accounts Payable ...............
To record credit purchase;
$2,000 x 6% = $120 GST.
2,000
120
2,120
Chapter 7
EXERCISES
Exercise 7-1 (45 minutes)
296
Purchases
Unit
s
Jan
.
Unit
Cost
Sales (at
cost)
Total
Cost
Unit
Cost
Cost of
Goods Unit
Sold
s
Unit
Cost
Total
Cost
1 Beginning inventory
100 @$10. =$
00
1,0
00
1
0
Ma
r.
Uni
ts
Inventory
Balance
100 @$10. =
$
00
1,000
90 @$10. =
00
1 250 @$15. =$
4
00
$
900
3,7
50
1
5
1 @$10. =
0
00
$
100
13 @15.0 =
0
0
1,950
10 @$10. =
00
$
100
10 @$10. =
00
$
100
250 @15.0 =
0
3,
750
120 @$15. =
$
00
1,800
120 @$15. =
$
00
1,800
Jul.
3 400 @$20. =$
0
00
8,0
00
400 @20.0 =
0
12 @$15. =
0
00
Oct 5
.
Total
18 @20.0 =
0
0
750
$12,75
0
53
0
8,
000
$
1,800
3,60 220 @$20. =
$
0
00
4,400
$8,350 220
Cost of goods
+
inventory
$4,400
Ending
297
$21,20
0
8,35
0
Gross profit................
$12,85
0
298
Purchases
Units
Unit
Cost
Total
Cost
Unit
s
Unit
Cost
Cost of
Goods
Sold
(b) (a)
(b)
Tot Averag
al
e
Uni Cost/Un
ts
it
Total
Cost
(a)
Inventory Balance
Calculations
Beginning inventory
Ja
n.
100 @ $1 = $
0
10
00
100
$10.00
$
1,000.00
100
10
90 @ $10.0 =
0
$
900.00
@ $10.0 =
90
0
900.00
10
Ma 14
r.
250 @ $1 = $
5
$14.81
$
3,850.00
14 @ $14.8 =
$
0
1
2,073.40
400 @ $2 = $
0
10
$
100.00
10
$
100.00
3,750
.00
260
$
3,850.0
0
260
$
3,850.0
0
@ $14.8 =
140
1
2,073.4
0
120
30
$
100.00
250 @ $15.0 =
0
260
Jul
y
$10.00
3,7
50
15
$
1,000.0
0
$14.81
$
1,776.60
8,0
00
120
$
1,776.6
0
120
$
1,776.6
0
40 @ $20.0 =
0
0
520
$18.80
$
9,776.60
8,000
.00
520
$
9,776.6
0
520
$
9,776.6
0
299
Oc
t.
30 @ $18.8 =
$
0
0
5,640.00
@ $18.8 =
300
0
5,640.0
0
220
Total
750
$12,750 53
0
Cost of goods
available for sale
=
sold
$18.80
$8,613.4 220
0
Cost of goods
+
inventory
$
4,136.60
$ 4,136.
60
Ending
$21,200.
00
8,613.4
0
Gross profit...............
$12,586.
60
220
$
4,136.6
0
300
Purchases
Uni
ts
Jan
.
Unit
Cost
Total
Cost
Sales (at
cost)
Uni
ts
Unit
Cost
Inventory
Balance
Cost of
Goods Unit
Sold
s
Total
Cost
1 Beginning inventory
100 @$10. =
$
00
1,000
1
0
Ma
r.
Unit
Cost
100 @$10. =
$
00
1,000
90 @$10. =
00
1 250 @$15. =
$
4
00
3,750
1
5
14 @$15. =
0 00
$
900
10 @$10. =
00
$
100
10 @$10. =
00
$
100
250 @15.0 =
0
3,7
50
10 @$10. =
00
$
100
$ 110 @15.0 =
2,100
0
1,
650
10 @$10. =
00
$
100
3 400 @$20. =
$
0
00
8,000
400 @20.0 =
0
8,
000
10 @$10. =
00
$
100
30 @$20. =
0
00
$ 100 @20.0 =
6,000
0
2,
000
301
Total
750
$12,7
50
53
0
$9,000 220
Cost of goods sold
+
9,000
Gross profit...............
$12,200
$3,750
Ending inventory
302
Date
Purchases
Uni
ts
Jan
.
Unit
Cost
Total
Cost
Sales (at
cost)
Uni
ts
Unit
Cost
Inventory
Balance
Cost of
Goods Unit
Sold
s
Total
Cost
1 Beginning inventory
100 @$10. =
$
00
1,000
1
0
Ma
r.
Unit
Cost
100 @$10. =
$
00
1,000
90 @$10. =
00
$
900
1 250 @$15. =
$
4
00
3,750
1 @$10. =
0
00
1
5
13 @15.0 =
0
0
10 @$10. =
00
$
100
10 @$10. =
00
$
100
250 @15.0 =
0
3,
750
$
100
120 @$15. =
$
1,950
00
1,800
120 @$15. =
$
00
1,800
Jul.
3 400 @$20. =
$
0
00
8,000
60 @$15. =
00
Oct 5
.
Total
24 @20.0 =
0
0
750
$12,7
50
53
0
400 @20.0 =
0
8,
000
60 @$15. =
00
$
900
3,
200
$
900
$8,650 220
Cost of goods sold
$4,100
Ending inventory
303
8,650
Gross profit...............
$12,550
304
120 units
Mar. 7
July 28
Oct. 3
250 units
500 units
450 units
@
@
@
Totals
1,320 units
$6.0
0
5.60
5.00
4.60
$720
=
=
=
1,400
2,500
2,07
0
$6,69
0
available for
cost of goods
sale
2.
Units sold:
Jan. 10
Mar. 15
Oct. 5
Totals
70 units
125 units
600 units
795 units
Purchases
Uni
ts
Uni
t
Cos
t
Total
Cost
Unit
Units Cost
Cost of
Goods
Sold
(a)
(b)
(a)
Tot Avera
al
ge
Uni Cost/
ts
Unit
(b)
Total
Cost
Inventory Balance
Calculations
Beginning inventory
Jan.
120 @ $6. =
$
00
720.00
120 $6.00
$
720.00
120
10
70 @ $6. =
$
00
420.00
$
720.00
@ $6. =
70
00
420.00
50 $6.00
$
300.00
50
$
300.00
305
50
Mar
.
250 @ $5. =
$
60
1,400.0
0
25 @ 5.6 = 1,400.
0
0
00
300 $5.67
15
$
1,700.0
0
125 @ $5. =
$
67
708.75
500 @ $5. =
$
00
2,500.0
0
$
3,491.2
5
450 @ $4. =
$
60
2,070.0
0
600 @ $4. =
$
94
2,964.00
1,32
0
$6,690. 795
00
$1,700.
00
175
$
991.25
175
$
991.25
675
$3,491.
25
675
$3,491.
25
1,1
25
$5,561.
25
1,1
25
$5,561.
25
@ 4.9 =
600
6 2,964.0
0
525 $4.95
$
* 2,597.2
5
Total
300
45 @ 4.6 = 2,070.
0
0
00
1,1 $4.94
$
25
5,561.2
5
$1,700.
00
Oct
.
300
@ 5.6 =708.75
125
7
175 $5.66
$
* 991.25
July 28
$
300.00
$4,092.7 525
5
$2,597.
25
525
$2,597.
25
306
*cost/unit changed due to rounding
307
Purchases
Uni
ts
Unit
Cost
Sales (at
cost)
Total
Cost
Unit
s
Uni
t
Cos
t
Inventory
Balance
Cost
of
Goods Unit
Sold
s
Unit
Cost
Total
Cost
$
720
1
0
Ma
r.
7 250 @ $5. =
60
70 @
2 500 @ $5. =
8
00
$
420
$
1,400
1
5
Jul.
$6. =
00
120 @ $6.0 =
0
$
720
50 @ $6.0 =
0
$
300
50 @ $6.0 =
0
$
300
25 @ 5.60 =
0
1,4
00
50 @
$6. =
00
$
300
7@
5
5.6 =
0
175 @ $5.6 =
420
0
$
980
175 @ $5.6 =
0
$
980
50 @ 5.00 =
0
2,5
00
175 @ $5.6 =
0
$
980
$
2,500
3 450 @ $4. =
60
$
2,070
45 @ 4.60 =
0
2,0
70
17 @
5
$5. =
60
$
980
75 @ $5.0 =
0
$
375
42 @
5.0 =
2,1
45 @ 4.60 =
2,0
308
5
Total
1,32
0
$6,690 79
5
25
70
$4,24 525
5
$2,44
5
Ending inventory
309
Purchases
Uni
ts
Jan
.
Unit
Cost
Sales (at
cost)
Total
Cost
Cost of
Goods Unit
Sold
s
$
720
1
0
7 250 @ $5. =
60
70 @$6.0 =
0
2 500 @ $5. =
8
00
$
420
$
1,400
1
5
Jul.
Unit
Cost
Unit
Cost
Total
Cost
1 Beginning inventory
120 @ $6. =
00
Ma
r.
Uni
ts
Inventory
Balance
$
720
50 @$6.0 =
0
$
300
50 @$6.0 =
0
$
300
25 @5.60 =
0
1,400
12 @$5.6 =
5
0
$
2,500
120 @$6.0 =
0
$
700
50 @$6.0 =
0
$
300
12 @5.60 =
5
70
0
50 @$6.0 =
0
$
300
125 @5.60 =
700
50 @5.00 =
0
2,50
0
50 @$6.0 =
0
$
300
125 @5.60 =
700
$
2,070
45 @4.60 =
0
2,07
0
310
5
Total
1,32
0
$6,690
50 @$6.0 =
0
$
300
45 @$4.6 =
0
0
$ 125 @5.60 =
2,070
700
15 @5.00 =
0
75 350 @5.00 =
0
1,75
0
79
5
$3,940 525
Cost of goods sold
+
$2,750
Ending inventory
311
Purchases
Uni
ts
Jan
.
Unit
Cost
Sales (at
cost)
Total
Cost
Cost of
Goods Unit
Sold
s
$
720
1
0
70 @$6.0 = $
0
420
7 250 @ $5.6 =
$
0
1,400
1
5
Jul.
Unit
Cost
Unit
Cost
Total
Cost
1 Beginning inventory
120 @ $6.0 =
0
Ma
r.
Uni
ts
Inventory
Balance
2 500 @ $5.0 =
$
8
0
2,500
120 @$6.0 =
0
$
720
50 @$6.0 =
0
$
300
50 @$6.0 =
0
$
300
250 @5.60 =
1,4
00
25 @$6.0 = $
0
150
25 @$6.0 =
0
$
150
10 @5.60 =
0
8
40
25 @$6.0 =
0
$
150
150 @5.60 =
840
500 @5.00 =
2,5
00
25 @$6.0 =
0
$
150
150 @5.60 =
840
45 @4.60 =
0
2,0
70
312
5
Total
1,32
0
$6,69
0
25 @$6.0 =
0
$
150
150 @5.60 =
840
32 @$5.0 =
0
0
$ 180 @5.00 =
1,600
900
28 @4.60 =
0
7
82
79
5
$4,018 525
Cost of goods sold
+
$2,672
Ending inventory
313
Moving
Weighted
Average
Specific
Identification
FIFO
LIFO
Sales ......................
$11,925$11,925.00
$11,925.....$11,925
(795 units $15 selling price)
Cost of goods sold....
4,018
4,092.75 4,245
3,940
Gross profit.............. $ 7,907 $ 7,832.25$ 7,680 $ 7,985
Operating expenses.
1,250
1,250.00 1,250
1,250
Net income.............. $ 6,657 $ 6,582.25 $ 6,430 $
6,735
1) The LIFO method results in the highest net income with $6,735.
2) The weighted average net income of $6,582.25 does fall between
FIFO net income ($6,430) and LIFO net income ($6,735).
3) If costs were rising instead of falling then the FIFO method would
probably result in the highest net income.
Exercise 7-6
Purchases/Transport
ation-In/ (Purchase
Returns/Discounts)
Date
Ma
r.
1
2
$2,425.
$97.00
00
(Returns to
Inventory)
Balance in Inventory
Unit Cost/U
Unit Cost/U Total Uni Avg
Total
s nit
Total $ s
nit
$
ts Cost/Unit $
Broug
ht
Forwa
rd
25
$95.00
$4,750
.00
75
95.67
7,175.
00
95.67
1,148.
04 63
95.67
6,026.
96
95.67
(191.
34) 65
95.67
6,218.
30
50
12
(2)
314
7
1
7
48
15
4,592.
95.67
16 17
1,380.0
92.00
0
2
8
32
25
93.94
2,348.
50
95.66
1,626.
14
93.94
3,006.
14
93.95 657.64
Analysis component:
The gross profit ratio for Product W506 for March 2011 is 35.71%
calculated as net March sales of $12,284 (83 units $148) less March
cost of goods sold of $7,897.36 = $4,386.64 gross profit $12,284 = .
3571 100.
315
Uni
ts
on
Ha
nd
BB
22
FM
15
MB
36
SL
40
c.
C
N
o
R
s
V
t
$10 $10
0
8
15
14
6
4
19
18
0
2
72
87
Tot
al
Tot
al
Co
st
NR
V
$2,20
0
2,34
0
6,84
0
2,88
0
$14,2
60
$2,37
6
2,16
0
6,55
2
3,48
0
$14,5
68
LCM applied
to:
a.
b.
Inve
Eac
ntory
h
as a
Whol
e
$14,2
60
Pro
du
ct
$2,20
0
2,16
0
6,55
2
2,88
0
$13,
792
2011
Dec. Cost of Goods Sold.............................
31
Merchandise Inventory..............
To write inventory down to market;
14,260 13,792 = 468
468
468
316
2.
income statement
information
should have been
reported as:
Sales
2011
$900,000
2012
$900,0
00
2013
$900,
000
$900,
000
Cost of goods
sold:
Beginning
inventory
Add: Purchases
Less: Ending
inventory
Cost of goods
sold
Gross profit
$200,00
0
$200,
000
$180,
000
$200,
000
500,000
500,0
00
500,0
00
500,0
00
200,00
0
180,
000
200,
000
200,
000
500,000
$400,000
520,0
00
480,
000
500,
000
$380,0
00
$420,
000
$400,
000
317
....
$ 450,000
$1,590,000
(23,100)
37,600 1,604,500
....
$2,054,500
$2,000,000
....
(1,400,000)
At Retail
$35,970.84
30,122.82
$ 5,848.02
$65,200.00
54,600.00
$ 10,600.00
318
6,350
b. FIFO:
50 $4.40 .........................................
$6,600 $220 ....................................
220
6,380
c. LIFO:
50 $6.00 .........................................
$6,600 $300 ....................................
300
6,300
FIFO provides the lowest net income because it has the highest cost
of goods sold due to decreasing unit costs.
*Exercise 7-13 (20 minutes)
Ending Cost of
InventoryGoods Sold
a. FIFO:
(50 $2.86) + (100 $2.50) ............
393
(120 $2.00) + (250 $2.30) + (400 $2.50)
1,815
b. LIFO:
(120 $2.00) + (30 $2.30) ............
309
(50 $2.86) + (500 $2.50) + (220 $2.30)
1,899
c. Weighted-average cost ($2,208/920 = $2.40):
$2.40 150 .......................................
360
$2.40 770 .......................................
1,848
LIFO provides the lowest net income because it has the highest cost
of goods sold due to rising unit costs.
319
Cost/Un
it
Total Cost
Beginning inventory
80 @
$2.00 =
$160.00
March 7 purchase
22 @
2.30 =
50.60
July 28 purchase
48 @
2.50 =
120.00
150
$330.60
$ 426,650
= 7.0 times
= 4.8 times
($86,750 +
$91,500)/2
Days sales in inventory
2012:
$
96,40 365
0
$643,
825
= 54.7 days
320
2011:
86,75 365
0
$426,
650
= 74.2 days
EXERCISES
Exercise 7-1 (45 minutes)
(a) FIFO perpetual
Date
Purchases
Unit
s
Jan
.
Unit
Cost
Sales (at
cost)
Total
Cost
Unit
Cost
Cost of
Goods Unit
Sold
s
Unit
Cost
Total
Cost
1 Beginning inventory
100 @$10. =$
00
1,0
00
1
0
Ma
r.
Uni
ts
Inventory
Balance
1 250 @$15. =$
4
00
100 @$10. =
$
00
1,000
90 @$10. =
00
$
900
3,7
50
1 @$10. =
0
00
$
100
10 @$10. =
00
$
100
10 @$10. =
00
$
100
250 @15.0 =
0
3,
750
321
1
5
13 @15.0 =
0
0
120 @$15. =
$
1,950
00
1,800
120 @$15. =
$
00
1,800
Jul.
3 400 @$20. =$
0
00
8,0
00
400 @20.0 =
0
12 @$15. =
0
00
Oct 5
.
Total
18 @20.0 =
0
0
750
$12,75
0
53
0
$
1,800
3,60 220 @$20. =
$
0
00
4,400
$8,350 220
Cost of goods
$21,20
0
8,35
0
Gross profit................
$12,85
0
8,
000
+
inventory
$4,400
Ending
322
Purchases
Units
Unit
Cost
Total
Cost
Unit
s
Unit
Cost
Cost of
Goods
Sold
(b) (a)
(b)
Tot Averag
al
e
Uni Cost/Un
ts
it
Total
Cost
(a)
Inventory Balance
Calculations
Beginning inventory
Ja
n.
100 @ $1 = $
0
10
00
100
$10.00
$
1,000.00
100
10
90 @ $10.0 =
0
$
900.00
@ $10.0 =
90
0
900.00
10
Ma 14
r.
250 @ $1 = $
5
$14.81
$
3,850.00
14 @ $14.8 =
$
0
1
2,073.40
400 @ $2 = $
0
10
$
100.00
10
$
100.00
3,750
.00
260
$
3,850.0
0
260
$
3,850.0
0
@ $14.8 =
140
1
2,073.4
0
120
30
$
100.00
250 @ $15.0 =
0
260
Jul
y
$10.00
3,7
50
15
$
1,000.0
0
$14.81
$
1,776.60
8,0
00
120
$
1,776.6
0
120
$
1,776.6
0
40 @ $20.0 =
0
0
520
$18.80
$
9,776.60
8,000
.00
520
$
9,776.6
0
520
$
9,776.6
0
323
Oc
t.
30 @ $18.8 =
$
0
0
5,640.00
@ $18.8 =
300
0
5,640.0
0
220
Total
750
$12,750 53
0
Cost of goods
available for sale
=
sold
$18.80
$8,613.4 220
0
Cost of goods
+
inventory
$
4,136.60
$ 4,136.
60
Ending
$21,200.
00
8,613.4
0
Gross profit...............
$12,586.
60
220
$
4,136.6
0
324
Purchases
Uni
ts
Jan
.
Unit
Cost
Total
Cost
Sales (at
cost)
Uni
ts
Unit
Cost
Inventory
Balance
Cost of
Goods Unit
Sold
s
Total
Cost
1 Beginning inventory
100 @$10. =
$
00
1,000
1
0
Ma
r.
Unit
Cost
100 @$10. =
$
00
1,000
90 @$10. =
00
1 250 @$15. =
$
4
00
3,750
1
5
14 @$15. =
0 00
$
900
10 @$10. =
00
$
100
10 @$10. =
00
$
100
250 @15.0 =
0
3,7
50
10 @$10. =
00
$
100
$ 110 @15.0 =
2,100
0
1,
650
10 @$10. =
00
$
100
3 400 @$20. =
$
0
00
8,000
400 @20.0 =
0
8,
000
10 @$10. =
00
$
100
30 @$20. =
0
00
$ 100 @20.0 =
6,000
0
2,
000
325
Total
750
$12,7
50
53
0
$9,000 220
Cost of goods sold
+
9,000
Gross profit...............
$12,200
$3,750
Ending inventory
326
Date
Purchases
Uni
ts
Jan
.
Unit
Cost
Total
Cost
Sales (at
cost)
Uni
ts
Unit
Cost
Inventory
Balance
Cost of
Goods Unit
Sold
s
Total
Cost
1 Beginning inventory
100 @$10. =
$
00
1,000
1
0
Ma
r.
Unit
Cost
100 @$10. =
$
00
1,000
90 @$10. =
00
$
900
1 250 @$15. =
$
4
00
3,750
1 @$10. =
0
00
1
5
13 @15.0 =
0
0
10 @$10. =
00
$
100
10 @$10. =
00
$
100
250 @15.0 =
0
3,
750
$
100
120 @$15. =
$
1,950
00
1,800
120 @$15. =
$
00
1,800
Jul.
3 400 @$20. =
$
0
00
8,000
60 @$15. =
00
Oct 5
.
Total
24 @20.0 =
0
0
750
$12,7
50
53
0
400 @20.0 =
0
8,
000
60 @$15. =
00
$
900
3,
200
$
900
$8,650 220
Cost of goods sold
$4,100
Ending inventory
327
8,650
Gross profit...............
$12,550
328
120 units
Mar. 7
July 28
Oct. 3
250 units
500 units
450 units
@
@
@
Totals
1,320 units
$6.0
0
5.60
5.00
4.60
$720
=
=
=
1,400
2,500
2,07
0
$6,69
0
available for
cost of goods
sale
2.
Units sold:
Jan. 10
Mar. 15
Oct. 5
Totals
70 units
125 units
600 units
795 units
Purchases
Uni
ts
Uni
t
Cos
t
Total
Cost
Unit
Units Cost
Cost of
Goods
Sold
(a)
(b)
(a)
Tot Avera
al
ge
Uni Cost/
ts
Unit
(b)
Total
Cost
Inventory Balance
Calculations
Beginning inventory
Jan.
120 @ $6. =
$
00
720.00
120 $6.00
$
720.00
120
10
70 @ $6. =
$
00
420.00
$
720.00
@ $6. =
70
00
420.00
50 $6.00
$
300.00
50
$
300.00
329
50
Mar
.
250 @ $5. =
$
60
1,400.0
0
25 @ 5.6 = 1,400.
0
0
00
300 $5.67
15
$
1,700.0
0
125 @ $5. =
$
67
708.75
500 @ $5. =
$
00
2,500.0
0
$
3,491.2
5
450 @ $4. =
$
60
2,070.0
0
600 @ $4. =
$
94
2,964.00
1,32
0
$6,690. 795
00
$1,700.
00
175
$
991.25
175
$
991.25
675
$3,491.
25
675
$3,491.
25
1,1
25
$5,561.
25
1,1
25
$5,561.
25
@ 4.9 =
600
6 2,964.0
0
525 $4.95
$
* 2,597.2
5
Total
300
45 @ 4.6 = 2,070.
0
0
00
1,1 $4.94
$
25
5,561.2
5
$1,700.
00
Oct
.
300
@ 5.6 =708.75
125
7
175 $5.66
$
* 991.25
July 28
$
300.00
$4,092.7 525
5
$2,597.
25
525
$2,597.
25
330
*cost/unit changed due to rounding
331
Purchases
Uni
ts
Unit
Cost
Sales (at
cost)
Total
Cost
Unit
s
Uni
t
Cos
t
Inventory
Balance
Cost
of
Goods Unit
Sold
s
Unit
Cost
Total
Cost
$
720
1
0
Ma
r.
7 250 @ $5. =
60
70 @
2 500 @ $5. =
8
00
$
420
$
1,400
1
5
Jul.
$6. =
00
120 @ $6.0 =
0
$
720
50 @ $6.0 =
0
$
300
50 @ $6.0 =
0
$
300
25 @ 5.60 =
0
1,4
00
50 @
$6. =
00
$
300
7@
5
5.6 =
0
175 @ $5.6 =
420
0
$
980
175 @ $5.6 =
0
$
980
50 @ 5.00 =
0
2,5
00
175 @ $5.6 =
0
$
980
$
2,500
3 450 @ $4. =
60
$
2,070
45 @ 4.60 =
0
2,0
70
17 @
5
$5. =
60
$
980
75 @ $5.0 =
0
$
375
42 @
5.0 =
2,1
45 @ 4.60 =
2,0
332
5
Total
1,32
0
$6,690 79
5
25
70
$4,24 525
5
$2,44
5
Ending inventory
333
Purchases
Uni
ts
Jan
.
Unit
Cost
Sales (at
cost)
Total
Cost
Cost of
Goods Unit
Sold
s
$
720
1
0
7 250 @ $5. =
60
70 @$6.0 =
0
2 500 @ $5. =
8
00
$
420
$
1,400
1
5
Jul.
Unit
Cost
Unit
Cost
Total
Cost
1 Beginning inventory
120 @ $6. =
00
Ma
r.
Uni
ts
Inventory
Balance
$
720
50 @$6.0 =
0
$
300
50 @$6.0 =
0
$
300
25 @5.60 =
0
1,400
12 @$5.6 =
5
0
$
2,500
120 @$6.0 =
0
$
700
50 @$6.0 =
0
$
300
12 @5.60 =
5
70
0
50 @$6.0 =
0
$
300
125 @5.60 =
700
50 @5.00 =
0
2,50
0
50 @$6.0 =
0
$
300
125 @5.60 =
700
$
2,070
45 @4.60 =
0
2,07
0
334
5
Total
1,32
0
$6,690
50 @$6.0 =
0
$
300
45 @$4.6 =
0
0
$ 125 @5.60 =
2,070
700
15 @5.00 =
0
75 350 @5.00 =
0
1,75
0
79
5
$3,940 525
Cost of goods sold
+
$2,750
Ending inventory
335
Purchases
Uni
ts
Jan
.
Unit
Cost
Sales (at
cost)
Total
Cost
Cost of
Goods Unit
Sold
s
$
720
1
0
70 @$6.0 = $
0
420
7 250 @ $5.6 =
$
0
1,400
1
5
Jul.
Unit
Cost
Unit
Cost
Total
Cost
1 Beginning inventory
120 @ $6.0 =
0
Ma
r.
Uni
ts
Inventory
Balance
2 500 @ $5.0 =
$
8
0
2,500
120 @$6.0 =
0
$
720
50 @$6.0 =
0
$
300
50 @$6.0 =
0
$
300
250 @5.60 =
1,4
00
25 @$6.0 = $
0
150
25 @$6.0 =
0
$
150
10 @5.60 =
0
8
40
25 @$6.0 =
0
$
150
150 @5.60 =
840
500 @5.00 =
2,5
00
25 @$6.0 =
0
$
150
150 @5.60 =
840
45 @4.60 =
0
2,0
70
336
5
Total
1,32
0
$6,69
0
25 @$6.0 =
0
$
150
150 @5.60 =
840
32 @$5.0 =
0
0
$ 180 @5.00 =
1,600
900
28 @4.60 =
0
7
82
79
5
$4,018 525
Cost of goods sold
+
$2,672
Ending inventory
337
Moving
Weighted
Average
Specific
Identification
FIFO
LIFO
Sales ......................
$11,925$11,925.00
$11,925.....$11,925
(795 units $15 selling price)
Cost of goods sold....
4,018
4,092.75 4,245
3,940
Gross profit.............. $ 7,907 $ 7,832.25$ 7,680 $ 7,985
Operating expenses.
1,250
1,250.00 1,250
1,250
Net income.............. $ 6,657 $ 6,582.25 $ 6,430 $
6,735
1) The LIFO method results in the highest net income with $6,735.
2) The weighted average net income of $6,582.25 does fall between
FIFO net income ($6,430) and LIFO net income ($6,735).
3) If costs were rising instead of falling then the FIFO method would
probably result in the highest net income.
Exercise 7-6
Purchases/Transport
ation-In/ (Purchase
Returns/Discounts)
Date
Ma
r.
1
2
$2,425.
$97.00
00
(Returns to
Inventory)
Balance in Inventory
Unit Cost/U
Unit Cost/U Total Uni Avg
Total
s nit
Total $ s
nit
$
ts Cost/Unit $
Broug
ht
Forwa
rd
25
$95.00
$4,750
.00
75
95.67
7,175.
00
95.67
1,148.
04 63
95.67
6,026.
96
95.67
(191.
34) 65
95.67
6,218.
30
50
12
(2)
338
7
1
7
48
15
4,592.
95.67
16 17
1,380.0
92.00
0
2
8
32
25
93.94
2,348.
50
95.66
1,626.
14
93.94
3,006.
14
93.95 657.64
Analysis component:
The gross profit ratio for Product W506 for March 2011 is 35.71%
calculated as net March sales of $12,284 (83 units $148) less March
cost of goods sold of $7,897.36 = $4,386.64 gross profit $12,284 = .
3571 100.
339
Uni
ts
on
Ha
nd
BB
22
FM
15
MB
36
SL
40
c.
C
N
o
R
s
V
t
$10 $10
0
8
15
14
6
4
19
18
0
2
72
87
Tot
al
Tot
al
Co
st
NR
V
$2,20
0
2,34
0
6,84
0
2,88
0
$14,2
60
$2,37
6
2,16
0
6,55
2
3,48
0
$14,5
68
LCM applied
to:
a.
b.
Inve
Eac
ntory
h
as a
Whol
e
$14,2
60
Pro
du
ct
$2,20
0
2,16
0
6,55
2
2,88
0
$13,
792
2011
Dec. Cost of Goods Sold.............................
31
Merchandise Inventory..............
To write inventory down to market;
14,260 13,792 = 468
468
468
340
2.
income statement
information
should have been
reported as:
Sales
2011
$900,000
2012
$900,0
00
2013
$900,
000
$900,
000
Cost of goods
sold:
Beginning
inventory
Add: Purchases
Less: Ending
inventory
Cost of goods
sold
Gross profit
$200,00
0
$200,
000
$180,
000
$200,
000
500,000
500,0
00
500,0
00
500,0
00
200,00
0
180,
000
200,
000
200,
000
500,000
$400,000
520,0
00
480,
000
500,
000
$380,0
00
$420,
000
$400,
000
341
....
$ 450,000
$1,590,000
(23,100)
37,600 1,604,500
....
$2,054,500
$2,000,000
....
(1,400,000)
At Retail
$35,970.84
30,122.82
$ 5,848.02
$65,200.00
54,600.00
$ 10,600.00
342
6,350
b. FIFO:
50 $4.40 .........................................
$6,600 $220 ....................................
220
6,380
c. LIFO:
50 $6.00 .........................................
$6,600 $300 ....................................
300
6,300
FIFO provides the lowest net income because it has the highest cost
of goods sold due to decreasing unit costs.
*Exercise 7-13 (20 minutes)
Ending Cost of
InventoryGoods Sold
a. FIFO:
(50 $2.86) + (100 $2.50) ............
393
(120 $2.00) + (250 $2.30) + (400 $2.50)
1,815
b. LIFO:
(120 $2.00) + (30 $2.30) ............
309
(50 $2.86) + (500 $2.50) + (220 $2.30)
1,899
c. Weighted-average cost ($2,208/920 = $2.40):
$2.40 150 .......................................
360
$2.40 770 .......................................
1,848
LIFO provides the lowest net income because it has the highest cost
of goods sold due to rising unit costs.
343
Cost/Un
it
Total Cost
Beginning inventory
80 @
$2.00 =
$160.00
March 7 purchase
22 @
2.30 =
50.60
July 28 purchase
48 @
2.50 =
120.00
150
$330.60
$ 426,650
= 7.0 times
= 4.8 times
($86,750 +
$91,500)/2
Days sales in inventory
2012:
$
96,40 365
0
$643,
825
= 54.7 days
344
2011:
86,75 365
0
$426,
650
= 74.2 days
Accounting Information
Systems
EXERCISES
Date
Account
Debited
Invoice
Number
PR
Accounts
Receivable Dr.
Sales Cr.
Pag
Cost of Goods So
Dr.
Merchandise
Inventory Cr.
2011
Feb. 7
J. Eason
5704
1,150
700
12
P. Lathan
5705
320
170
25
S. Summers
5706
550
300
Date
Page 2
Account Debited
Invoic
e
Numb
er
A/R Dr.
PR
Sales
Cr.
2011
Fe
b.
7 J. Eason
5704
1,150
641
345
12 P. Lathan
5705
320
25 S. Summers
5706
550
Date
Account
Credited
PR
Explanation
Cash
Dr.
Sales
Disco
unt
Dr.
Account
s
Receiva
ble Cr.
Ot
Sale Acc
s Cr.
ts
2011
Sept.9
Notes
payable
Note to bank
5,50
0
5,
13
Dale Trent,
capital
Owner
investment
7,00
0
7,
18
Sales
Cash sale
27
J. Namal
Invoice,
Sept. 7
460
1,76
4
460
36
1,800
346
Credited
Explanation
PR
Page 2
Sales
Accts.
Other
Cash
Disc.
Rec.
Sales
Accts.
Debit
Debit
Credit
Credit
Credit
2011
Se
pt.
9 Notes
payable
Note to
bank
5,500
5,500
1 Dale Trent,
3 capital
Owner
investment
7,000
7,000
1 Sales
8
Cash sale
2 J. Namal
7
Invoice,
Sept. 7
460
1,764
460
36
1,800
347
Page 1
Purchases Journal
Date
Account Credited
Date
of
Invoic
e
Terms
PR
Accounts
Payable
Cr.
Merchan
dise
Inventor
y Dr.
8,100
Office
Supplies
Dr.
Other
Accounts
Dr.
2011
July
Angler, Inc.
Ju
l
n/30
8,100
Ju
l
1
4
2/10,
n/30
240
17
Ju
l
1
7
n/30
2,600
Marten Company
240
2,600
PURCHASES JOURNAL
Account
s
Date
of
Date
Account Credited
Invoi
ce
Terms
PR
1 Angler, Inc.
July
n/30
Other
Payable
Purchas
es
Suppli
es
Accoun
ts
Credit
Debit
Debit
Debit
8,100
8,100
2011
July
Office
348
1
14 Store Supplies/Steck
Company
July
14
2/10,n
/30
17 Marten Company
July
17
n/30
240
2,600
240
2,600
349
Date
Ch.
No.
Account
Debited
Payee
PR
Cash
Cr.
Page 1
Merchandi
se
Inventory
Cr.
Other
Accounts
Dr.
Accounts
Payable
Dr.
2011
Mar. 9 210 Narlin Corp.
Store
Supplies
900
900
3,000
Notes
Payable
3,000
29 212 LeBaron
LeBaron
6,860
31 213 E. Brandon
Salaries
Expense
3,400
Pace, Inc.
5,500
140
7,000
3,400
5,500
No Payee
.
Account Debited
PR
Page 2
Purcha
se
Other
Accts.
Cash
Discou
nt
Accts.
Payabl
e
Credit
Credit
Debit
Debit
643
350
2011
Ma
r.
9 21
0
Narlin Corp.
Store Supplies
900
900
1 21
7 1
City Bank
Notes Payable
3,000
3,000
2 21
9 2
LeBaron
LeBaron
6,860
3 21
1 3
E. Brandon
Salaries Expense
3,400
3 21
1 4
Pace, Inc.
Pace, Inc.
5,500
140
7,000
3,400
5,500
351
Page 1
Purchases Journal
Date
Account Credited
Date
of
Invoice
Terms
PR
Accounts
Payable
Cr.
Merchan
dise
Inventor
y Dr.
30,000
30,000
Office
Supplies
Dr.
Other
Accounts
Dr.
2011
May
11
Hostel Sales
Ma
y
1
1
3/10,
n/90
Date
Ch.
No.
Account
Debited
Payee
PR
Cash
Cr.
Page 1
Merchandi
se
Inventory
Cr.
Other
Accounts
Dr.
Accounts
Payable
Dr.
2011
May
11
84
Express
Shipping
Merchandise
Inv.
335
20
85
Hostel Sales
Hostel Sales
27,9361
General Journal
335
864
Page: 1
28,800
352
Date
PR
Debit
Credi
t
2011
May
1,20
0
1,20
0
Calculations:
1. 30,000 1,200 = 28,800; 28,800 x 3% = 864; 28,800 864 = 27,936.
353
Date
Account
Debited
Invoice
Number
PR
Page 1
Accounts
Receivable Dr.
Sales Cr.
30,000
20,000
2011
May
11
Wilson
Purchasing
1601
Page 1
Cost of
Goods
Sold Dr.
Date
Account
Credited
P
R
Explanation
Cash
Dr.
Sales
Disco
unt
Dr.
Account
s
Receiva
ble Cr.
864
28,800
2011
May
21
Wilson
Purchasing
Wilson
Purchasing
General Journal
27,9
361
Page: 1
Other
Sale Accoun
s Cr.
ts Cr.
Merchandi
se
Inventory
Cr.
645
354
Date
PR
Debit
Credi
t
2011
May
1,20
0
1,20
0
1 Merchandise Inventory......................
2
Cost of Goods Sold.......................
800
800
Calculations:
1. 30,000 1,200 = 28,800; 28,800 x 3% = 864; 28,800 864 = 27,936.
355
May
May
Account
s
Date of
Date
Account Credited
Invoice
Terms
PR
Office
Other
Payable
Purchas
es
Suppli
e
s
Accou
n
t
s
Credit
Debit
Debit
Debit
30,000
30,000
2011
11 Hostel Sales
May 11
3/10,n
/
9
0
Date
Payee
Account Debited
PR
Purcha
s
e
Other
Accts.
Cash
Discou
n
t
Accts.
Payabl
e
Credit
Credit
Debit
Debit
2011
11
Express
Shippi
Transportation-In
Page 2
335
335
356
ng
20
Hostel Sales
27,93
6
General Journal
Date
864
Page: 1
PR
Debit
Credi
t
2011
May 12 Accounts Payable Hostel Sales
Purchase Returns and Allowances .
To record return of merchandise
purchased.
1,20
0
1,20
0
28,80
0
357
Page 2
Invoic
e
Date
Account Debited
Numb
er
A/R Dr.
PR
Sales
Cr.
2011
Ma
y
11 Wilson Purchasing
1601
30,00
0
Sales
Accts.
Cash
Disc.
Rec.
Sales
Accts.
Debit
Debit
Credit
Credit
Credit
27,93
6
864
28,80
0
Account
Date
Credited
Explanation
2 Wilson
1 Purchasing
Sale of May
11
PR
2011
Ma
y
General Journal
Date
2011
Page 2
Page: 1
PR
Debit
Credi
t
Other
647
358
May
1,20
0
1,20
0
359
359
360
Don Holland
Brad Smithers
May 17
May 20 500 May 10
1,700
3,880
25 680
Bal.
May 6
5,760
Bal.
4,560
1,200
Part 2
GENERAL LEDGER
Accounts Receivable
May 31
May 20500
12,020
Sales Returns
and Allowances
Sales
May 31
May 20
12,020
500
Bal. 11,520
Part 3
VALUE-MART GOODS
Schedule of Accounts Receivable
May 31, 2011
Sanders Farrell...........................
1,200
Dan Holland....................................................
4,560
Brad Smithers............................
5,760
$11,520
Total debit.................................
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 8
$12,020
360
361
(500)
$11,520
361
362
GENERAL LEDGER
Cash
38,878
Accounts Payable
23,044
1,500
Sales Discounts
23,200
472
18,300
Accounts Receivable
26,200
Notes Payable
600
Purchases
9,000
23,200
23,600
Prepaid Insurance
Purchase Returns
and Allowance
Sales
1,700
26,200
1,500
5,750
Store Equipment
3,500
1,000
Sales Returns
and Allowances
Purchase Discounts
600
456
Trudy Stone
600
16,800
16,800
Dave Waylon
2,000
6,800
10,800
McGrew Company
3,400
Sulter, Inc.
9,000
9,000
362
363
9,300
363
364
7,076
Lisa Mack
Jan. 1
4
Jay Newton
Jan.
4,176
2
8,468
23,78
0
Kathy Olivias
Jan. 1
0
15,54
4
20
12,99
2
29
Part 2
Jan. 31
Accounts Receivable.......................
Sales.........................................
GST Payable..............................
PST Payable...............................
72,036
62,100
3,726
6,210
Part 3
GENERAL LEDGER
Accounts Receivable
Jan.
31
Sales
72,03
6
62,10 Jan. 3
0
1
Part 4
SKILLERN COMPANY
Schedule of Accounts Receivable
January 31, 2011
$ 7,076
23,780
364
365
12,644
28,536
$72,036
365
366
Sales Journal
Date
Account Debited
Invoice
No.
PR
A/R Dr
Page X
PST
Payable
CR
GST
Payable
CR
Sales Cr
COGS DR
Merchandi
se
Inventory
CR
2011
Aug.
11
Jay Smith
50
50,160
3,520
2,640
44,000
21,000
Dee Oliver
51
38,760
2,720
2,040
34,000
16,200
Date
Account
Credited
Explanat
ion
PR
Other
Accou
nts CR
A/R
PST
Paya
ble
CR
Page X
GST
Paya
ble
CR
Sal
es
CR
Sale
s
Disc
Dr
Cash
DR
2011
Aug. Jay Smith
20
21 Dee Oliver
Inv. 50
50,1
60
50,160
Inv. 51
38,7
60
38,420
Purchases Journal
Merchandi
se
Inventory
Other
Accounts
340*
Page X
GST
Recble
COGS/DR
Merchandi
se
Inventory/
CR
367
Date
Account Credited
2011
Aug.
Arden Sheet
Metal
Terms
PR
A/P CR
2/10,
n/30
10,600
n/
30
6,360
JayCee
Equipment
DR
DR
10,000
DR
600
6,000
360
Date
Ch #
Account Debited
PR
Other
Accounts
DR
GST
Recble
DR
Page X
A/P DR
Merchand
ise
Inventory
CR
Cash CR
2011
Aug.
28
10,600
200
10,400
368
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 8
Date
201
1
Aug.
Invoice
Number
Account Debited
5 Jay Smith
11 Dee Oliver
PR
Accts.
Rec.
Debit
50
51
PST
Payable
Credit
50,160
38,760
GST
Payable
Credit
3,520
2,720
2,640
2,040
Date
Account
Credited
2011
Aug.2 A/R Jay
0 Smith
21 A/R Dee
Oliver
Date
2011
Aug.
Explanation
PR
Other
Accts.
Credit
Accts.
Rec.
Credit
Inv. 50
50,160
Inv. 51
38,760
Date of
Invoice
Account Credited
1 Arden Sheet Metal
7 JayCee Equipment
Terms
PST
Payable
Credit
GST
Payable
Credit
Sales
Credit
PURCHASES JOURNAL
Page X
Accts.
Payable Purchases
PR
Credit
Debit
Aug. 1 2/10,n/30
Aug. 7
n/30
10,600
6,360
10,000
653
No.
Payee
Account Debited
PR
Other
GST
Accts.
Accts.
Recble
Payable
Debit
Debit
Debit
2011
Aug.1 28
0
A/P Arden
Arden Sheet
Metal
10,600
Current/O
368
369
edition
CAMOSUN COLLEGE
Chapter 9
EXERCISES
73050199
BAYE
70877386
BUCKWO
LD
369
370
370
371
371
372
200.00
Eanes Co.
Petty Cash Payments Report
January 1 8, 2011
Receipts:
Postage expense.............................
$64.0
0
Merchandise inventory....................
19.00
Store supplies.................................
36.50
53.0
0
Total receipts.......................................
$172.50
Fund total....................................
$200.
00
27.5
0
172.5
0
Cash over/(short).................................
$
-0-
Jan. 8
Part 2
Jan. 8
Postage Expense.................................
Merchandise Inventory........................
Store Supplies Expense*.....................
Jim Eanes, Withdrawals.......................
Cash..............................................
To reimburse the fund.
64.00
19.00
36.50
53.00
Postage Expense.................................
64.00
172.50
372
373
373
374
400.00
Brady Company
Petty Cash Payments Report
September 9 30, 2011
Receipts:
Merchandise inventory.............
$
32.45
Office supplies.................................
113.5
5
Repairs expense..............................
87.6
0
Total receipts...............................
$233.60
)
Fund total....................................
$400.
00
146.4
0
253.6
0)
Cash over/(short)..................................
($
20.00)
Sept.30
374
375
Analysis component:
There are several things that could be done. The Marketing Manager
should review the prior months petty cash journal entries to determine
if the shortage is an anomaly or a recurring event. Hopefully it is an
anomaly but, regardless, the manager will need to question the Petty
Cash Custodian about the $20 cash shortage recorded in September. It
is important to recognize that honest errors do occur. It is also possible
that the Petty Cash Custodian requires training to help him manage the
petty cash fund. If it is determined that the error was based on
dishonesty, appropriate action will have to be taken (which normally
results in the dismissal of the employee as a minimum).
375
376
79.00
60.00
b.
Nov. 30...................Computer Repair Expense
Entertainment Expense........................
Cash Over and Short.............................
Cash............................................
To reimburse the fund.
156.00
2.00
c.
Dec. 31.......................................Gas Expense
Office Supplies Expense*......................
Entertainment Expense........................
Petty Cash............................................
Cash............................................
To reimburse and increase the fund.
140.00
62.00
100.00
120.00
4.00
255.00
75.00
233.00
80.00
382.00
376
377
Cash....................................................
104,475
Debit Card Expense.............................
525
Service Revenue............................
105,000
To record sale of services less debit card
expense; 0.5% x 105,000 = 525.
Cash....................................................
37,000
Service Revenue............................
37,000
To record sale of services provided for cash.
Cash....................................................
59,780
Credit Card Expense............................
1,220
Service Revenue............................
61,000
To record sale of services less credit card
expense; 2% x 61,000 = 1,220.
10
25
Cash....................................................
80,320
Sales Discounts...................................
3,680
Accounts Receivable Edson CHC.
84,000
To record collection of Oct. 10 credit sale;
2% x 84,000 = 3,680.
84,000
84,000
377
378
Cash....................................................
56,000
Sales..............................................
56,000
To record sale of merchandise to cash customers.
15
17
Accounts Receivable...........................
15,800
Sales..............................................
15,800
To record sale of merchandise on terms 2/10, n30.
17
20
Cash....................................................
111,720
Credit Card Expense............................
2,280
Sales..............................................
114,000
To record sale of merchandise less credit card
expense; 114,000 x 2% = 2,280.
20
25
Cash....................................................
71,640
Debit Card Expense.............................
360
Sales..............................................
72,000
To record sale of merchandise less debit card
expense; 0.5% x 72,000 = 360.
25
36,400
12,000
74,100
46,800
36,400
12,000
74,100
46,800
378
379
379
380
$9,84
8
Book balance...........
$9,74
0
Add:
Outstanding deposit.......
Bank error (Peltza
cheque)............................
572
56
0
$10,9
80
Deduct:
Deduct:
Outstanding cheques:
#14: $
600
#54:
140..............
1,48
0
$9,50
0
2.
July
31
NSF Jim
Anderson.................
240
Adjusted
book
balance....................
$9,50
0
240
240
Analysis component
If the journal entry in (2) is not recorded, net income, liabilities, and
owners equity would not be affected. Assets would be increased and
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
380
381
$10,332
Add:...............................
Deposit of July 31......
2,724
$13,056
Deduct:..........................
Outstanding cheques.
$11,352
Add:
9
$11,361
Deduct:
1,713
18
Cash....................................................
Utilities Expense............................
To correct error.
31
18
18
Analysis component
If the journal entries in part (a) were not recorded, net income,
assets, and owners equity would each be overstated by a net
amount of $9 ($18 - $9 = $9); liabilities are not affected by the
entries in (a).
381
382
Cr.
Cr.
payees on October 5.
9. Cheque written by another
depositor but charged against
Dr.
Cr.
382
383
Cr.
383
384
Cash..................................
800
Short-term investments......
-0-
Accounts receivable............
-0-
Quick assets.......................
Current liabilities................
$2,200
Acid-test ratio....................
800
0.36
Case Y
$
910
-0-
Case Z
$1,100
500
990
800
$1,900
$2,400
$1,100
$3,650
1.73
0.66
Chapter 10
aaExercises
Receivables
Cash........................................ 8,832.00
Credit Card Expense ($9,200 .04)
368.00
Sales...................................
9,200.00
COGS....................................... 5,300.00
Merchandise Inventory........
5,300.00
10
Accounts ReceivableColonial. .
Sales...................................
310.00
10
COGS.......................................
Merchandise Inventory........
160.00
17
No entry required.
310.00
160.00
384
385
28
5,480.00
Cash........................................ 5,370.40
Credit Card Expense ($5,480 .02)
Accounts ReceivableColonial
109.60
385
386
Accounts
Receivable
Nov. 3 8,834
Bal.
Sales Returns
and Allowances
Sales
Nov. 378
19
Nov. 8,834
3
8 2,500
8 2,500
11 1,466
11 1,466
28 5,212
28 5,212
17,63
4
18,01
2
Nov.
19
378
ABC Shop
Nov. 38,834
Colt Enterprises
Nov. 8 2,500
285,212
Bal.
Red McKenzie
Nov.
11
1,466
Bal.
1,088
Nov.
19
378
14,04
6
2. Subledger proof:
ABC Shop..................................... $14,046
Colt Enterprises............................
2,500
Red McKenzie...............................
1,088
Balance of the Accounts Receivable account
$17,634
Exercise 10-3 (15 minutes)
a.Oct. 31Allowance for Doubtful Accounts
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
1,000
386
387
1,000
200
Cash........................................
200
Accounts ReceivableGwen Rowe
387
388
1,800
June 5
1,800
1,800
5
Cash........................................
1,800
Accounts ReceivableCatherine Hicks
1,800
Allowance for
Doubtful Accounts
2,7
Unadjusted
balance
45
?
= 3,615
Adjustment
Bal.
159,000
4%
$ 6,360
6,3
60
Required
Adjusted
Balance
Allowance for
Doubtful Accounts
Unadjus
ted
balance
3,9
96
?
= 10,356
Adjustment
Bal.
6,3
Required
388
389
159,000
4%
$ 6,360
60
Balance
389
390
$356,000
$2,900
$170
$2,550
$
29,000
Accounts receivable................................
$102,00
0
2,100
99,900
17,000
Merchandise inventory...........................
65,000
Supplies..................................................
4,500
$215,40
0
390
391
7,314
7,314
b.
2012
Accounts Receivable......................
620,000
Sales...........................................................
620,000
406,500
Merchandise Inventory...............................
406,500
Cash...................................................................
491,300
Sales Discounts.................................................
6,200
Accounts Receivable................
497,500
12,450
12,450
391
392
accounts.
c.
2012
9,207
9,207
392
393
Assets
Current assets:
Accounts receivable1................................................
$180,05
0
4,97
1
$175,07
9
OR
$175,07
9
Calculations:
1.
Accounts Receivable
Bal. Dec
31/11
70,000
620,00
2012 sales
0
2.
Allowance for Doubtful Accounts
2012
collection
497,5 s
00
900
Adjustment
2012
write-offs
7,31
4
12,45
0
Bal. Dec
31/12
180,05
0
Unadj.Bal.
Dec 31/11
2012
writeoffs
Dec 31/11
Adjustment
Dec 31/12
9,20
7
393
394
394
395
500
500
b.
2012
Accounts Receivable....................
620,000
Sales........................................................
620,000
406,500
Merchandise Inventory............................
406,500
Cash............................................
491,300
Sales Discounts..............................................
6,200
Accounts Receivable..............
497,500
12,450
12,450
395
396
c.
2012
Dec. Bad Debt Expense........................
31
Allowance for Doubtful Accounts..............
14,651
14,651
396
397
Accounts receivable........................
$180,050
3,601
$176,449
OR
$176,449
Calculations:
Accounts Receivable
Bal. Dec
31/11
70,000
620,00
2012
0
500 sales
Bal. Dec
31/12
2012
collectio
497,5 ns
00
900
2012
write12,45 offs
0
Adjustment
Dec 31/11
180,05
0
14,65
1
Unadj. Bal.
Dec 31/11
1,400
2012
writeoffs
12,4
50
Adj. Bal.
Dec 31/11
Adjustment
Dec 31/12
3,601
Adj. Bal.
Dec 31/12
Analysis component
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
397
398
398
399
2011
Dec. Bad Debt Expense............................
31
2,250
2,250
b.
2012
Dec. Bad Debt Expense............................
31
39,010
39,010
Accounts receivable.............................
$360,1
00
399
400
18,46
0
$341,64
0
OR
Accounts receivable (net)................................................
Calculations:
Accounts Receivable
Bal. Dec
31/11
140,00
0
Bal. Dec
31/12
39,01
0
$341,64
0
2012
collectio
995,0 ns
00
2,100
Unadj.Bal. Dec
31/11
Adjustment
2012
write24,90 offs
0
Dec 31/11
360,10
0
24,9
00
Adjustment
Dec 31/12
18,46 Adj. Bal. Dec
0
31/12
400
401
Analysis component:
Using 2% of credit sales, bad debt expense would be $5,600 (280,000 2%
= 5,600) for 2011 thereby decreasing net income by $4,500 more than the
direct write-off method. Using 4% of outstanding accounts receivable would
result in a bad debt expense of $2,940 (46,000 4% = 1,840 + 1,100 =
2,940) thereby decreasing net income by $1,840 more than the direct writeoff method.
6,510.00
310.00
6,200.00
401
402
402
403
5,000.00
66.67
Apr. 30
Cash........................................ 5,200.00
Notes ReceivableLeann Grimes
5,000.00
...........................................Interest Revenue
133.33.....................................
Interest Receivable................................
66.67
To record collection of note and interest;
$5,000 .08 4/12 = $133.33.
403
404
Interest Receivable..................
Interest Revenue.................
To record accrued interest;
$17,200 0.07 15/365 = $49.48.
49.48
31
Interest Revenue.....................
49.48
Income Summary.................
To record the closing of the Interest
Revenue account.
49.48
49.48
2012
Feb. 14 Cash........................................17,397.92
Interest Revenue.................
148.44
Interest Receivable..............
49.48
Notes Receivable.................
17,200.00
To record collection of note plus interest;
$17,200 x 0 .07 x 60/365 = 197.92;
197.92 49.48 = 148.44.
Mar. 2
8,000.00
17
3,200.00
May 31
Notes Receivable..........................8,000.00
Accounts ReceivableATW Company
To record 90-day, 8% note to replace
past-due account.
Notes Receivable..................... 3,200.00
Accounts ReceivableLeroy Johnson
To record 30-day, 9% note to replace
past-due account.
Cash........................................ 8,157.81
Interest Revenue.................
157.81
Notes Receivable.................
8,000.00
To record collection of note plus interest;
$8,000 0.08 90/365 = $157.81.
404
405
Cash........................................18,488.45
Factoring Fee Expense............. 281.55
Accounts Receivable..................
18,770.00
To record sale of accounts receivable;
$18,770 .015.
15
Cash........................................ 3,436.00
Accounts Receivable..................
3,436.00
To record collection from credit customers.
25
Cash........................................10,000.00
Notes Payable.....................
10,000.00
To record note; pledged $14,000 of accounts
receivable as security for the loan.
Note:
Accounts receivable in the amount of $14,000 are pledged as
security for a $10,000 note payable to Fidelity Bank.
405
406
Note Receivable.......................170,000.00
Accounts Receivable Steve Soetart
170,000.00
Received note in settlement of account.
Feb. 19 Cash........................................170,487.58
Interest Revenue.................
487.58
Notes Receivable.................
170,000.00
Discounted a note receivable.
Principal of Note......................$170,000.00
Add: Interest from Note ($170,000 9% 90/365)
3,772.60
Maturity Value.........................$173,772.60
Less: Bank Discount ($173,772.60 11.5% 60/365)
3,285.02
Proceeds.................................$170,487.58
Accounts Receivable
Turnover
$7,280
= 13.43
times
$598
days
($598 + $486)/2
$7,280
365
29.98
Part 2
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
406
407
Payroll Liabilities
Employee
Gross
EI
Pay
Premium
Income
Taxes
Total
Deduction
Insurance
s
Net Pay
Health
CPP*
Hellena
Chea
720.00
13.461
133.55
32.315
24.00
203.32
516.68
Joseph Lim
610.00
11.412
104.65
26.866
24.00
166.92
443.08
Dino Patelli
830.00
15.523
169.70
37.757
36.00
258.97
571.03
Sharl
Qulnata
1,700.00
31.794
486.90
80.828
24.00
623.51 1,076.49
Totals
3,860.00
72.18
894.80
177.74
108.00
1,252.72 2,607.28
1. $720 1.87% =
$13.46
5. ($720 $67.31)
4.95% = $32.31
407
408
2. $610 1.87% =
$11.41
6. ($610 $67.31)
4.95% = $26.86
3. $830 1.87% =
$15.52
7. ($830 $67.31)
4.95% = $37.75
4. $1,700 1.87% =
$31.79
May
894.80
108.00
177.74
72.18
2,607.28
408
409
EI
Pay
Income United
Premiu
m
Taxes
Way
Total
Distribution
Net Pay
Deduction
s
CPP
Office
Sales
Salaries Salaries
Akerley,
D.
1,900.0
0
624.57
1,275.4
31,900.00
Nesbitt,
M.
1,260.0
0
347.87 912.13
1,260.0
0
Trent, F.
1,680.0
0
496.27
1,183.7
3
1,680.0
0
Vacon, M.
3,000.0
0
56.10 815.00
300.0 141.8
0
4
1,312.94
1,687.0
6
3,000.0
0
Totals
7,840.0
1,803.6 470.0 361.4
0 146.61
0
0
4
2,781.65
5,058.3
5,940.0
51,900.00
0
Distribution
Canad
a
EI
Incom
Unite
Total
Savin
Gross
e
d
Premiu
gs
Deduction
Employee Pay
m
Taxes Bonds CPP Way
s
Crimson, 1,995.
150.0
L.
00 37.31276.30
084.3299.75
Long, M.
2,040.
00 38.15306.95
102.0
-0-86.54
0
Morris, P.
2,000.
00 37.40295.70
-0-84.56
100.0
0
647.68
Pay
Net
Pay
Office Sales
Salarie Salarie
s
s
1,347. 1,995.0
32
0
1,506.
533.64
36
2,040.0
0
1,482.
34
2,000.0
0
517.66
409
410
Peterson, 2,280.
200.0
114.0
B.
00 42.64305.75
098.42
0
Totals
1,519.
760.81
19
2,280.0
0
8,315.
1,184. 350.0 353.8 415.7
5,855. 1,995.0 6,320.0
00 155.50
70
0
4
5 2,459.79
21
0
0
Payment
Distribution
EI
Total
Gross Premiu Income
United Deduction
Office
Employee Pay
m
Taxes CPP* Way
s
Net Pay Salaries
Sales
Salaries
Crimson,
L.
1,995.0
0 37.31 295.70 84.32 99.75
667.08
Long, M.
2,040.0
0 38.15 306.95 86.54102.00
1,506.3
533.64
6
2,040.00
2,000.0
Morris, P.
0 37.40 295.70 84.56100.00
1,482.3
517.66
4
2,000.00
Peterson, 2,350.0
101.8
B.
0 43.95 380.50
9117.50
843.84
1,506.1
6
2,350.00
Totals
1,327.9
21,995.00
8,385.0
1,278.8 357.3
5,822.7
0 156.81
5
1419.25 2,562.22
81,995.00
6,390.00
410
411
0.02
Monthly contribution..........
32.32
Feb.
28
Salaries Expense......................................
2,050.00
EI Payable............................................
38.34
CPP Payable.........................................
87.04
308.80
32.32
Salaries Payable..................................
1,583.5
0
Salaries Expense................................................
65,950.
00
EI Payable.....................................................
1,233.27
CPP Payable..................................................
3,097.93
28,439.95
1,150.00
1,319.00
Salaries Payable............................................
30,709.85
1,726.5
8
CPP Expense......................................................
3,097.9
3
411
412
EI Payable.....................................................
1,726.58
CPP Payable..................................................
3,097.93
2,959.8
5
6,195.8
6
28,439.
95
Cash..............................................................
37,595.66
412
413
101.05
177.74
2.
5Benefits Expense..........................494.00
Employees Health Insurance Payable
108.00
Employees Retirement Program Payable
386.00
Health
CPP Contribution
Insurance
Doherty
$36,000 1.87% =
EI Contribution
Contributions
Fane. .
1,910.70
Kahan
1,910.70
1,910.70
$8,999.10
729.30
691.90
4,800.00
$3,553.00$24,100.00
413
414
30
466.80
1,062.24
3,788.40
Salaries Payable............................................
19,642.56
653.52
CPP Expense.......................................................
1,062.24
1,996.80
600.00
EI Payable......................................................
653.52
CPP Payable...................................................
1,062.24
1,996.80
600.00
414
415
22,507
Questions
1. The four financial statementsare: the incomestatement,the balancesheet, the statementof ownersequity,
and the cashflowstatement.
2. An income statement reports on the businesss performance during the period. It shows whether the
business earned a net income(also called profit). The statement does not simply report the amount of net
incomeor loss but lists the typesandamountsof the revenuesandexpenses.
3. A revenueis an inflowof assetsreceivedin exchangefor goodsor servicesprovidedto customersas part of
the major or central operations of the business. A revenue also may occur as a decrease in liabilities as
whena serviceor productis deliveredhavingbeenpaid for in advance.
4. An income statement user must know what time period is covered to judge whether the companys
performance is satisfactory. For example, a statement user would not be able to assess whether the
amountsof revenueand net incomeare satisfactorywithoutknowingwhethertheywereearnedover a week,
a month,or a year.
5. A businesssequity is increasedby investmentsinto the businessmadeby the ownerand by net income.It
is decreased by withdrawals made by the owner and by a net loss, which is the excess of expenses over
revenues.
6. The balancesheet reportson the financial positionof a businessat a specific point in time. It is oftencalled
the statement of financial position. It provides information that helps users understand a companys
financial status. The balancesheet lists the types and dollar amountsof assets, liabilities, and equity of the
business.
7. (a) Assets are probable future economicbenefits obtained or controlled by a particular entity as a result of
past transactions or events. (b) Liabilities are probable future sacrifices of economic benefits arising from
present obligationsof a particular entity to transfer assets or provide servicesto other entities in the future
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
415
416
as a result of past transactions or events. (c) Equity is the residual interest in the assets of an entity that
remains after deducting its liabilities. (d) The term net assets means the same thing as equity, which is
also determinedas assetsless liabilities.
8. The equity sectionof the balancesheet reportsa Carol Finlay, Capital account. The presenceof the owners
capital accountindicatesthat FinlayInteriorshas beenorganizedas a sole proprietorship.
9. The objectivity principle requires financial statement information to be supported by evidence other than
someonesopinionor imagination(suchas sourcedocuments). This principleincreasesthe reliability of the
financialstatements.
10. This treatmentis requiredby the cost and going-concernprinciples.
11. The revenuerecognitionprinciple providesguidancethat managersand auditors need for knowingwhento
recognize revenue. For example, if revenue is recognized too early, the income statement reports income
earlier than it should and the business looks more profitable than it really is. On the other hand, if the
revenueis not recognizedon time, the incomestatement showslower amountsof revenueand net income
than it should and the business looks less profitable than it really is. Basically, this principle requires
revenue to be recognized when it is earned and can be measured reliably. The amount of revenue should
equal the valueof the assetsreceivedfromthe customers.
QUICK STUDY
Quick Study 2-1
8. SP
9. C
10. P
11. SP
12. C
13. C
14. P
Quick Study 2-2
a. Business entity principle
b. Revenue recognition principle
c. Cost principle
Quick Study 2-3
6. Revenue Recognition
7. Objectivity and Cost
8. Business Entity
9. Going Concern
10. Monetary Unit
416
417
Revenue
Recognition
Going
Concern
Cost
Objectivity
Business
Entity
34,500
b. Liabilities =$300,000
$ 85,500
c. Assets
=$187,500
+$ 95,400
$ 40,500 =
=
=
$214,500
$282,900
$252,450
=
$122,250
b. Liabilities =$150,900
$126,000 =
$ 24,900
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
417
418
c. Assets
=$ 37,650
+$112,500 =
$150,150
418
419
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
377
Fundamental Accounting Principles, Twelfth Canadian
Edition
b.
Allin Servicing
Allin Servicing
Income Statement
Income Statement
Revenues
$300
Revenues
$135
Expenses
125
Expenses
85
175
$ 50
Allin Servicing
Allin Servicing
$ 50
Add: Investments by
owner
$ 30
Net income
175
Total
Less: Withdrawals by owner
$240
$ 60
Net income
205
$255
1
50 $110
Total
350
419
75
420
5
Tim Allin, capital, April 30
$240
Allin Servicing
Balance Sheet
April 30, 2011
Assets
Cash
Equipment
Liabilities
$ 60
205
Accounts payable
$ 25
Owner's equity
Tim Allin, capital
240
$26
5
owner's equity
$265
420
421
Liabilitie +
s
Equity
a.
Increase/Decrease
b.
Increase
c.
Decrease
d.
e.
Increas
e
Decrea
se
Increase
Decrease
Decrease
Decrease
1.
Supplies.......................... $1
0
2.
Supplies expense.................. 22
421
422
3.
Accounts receivable.............. 25
4.
Accounts payable.................. 12
5.
Equipment............................. 40
6.
7.
Notes payable....................... 30
8. Utilities expense............... 10
9. Furniture................................. 20
10 Fees earned............................ 70
.
11 Rent revenue.......................... 35
.
12 Salaries expense.................... 45
.
a+ 14 Net income*........................... 28
b
.
*Calculated as: 70 + 35 22 10 45 = 28
422
423
70 + 35 = 105
22 + 10 + 45 =
77
3 Net income...............................
.
105 77 = 28
4 Total assets..............................
.
10 + 25 + 40 +
20 = 95
5 Total liabilities..........................
.
12 + 30 = 42
60 35 + 28 =
53
42 + 53 = 95
1. Net loss..........................
2 Income statement
2. Rent expense.......................
2 Income statement
2
3. Rent payable........................
4. Accounts receivable.............
1
4
3 Statement of owners
0 equity
6. Interest revenue...................
2 Income statement
0 Statement of owners
equity
423
424
8. Repair supplies................
9. Notes payable.......................
2
5
5 Statement of owners
equity
a 11 Truck.....................................
.
1
5
1 Income statement
8
a 14 Cash......................................
.
2
0
$18
2
$20
22
$ 2
424
425
$ 0
30
$30
$5
2
7
$23
BENNISH CONSULTING
Balance Sheet
May 31, 2011
Assets Liabilities
Cash..........................
Accounts receivable....
Repair supplies..........
.............................
$20
14
5
Owners Equity
Truck.........................
15
........................ 23
Total liabilities and
Total assets...............
$54
Rent payable..........
Notes payable.........
Total liabilities........
$ 6
25
$31
$54
425
426
EXERCISES
Exercise 2-1 (10 minutes)
i) $80,000 Revenue $65,000 Expenses = $15,000 Net Income
j) $92,000 Revenue $149,000 Expenses = $57,000 Net Loss
k) $86,000 Ending Equity - $10,000 Beginning Equity = $76,000 Net
Income
(no Withdrawals and no Investment)
Proofs:
Owners equity,
January 1..........................
(b)
(c)
(d)
(e)
$
0
$
0
$
0
$ $92,00
0
0
Owners investments
during the year.........
Net income (loss) for
the year............................
40,50
0
(4,50) 21,000
0
(8,000)
Owners withdrawals
during the year ........ (24,750) (27,00) (15,00) (15,75) (63,00)
426
427
Owners equity,
$51,000 $49,50 $12,00 $42,75 $171,0
December 31....................
0
0
0
00
427
428
$18,000
10,890
$ 7,110
$
0
84,000
91,110
$91,110
3,360
$87,750
Analysis component:
428
429
Analysis component:
$4,200
300
$ 4,500
4,620
$
120
429
430
$ 7,400
1,200
$ 8,600
1,120
$ 7,480
Analysis component:
Withdrawals of $1,000 by the owner, George Pelzer, caused equity to
decrease during July, 2011. Also, the net loss of $120 caused equity
to decrease in July. The total decrease in equity during the month of
July was $1,120 (calculated as $1,000 + $120).
NOTE: Students might point out that equity increased by
$1,200 of owner investments which, in combination with the
total decrease of $1,120, caused a net increase in equity of
$80.
Exercise 2-8 (15 minutes)
EXCEL LEARNING SERVICES
Balance Sheet
July 31, 2011
Assets Liabilities
Cash..........................$ 1,600
1,400
Accounts receivable.... 2,680
Supplies.....................
600
Furniture................... 1,800
...............
7,480
Accounts payable....
Owners Equity
George Pelzer, capital
430
431
Computer equipment. .
Total assets........................
2,200
$8,880
owners equity............
$8,880
Analysis component:
$1,400 or 15.77% (calculated as $1,400/$8,880 100) of the total
$8,880 assets held by Excel Learning Services are financed by debt.
431
432
Description
Assets Liabilities=
Owners
Equity
Beginning of the year. . .$ 150,000
$60,000
=
........................$90,000
End of the year.............$240,000$92,000 = 148,000
Net increase in owners equity........................ $58,000
Net income..................................................... $58,000
42,000
An alternative calculation:
$90,000 + x - $42,000 = $148,000; x = $100,000
c. Net increase in owners equity....... $58,000
Less: Additional investment........... 65,000
Net loss......................................... $ 7,000
An alternative calculation:
$90,000 + $65,000 + x = $148,000; x = ($7,000) where the
negative represents a loss.
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
432
433
42,000
An alternative calculation:
$90,000 + $50,000 - $42,000 + x = $148,000; x = $50,000
Exercise 2-11 (10 minutes)
a.
If assets decreased by $5,000 during August, then
$20,000 + $5,000 = $25,000 Assets at August 1, 2011.
Therefore, Owners Equity at August 1, 2011 = $25,000 - $1,000 =
$24,000
b.
If liabilities increased by $3,000 during August, then
$1,000 + $3,000 = $4,000 Liabilities at August 31, 2011.
Therefore, Owners Equity at August 31, 2011 = $20,000 - $4,000 =
$16,000
Exercise 2-12 (15 minutes)
Assets
Cash
a)
Total
s
Liabilities +
Owners
Equity
Accounts
Receivab
Office
Accounts
Noel Bridges,
+
le
+ Supplies = Payable +
Capital
+
$2,500
+ $2,500
2,500
2,500
433
434
b)
Total
s
c)
Total
s
2,500
+
+ $200
+ $200
200
200
600
2,500
+
600
3,100
200
200
3,100
3,100
200
200
3,100
d)*
Total
s
e)
Total
s
1,500
1,600
f)
Total
s
1,500
200
200
+
$1,250
$1,600
$1,250
$3,050
1,600
+ 1,250
$200
$200
$2,850
$3,050
434
435
Cash
Liabilitie +
s
Owners
Equity
Accounts
Parts
Receivabl
Supplie
Equipme
Accounts
+
e
+
s
+
nt
= Payable +
Janine
Commry,
Capital
a)
+ $7,000
+ $ 7,000
b)
- 2,500
- 2,500
Totals
$4,500
$ 4,500
c)
Totals
$4,500
d)
Totals
e)
Totals
+ $1,200
+ $1,200
$1,200
$1,200
+ $3,400
$4,500
$3,400
+ $ 3,400
$1,200
$ 950
$3,550
$ 4,500
$1,200
$7,900
$1,200
$7,900
$1,200
$ 7,900
+ $950
$3,400
$1,200
$950
f)*
Totals
g)
Totals
h)
Totals
i)
Totals
$3,550
$3,400
$1,200
$950
$1,200
$2,350
$1,200
$3,400
$1,200
$950
+ $1,400
$3,750
+ $ 1,400
$3,400
$1,200
$950
$2,700
$1,050
$7,900
$9,300
$ 2,700
$3,400
$1,200
$6,600
$950
$6,600
$6,600
435
436
436
437
$5,000
b. 1,300
Expense
$23,700
$5,000
c.
$23,700
d.
+6,000
+6,000
$11,000
$6,000
$11,000
$6,000
+$1,000
$1,000
f. 4,000
$20,200
h. +
250
Rent
$28,700
500
$11,000
Revenue
$29,200
+ 1,000
$6,000
$30,200
$6,000
$30,200
Revenue
+ 4,000
$1,000
$15,000
g. 1,200
Expense
$19,000
$1,300
$24,200
$24,200
Investment
$28,700
+ 500
e.
$30,000
1,200
$1,000
$15,000
$6,000
Wages
$29,000
250
437
438
$19,250
i.
$750
$15,000
$6,000
6,000
$13,250
j.
$29,000
6,000
$750
$15,000
$29,000
250
$13,000
$28,750
$750
$28,750
Revenue
($500 + $1,000)
$15,000
250
Withdrawal
$28,750
Expenses
=
Net loss
($1,300 + $1,200) =
$1,000
438
439
Liabiliti +
es
a)
b)
Total
s
d)
Owner
+$2,500 Investment
+ $2,500
+ $4,000
$4,000
+$4,000 Revenue
$
c)
Total
s
Owners Equity
$2,500
+ $150
$4,000
$150
$6,500
+ $150
$2,500
$150
$ 450
$6,500
$ 450 Sal.
Expense
439
440
Total
s
$3,550
$150
$2,500
$150
$6,050
$3,550
$150
$2,500
$150
$6,050
e)*
Total
s
f)
Total
s
$
1,400
$2,150
g)
Total
s
$ 1,400 Rent
Expense
$
$150
$2,500
$150
+ $2,000
$2,150
$2,000
$6,800
$4,650
+$2,000 Revenue
$150
$2,500
$150
$6,650
$6,800
440
441
Revenues:
Freelance writing revenue
$6,000
Operating expenses:
Salaries expense
Rent expense
450
1,40
0
1,85
0
Net income
$4,1
50
Investment by owner
Net income
$2,500
4,15
0
6,65
0
441
442
$6,6
50
Liabilities
$2,1
50
Accounts payable
$
150
Accounts 2,00
receivable
0
Supplies
Equipment
150
2,50
0
Owners Equity
Annie Deweerd, capital
Total assets
$6,8
00
6,65
0
442
443
a)
+
$500
+$400
$500
Owner
+$15,500 Investment
+$15,000
c)
Total
s
Owners Equity
b)
Total
s
Liabiliti +
es
$400
+$400
$15,000
+$600
$400
$15,500
+$600
$500
$1,000
$15,000
$1,000
$15,500
$500
$1,000
$15,000
$1,000
$15,500
d)*
Total
s
e)
Total
s
+$550
$500
f)
Total
s
$550
+$550 Revenue
$1,000
$15,000
$1,000
+$600
$500
$1,150
$16,050
+$600 Revenue
$1,000
$15,000
$1,000
$16,650
443
444
g)
-$200
Total
s
$300
h)
-$250
Total
s
$50
-$200
$1,150
$1,000
$15,000
$800
$16,650
-$250 Adv.
Expense
$1,150
$1,000
$17,200
$15,000
$800
$16,400
$17,200
444
445
$1,150
Operating expenses:
Advertising expense
250
Net income
$
900
Petes Yard Care
Statement of Owners Equity
For Month Ended March 31, 2011
Investment by owner
$15,500
Net income
900
16,40
0
$16,4
00
Liabilities
$
50
Accounts payable
445
446
800
Accounts 1,150
receivable
Supplies
Equipment
1,000
15,000
Owners Equity
Pete Jong, capital
16,40
0
$17,20
0
owners equity
$17,2
00
Analysis component:
The $900 of net income does not represent cash because all of the
revenues ($550 + $600 = $1,150) were on account. The $250 of
advertising expense was paid in cash. The net income or net loss on
an income statement represents accrual net income (loss) as
opposed to a cash basis net income (loss). Recall that accrual basis
net income represents revenues and expenses that occurred
regardless of when cash is actually received/paid.
446
447
Bal.
$1,200
+$1,000
-$1,000
Total
s
$5,000
$200
b)
-$2,000
Total
s
$3,000
c)
+$700
Total
s
$3,700
d)
-$500
Total
s
$3,200
e)
-$1,200
Total
s
$2,000
f)
-$600
Total
s
$1,400
g)
Total
s
Owners Equity
$4,000
a)
Liabiliti +
es
$900
$7,500
$4,000
$9,600
$900
$7,500
$4,000
$9,600
-$2,000
$200
$900
$7,500
$2,000
$9,600
+$700 Revenue
$200
$900
$7,500
$2,000
$10,300
-$500 Wage
Exp.
$200
$900
$7,500
$2,000
$9,800
-$1,200 Rent Exp.
$200
$900
$7,500
$2,000
$8,600
-$600 Utilities
Exp.
$200
$900
$7,500
$2,000
+$400
$1,400
Explanati
on
$600
$8,000
+$400 Revenue
$900
$7,500
$2,000
$8,400
h)*
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
447
448
Total
s
$1,400
$600
$900
$10,400
$7,500
$2,000
$8,400
$10,400
448
449
$1,100
Operating expenses:
Rent expense
$ 1,200
Wages expense
500
Utilities expense
600
2,30
0
$1,2
00
$ 9,600
1,200
$
8,400
449
450
Assets
Cash
Accounts
receivable
Supplies
Equipment
Liabilities
$1,400
Accounts payable
$
2,000
600
900
7,500
Owners Equity
Otto Ingles, capital
8,400
$10,40
0
owners equity
$10,4
00
Analysis component:
$8,400 or 80.77% (calculated as $8,400/$10,400 100) of the
assets are financed by Otto Ingles, the owner. $2,000 or
19.23% (calculated as $2,000/$10,400 100) of the assets are
financed by debt.
450
451
PROBLEMS
Problem 2-1A (20 minutes)
Year
2011
Beginning
capital
+
Owner
investment
+ Net
(loss)
income
2010
125,0001
0
(5,000)
Owner
withdrawals
= Ending capital
120,000
2009
28,0003
10,000
175,000
60,0005
78,000
42,000
125,0002
28,0004
Note: The superscripts show the order in which the answers were
calculated.
Calculations:
6. $120,000 + 5,000 = $125,000
7. $125,000 (The beginning capital balance for one period is the
ending capital balance of the previous period)
8. $125,000 + $78,000 - $175,000 = $28,000
9. $28,000 (The beginning capital balance for one period is the
ending capital balance of the previous period)
10.
$28,000 + $42,000 - $10,000 = $60,000
Problem 2-2A (30 minutes)
BEE-CLEAN
Income Statement
For Year Ended July 31, 2011
Revenues:
Service revenue.....................
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
$142,000
451
452
Repair revenue......................
Total revenues....................
Operating expenses:
Wages expense..................... $52,000
Rent expense........................ 24,000
Supplies expense................... 11,400
Utilities expense....................
9,800
Interest expense....................
500
Total operating expenses....
Net income................................
6,000
$148,000
97,700
$ 50,300
452
453
$79,300
$
-050,300
$129,600
34,000
$95,600
BEE-CLEAN
Balance Sheet
July 31, 2011
Assets
Cash........................
Accounts receivable.
Supplies..................
Prepaid rent............
Office equipment.........
Furniture.................
Total assets.............
$
11,
800
56,00
0
2,400
12,00
0
29,200
19,0
00
$130,
400
Liabilities
Accounts payable...
Notes payable........
Total liabilities . . . .
$
14,
800
20,0
00
$
34,800
Owners Equity
Bee Cummins,
capital...............
95,60
0
453
454
Liabilities
Cash...................$ 26,250
Accounts payable.....
$
3,750
Accounts receivable
14,250
Office supplies.....
2,250
Trucks................. 27,000
Owners Equity
Office equipment. 69,000
Jess Brandon, capital
1
135,000
Total liabilities and
Total assets
$138,750
owners equity.....
$138,750
_____________________
Calculations:
3. $138,750 $3,750
unknown amount)
$135,000
(calculation
of
454
455
Liabilities
Cash................... $ 9,375
Accounts payable.....
$
18,750
Accounts receivable
11,175Notes payable
.......... 52,500
Office supplies.....
1,650
Total liabilities...... $71,250
Trucks................. 27,000
Office equipment. 73,500
Land................... 22,500
Owners Equity
Building.............. 90,000
Jess Brandon, capital
2
163,950
Total liabilities and
Total assets.........$235,200
owners equity.....
........$235,200
Calculations:
4. $235,200 $71,250 = $163,950
Part 2
Calculation of net income for 2011:
Owners equity, December 31, 2011.....
$163,950
Owners equity, December 31, 2010.....
135,000
Increase in owners equity during 2011
$ 28,950
Less: Additional investment.................
17,500
Net increase in owners equity during 2011,
apart from new investment..............
$ 11,450
Add: Withdrawals ($1,500 12)...........
18,000
Net income earned in 2011..................
$ 29,450
OR
455
456
Analysis component:
Assets increased by $96,450 ($235,200 - $138,750). $67,500
of the increase in assets were financed by an increase in debt
(total liabilities went from $3,750 at December 31, 2010 to
$71,250 at December 31, 2011). The remaining $28,950
increase in assets ($96,450 - $67,500) resulted from equity
financing (equity increased to $163,950 at December 31,
2011 from $135,000 at December 31, 2010 because of
$17,500 owner investment plus $29,450 net income less
$18,000 of withdrawals during 2011).
456
457
$90,000
47,000
$43,000
10,000
15,000
5,000
$63,000
63,000
$33,000
Part 2
Company B:
(a) and (b)
Owners equity:
31, 2011
Assets....................................
Liabilities...............................
Owners equity.......................
Dec.
$82,000
55,000
$27,000
3,000
?
6,000
457
458
?
24,000
0
458
459
459
460
$225,000
150,000
$ 75,000
$
?
9,000
36,000
18,000
$75,000
460
461
Liabilities
Owners Equity
Dan
= Accounts
Building Payable
(a) +$160,000
+$60,000
Investment
(b) 100,000
+$600,000
Bal. $ 60,000
$60,000 $600,000
(c)
8,000
+ $8,000
Bal.
$ 52,000
$8,000 $60,000 $600,000
$220,000
(d)
+72,000
+$72,000
Bal. $ 52,000
$8,000
$132,000 $600,000
$ 220,000
(e)*
Bal. $ 52,000
$8,000
$132,000
$600,000
$220,000
(f)
+$3,000
Revenue
Bal. $ 52,000
$3,000 $8,000
$132,000 $600,000
$223,000
(g)
2,000
Advertising Expense
Bal. $ 50,000
$3,000 $8,000
$132,000 $600,000
$221,000
(h) +
4,000
Service Revenue
Bal. $ 54,000
$3,000 $8,000
$132,000 $600,000
Payable
+
+$500,000
$500,000
Capital
$220,000
$ 220,000
$500,000
$72,000
$500,000
$72,000
$500,000
+3,000
$72,000
$500,000
$72,000
2,000
$500,000
+
$72,000
Service
4,000
$500,000
39
462
$225,000
(i)
4,000
Bal. $ 50,000
$225,000
(j) +
1,000
Bal. $ 51,000
$225,000
(k)
7,000
Wages Expense
Bal. $ 44,000
$218,000
(l)
3,600
Withdrawal
Bal. $ 40,400
$3,000
$8,000
$132,000
4,000
$600,000
1,000
$2,000
$8,000
$132,000
$600,000
$68,000
$500,000
$68,000
$500,000
$2,000
$8,000
$132,000
$600,000
$68,000
7,000
$500,000
3,600
$782,400
463
$7,000
Operating expenses:
Wages expense
$7,000
Advertising expense
2,00
0
9,000
Net loss
$2,000
Murray Enterprises
Statement of Owners Equity
For Month Ended March 31, 2011
220,0
00
Total
Less: Withdrawal by owner
$220,0
00
$ 3,600
463
464
Net loss
2,00
0
5,600
$214,4
00
Murray Enterprises
Balance Sheet
March 31, 2011
Assets
Cash
Liabilities
$
40,400
Accounts
receivable
2,000
Office supplies
8,000
Office
equipment
Building
Total assets
Accounts payable
$
68,000
Notes payable
500,00
0
Total liabilities
$568,0
00
132,00
0
600,00
0
$782,4
00
Owners Equity
Dan Murray, capital
$214,4
00
$782,4
00
464
465
465
466
= Liabilities
+
Office
= Accounts +
Supplies Payable
Owners Equity
Bev Ng,
Explanation
Capital
of
Change
Apr.1
1
3
5
Expense
8
Revenue
12
Revenue
15
Expense
20
22
Revenue
23
28
29
30
Expense
30
Expense
30
Expense
30
+$120,000
6,400
3,360
1,600
+
+ $3,360
9,200
+$6,000
1,700
+6,000
+5,600
2,000
6,000
+5,600
5,600
+ 2,000
+$120,000
6,400
Investment
Rent Expense
1,600
Cleaning
9,200
Consulting
6,000
Consulting
1,700
Salaries
5,600
Consulting
+ $2,000
2,000
120
120
Advertising
400
400
Telephone
960
960
Utilities
1,700
Salaries
1,700
466
467
Expense
30
2,400
$120,280 +$
$125,640
$5,360= $
120
2,400
$125,520
$125,640
467
Withdrawal
468
$20,800
$6,400
3,400
1,600
960
400
120
12,880
$ 7,920
KEEP-SAFE
Statement of Owners Equity
For Month Ended April 30, 2011
Bev Ng, capital, April 1................
Add: ...........Investments by owner
Net income............................
127,920
Total.........................................
Less: Withdrawals by owner..........
Bev Ng, capital, April 30...............
$
0
$120,000
7,920
$127,920
2,400
$125,520
KEEP-SAFE
Balance Sheet
April 30, 2011
Assets
Liabilities
468
469
Cash...................$120,280
Office supplies..... 5,360
Total assets........$125,640
Problem 2-6A (concluded)
Accounts payable.........$
120
Owners Equity
Bev Ng, capital............ 125,520
Total liabilities and
owners equity.......... $125,640
Analysis component:
99.9% of Keep-Safes total assets at April 30, 2011 were
financed by equity ($125,520/$125,640 x 100 = 99.904%).
Specifically, equity transactions that created assets were
$120,000 invested by the owner during the month plus net
income of $7,920 less owner withdrawals of $2,400. The
sum of these three equity transactions resulted in a net
increase in equity of $125,520 (since there was a $0
beginning balance in equity). Only $120 or 0.1% of the
total assets were financed by debt ($120/$125,640 x 100 =
0.0955% or 0.1%).
469
470
Cash
Bal
.
Oct.
31
$80,0
00
Nov. 1
-5,600
Bal
.
$74,4
00
3
+21,6
00
21,60
0
Bal
.
$74,4
00
5
Bal
.
Bal
.
Office
Equip.
Electric
al
Equip.
Account
s
Payable
Larry
Power,
Capital
$7,000
$1,900
$28,000
$14,000
$18,000
$112,900
Explanation
of Change
$1,900
$28,000
$14,000
$18,000
$107,300
Owner
+21,600 investment
$7,000
$1,900
+
$28,000
+
$6,400
$28,000
$42,000
$24,400
$128,900
$28,000
$42,000
$24,400
$128,900
+1,800
$7,000
$3,700
+2,00
0
$74,6
00
Office
Supplies
-1,800
$72,6
00
Accounts
Receivab
le
Electrical fees
+2,000 earned
$7,000
$3,700
$28,000
+7,600
$42,000
$24,400
+7,600
$130,900
45
471
Bal
.
$74,60
0
15
Bal
.
$7,000
$3,700
$35,600
$42,000
$32,000
$130,900
Electrical fees
+6,000 earned
+6,000
$74,6
00
$13,000
$3,700
$35,600
$42,000
$32,000
$136,900
$74,6
00
$13,000
$3,700
$35,600
$42,000
$32,000
$136,900
*16
Bal
.
18
Bal
.
+1,000
$74,6
00
20
Bal
.
24
28
Bal
.
30
$4,700
$35,600
$42,000
-7,600
$67,0
00
Bal
.
$13,000
+1,000
$33,000
-7,600
$13,000
$4,700
$35,600
$42,000
$25,400
$67,0
00
$14,200
+
6,000
-6,000
$73,0
00
$8,200
$136,900
Electrical fees
+1,200 earned
+1,200
-4,400
$136,900
$4,700
$35,600
$42,000
$25,400
$138,100
$4,700
$35,600
$42,000
$25,400
$138,100
-4,400 Salaries expense
472
Bal
.
$68,6
00
30
Bal
.
$4,700
$35,600
$42,000
$25,400
$133,700
-1,400
$67,2
00
30
$8,200
$4,700
$35,600
$42,000
$25,400
$132,300
Owner
-1,400 withdrawals
-1,400
$65,8
00
$8,200
$4,700
$156,30
0
$35,600
$42,000
$25,400
$130,900
=
$156,300
*Note: For November 16, since no exchange has occurred, no entry is required.
473
$9,200
$5,600
4,400
1,400
11,400
POWER ELECTRICAL
Statement of Owners Equity
For Month Ended November 30, 2011
Larry Power, capital, November 1....
Add: Investments by owner.............
Total ...........................................
$134,500
Less: Withdrawals by owner............
Net loss....................................
Larry Power, capital, November 30. .
$112,900
21,600
$1,400
2,200
3,600
$130,900
473
474
Liabilities
2
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
474
475
Acquire services on
3 credit..........................
Pay wages with cash. . .
4
Owner withdraws cash.
5
Borrow cash with note
6 payable.......................
Sell services on credit.
7
Buy office equipment
8 for cash......................
Collect receivable from
9 (7)..............................
1 Buy asset with note
0 payable.......................
+/
+/
+
475
476
2011
146,0001
Beginning
capital
+
Owner
investment
2010
35,0003
income
183,000
163,000
Owner
withdrawals
69,000
52,000
= Ending capital
260,000
+ Net
(loss)
146,0002
0
50,000
(15,000)5
0
35,000
$ 70,000
33,000
$ 103,000
476
477
Operating expenses:
Wages expense.................
$46,000
Fireworks supplies expense. . 41,000
Utilities expense................... 17,800
Advertising expense..............
4,500
Office supplies expense........
1,800
Total operating expenses....
Net loss.....................................
111,100
$ 8,100
477
478
$202,600
34,100
FIREWORKS FANTASIA
Balance Sheet
December 31, 2011
Assets
Cash.....................$ 14,000
Accounts receivable
Fireworks supplies 16,000
Office supplies...... 1,500
Tools.................... 9,000
Building................ 62,000
Land..................... 56,000
168,500
Office equipment. . 12,000
Total assets..........$177,500
..........$177,500
Liabilities
Accounts payable $
7,000
9,000
Owners Equity
Wes Gandalf, capital
Total liabilities and
. owners equity
478
479
25,000
Office supplies.....
Office equipment.....
10,000
60,000
Machinery...............
134,5001
30,500
Liabilities
Accounts payable............$
5,000
Owners Equity
Joseph Stiller, capital.......
Total liabilities and
owners equity..............
STILLER CO.
Balance Sheet
December 31, 2011
Assets
Cash................... $
15,000
Accounts receivable
10,000
Liabilities
Accounts payable...
30,000
Office supplies.....
Office equipment.....
12,500
60,000
Total liabilities....275,000
Machinery...........
Building...................
30,500
260,000
Land.......................
193,0002
65,000
Owners Equity
Joseph Stiller, capital.
Total liabilities and
Total assets.............
$468,000
owners equity.......$468,000
479
480
_____________________
Calculations:
1. $139,500 $5,000 = $134,500 (calculation of unknown
amount)
2. $468,000 $275,000 = $193,000 (calculation of
unknown amount)
480
481
12/31/11
$49,000
26,000
$23,000
6,000
?
4,500
481
482
..........................$23,000
Therefore, the net income must have been $6,500.
482
483
$70,000
50,000
$20,000
10,000
30,000
2,000
$90,000
58,000
$32,000
Part 3
Company X:
First, calculate the beginning and ending equity balances:
12/31/10
12/31/11
Assets..............................$121,500
$136,500
Liabilities.......................... 58,500
55,500
Owners equity..................$ 63,000
$ 81,000
Then, find the amount of owner investments during 2011 by
completing this table:
Owners equity, December 31, 2010
............................$63,000
Add: Owner investments. . .
?
Net income.................. 16,500
Less: Owner withdrawals...
0
Owners equity, December 31, 2011
............................$81,000
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
483
484
484
485
$21,000
38,100
$65,100
485
486
$160,000
52,000
$108,000
?
40,000
$108,000
486
487
(a)
(b)
Bal
.
(c)
Bal
.
(d)
+
$50,0
00
10,00
0
$40,0
00
9,000
$31,0
00
_______
$31,0
00
1,500
Bal $29,5
.
00
(f) _______
$29,5
00
+
Liabilities
+
$5,00
0
Bal
.
(e)
Bal
.
(g)
+
$3,00
0
$3,00
0
______
Owners Equity
Judith
Grimm,
Capital
+
$55,00
0
_______
+
$120,0
00
$120,0
00
________
+
$110,0
00
$110,0
00
________
$120,0
00
________
$110,0
00
________
$55,00
0
_______
$110,0
00
________
$55,00
0
1,500
$53,50
0
+
3,000
+$2,0
00
$5,00
0
+
9,000
$14,0
00
+
3,200
$2,00
0
______
$17,2
00
_______
$120,0
00
________
+
$5,20
0
$5,20
0
______
$2,00
0
______
$17,2
00
_______
$120,0
00
________
$5,20
0
______
$110,0
00
________
$2,00
0
______
$17,2
00
_______
$120,0
00
________
$5,20
0
______
$110,0
00
________
Explanation of Changes
Investment
$55,00
0
_______
$56,50
0
+
Advertising Expense
Consulting
Revenue
Services
Consulting
Services
55
55
Bal
.
(h)
Bal
.
(i)*
Bal
.
(j)
Bal
.
(k)
Bal
.
(l)
Bal
.
5,400
$34,9 $3,00 $2,00
00
0
0
______ ______
2,750
$32,1 $3,00 $2,00
50
0
0
______ ______ ______
$32,1 $3,00 $2,00
50
0
0
+
______
1,200 1,200
$33,3 $1,80 $2,00
50
0
0
______ ______
900
$32,4 $1,80 $2,00
50
0
0
______ ______
1,900
$30,5 + $1,80 + $2,00 +
50
0
0
488
$17,2
00
_______
$120,0
00
________
$5,20
0
______
$110,0
00
________
$17,2
00
_______
$17,2
00
_______
$120,0
00
________
$120,0
00
________
$5,20
0
______
$5,20
0
______
$110,0
00
________
$110,0
00
________
5,400
$61,90
0
2,750
$59,15
0
_______
$59,15
0
_______
$17,2
00
_______
$120,0
00
________
$110,0
00
________
$59,15
0
_______
$17,2
00
_______
$120,0
00
________
$5,20
0
900
$4,30
0
______
$59,15
0
1,900
$17,2 + $120,0 = $4,30 + $110,0 + $57,25
00
00
0
00
0
$171,550
$110,0
00
________
$171,550
Revenue
Withdrawal
Wages Expense
489
$8,400
Operating expenses:
Wages expense
$1,900
Advertising expense
1,500
3,40
0
Net income
$5,0
00
Southwest Consulting
Statement of Owners Equity
For Year Ended December 31, 2011
Judith Grimm, capital, January 1
Add: Investment by owner
Net income
$55,000
5,00
0
Total
Less: Withdrawal by owner
60,00
0
$60,000
2,750
489
490
$57,2
50
Southwest Consulting
Balance Sheet
December 31, 2011
Assets
Cash
Liabilities
$
30,55
0
Accounts 1,800
receivable
Office supplies
2,000
Office equipment
17,20
0
Building
120,0
00
Accounts payable
Notes payable
Total liabilities
$171,
550
110,00
0
$114,3
00
Owners Equity
Judith Grimm, capital
Total assets
$
4,300
Total
liabilities
owners equity
57,250
and $171,5
50
490
491
491
492
Cash
Jun
e
1
1
4
6
8
1
4
1
6
2
0
2
1
Liabili
Owners
Assets
= ties
+ Equity
Accoun
Clean
Accou
Andrew
+
ts
+ ing
= nts
+ Martin,
Receiv
Suppl
Payabl
Capital
able
ies
e
+
$120,0
00
4,500
2,400
+
$120,0
00
4,500
Investment
2,250
+
750
+
5,300
1,900
Advertising
Expense
Service
Revenue
Service
Revenue
Salaries
Expense
+
3,500
Service
Revenue
Rent Expense
+
$2,40
0
2,250
+
750
+
$5,300
1,900
+
5,300
Explanation of
Change
5,300
+
3,500
492
2
2
2
4
2
9
2
9
3
0
3
0
3
0
3
0
493
+
750
+
$750
+
825
3,500
+
3,500
375
120
525
1,900
2,000
$113,5 + $
80
+825
Service
Revenue
375
825 +
$117,555
$3,15 =
0
=
$375 +
120
525
1,900
2,000
$117,1
80
$117,555
493
Telephone
Expense
Utilities
Expense
Salaries
Expense
Withdrawal
494
$10,375
$4,500
3,800
2,250
525
120
11,195
$ 820
$
0
120,000
$120,000
$2,000
820
2,820
$117,180
Liabilities
Accounts payable.......
825
Owners Equity
Andrew Martin, capital
117,180
Total assets.........$117,555
494
495
.............$117,555
495
496
496
June 3
0
July 1
Bal.
1
Bal.
1
Bal.
6
Bal.
8
Bal.
Bal.
Bal.
1
0
1
5
497
Asset
= Liabilit + Owners Equity
s
ies
Accoun
Office
Offic
Excav
Accoun
Explanation
+
+
+
+
=
+ Robert
ts
e
at.
ts
Cantu,
Cash
Receiva
Suppl
Equi
Equip
Payabl
Capital
of Change
ble
ies
p.
.
e
$ + $2,300 + $780 +$4,80 + $17,0 = $3,100 +
$27,780
6,000
0
00
60,000
60,000 Investment
$66,00
$87,780
0
+
+ 3,200
_______
800
4,000
$64,70
$21,0
$6,300
$87,280
0
00
+
______
______
_______
500
500
$64,20
$1,28
$21,0
$6,300
$87,280
0
0
00
+
_____
______
______
+ 2,200 Excavating Fees
2,200
Earned
$66,40
$1,28
$21,0
$6,300
$89,480
0
0
00
______
_____
+
______
+
_______
3,800
3,800
$66,40
$1,28
$8,60
$21,0
$10,10
$89,480
0
0
0
00
0
______
+ 2,400
_____
______
______
______
+ 2,400 Excavating Fees
Earned
$66,40
$4,700
$1,28
$8,60
$21,0
$10,10
$91,880
61
Bal.
1
7
0
______
______
$66,40
$4,700
0
2
______
3 3,800
Bal.
$62,60
$4,700
0
2
______ + 5,000
5
Bal.
$62,60
$9,700
0
2
+
2,400
8 2,400
Bal.
$65,00
$7,300
0
3
______
1 1,260
Bal.
$63,74
$7,300
0
3
______
1
260
Bal.
$63,48
$7,300
0
3
______
1 1,200
Bal.
$62,28 + $7,300 +
0
$8,60
0
______
$21,0
00
______
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
______
_______
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
$96,880
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
$3,20
0
______
$8,60
0
______
$21,0
00
______
$8,220
$3,20
0
+$8,60 +
0
$102,380
0
______
498
0
+
1,920
$3,20
0
______
00
______
0
+
1,920
$12,02
0
3,800
______
______
______
_______
$91,880
$91,880
+
5,000 Excavating
Earned
$96,880
$95,620
260 Utilities Expense
$95,360
$21,0 = $8,220 +
00
Fees
1,200 Withdrawal
$94,160
$102,380
$9,600
$1,260
500
260
2,020
$7,580
CANTU EXCAVATING
Statement of Owners Equity
For Month Ended July 31, 2011
Robert Cantu, capital, June 30. . . .
Add: Investments by owner........
Net income...........................
Total.......................................
Less: Withdrawals by owner.......
Robert Cantu, capital, July 31......
$ 27,780
$60,000
7,580
67,580
$95,360
1,200
$94,160
499
$62,280
Accounts receivable
7,300
Office supplies.........
3,200
Office equipment.....
8,600
Excavating equipment
.................... 94,160
Liabilities
Accounts payable....... $ 8,220
Owners Equity
21,000Robert Cantu, capital
Total liabilities and
Total assets.............
$102,380
Analysis component:
The owner of Cantu Excavating invested $60,000 during the
month ended July 31, 2011 therefore having a positive impact
on equity. Equity increased during July largely because of
this additional investment by the owner. As a sole
proprietor, a goal is to increase equity because of positive
earnings; not through owner investment.
Problem 2-9B (25 minutes)
Balance
Sheet
Total Tot
Asset
al
s
Lia
b.
+
Inco
me
Stmn
t
Net
Equi Inco
ty
me
+
500
1
Pay wages with cash.....
2
Acquire services on
3 credit...........................
Buy store equipment for
4 cash.............................
Borrow cash with note
5 payable........................
Sell services for cash....
6
Sell services on credit...
7
Pay rent with cash........
8
Owner withdraws cash. .
9
1 Collect receivable from
0
(7)...........................
+
+/
+
+/
501
Cash........................
Liabilities
$
6,300
Accounts payable...
$34,650
Accounts
47,25
receivable...............
0
Mortgage payable. .
28,350
Total liabilities.....
$63,000
Equipment............... 22,05
0
Owners Equity
Jack Tasker, capital
26,775
owners equity....
$89,775
Note to Instructors:
To reinforce students understanding of the nature of doubleentry bookkeeping and the accounting equation, it may be
advantageous to use this problem to demonstrate the
importance of recording transactions correctly because
neither double-entry bookkeeping nor the accounting
equation guarantee the correctness of information; they only
prove arithmetic accuracy.
Accordingly, the best way to explain this seemingly
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
502
503
3,780
Liabilities
Accounts payable
2,100
1,050
8,400
2,100
Owners Equity
Susan Huang, capital
Total liabilities and
owners equity.$17,430
504
505
Income Statement
Revenues Expense
s
1.
$14,
000
Balance Sheet
Assets
$14,
000
2.
$5,
000
3.
$25,
000
4.
5.
Liabilities
$
500
$14,
000
$25,
000
5
00
5
00
Owners
Equity
5
00
500
6.
10,0
00
10,0
00
7.
5,00
0
5,0
00
506
8.
20
0
9.
2,0
00
1
0.
12,
000
45
1
1.
1
2.
2
00
900
45
45
9
00
900
507
Ethics Challenge
1. The accounting principle most relevant to this situation
is the revenue recognition principle.
The revenue
recognition principle provides guidance on when
revenue should be recognized on the income
statement. The principle states that revenue should be
recognized when earned. In this case, the earliest the
revenue could be considered earned is when the
product is shipped to customers.
2. If Sue is aware of the revenue recognition principle she
faces a dilemma of applying GAAP, which will result in
different revenue recognition than her supervisor is
advocating.
Sue faces a dilemma of following the
guidance of her profession or following her supervisor.
If Sue does not conform to her supervisors wishes she
may face the consequence of losing her job. If Sue
does what her supervisor requests she may face
internal anguish of doing something that she knows is
not professionally correct and which may negatively
affect any users of the financial statements that she is
helping produce.
3. Students
should
support
their
decision
with
appropriate reasons likely echoing the discussion in 2)
above.
4. Sue may be able to discuss the situation she is facing
with someone else in the firm and find support for not
following the supervisors directive. If the intent to
violate accounting principles is a commonplace
occurrence in the skateboard company Sue may wish to
seek employment elsewhere as the problem will likely
reoccur in the future.
508
FFS 2-1
Parts 1 and 2
June 2011
Assets
June 1
5
7
9
15
17
+ Account +
s
Cash
Receiva
ble
+20,0
00
+3,000
-1,500
+1,00
-1,000
0
-5,000
+2,00
0
= Liabiliti + Owners
Equ
ity
Office = Accoun +
Diane
ts
Towbell,
Equip.
Payabl
Capital
e
+6,000
+26,000
Explanation of
Change
in Owners
Equity
Owner
investment
+3,000 Service revenue
-1,500 Rent expense
-5,000 Wages expense
+2,000 Service revenue
29
30 -1,500
Totals 15,00 +
0
+300
2,000 +
6,000 =
23,000
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 2
300 +
-300 Utilities
expense
-1,500 Wages expense
22,700
23,000
509
510
511
Liabiliti + Owners
Equi
ty
Diane
Explanation of
+ Accoun + Office = Accou +
ts
nts
Towbell,
Change
Cash
Receiv
Equip.
Payabl
Capital
in Owners
able
e
Equity
Balance 15,0
2,000
6,000
300
22,700
June 30
00
July 5
+3,500
+3,500 Service revenue
8 +2,0
-2,000
00
9
-1,500 Rent expense
1,50
0
12
+1,800
+1,80
0
14
-1,000
1,00
0
15
-2,500 Wages expense
2,50
0
17 +4,8
+4,800 Service revenue
00
69
512
25 -600
1,70
0
31
2,00
0
Totals 12,5 +
00
-300
-300
31
-1,700
-2,000
3,500 +
23,800
7,800 =
800 +
23,000
23,800
Utilities
expense
Wages expense
Owner
withdrawals
513
$5,000
Operating expenses:
Wages expense..................... $6,500
Rent expense........................
1,500
Utilities expense....................
300
Total operating expenses....
Net loss.....................................
$3,300
8,300
GLENROSE SERVICING
Statement of Owners Equity
For Month Ended June 30, 2011
Diane Towbell, capital, June 1..
Add:.....Investments by owner
26,000
Total ..................................
Less: Withdrawals by owner....
Net loss ........................
Diane Towbell, capital, June 30
-0-
$26,000
$ -03,300
3,300
$22,700
GLENROSE SERVICING
Balance Sheet
June 30, 2011
Assets Liabilities
Cash..........................$15,000
Accounts receivable.... 2,000
Office equipment........ 6,000
Diane Towbell, capital
Total liabilities and
Total assets...............$23,000
Accounts payable.... $
300
Owners Equity
.................. 22,700
owners equity.... $23,000
514
515
$8,300
Operating expenses:
Wages expense..................... $4,200
Rent expense........................
1,500
Utilities expense....................
300
Total operating expenses....
6,000
Net income................................
$2,300
GLENROSE SERVICING
Statement of Owners Equity
For Month Ended July 31, 2011
Diane Towbell, capital, July 1...
Add:.....Investments by owner
Net income......................
Total ..................................
Less: Withdrawals by owner....
Diane Towbell, capital, July 31.
2,300
$22,700
$
-02,300
$25,000
2,000
$23,000
GLENROSE SERVICING
Balance Sheet
July 31, 2011
Assets Liabilities
Cash..........................$12,500
Accounts receivable.... 3,500
Office equipment........ 7,800
Diane Towbell, capital
Total liabilities and
Total assets...............$23,800
Accounts payable.... $
800
Owners Equity
.............
23,000
owners equity.... $23,800
515
516
516
517
13.
(variety of answers possible, for example, the
accounts receivable manager would want to know if
receivables are being collected efficiently)
Part B
14.
a. Total assets = $83,365,000;
b. Total net assets = $83,365,000 - $28,428,000 =
$54,937,000;
c. Assets = Liabilities + Equity; $83,365,000 =
$28,428,000 + $54,937,000.
15.
Data is provided on a comparative basis so decision
makers can see the change from the previous year(s).
16.
(variety of answers possible, for example, a
potential creditor would be interested in knowing if
Danier will have sufficient assets to cover any credit
they grant)
517
518
CT 2-1
Note to instructor: Student responses will vary therefore the
answer here is only suggested and not inclusive of all
possibilities; it is presented in point form for brevity.
Goal(s)*:
Correctly state sales reports*
Problem(s):
Misclassification of items under GAAP
Assumption(s)/Principle(s):
The report should be prepared in accordance with GAAP to
protect users of the information so that users know on what
basis amounts have been recorded/reported.
Facts:
as shown in the September sales report prepared by the sales
person
Conclusion(s)/Consequence(s):
August 28 sale should be in August and not in September;
consequence of current reporting is that August revenue, net income,
and equity was understated and September revenue, net income,
and equity are overstated
September 10 purchase of desk is to be recorded as an asset and
not expensed; consequence of current reporting is that September
expenses will be overstated causing net income, assets, and equity
to be understated.
September 230 lunch costs should have been expensed;
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
518
519
*This should be the goal since it is assumed that the owner(s) of the
business want accurate reports. However, the salesperson might
want to overstate the sales to make himself/herself look good; the
marketing manager might want to overstate sales for the same
reason. The goal is highly dependent on perspective.
519
520
(a)
Answers
Proofs:
Owners equity,
January 1..........................
(b)
(c)
(d)
(e)
$
0
$
0
$
0
$ $92,00
0
0
Owners investments
during the year.........
Net income (loss) for
the year............................
40,50
0
(4,50) 21,500
0
(8,000)
Owners withdrawals
during the year ........ (24,750) (27,00) (15,00) (15,75) (63,00)
0
0
0
0
Owners equity,
$51,000 $49,50 $12,00 $42,75 $171,0
December 31....................
0
0
0
00
520
521
$18,000
10,890
$ 7,110
$
0
84,000
91,110
$91,110
3,360
$87,750
Analysis component:
521
522
Analysis component:
$4,200
300
$ 4,500
4,620
$
120
522
523
$ 7,400
1,200
$ 8,600
1,120
$ 7,480
Analysis component:
Withdrawals of $1,000 by the owner, George Pelzer, caused equity to
decrease during July, 2011. Also, the net loss of $120 caused equity
to decrease in July. The total decrease in equity during the month of
July was $1,120 (calculated as $1,000 + $120).
NOTE: Students might point out that equity increased by
$1,200 of owner investments which, in combination with the
total decrease of $1,120, caused a net increase in equity of
$80.
Exercise 2-8 (15 minutes)
EXCEL LEARNING SERVICES
Balance Sheet
July 31, 2011
Assets Liabilities
Cash..........................$ 1,600
1,400
Accounts receivable.... 2,680
Supplies.....................
600
Furniture................... 1,800
...............
7,480
Accounts payable....
Owners Equity
George Pelzer, capital
523
524
Computer equipment. .
Total assets........................
2,200
$8,880
owners equity............
$8,880
Analysis component:
$1,400 or 15.77% (calculated as $1,400/$8,880 100) of the total
$8,880 assets held by Excel Learning Services are financed by debt.
524
525
Description
Assets Liabilities=
Owners
Equity
Beginning of the year. . .$ 150,000
$60,000
=
........................$90,000
End of the year.............$240,000$92,000 = 148,000
Net increase in owners equity........................ $58,000
Net income..................................................... $58,000
42,000
An alternative calculation:
$90,000 + x - $42,000 = $148,000; x = $100,000
c. Net increase in owners equity....... $58,000
Less: Additional investment........... 65,000
Net loss......................................... $ 7,000
An alternative calculation:
$90,000 + $65,000 + x = $148,000; x = ($7,000) where the
negative represents a loss.
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
525
526
42,000
An alternative calculation:
$90,000 + $50,000 - $42,000 + x = $148,000; x = $50,000
Exercise 2-11 (10 minutes)
a.
If assets decreased by $5,000 during August, then
$20,000 + $5,000 = $25,000 Assets at August 1, 2011.
Therefore, Owners Equity at August 1, 2011 = $25,000 - $1,000 =
$24,000
b.
If liabilities increased by $3,000 during August, then
$1,000 + $3,000 = $4,000 Liabilities at August 31, 2011.
Therefore, Owners Equity at August 31, 2011 = $20,000 - $4,000 =
$16,000
Exercise 2-12 (15 minutes)
Assets
Cash
a)
Total
s
Liabilities +
Owners
Equity
Accounts
Receivab
Office
Accounts
Noel Bridges,
+
le
+ Supplies = Payable +
Capital
+
$2,500
+ $2,500
2,500
2,500
526
527
b)
Total
s
c)
Total
s
2,500
+
+ $200
+ $200
200
200
600
2,500
+
600
3,100
200
200
3,100
3,100
200
200
3,100
d)*
Total
s
e)
Total
s
1,500
1,600
f)
Total
s
1,500
200
200
+
$1,250
$1,600
$1,250
$3,050
1,600
+ 1,250
$200
$200
$2,850
$3,050
527
528
Cash
Liabilitie +
s
Owners
Equity
Accounts
Parts
Receivabl
Supplie
Equipme
Accounts
+
e
+
s
+
nt
= Payable +
Janine
Commry,
Capital
a)
+ $7,000
+ $ 7,000
b)
- 2,500
- 2,500
Totals
$4,500
$ 4,500
c)
Totals
$4,500
d)
Totals
e)
Totals
+ $1,200
+ $1,200
$1,200
$1,200
+ $3,400
$4,500
$3,400
+ $ 3,400
$1,200
$ 950
$3,550
$ 4,500
$1,200
$7,900
$1,200
$7,900
$1,200
$ 7,900
+ $950
$3,400
$1,200
$950
f)*
Totals
g)
Totals
h)
Totals
i)
Totals
$3,550
$3,400
$1,200
$950
$1,200
$2,350
$1,200
$3,400
$1,200
$950
+ $1,400
$3,750
+ $ 1,400
$3,400
$1,200
$950
$2,700
$1,050
$7,900
$9,300
$ 2,700
$3,400
$1,200
$6,600
$950
$6,600
$6,600
528
529
529
530
$5,000
b. 1,300
Expense
$23,700
$5,000
c.
$23,700
d.
+6,000
+6,000
$11,000
$6,000
$11,000
$6,000
+$1,000
$1,000
f. 4,000
$20,200
h. +
250
Rent
$28,700
500
$11,000
Revenue
$29,200
+ 1,000
$6,000
$30,200
$6,000
$30,200
Revenue
+ 4,000
$1,000
$15,000
g. 1,200
Expense
$19,000
$1,300
$24,200
$24,200
Investment
$28,700
+ 500
e.
$30,000
1,200
$1,000
$15,000
$6,000
Wages
$29,000
250
530
531
$19,250
i.
$750
$15,000
$6,000
6,000
$13,250
j.
$29,000
6,000
$750
$15,000
$29,000
250
$13,000
$28,750
$750
$28,750
Revenue
($500 + $1,000)
$15,000
250
Withdrawal
$28,750
Expenses
=
Net loss
($1,300 + $1,200) =
$1,000
531
532
Liabiliti +
es
a)
b)
Total
s
d)
Owner
+$2,500 Investment
+ $2,500
+ $4,000
$4,000
+$4,000 Revenue
$
c)
Total
s
Owners Equity
$2,500
+ $150
$4,000
$150
$6,500
+ $150
$2,500
$150
$ 450
$6,500
$ 450 Sal.
Expense
532
533
Total
s
$3,550
$150
$2,500
$150
$6,050
$3,550
$150
$2,500
$150
$6,050
e)*
Total
s
f)
Total
s
$
1,400
$2,150
g)
Total
s
$ 1,400 Rent
Expense
$
$150
$2,500
$150
+ $2,000
$2,150
$2,000
$6,800
$4,650
+$2,000 Revenue
$150
$2,500
$150
$6,650
$6,800
533
534
Revenues:
Freelance writing revenue
$6,000
Operating expenses:
Salaries expense
Rent expense
450
1,40
0
1,85
0
Net income
$4,1
50
Investment by owner
Net income
$2,500
4,15
0
6,65
0
534
535
$6,6
50
Liabilities
$2,1
50
Accounts payable
$
150
Accounts 2,00
receivable
0
Supplies
Equipment
150
2,50
0
Owners Equity
Annie Deweerd, capital
Total assets
$6,8
00
6,65
0
535
536
a)
+
$500
+$400
$500
Owner
+$15,500 Investment
+$15,000
c)
Total
s
Owners Equity
b)
Total
s
Liabiliti +
es
$400
+$400
$15,000
+$600
$400
$15,500
+$600
$500
$1,000
$15,000
$1,000
$15,500
$500
$1,000
$15,000
$1,000
$15,500
d)*
Total
s
e)
Total
s
+$550
$500
f)
Total
s
$550
+$550 Revenue
$1,000
$15,000
$1,000
+$600
$500
$1,150
$16,050
+$600 Revenue
$1,000
$15,000
$1,000
$16,650
536
537
g)
-$200
Total
s
$300
h)
-$250
Total
s
$50
-$200
$1,150
$1,000
$15,000
$800
$16,650
-$250 Adv.
Expense
$1,150
$1,000
$17,200
$15,000
$800
$16,400
$17,200
537
538
$1,150
Operating expenses:
Advertising expense
250
Net income
$
900
Petes Yard Care
Statement of Owners Equity
For Month Ended March 31, 2011
Investment by owner
$15,500
Net income
900
16,40
0
$16,4
00
Liabilities
$
50
Accounts payable
538
539
800
Accounts 1,150
receivable
Supplies
Equipment
1,000
15,000
Owners Equity
Pete Jong, capital
16,40
0
$17,20
0
owners equity
$17,2
00
Analysis component:
The $900 of net income does not represent cash because all of the
revenues ($550 + $600 = $1,150) were on account. The $250 of
advertising expense was paid in cash. The net income or net loss on
an income statement represents accrual net income (loss) as
opposed to a cash basis net income (loss). Recall that accrual basis
net income represents revenues and expenses that occurred
regardless of when cash is actually received/paid.
539
540
Bal.
$1,200
+$1,000
-$1,000
Total
s
$5,000
$200
b)
-$2,000
Total
s
$3,000
c)
+$700
Total
s
$3,700
d)
-$500
Total
s
$3,200
e)
-$1,200
Total
s
$2,000
f)
-$600
Total
s
$1,400
g)
Total
s
Owners Equity
$4,000
a)
Liabiliti +
es
$900
$7,500
$4,000
$9,600
$900
$7,500
$4,000
$9,600
-$2,000
$200
$900
$7,500
$2,000
$9,600
+$700 Revenue
$200
$900
$7,500
$2,000
$10,300
-$500 Wage
Exp.
$200
$900
$7,500
$2,000
$9,800
-$1,200 Rent Exp.
$200
$900
$7,500
$2,000
$8,600
-$600 Utilities
Exp.
$200
$900
$7,500
$2,000
+$400
$1,400
Explanati
on
$600
$8,000
+$400 Revenue
$900
$7,500
$2,000
$8,400
h)*
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
540
541
Total
s
$1,400
$600
$900
$10,400
$7,500
$2,000
$8,400
$10,400
541
542
$1,100
Operating expenses:
Rent expense
$ 1,200
Wages expense
500
Utilities expense
600
2,30
0
$1,2
00
$ 9,600
1,200
$
8,400
542
543
Assets
Cash
Accounts
receivable
Supplies
Equipment
Liabilities
$1,400
Accounts payable
$
2,000
600
900
7,500
Owners Equity
Otto Ingles, capital
8,400
$10,40
0
owners equity
$10,4
00
Analysis component:
$8,400 or 80.77% (calculated as $8,400/$10,400 100) of the assets are
financed by Otto Ingles, the owner. $2,000 or 19.23% (calculated as
$2,000/$10,400 100) of the assets are financed by debt.
Chapter 3
EXERCISES
543
544
Cash
Accounts Payable
(a)
25,500
750 (b)
(d)
3,000
14,10 (e)
0
(h)
(e)
14,100 (c)
0 Balance
2,000 (i)
Balance
14,100
12,850
25,500 (a)
25,500 Balance
Accounts Receivable
(f)
5,400
Balance
3,150
2,250 (h)
(i)
2,000
Balance
2,000
Office Supplies
(b)
750
Balance
750
Fees Earned
3,000 (d)
5,400 (f)
Office Equipment
(c)
14,100
Balance
14,100
8,400 Balance
Rent Expense
(g)
1,050
Balance
1,050
544
545
Cash
Jan.
31
Feb.
700
4,000
Feb.
14
2,800
60
23
2,400
1,000
25
800
26
800 Jan. 31
800 Bal.
2
20
Bal.
40
Accounts Receivable
Jan.
31
Feb.
1,200
2,40
0
Feb.
20
Jan.
31
Feb.
25
Bal.
-01,000
1,000
15,000
12
18
Bal.
1,90
0
Service Revenue
15,700
2,600 Jan. 31
2,800 Feb. 2
Prepaid Insurance
15,000
12
545
546
Jan.
31
Feb.
-0-
1,900
4,000
18
22,300 Bal.
14
Bal.
4,000
Wages Expense
Computer Equipment
Jan.
31
Feb.
480
7,600
Jan. 31
1,080
Feb. 26
800
Bal.
1,880
10
Bal.
8,080
Accounts Payable
Feb.
60
60 Jan. 31
NOTE:
There
is
no
entry
to be recorded
23
for February 21.
-0- Bal.
Notes Payable
-0- Jan. 31
7,600 Feb.
10
7,600 Bal.
Analysis component:
Revenue recognition requires that when a transaction has occurred, it must be
recorded whether cash has been received or not. A transaction has occurred
when there has been an economic exchange when something has been given
up or received. On February 12, services were performed and, although cash will
not be received until a future date, a revenue must be recorded because an
economic exchange has occurred.
546
547
Cash
Mar.
31
Apr.
2
19
Bal.
1,800
400 Apr.
780
300
10
15
2,000
1,000
29
Mar.
31
Apr.
29
Bal.
500
1,000
1,500
2,880
Repair Revenue
14,000 Mar.
Accounts Receivable
Mar.
31
Apr.
18
4,800
Bal.
4,000
31
2,000 Apr.
780 Apr. 2
19
1,200
1,200
18
15,980 Bal.
Repair Supplies
Mar.
31
Apr.
9
1,400
Bal.
2,290
Rent Expense
Mar.
31
Apr.
25
Bal.
890
950
250
1,200
Equipment
Mar.
31
Apr.
15
Bal.
7,400
300
7,700
Accounts Payable
Apr.
10
400
500 Mar.
31
547
548
890 Apr.
250
9
25
1,240 Bal.
2,350 Mar.
31
2,350 Bal.
548
549
GENERAL JOURNAL
Account Titles and
PR
Explanations
Dat
e
201
1
Jul
Cash..............................
y
1
Sue Ware, Capital.....
To record investment
by owner.
Debit
101
5,000
301
1 Equipment.....................
0
Accounts Payable.....
Purchased equipment
on credit.
150
1 Cash..............................
2
Revenue...................
Performed services for
cash.
101
1 Expenses.......................
4
Cash.........................
Paid expenses.
501
106
302
Page 1
Credit
5,000
2,500
201
2,500
10,000
401
10,000
3,500
101
3,500
1,500
401
1,500
250
549
550
Cash.........................
Owner withdrew cash.
101
250
550
551
Cash
July 1
12
Balance
101
5,000
10,000
3,500 July 14
250
31
11,250
Accts. Receivable
July
15
106
1,500
Equipment
July 10
150
2,500
Accounts Payable
201
2,500
Sue Ware,
Capital
5,000
July 10
301
July 1
551
552
Sue Ware,
Withdrawals
July 31
302
250
Revenue
401
10,000
1,500
11,500
July 12
15
Balance
Expenses
501
July 14
3,500
552
553
Cash
Date
Explanation
PR
Debit
Credit
Balance
2011
July
G1
5,000
5,000
12
G1
10,000
15,000
14
G1
3,500
11,500
31
G1
250
11,250
Accounts Receivable
Date
Explanation
PR
Debit
Credit
Balance
2011
July 15
G1
1,500
Equipment
Date
Explanation
1,500
PR
Debit
Credit
Balance
2011
July 10
G1
2,500
Accounts Payable
Date
Explanation
2,500
PR
Debit
Credit
Balance
2011
July 10
G1
2,500
Date
Explanation
2,500
PR
Debit
Credit
Balance
553
554
2011
July
G1
5,000
Date
Explanation
5,000
PR
Debit
Credit
Balance
2011
July 31
G1
250
Revenue
Date
Explanation
250
PR
Debit
Credit
Balance
2011
July 12
G1
10,000
10,000
15
G1
1,500
11,500
Expenses
Date
Explanation
PR
Debit
Credit
Balance
2011
July 14
G1
3,500
3,500
DelaWare
Trial Balance
July 31, 2011
Acct
. No.
Account Title
101Cash.........................
106Accounts receivable .
150Equipment................
Credi
Debit
t
$11,
250
1,50
0
2,50
0
554
555
201Accounts payable......
$
2,50
0
5,00
0
5.
250
11,5
00
3,
500
$19,
000
$19,
000
DelaWare
Income Statement
For Month Ended July 31, 2011
Revenue................................
$11,
500
3,
500
$8,0
00
Expenses...............................
Net income............................
DelaWare
Statement of Owners Equity
For Month Ended July 31, 2011
Sue Ware, capital, July 1........
Add: ....Investments by owner
Net income......................
Total...................................
$5,0
00
8,0
00
$
0
13,
000
13,0
00
555
556
$12,
750
556
557
DelaWare
Balance Sheet
July 31, 2011
Assets
Liabilities
Cash..................................
$11,25
0
Accounts receivable..........
1,500
Equipment.........................
2,500
Accounts payable.....................
$
2,500
Owners Equity
12,75
0
$15,25
0
owners equity......................
$15,25
0
Analysis component:
Accounts receivable result from credit sales to customers
(debit accounts receivable and credit a revenue). Sales, or
revenue, is part of equity. As revenues on account are
recorded, assets on the one side of the accounting
equation increase and equity on the opposite side of the
accounting equation also increases. Therefore, accounts
receivable are financed by, or created by, an equity
transaction.
Exercise 3-5 (10 minutes)
Note: Students could choose any account number within the specified range.
Account
Number
Account Name
110
Cash
557
558
115
Accounts Receivable
160
Office Equipment
210
Accounts Payable
215
Unearned Revenue
310
320
410
Consulting Revenues
510
Salaries Expense
520
Rent Expense
530
Utilities Expense
558
559
Bal
Feb
1
10
Bal
11
Accounts
0
Receivable
11,5 2,00 Feb Bal 6,00
00
0
5
0
8,50 500
17
0
2,50 10,0
28
0
00
10,0
00
Unearned
21
Revenue
5
500 Bal
Wes Bosse,
Capital
9,50
0
11
5
31
0
Bal
2,50 Feb
0 10
3,00 Bal
0
Salaries
Expense
Bal
10,0
00
Feb
10,0
28
00
Bal
20,0
00
51
0
Rent
Expense
Bal 7,50
0
52
0
Office Equipment 16
0
Bal
12,5
00
Wes Bosse,
Withdrawals
Bal
2,00
0
Feb
500
17
Bal
2,50
0
32
0
Utilities
Expense
Bal
1,00
0
53
0
Accounts
21
Payable
0
Feb 2,00 3,00 Bal
5
0
0
1,00 Bal
0
Consulting
Revenues
37,5
00
8,50
0
46,0
00
41
0
Bal
Feb
1
Bal
91
560
561
General Journal
Account Titles and
PR
Explanations
Cash.............................
Consulting
Revenues.....................
Performed work for
cash.
Accounts Payable..........
Cash.......................
Paid account.
1
0
Cash.............................
Unearned Revenue. .
Received cash in
advance.
1
2
No entry.
1
7
Wes Bosse,
Withdrawals.................
Cash.......................
Owner withdrew cash.
2
8
Salaries Expense...........
Cash.......................
Paid salaries.
Debit
10
1
41
0
8,500
21
0
10
1
2,000
10
1
21
5
2,500
32
0
10
1
500
51
0
10
1
10,000
Page G1
Credit
8,500
2,000
2,500
500
10,000
3.
561
562
Bosse Advisors
Trial Balance
February 28, 2011
Acct.
No.
Account Title
Debit
Credit
101 Cash.....................................
$
10,000
115 Accounts receivable .............
6,000
160 Office equipment.................. 12,500
210 Accounts payable.................
$
1,000
215 Unearned revenue................
3,000
310 Wes Bosse, capital................
9,500
320 Wes Bosse, withdrawals........
2,500
410 Consulting revenues.............
46,00
0
510 Salaries expense.................. 20,000
520 Rent expense.......................
7,500
530 Utilities expense...................
1,00
0
Totals................................... $59,50 $59,5
0
00
562
563
Assets
Cash..................
Accounts
receivable..............
Office
equipment.............
Bosse Advisers
Balance Sheet
February 28, 2011
Liabilities
$10,00
Accounts payable....
0
6,000
Unearned revenue...
12,50
0
Total liabilities........
Owners Equity
Wes Bosse, capital. .
Total assets........
$28,50
0
$
1,000
3,00
0
$
4,000
24,500
$28,50
0
Capital = 9,500
Opening Balance
+ 46,000 Revenues
28,500 Salaries, Rent and Utilities expenses
2,500 Withdrawals
= 24,500 Closing Balance
Analysis component:
Unearned revenue occurs when cash is received from a customer in
advance of the work being done. The collection is not recorded as a
revenue because it has not been earned until the work is done.
Unearned revenue is therefore a liability because the business owes
the customer a service (or work). For example, WestJet receives
cash from customers in advance of the customer actually flying.
These cash collections are recorded as unearned revenue, a liability,
because the cash doesnt belong to WestJet until they have earned it
which occurs when the customer takes their flight.
563
564
Cash.......................................................................
7,000
Equipment.............................................................
5,600
Automobiles...........................................................
11,000
3,600
3,600
c. Office Supplies..................................
600
Cash................................................................
600
d. Office Supplies..................................
200
Equipment.............................................................
9,400
Accounts Payable............................................
9,600
e. Cash.................................................
2,500
2,500
f. Accounts Payable..............................
Cash................................................................
2,400
2,400
700
700
564
565
1,500
Surgical Revenues....................
1,500
8 Supplies........................................
3,000
Accounts Payable........................................
3,000
15 Salaries Expense...............................................
57,000
Cash............................................................
57,000
Paid salaries.
20 Accounts Payable..............................................
3,000
Cash............................................................
3,000
21 No entry.
22 Accounts Receivable.........................................
9,000
Surgical Revenues......................................
9,000
29 Cash..................................................................
Accounts Receivable.................................
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
3,000
3,000
565
566
30 Utilities Expense................................................
Cash............................................................
1,800
1,800
566
567
2,700
c. Cash..................................................
Services Revenue..........................
Provided services for cash.
3,150
2,700
3,150
1,125
d. Utilities Expense...............................
Cash............................................
Paid the utilities for the office.
930
1,125
930
567
568
568
569
Cash
Date
Explanation
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
850
2011
Jan.
G1
3,500
2
0
G1
3
1
G1
3
1
G1
3,000
4,350
3
1
G1
750
3,600
2,000
5,000
Explanation
2,350
7,350
Accounts Receivable
Date
4,350
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
300
2011
Jan.
1
2
G1
3
1
G1
9,000
9,300
5,000
4,300
569
570
Equipment
Date
Explanation
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
1,500
2011
Jan.
2
0
G1
12,000
Accounts Payable
Date
Explanation
13,500
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
325
2011
Jan.
2
0
G1
10,000
Date
Explanation
10,325
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
2,325
2011
Jan.
G1
3,500
5,825
570
571
Date
Explanation
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
300
2011
Jan.
3
1
G1
750
Fees Earned
Date
Explanation
1,050
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
1,800
2011
Jan.
1
2
G1
9,000
Salaries Expense
Date
Explanation
10,800
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
1,500
2011
Jan.
3
1
G1
3,000
4,500
571
572
Date
Page 1
Debit
Credit
2011
Jan. 1 Cash..................................................................
10
1
30
1
3,500
3,500
10
6
Fees Earned................................................
40
1
9,000
9,000
16
7
12,000
Cash............................................................
10
1
2,000
Accounts Payable........................................
20
1
10,000
10
1
Accounts Receivable...................................
10
6
5,000
5,000
62
3,000
572
573
2
Cash............................................................
10
1
3,000
30
2
Cash............................................................
10
1
750
750
Page
G1
573
574
Date
2011
Aug.
PR
Debit
Cash.........................................
10
1
15,000
Photography Equipment....................
16
7
17,000
30
1
Credit
32,000
Prepaid Rent......................................
13
1
Cash............................................
10
1
6,500
6,500
Office Supplies...................................
12
4
Cash............................................
10
1
1,800
1,800
Cash..................................................
10
1
40
1
9,200
9,200
Utilities Expense.......................
69
0
Cash...................................
10
1
1,100
1,100
574
575
575
576
Explanation
Debit
Credit
Balance
G1
15,000
G1
6,500
8,500
G1
1,800
6,700
2
0
G1
3
1
G1
2011
Aug.
9,200
Explanation
15,900
1,100
14,800
Office Supplies
Date
15,000
PR
Debit
Credit
Balance
2011
Aug.
G1
1,800
Prepaid Rent
Date
Explanation
1,800
PR
Debit
Credit
Balance
2011
Aug.
G1
6,500
Photography Equipment
Date
Explanation
6,500
PR
Debit
G1
17,000
Credit
Balance
2011
Aug.
17,000
576
577
Date
Explanation
PR
Debit
Credit
Balance
2011
Aug.
G1
32,000
Date
Explanation
32,000
PR
Debit
Credit
Balance
2011
Aug.
2
0
G1
9,200
Utilities Expense
Date
Explanation
9,200
Debit
Credit
Balance
2011
Aug.
3
1
G1
1,100
1,100
577
578
Acct
No.
Account Title
Debit Credit
1,800
6,500
17,000
$32,000
9,200
1,100
Totals................................. $41,200
$41,200
Analysis component:
578
579
Aug.
1
101
Photography Fees 40
Earned 1
9,2 Aug.
00 20
Office
Supplies
Aug. 1,80
5
0
124
Prepaid
Rent
Aug. 6,50
1
0
13
1
Aug.
31
Utilities
Expense
1,10
0
690
Acct.
No.
Account Title
Debit Credit
101
Cash...............................................
$ 14,800
124
Office supplies................................
1,800
131
Prepaid rent...................................
6,500
167
Photography equipment.................
17,000
301
401
690
Utilities expense.............................
1,100
579
580
Totals.............................................
$41,200
$41,200
Analysis component:
$46,
000
$37,
000
14,0
00
51,0
00
$
5,00
0
Hogans Consulting
Statement of Owners Equity
For Year Ended December 31, 2011
$
0
580
581
50,0
00
$50,
000
Total...................................
Less: Withdrawals by owner...
Net loss........................
$2,0
00
5,00
0
7,00
0
$43,
000
Hogans Consulting
Balance Sheet
December 31, 2011
Assets
Liabilities
Cash..................................
$12,00
0
Accounts payable.....................
Cleaning supplies..............
8,300
Notes payable..........................
53,500
Prepaid rent.......................
5,000
Total liabilities..........................
$54,30
0
Equipment.........................
72,00
0
Owners Equity
800
43,000
$97,30
0
owners equity......................
$97,30
0
Analysis component:
Losses cause equity to decrease. If equity decreases, either assets have to
decrease and/or liabilities must increase to keep the balance sheet in
balance. Therefore, if Hogans Consulting continues to experience losses,
there are two short-term alternatives available to prevent a decrease in
assets. First, the business could borrow which would increase liabilities and
temporarily increase assets until payments had to be made. Longer term,
the cash to make the payments cannot be borrowed. Second, Lisa Hogan,
the owner, could invest additional assets into the business which would
increase equity and assets. However, for the long-term, the owner does not
want to support the business through continual investments; the business
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
581
582
Income Statement
For Month Ended March 31, 2011
Revenues:
Service revenue...........................................................
$1,900
Operating expenses:
Salaries expense..........................................................
$
800
Interest expense..........................................................
10
810
Net income........................................................................
$1,090
JenCo
Statement of Owners Equity
For Month Ended March 31, 2011
$2,05
0
Net income..............................................................
1,09
0
$3,140
Total.............................................................................
$3,140
1,500
$1,640
JenCo
Balance Sheet
March 31, 2011
Assets
Liabilities
582
583
Cash................................
$1,00
0
Accounts payable..........
$
260
Accounts receivable.......
950
250
Prepaid insurance...........
300
Notes payable............................
80
0
Equipment......................
70
0
Total liabilities......................
$1,31
0
Owners Equity
Total assets....................
$2,95
0
1,64
0
$2,95
0
583
584
Revenues:
Fees earned.........................................................
$170,0
00
Operating expenses:
Wages expense....................................................
$166,0
00
7,00
0
173,0
00
Net loss.....................................................................
$
3,000
$112,00
0*
10,0
00
Total....................................................................
$122,0
00
$
18,000
Net loss..........................................................
3,000
21,00
0
$101,0
00
584
585
Liabilities
Assets
Cash...............
$
30,000
Accounts receivable
...............................
14,000
146,00
0
Office supplies........
3,000
Total liabilities......................
$
192,000
Building...................
80,000
Land........................
116,00
0
Machinery...............
50,0
00
Total assets............
$293,0
00
Owners Equity
Dee Bentley, capital..................
101,00
0
585
586
Description
(1)
Difference
between
Debit and
Credit
Columns
$810
b. A $42,000 debit to
Machinery was posted as
a debit to Accounts
Payable.
$0
(2)
(3)
Colum
Identify
n with account(s)
the
incorrectly
Larger
stated
Total
(4)
Amount that
account(s) is
overstated or
understated
Credit
Rent
Expense
Rent Expense is
understated by
$810
Machinery
Machinery is
understated by
$42,000 and
Accounts
Payable is
understated by
$42,000
Accounts
Payable
c. A $4,950 credit to
Services Revenue was
posted as a $495 credit.
$4,455
Debit
Services
Revenue
Services
Revenue is
understated by
$4,455
$1,440
Credit
Store
Supplies
Store Supplies is
understated by
$1,440
$0
Prepaid
Insurance
Prepaid
Insurance is
understated by
$2,250 and
Insurance
Expense is
overstated by
$2,250
Insurance
Expense
$4,050
$0
Credit
Cash
Cash is
understated by
$4,050
Owners
Capital
Owners Capital
account is
understated by
$9,900
586
587
account.
Owners
Owners
Withdrawal Withdrawals is
s
understated by
$9,900
587
588
by
$2,000
and
588
589
Through a process of elimination, the incorrect value is Cash for $59. The correct
value must be $95.
589
590
EXERCISES
Accounts Payable
(a)
25,500
750 (b)
(d)
3,000
14,10 (e)
0
(h)
(e)
14,100 (c)
0 Balance
2,000 (i)
Balance
14,100
12,850
25,500 (a)
25,500 Balance
Accounts Receivable
(f)
5,400
Balance
3,150
2,250 (h)
(i)
2,000
Balance
2,000
Office Supplies
(b)
750
Balance
750
Fees Earned
3,000 (d)
5,400 (f)
Office Equipment
(c)
14,100
Balance
14,100
8,400 Balance
Rent Expense
(g)
1,050
Balance
1,050
590
591
Cash
Jan.
31
Feb.
700
4,000
Feb.
14
2,800
60
23
2,400
1,000
25
800
26
800 Jan. 31
800 Bal.
2
20
Bal.
40
Jan.
31
Feb.
25
Accounts Receivable
Jan.
31
1,200
2,40
0
Feb.
20
Bal.
-01,000
1,000
15,000
Feb.
12
591
592
18
Bal.
Service Revenue
1,90
0
2,600 Jan. 31
15,700
2,800 Feb. 2
Prepaid Insurance
Jan.
31
Feb.
-04,000
15,000
12
1,900
18
22,300 Bal.
14
Bal.
4,000
Wages Expense
Computer Equipment
Jan.
31
Feb.
480
7,600
Jan. 31
1,080
Feb. 26
800
Bal.
1,880
10
Bal.
8,080
Accounts Payable
Feb.
60
60 Jan. 31
NOTE:
23 There is no entry to be recorded
for February 21.
-0- Bal.
Notes Payable
-0- Jan. 31
7,600 Feb.
10
7,600 Bal.
Analysis component:
Revenue recognition requires that when a transaction has occurred, it must be
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
592
593
recorded whether cash has been received or not. A transaction has occurred
when there has been an economic exchange when something has been given
up or received. On February 12, services were performed and, although cash will
not be received until a future date, a revenue must be recorded because an
economic exchange has occurred.
593
594
Cash
Mar.
31
Apr.
2
19
Bal.
1,800
400 Apr.
780
300
10
15
2,000
1,000
29
Mar.
31
Apr.
29
Bal.
500
1,000
1,500
2,880
Repair Revenue
14,000 Mar.
Accounts Receivable
Mar.
31
Apr.
18
4,800
Bal.
4,000
31
2,000 Apr.
780 Apr. 2
19
1,200
1,200
18
15,980 Bal.
Repair Supplies
Mar.
31
Apr.
9
1,400
Bal.
2,290
Rent Expense
Mar.
31
Apr.
25
Bal.
890
950
250
1,200
Equipment
Mar.
31
Apr.
15
Bal.
7,400
300
7,700
Accounts Payable
Apr.
10
400
500 Mar.
31
594
595
890 Apr.
250
9
25
1,240 Bal.
2,350 Mar.
31
2,350 Bal.
595
596
GENERAL JOURNAL
Account Titles and
PR
Explanations
Dat
e
201
1
Jul
Cash..............................
y
1
Sue Ware, Capital.....
To record investment
by owner.
Debit
101
5,000
301
1 Equipment.....................
0
Accounts Payable.....
Purchased equipment
on credit.
150
1 Cash..............................
2
Revenue...................
Performed services for
cash.
101
1 Expenses.......................
4
Cash.........................
Paid expenses.
501
106
302
Page 1
Credit
5,000
2,500
201
2,500
10,000
401
10,000
3,500
101
3,500
1,500
401
1,500
250
596
597
Cash.........................
Owner withdrew cash.
101
250
597
598
Cash
July 1
12
Balance
101
5,000
10,000
3,500 July 14
250
31
11,250
Accts. Receivable
July
15
106
1,500
Equipment
July 10
150
2,500
Accounts Payable
201
2,500
Sue Ware,
Capital
5,000
July 10
301
July 1
598
599
Sue Ware,
Withdrawals
July 31
302
250
Revenue
401
10,000
1,500
11,500
July 12
15
Balance
Expenses
501
July 14
3,500
599
600
Cash
Date
Explanation
PR
Debit
Credit
Balance
2011
July
G1
5,000
5,000
12
G1
10,000
15,000
14
G1
3,500
11,500
31
G1
250
11,250
Accounts Receivable
Date
Explanation
PR
Debit
Credit
Balance
2011
July 15
G1
1,500
Equipment
Date
Explanation
1,500
PR
Debit
Credit
Balance
2011
July 10
G1
2,500
Accounts Payable
Date
Explanation
2,500
PR
Debit
Credit
Balance
2011
July 10
G1
2,500
Date
Explanation
2,500
PR
Debit
Credit
Balance
600
601
2011
July
G1
5,000
Date
Explanation
5,000
PR
Debit
Credit
Balance
2011
July 31
G1
250
Revenue
Date
Explanation
250
PR
Debit
Credit
Balance
2011
July 12
G1
10,000
10,000
15
G1
1,500
11,500
Expenses
Date
Explanation
PR
Debit
Credit
Balance
2011
July 14
G1
3,500
3,500
DelaWare
Trial Balance
July 31, 2011
Acct
. No.
Account Title
101Cash.........................
106Accounts receivable .
150Equipment................
Credi
Debit
t
$11,
250
1,50
0
2,50
0
601
602
201Accounts payable......
$
2,50
0
5,00
0
5.
250
11,5
00
3,
500
$19,
000
$19,
000
DelaWare
Income Statement
For Month Ended July 31, 2011
Revenue................................
$11,
500
3,
500
$8,0
00
Expenses...............................
Net income............................
DelaWare
Statement of Owners Equity
For Month Ended July 31, 2011
Sue Ware, capital, July 1........
Add: ....Investments by owner
Net income......................
Total...................................
$5,0
00
8,0
00
$
0
13,
000
13,0
00
602
603
$12,
750
603
604
DelaWare
Balance Sheet
July 31, 2011
Assets
Liabilities
Cash..................................
$11,25
0
Accounts receivable..........
1,500
Equipment.........................
2,500
Accounts payable.....................
$
2,500
Owners Equity
12,75
0
$15,25
0
owners equity......................
$15,25
0
Analysis component:
Accounts receivable result from credit sales to customers
(debit accounts receivable and credit a revenue). Sales, or
revenue, is part of equity. As revenues on account are
recorded, assets on the one side of the accounting
equation increase and equity on the opposite side of the
accounting equation also increases. Therefore, accounts
receivable are financed by, or created by, an equity
transaction.
Exercise 3-5 (10 minutes)
Note: Students could choose any account number within the specified range.
Account
Number
Account Name
110
Cash
604
605
115
Accounts Receivable
160
Office Equipment
210
Accounts Payable
215
Unearned Revenue
310
320
410
Consulting Revenues
510
Salaries Expense
520
Rent Expense
530
Utilities Expense
605
606
Bal
Feb
1
10
Bal
11
Accounts
0
Receivable
11,5 2,00 Feb Bal 6,00
00
0
5
0
8,50 500
17
0
2,50 10,0
28
0
00
10,0
00
Unearned
21
Revenue
5
500 Bal
Wes Bosse,
Capital
9,50
0
11
5
31
0
Bal
2,50 Feb
0 10
3,00 Bal
0
Salaries
Expense
Bal
10,0
00
Feb
10,0
28
00
Bal
20,0
00
51
0
Rent
Expense
Bal 7,50
0
52
0
Office Equipment 16
0
Bal
12,5
00
Wes Bosse,
Withdrawals
Bal
2,00
0
Feb
500
17
Bal
2,50
0
32
0
Utilities
Expense
Bal
1,00
0
53
0
Accounts
21
Payable
0
Feb 2,00 3,00 Bal
5
0
0
1,00 Bal
0
Consulting
Revenues
37,5
00
8,50
0
46,0
00
41
0
Bal
Feb
1
Bal
91
607
608
General Journal
Account Titles and
PR
Explanations
Cash.............................
Consulting
Revenues.....................
Performed work for
cash.
Accounts Payable..........
Cash.......................
Paid account.
1
0
Cash.............................
Unearned Revenue. .
Received cash in
advance.
1
2
No entry.
1
7
Wes Bosse,
Withdrawals.................
Cash.......................
Owner withdrew cash.
2
8
Salaries Expense...........
Cash.......................
Paid salaries.
Debit
10
1
41
0
8,500
21
0
10
1
2,000
10
1
21
5
2,500
32
0
10
1
500
51
0
10
1
10,000
Page G1
Credit
8,500
2,000
2,500
500
10,000
3.
608
609
Bosse Advisors
Trial Balance
February 28, 2011
Acct.
No.
Account Title
Debit
Credit
101 Cash.....................................
$
10,000
115 Accounts receivable .............
6,000
160 Office equipment.................. 12,500
210 Accounts payable.................
$
1,000
215 Unearned revenue................
3,000
310 Wes Bosse, capital................
9,500
320 Wes Bosse, withdrawals........
2,500
410 Consulting revenues.............
46,00
0
510 Salaries expense.................. 20,000
520 Rent expense.......................
7,500
530 Utilities expense...................
1,00
0
Totals................................... $59,50 $59,5
0
00
609
610
Assets
Cash..................
Accounts
receivable..............
Office
equipment.............
Bosse Advisers
Balance Sheet
February 28, 2011
Liabilities
$10,00
Accounts payable....
0
6,000
Unearned revenue...
12,50
0
Total liabilities........
Owners Equity
Wes Bosse, capital. .
Total assets........
$28,50
0
$
1,000
3,00
0
$
4,000
24,500
$28,50
0
Capital = 9,500
Opening Balance
+ 46,000 Revenues
28,500 Salaries, Rent and Utilities expenses
2,500 Withdrawals
= 24,500 Closing Balance
Analysis component:
Unearned revenue occurs when cash is received from a customer in
advance of the work being done. The collection is not recorded as a
revenue because it has not been earned until the work is done.
Unearned revenue is therefore a liability because the business owes
the customer a service (or work). For example, WestJet receives
cash from customers in advance of the customer actually flying.
These cash collections are recorded as unearned revenue, a liability,
because the cash doesnt belong to WestJet until they have earned it
which occurs when the customer takes their flight.
610
611
Cash.......................................................................
7,000
Equipment.............................................................
5,600
Automobiles...........................................................
11,000
3,600
3,600
c. Office Supplies..................................
600
Cash................................................................
600
d. Office Supplies..................................
200
Equipment.............................................................
9,400
Accounts Payable............................................
9,600
e. Cash.................................................
2,500
2,500
f. Accounts Payable..............................
Cash................................................................
2,400
2,400
700
700
611
612
1,500
Surgical Revenues....................
1,500
8 Supplies........................................
3,000
Accounts Payable........................................
3,000
15 Salaries Expense...............................................
57,000
Cash............................................................
57,000
Paid salaries.
20 Accounts Payable..............................................
3,000
Cash............................................................
3,000
21 No entry.
22 Accounts Receivable.........................................
9,000
Surgical Revenues......................................
9,000
29 Cash..................................................................
Accounts Receivable.................................
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
3,000
3,000
612
613
30 Utilities Expense................................................
Cash............................................................
1,800
1,800
613
614
2,700
c. Cash..................................................
Services Revenue..........................
Provided services for cash.
3,150
2,700
3,150
1,125
d. Utilities Expense...............................
Cash............................................
Paid the utilities for the office.
930
1,125
930
614
615
615
616
Cash
Date
Explanation
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
850
2011
Jan.
G1
3,500
2
0
G1
3
1
G1
3
1
G1
3,000
4,350
3
1
G1
750
3,600
2,000
5,000
Explanation
2,350
7,350
Accounts Receivable
Date
4,350
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
300
2011
Jan.
1
2
G1
3
1
G1
9,000
9,300
5,000
4,300
616
617
Equipment
Date
Explanation
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
1,500
2011
Jan.
2
0
G1
12,000
Accounts Payable
Date
Explanation
13,500
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
325
2011
Jan.
2
0
G1
10,000
Date
Explanation
10,325
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
2,325
2011
Jan.
G1
3,500
5,825
617
618
Date
Explanation
PR
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
300
2011
Jan.
3
1
G1
750
Fees Earned
Date
Explanation
1,050
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
1,800
2011
Jan.
1
2
G1
9,000
Salaries Expense
Date
Explanation
10,800
Debit
Credit
Balance
2010
Dec.
3
1 Beginning balance
1,500
2011
Jan.
3
1
G1
3,000
4,500
618
619
Date
Page 1
Debit
Credit
2011
Jan. 1 Cash..................................................................
10
1
30
1
3,500
3,500
10
6
Fees Earned................................................
40
1
9,000
9,000
16
7
12,000
Cash............................................................
10
1
2,000
Accounts Payable........................................
20
1
10,000
10
1
Accounts Receivable...................................
10
6
5,000
5,000
62
3,000
619
620
2
Cash............................................................
10
1
3,000
30
2
Cash............................................................
10
1
750
750
Page
G1
620
621
Date
2011
Aug.
PR
Debit
Cash.........................................
10
1
15,000
Photography Equipment....................
16
7
17,000
30
1
Credit
32,000
Prepaid Rent......................................
13
1
Cash............................................
10
1
6,500
6,500
Office Supplies...................................
12
4
Cash............................................
10
1
1,800
1,800
Cash..................................................
10
1
40
1
9,200
9,200
Utilities Expense.......................
69
0
Cash...................................
10
1
1,100
1,100
621
622
622
623
Explanation
Debit
Credit
Balance
G1
15,000
G1
6,500
8,500
G1
1,800
6,700
2
0
G1
3
1
G1
2011
Aug.
9,200
Explanation
15,900
1,100
14,800
Office Supplies
Date
15,000
PR
Debit
Credit
Balance
2011
Aug.
G1
1,800
Prepaid Rent
Date
Explanation
1,800
PR
Debit
Credit
Balance
2011
Aug.
G1
6,500
Photography Equipment
Date
Explanation
6,500
PR
Debit
G1
17,000
Credit
Balance
2011
Aug.
17,000
623
624
Date
Explanation
PR
Debit
Credit
Balance
2011
Aug.
G1
32,000
Date
Explanation
32,000
PR
Debit
Credit
Balance
2011
Aug.
2
0
G1
9,200
Utilities Expense
Date
Explanation
9,200
Debit
Credit
Balance
2011
Aug.
3
1
G1
1,100
1,100
624
625
Acct
No.
Account Title
Debit Credit
1,800
6,500
17,000
$32,000
9,200
1,100
Totals................................. $41,200
$41,200
Analysis component:
625
627
Aug.
1
101
Photography Fees 40
Earned 1
9,2 Aug.
00 20
Office
Supplies
Aug. 1,80
5
0
124
Prepaid
Rent
Aug. 6,50
1
0
13
1
Aug.
31
Utilities
Expense
1,10
0
690
Acct.
No.
Account Title
Debit Credit
101
Cash...............................................
$ 14,800
124
Office supplies................................
1,800
131
Prepaid rent...................................
6,500
167
Photography equipment.................
17,000
301
401
690
Utilities expense.............................
1,100
627
628
Totals.............................................
$41,200
$41,200
Analysis component:
$46,
000
$37,
000
14,0
00
51,0
00
$
5,00
0
Hogans Consulting
Statement of Owners Equity
For Year Ended December 31, 2011
$
0
628
629
50,0
00
$50,
000
Total...................................
Less: Withdrawals by owner...
Net loss........................
$2,0
00
5,00
0
7,00
0
$43,
000
Hogans Consulting
Balance Sheet
December 31, 2011
Assets
Liabilities
Cash..................................
$12,00
0
Accounts payable.....................
Cleaning supplies..............
8,300
Notes payable..........................
53,500
Prepaid rent.......................
5,000
Total liabilities..........................
$54,30
0
Equipment.........................
72,00
0
Owners Equity
800
43,000
$97,30
0
owners equity......................
$97,30
0
Analysis component:
Losses cause equity to decrease. If equity decreases, either assets have to
decrease and/or liabilities must increase to keep the balance sheet in
balance. Therefore, if Hogans Consulting continues to experience losses,
there are two short-term alternatives available to prevent a decrease in
assets. First, the business could borrow which would increase liabilities and
temporarily increase assets until payments had to be made. Longer term,
the cash to make the payments cannot be borrowed. Second, Lisa Hogan,
the owner, could invest additional assets into the business which would
increase equity and assets. However, for the long-term, the owner does not
want to support the business through continual investments; the business
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
629
630
Income Statement
For Month Ended March 31, 2011
Revenues:
Service revenue...........................................................
$1,900
Operating expenses:
Salaries expense..........................................................
$
800
Interest expense..........................................................
10
810
Net income........................................................................
$1,090
JenCo
Statement of Owners Equity
For Month Ended March 31, 2011
$2,05
0
Net income..............................................................
1,09
0
$3,140
Total.............................................................................
$3,140
1,500
$1,640
JenCo
Balance Sheet
March 31, 2011
Assets
Liabilities
630
631
Cash................................
$1,00
0
Accounts payable..........
$
260
Accounts receivable.......
950
250
Prepaid insurance...........
300
Notes payable............................
80
0
Equipment......................
70
0
Total liabilities......................
$1,31
0
Owners Equity
Total assets....................
$2,95
0
1,64
0
$2,95
0
631
632
Revenues:
Fees earned.........................................................
$170,0
00
Operating expenses:
Wages expense....................................................
$166,0
00
7,00
0
173,0
00
Net loss.....................................................................
$
3,000
$112,00
0*
10,0
00
Total....................................................................
$122,0
00
$
18,000
Net loss..........................................................
3,000
21,00
0
$101,0
00
632
633
Liabilities
Assets
Cash...............
$
30,000
Accounts receivable
...............................
14,000
146,00
0
Office supplies........
3,000
Total liabilities......................
$
192,000
Building...................
80,000
Land........................
116,00
0
Machinery...............
50,0
00
Total assets............
$293,0
00
Owners Equity
Dee Bentley, capital..................
101,00
0
633
634
Description
(1)
Difference
between
Debit and
Credit
Columns
$810
b. A $42,000 debit to
Machinery was posted as
a debit to Accounts
Payable.
$0
(2)
(3)
Colum
Identify
n with account(s)
the
incorrectly
Larger
stated
Total
(4)
Amount that
account(s) is
overstated or
understated
Credit
Rent
Expense
Rent Expense is
understated by
$810
Machinery
Machinery is
understated by
$42,000 and
Accounts
Payable is
understated by
$42,000
Accounts
Payable
c. A $4,950 credit to
Services Revenue was
posted as a $495 credit.
$4,455
Debit
Services
Revenue
Services
Revenue is
understated by
$4,455
$1,440
Credit
Store
Supplies
Store Supplies is
understated by
$1,440
$0
Prepaid
Insurance
Prepaid
Insurance is
understated by
$2,250 and
Insurance
Expense is
overstated by
$2,250
Insurance
Expense
$4,050
$0
Credit
Cash
Cash is
understated by
$4,050
Owners
Capital
Owners Capital
account is
understated by
$9,900
634
635
account.
Owners
Owners
Withdrawal Withdrawals is
s
understated by
$9,900
635
636
by
$2,000
and
11.
The quotient equals the difference between the two transposed
numbers.
The difference between the correct number and the incorrect
number is 80.
12.
The number of digits in the quotient tells us the location of the
transposition.
Look for a difference of 8 between the second number from the right
and the third number from the right.
636
637
637
638
11.
The quotient equals the difference between the two transposed
numbers.
The difference between the correct number and the incorrect
number is 4.
12.
The number of digits in the quotient tells us the location of the
transposition.
Look for a difference of 4 between the first number from the right
and the second number from the right.
Through a process of elimination, the incorrect value is Cash for $59. The correct
value must be $95.
638
639
Chapter 4
EXERCISES
7.
2.
8.
3.
9.
4.
10.
5.
11.
6.
12.
639
640
a
)
201
1
Dec
.
32,000
Accumulated Amortization,
Equipment.........................................
To record amortization expense for
the year.
32,000
b
)
31 Insurance Expense............................
c
)
d
)
e
)
31 Insurance Expense............................
f)
31 Wages Expense.................................
Wages Payable............................
To record wages accrued but not
yet paid.
8,000
6 Wages Payable..................................
8,000
Wages Expense.................................
12,000
g
)
11,920
Prepaid Insurance........................
To record insurance coverage that
expired
during the year; $14,000 $2,080.
11,920
5,252
Office Supplies............................
To record office supplies
consumed during
the year; $600 + $5,360 $708.
5,252
20,000
Fee Revenue...............................
To record earned portion of fee
received in
advance; $30,000 2/3 = $20,000.
20,000
9,200
Prepaid Insurance........................
To record insurance coverage that
expired
during the year.
201
2
Jan.
9,200
8,000
640
641
Cash..........................................
To record the payment of wages.
20,000
641
642
Dec.
31 Unearned Revenue.........................
16,0
00
Revenue...........................................
16,000
b
)
10,5
00
c
)
10,500
350
350
d
)
31 Accounts Receivable...............................
3,55
0
Revenue...........................................
3,550
e
)
31 Utilities Expense....................................
Utilities Payable (or Accounts
Payable)................................................
1,30
0
1,300
642
643
201
2
f)
Jan.
4 Cash......................................................
3,55
0
Accounts Receivable.......................
3,550
g
)
1,30
0
Cash...............................................
1,300
Sept
.
30 Unearned Revenue................................
12,0
00
Revenue..........................................
12,000
b)
150
150
643
644
c)
Sep
t.
5,00
0
Office Supplies...............................
5,000
d)
30 Accounts Receivable............................
28,0
00
Revenue........................................
28,000
e)
30 Rent Expense......................................
7,00
0
7,000
f)
Oct.
3 Cash.................................................
28,0
00
Accounts Receivable..................
28,000
g)
7,00
0
Cash.........................................
7,000
a
)
Ma
r.
31 Unearned Rent................................................................
7,500
644
645
Rent Earned......................................
7,500
31 Rent Receivable.....................................
2,700
Rent Earned......................................
2,700
c
)
Apr
.
22 Cash......................................................
4,050
Rent Receivable................................
2,700
Rent Earned......................................
1,350
645
646
Dec.
31 Accounts Receivable.........................................................
2,00
0
2,00
0
31 Rent Expense..........................................
8,00
0
Prepaid Rent......................................
8,00
0
400
40
0
31 Unearned Fees........................................
2,80
0
2,80
0
31 Salaries Expense.....................................
Salaries Payable.................................
5,00
0
5,00
0
646
647
(a)
(b)
(c)
(d)
$ 300
$1,600
$
1,360
$1,375
2,100
5,400
10,08
0
6,000
$7,000
$11,44
0
$7,375
(5,700)
(1,84)
0
$1,300
$
9,600
(750)
(800)
$6,575
647
648
Wages Expense.........................................
1,000
Wages Payable.....................................
1,000
Adjusting entry to record accrued wages for one
day; 5 $200.
Payday entry:
2013
Jan. 4
Wages Expense.........................................
3,000
Wages Payable..........................................
1,000
Cash.....................................................
4,000
Paid employees' accrued and current wages;
5 employees x $200/day x 4 days = $4,000.
Apr
.
30 Interest Expense..........................
2,080
Interest Payable..............................
2,080
May
20 Interest Payable...................................
2,080
Interest Expense...................................
4,160
Cash...............................................
6,240
201
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
648
649
1
b)
Apr
.
30 Salaries Expense...................................
3,600
Salaries Payable..............................
3,600
May
3 Salaries Payable...................................
3,600
Salaries Expense...................................
5,400
Cash...............................................
9,000
Apr
.
2,50
0
2,50
0
May
2,50
0
2,50
0
649
650
2011
Dec.31
Accounts Receivable..................................
Fees Earned..........................................
To record unbilled fees; 30% $12,000.
3,600
31
Unearned Fees...........................................
Fees Earned..........................................
To record earned fees that had been
collected in advance; 70% $12,000.
8,400
31
3,000
31
3,500
31
Salaries Expense........................................
Salaries Payable...................................
To record accrued salaries.
4,900
31
Insurance Expense.....................................
Prepaid Insurance.................................
To record expired prepaid insurance.
2,600
31
960
31
Utilities Expense..........................................
Utilities Payable.....................................
To record unpaid utility costs.
3,600
8,400
3,000
3,500
140
4,900
2,600
960
140
650
651
Account
Unadjusted
Trial Balance
Debit
Cred
it
Adjustments
Debi
t
Cred
it
Cash.................................. 5,000
Debi
t
Cred
it
5,000
Prepaid insurance..............
Adjusted Trial
Balance
5,900
c)
1,40
0
700
b)
250
Equipment......................... 12,00
0
450
12,000
a)
2,400
Accumulated amortization,
equipment..........................................
6,000
Accounts payable...............
1,200
1,200
9,000
9,000
3,000
45,00
0
c)
1,400
a)
2,400
8,400
46,40
0
2,400
29,000
b) 250
7,250
7,000
Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 3
651
652
4,05
0
652
653
$46,400
Operating expenses:
Salaries expense...........................................
$29,00
0
Insurance expense........................................
7,250
2,40
0
38,650
Net income........................................................
$ 7,750
Ayotte Music
Statement of Owners Equity
For Year Ended February 28, 2011
$ 9,000
7,750
Total.............................................................
$16,750
3,000
$13,750
653
654
Ayotte Music
Balance Sheet
February 28, 2011
Assets
Cash.................................................................
$ 5,000
Accounts receivable...........................................
5,900
Prepaid insurance..............................................
450
Office equipment...........
$12,00
0
8,4
00
3,600
$14,950
Liabilities
Accounts payable...............................................
$ 1,200
Owners Equity
Jane Adams, capital...........................................
13,750
$14,950
654
655
Cash.....................................................
1,800
Accounts Payable............................
1,800
655
656
OR
1,800
Cash.............................................
1,800
Office Supplies........................
1,800
Office Supplies.............................
656
657
1,800
Accounts Payable....................
Revenue...............................................
4,500
Accounts Receivable........................
4,500
657
658
OR
4,500
Revenue.......................................
4,500
Cash.......................................
4,500
Cash.............................................
658
659
4,500
Accounts Receivable................
Withdrawals..........................................
1,500
Salaries Expense.............................
1,500
659
660
OR
Cash.....................................................
1,500
Salaries Expense............................
1,500
Withdrawals.........................................
1,500
660
661
Cash..............................................
1,500
661
662
Accounts Receivable.........................................
750
Revenue.................................................
750
750
Cash.......................................................
750
Cash.................................................................
Revenue.................................................
750
750
Analysis component:
If the error in (b) is not corrected, revenue and net income on the
income statement will be overstated each by $4,500. On the balance
sheet, assets (accounts receivable) and equity will be overstated each
by $4,500.
662
663
e)
f)
2,400
16,800
663
664
Cash................................................
Unearned Fees...........................
Received fees for work to be done.
8,400
12
Unearned Fees................................
Fees Earned...............................
Completed work for customer.
2,000
18
Cash................................................
Unearned Fees...........................
Received fees for work to be done.
7,500
27
Unearned Fees................................
Fees Earned...............................
Completed work for customer.
8,400
31
No entry.
Cash................................................
Fees Earned...............................
Received fees for work to be done.
12
No entry.
18
Cash................................................
Fees Earned...............................
Received fees for work to be done.
27
No entry.
31
Fees Earned....................................
Unearned Fees...........................
8,400
7,500
7,500
2,000
8,400
2,000
7,500
8,400
2,000
8,400
7,500
7,500
664
665
job.
665