CHAPTER 4 Completion of the Accounting Cycle ASSIGNMENT CLASSIFICATION TABLE Study Objectives 1. Prepare closing entries and a postclosing trial balance. 2. Explain the steps in the accounting cycle including optional steps. 3. Prepare correcting entries. 4. Prepare a classified balance sheet. 5. Illustrate measures used to evaluate liquidity. *6. Prepare a work sheet (Appendix 4A). *7. Prepare reversing entries (Appendix 4B). Questions Brief Exercises Exercises Problems Set A 1, 2,3, 4, 1, 2, 3, 4, 1, 2, 3, 4, 1, 2, 3, 4, 5 6 5, 6, *12, 6, *10 *13 6, 7, 8, 9 5, 6 4, 5 3, 4 9, 10, 11, 12 7, 8 6, 7 5 13, 14, 15, 9, 10 8, 9, 10 1, 2, 3, 4, 16, 17 6 18, 19, 20 11, 12 9, 10, 6, 7 *21, *22, *23 *13, *14 11, *8, *9 *24, *25 *15, *16 *12, *13, *10, *11 *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the Appendix to each chapter. Solutions Manual 4-1 Chapter 4
ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A 2A Prepare financial statements, closing entries and post-closing trial balance. Prepare adjusting entries, adjusted trial balance, financial statements and closing entries. Simple 70-80 Simple 60-70 3A Complete all steps in the accounting cycle. Moderate 90-120 4A Prepare adjusting entries, adjusted trial balance, financial statements and closing entries. Simple 60-70 5A Analyze errors and prepare corrections. Moderate 60-70 6A 7A Calculate capital account balance; prepare classified balance sheet and liquidity ratios. Calculate current assets and liabilities, working capital, current ratio, and acid-test ratio; comment on liquidity. Moderate 30-40 Moderate 30-35 *8A Prepare work sheet. Moderate 50-60 *9A Prepare work sheet. Moderate 50-60 *10A Prepare and post adjusting, closing, reversing, and cash transaction entries. *11A Prepare adjusting, reversing and subsequent cash entries. Moderate 40-50 Simple 40-50 Solutions Manual 4-2 Chapter 4
BLOOM S TAXONOMY TABLE Correlation Chart between Bloom s Taxonomy, Study Objectives and End-of- Chapter Material Study Objective Knowledge Comprehension Application Analysis Synthesis Evaluation 1. Prepare closing entries and a postclosing trial balance. BE4-1 Q4-1 Q4-2 Q4-3 Q4-4 Q4-5 BE4-2 BE4-3 BE4-4 BE4-6 E4-1 E4-2 E4-3 E4-4 E4-5 E4-6 *E4-12 P4-1A P4-2A P4-3A P4-4A P4-6A *P4-10A 2. Explain the steps in the accounting cycle including optional steps. BE4-5 Q4-8 Q4-6 Q4-7 Q4-9 BE4-6 E4-4 E4-5 P4-3A P4-4A 3. Prepare correcting entries. Q4-10 Q4-9 Q4-11 Q4-12 BE4-7 BE4-8 E4-6 E4-7 P4-5A 4. Prepare a classified balance sheet. Q4-17 Q4-13 Q4-14 Q4-15 Q4-16 Q4-17 BE4-9 BE4-10 E4-8 E4-9 P4-1A P4-2A P4-3A P4-4A P4-6A E4-9 E4-10 P4-7A 5. Illustrate measures used to evaluate liquidity. BE4-11 Q4-18 Q4-19 Q4-20 BE4-12 P4-6A E4-9 E4-10 P4-7A *6. Prepare a work sheet (Appendix 4A). *7. Prepare reversing entries (Appendix 4B). *Q4-21 *Q4-22 *Q4-23 *Q4-24 *Q4-25 *BE4-13 *P4-8A *BE4-14 *P4-9A *E4-11 *BE4-15 *P4-10A *BE4-16 *P4-11A *E4-12 *E4-13 Broadening Your Perspective BYP4-1 BYP4-2 Continuing Cookie Chronicle BYP4-4 Cumulative Coverage BYP4-3 Solutions Manual 4-3 Chapter 4
ANSWERS TO QUESTIONS 1. Permanent accounts are those accounts that appear on the balance sheet and are never closed at the end of the annual accounting year. Temporary accounts, on the other hand, get closed at the end of the year and the net result of the closing entries updates the owner s equity account Capital, a permanent account on the balance sheet. 2. Closing entries are made at the end of an accounting period after preparation of the financial statements to: a. transfer revenue, expense, and drawings account balances to the owner s capital account, and b. reset these temporary account balances to zero. 3. The Income Summary account is used to avoid having a lot of detailed entries on the permanent owner s capital account. The summary data posted to the Income Summary account are the totals of revenue and expense accounts. If an Income Summary account was not used, the owner s capital account would be credited when closing the individual revenue accounts and it would be debited when closing the individual expense accounts. 4. The drawings account is not closed with the expense accounts because it is not part of profit. Drawings represent the distribution of profit to the owner and are not used to calculated profit. Drawings are reported on the statement of owner s equity, not the income statement. The drawings account is closed in a separate entry and not with expenses because it is closed to the capital account, not the Income Summary account. 5. (1) The balance in Income Summary, immediately before the closing entry to transfer its balance to the owner s capital account, should equal the profit (or loss) reported in the income statement. (2) All temporary accounts (revenues, expenses, owner s drawings, and Income Summary) should have zero balances. (3) The balance in the capital account should equal the ending balance reported in the statement of owner s equity and balance sheet. Solutions Manual 4-4 Chapter 4
QUESTIONS (Continued) 6. Analyzing business transactions is a critical and necessary step in the accounting cycle because at this step, we determine whether or not the business s financial position has changed. Through this analysis, we determine which accounts have been changed and whether the accounts involved have increased or decreased at an amount that can be measured. 7. (1) The purpose of the unadjusted trial balance is to prove that the ledger is mathematically accurate. It is used primarily when scrutinizing account balances to decide which accounts need adjustments at the end of the accounting cycle. (2) The purpose of the adjusted trial balance is also to prove that the ledger is mathematically accurate following the posting of adjusting journal entries. The adjusted trial balance is then used to prepare all of the financial statements at the end of the accounting cycle. (3) Finally, the purpose of the post-closing trial balance is to prove the equality of the permanent account balances that are carried forward to the next accounting period. The post-closing trial balance provides evidence that the closing entries have been prepared and posted properly to the accounts and it also shows that the accounting equation is in balance at the end of the accounting period and the beginning of the next accounting period. 8. a) Daily: Analyze transactions and journalize transactions. b) Periodic: Post to ledger, prepare a trial balance, journalize and post adjusting entries, prepare an adjusted trial balance, prepare financial statements. c) Fiscal year end: Journalize and post closing entries, prepare a post closing trial balance. 9. Correcting entries differ from reversing entries because they (1) are not a required part of the accounting cycle if no errors have been made, (2) may be made at any time, and (3) may affect any combination of accounts. Reversing entries are an optional step in the accounting cycle. Reversing entries will always affect an income statement and a balance sheet account. They are used to simplify the recording of subsequent transactions related to the adjustments. Solutions Manual 4-5 Chapter 4
QUESTIONS (Continued) 10. Are they a specific step in the accounting cycle? (Yes, no) When are they journalized? What types of accounts do they affect? Adjusting Entries Yes At the end of the fiscal period. Assets, contra-assets, liabilities, revenues, expenses Correcting Entries No When the error is discovered. All types of accounts. 11. Correcting entries are necessary. Without correcting entries, the accounts in the ledger would be incorrect. The information reported on the financial statements would also be incorrect. Christopher s suggestion of erasing or removing previously recorded incorrect entries and replacing them with correct entries is not acceptable. Allowing entries to be erased would hamper the accounting cycle. The preparers and users of the accounting information could not rely on the completeness and accuracy of the entries used to reflect the transactions of the business. Correcting entries leave behind a proper trail of the original incorrect journal entry and the entry recorded for the correction of the error. 12. In order to properly correct for entry errors, it is important to identify which accounts should have been involved in the transaction and which accounts were used to record the transaction. As well, it is important to determine if the amounts that have been recorded are correct. Once the correct and incorrect entries have been arrived at, the correcting entry can be recorded. The accounts that are not in error can be omitted in the correcting entry. An alternative is to reverse the incorrect entry and to then record the correct entry. 13. Current assets are normally cash and other assets that will be converted to cash, sold, or used up within one year from the balance sheet date. Current liabilities are obligations that are expected to be settled within one year from the balance sheet date or in the company s operating cycle. On the other hand, non-current assets are assets that will not be converted to cash, sold, or used by the business within one year of the balance sheet date or within its operating cycle. Basically that means that non-current assets are everything not classified as a current asset. Non-current liabilities are obligations that are expected to be paid after one year or longer. 14. A company s operating cycle is the average time it takes to go from starting with cash and ending with cash in producing revenues. Solutions Manual 4-6 Chapter 4
QUESTIONS (Continued) 15. Current assets for a Canadian company are listed in liquidity order on the balance sheet. The accounts listed will appear in the following order: cash, short-term investments, accounts receivable, inventory, supplies and lastly, prepaid insurance. 16. Long-term investments are assets that can be realized in cash. However, the conversion is not expected within one year. They include shares (equity) and bonds (debt) of other companies. Property, plant, and equipment assets are resources that have a physical substance, are used in the business, and are not intended for resale. Intangible asset are similar to property, plant, and equipment, but lack physical substance. Finally, goodwill is separate from intangibles because it does not exist on its own and can only exist along with the business to which it relates. * 17. There are alternative methods of presentation that can be followed in the preparation of a balance sheet. The differences in balance sheet presentation when following IFRS, as compared with ASPE, are not significant. The content of the balance sheet is the same as to amounts and key sub-totals, but the sequence of the major categories of the elements in the balance sheet may change. The traditional Canadian standards call for the presentation of assets in the balance sheet to follow the order: current assets (in decreasing liquidity order), long-term investments, property, plant, and equipment, intangible assets, and goodwill. Current liabilities, long-term debt and owners or shareholders equity then complete the balance sheet. For the IFRS format, the presentation often follows this sequence: noncurrent assets, including property, plant, and equipment and then intangible assets, current assets (in increasing liquidity order), shareholders equity, non-current liabilities and current liabilities. But public Canadian companies will still have the choice to follow the traditional conventions. 18. Liquidity is the ability of a company to pay its obligations that become due within the next year. One measure of liquidity is working capital. Other measures include the current and acid-test ratios. 19. Ratios should never be interpreted or compared without considering certain factors: (1) general economic and industry conditions, (2) other specific financial information about the company over time, and (3) the the ratios for other companies in the same or related industries. Solutions Manual 4-7 Chapter 4
QUESTIONS (Continued) 20. The acid-test ratio is a measure of the company s immediate short-term liquidity. The acid-test ratio is calculated by dividing the sum of cash, short-term investments and accounts receivable by current liabilities. The current ratio is a measure of the short-term debt-paying ability that is determined by dividing all current assets by current liabilities. *21. To calculate the income on a work sheet, each of the financial statement columns must be totalled. The profit or loss for the period is then found by calculating the difference between the totals of the two income statement columns. If a company has profit, the amount is entered in the income statement debit column and the balance sheet credit column. If the company has a loss, the amount is entered in the credit column on the income statement and in the debit column on the balance sheet. *22. It is still necessary to journalize and post adjusting entries that have been made on the work sheet because the work sheet is not part of the company s permanent accounting records. The general ledger and journal must contain all of the adjusting data. If this were not done, balances for the start of the next year would be incorrect. *23. The work sheet is a convenient and efficient tool for completing some of the steps 4-6 (trial balance, adjusting entries, adjusted trial balance) and for assisting with step 7 (prepare financial statements) in the accounting cycle. *24. A reversing entry is an optional entry that is the exact opposite, both in amount and in account titles, of an adjusting entry for an accrual. Reversing entries are prepared at the beginning of the accounting period and are used to simplify the recording of subsequent transactions related to the accrual adjustments. *25. It is helpful to use reversing entries for accruals because then the payment can be processed in the normal manner without having to check if there has been an accrual, i.e., all cash payments can be debited to the appropriate expense account. The use of reversing entries does not change the amounts reported in the financial statements. It simply makes it easier to record transactions in the next accounting period. Solutions Manual 4-8 Chapter 4
SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 4-1 1. (NC) Accounts payable 2. (NC) Accounts receivable 3. (C) Depreciation expense 4. (C) Operating expenses 5. (NC) Unearned revenue 6. (C) Interest expense 7. (NC) S. Young, capital 8. (NC) Notes payable 9. (C) Rent revenue 10. (NC) Prepaid expenses 11. (NC) Equipment 12. (C) S. Young, drawings 13. (NC) Accumulated depreciation 14. (NC) Supplies Solutions Manual 4-9 Chapter 4
BRIEF EXERCISE 4-2 (a) Service Revenue... $38,500 Expenses Insurance Expense... $2,750 Rent Expense... 8,000 Supplies Expense... 1,500 Total expenses... 12,250 Profit... $26,250 (b) Nov. 30 Service Revenue... 38,500 Income Summary... 38,500 30 Income Summary... 12,250 Insurance Expense... 2,750 Rent Expense... 8,000 Supplies Expense... 1,500 30 Income Summary... 26,250 L. Wilfrid, Capital... 26,250 30 L. Wilfrid, Capital... 29,000 L. Wilfrid, Drawings... 29,000 (c) The closing balance of the L. Wilfrid, Capital account at November 30, 2014 is $39,250 calculated as follows: L. Wilfrid, Capital 29,000 42,000 26,250 Bal. 39,250 Solutions Manual 4-10 Chapter 4
BRIEF EXERCISE 4-3 (a) Oct 31 Service Revenue... 130,000 Income Summary... 130,000 31 Income Summary... 105,000 Maintenance Expense... 23,000 Rent Expense... 10,000 Salaries Expense... 72,000 31 Income Summary... 25,000 N. Mosquera, Capital... 25,000 (b) 31 N. Mosquera, Capital... 45,000 N. Mosquera, Drawings... 45,000 Income Summary 105,000 130,000 25,000 25,000 0 N. Mosquera, Capital N. Mosquera, Drawings 65,000 45,000 25,000 45,000 45,000 45,000 0 Service Revenue Maintenance Expense 130,000 23,000 130,000 23,000 0 0 Rent Expense Salaries Expense 10,000 72,000 10,000 72,000 0 0 Solutions Manual 4-11 Chapter 4
BRIEF EXERCISE 4-4 MOSQUERA GOLF CLUB Post-Closing Trial Balance October 31, 2014 Debit Credit Cash... $ 7,500 Prepaid expenses... 3,000 Equipment... 65,000 Accumulated depreciation equipment... $15,000 Accounts payable... 14,000 Unearned revenue... 1,500 N. Mosquera, capital... 45,000 $75,500 $75,500 BRIEF EXERCISE 4-5 The proper sequencing of the required steps in the accounting cycle is as follows: 1. Analyze business transactions 2. Journalize the transactions 3. Post to the ledger accounts 4. Prepare a trial balance 5. Journalize and post the adjusting entries 6. Prepare an adjusted trial balance 7. Prepare the financial statements 8. Journalize and post the closing entries 9. Prepare a post-closing trial balance Filling in the blanks, the answers are 9, 6, 1, 4, 2, 8, 7, 5, 3. Solutions Manual 4-12 Chapter 4
BRIEF EXERCISE 4-6 (a) April 15 Supplies... 1,850 Cash... 1,850 (b) Supplies Apr. 15 1,850 Supplies Expense (c) Mar. 31 Supplies Expense... 1,450 Supplies... 1,450 Supplies Supplies Expense Apr. 15 1,850 Mar.31 1,450 Mar. 31 1,450 Bal. 400 (d) Mar. 31 Income Summary... 1,450 Supplies Expense... 1,450 Income Summary Supplies Expense Mar. 31 1,450 Mar.31 1,450 Mar. 31 1,450 Bal. 0 Solutions Manual 4-13 Chapter 4
BRIEF EXERCISE 4-7 Balance Sheet Income Statement Owner's Assets Liabilities Equity Revenue Expenses Profit 1. O NE O O NE O 2. NE O U U NE U 3. NE NE O/U NE O U 4. O O NE NE NE NE BRIEF EXERCISE 4-8 1. Service Revenue... 750 Accounts Receivable... 750 2. Unearned Revenue... 600 Service Revenue... 600 3. Roch Hébert, Drawings... 500 Salary Expense... 500 4. Accounts Payable ($280 2)... 560 Cash... 560 Solutions Manual 4-14 Chapter 4
BRIEF EXERCISE 4-9 DARIUS COMPANY Balance Sheet December 31, 2014 (a) Current assets Cash... $ 16,400 Short-term investments... 8,200 Accounts receivable... 14,500 Merchandise inventory... 9,000 Supplies... 4,200 Prepaid insurance... 1,600 Total current assets... $53,900 (b) Long-term investments Notes receivable (due February 1, 2016)... $ 5,500 Property, plant, and equipment Vehicles... 22,500 Intangible assets Patents... 3,900 Goodwill... 9,250 Unearned revenue of $2,900 is classified as a current liability. Solutions Manual 4-15 Chapter 4
BRIEF EXERCISE 4-10 ODOM COMPANY Balance Sheet December 31, 2014 (a) Non-current assets Property, plant, and equipment Land... $85,000 Buildings... $125,000 Less: Accumulated depreciation... 37,400 87,600 Equipment... 43,000 Less: Accumulated depreciation.. 25,800 17,200 $189,800 Intangible assets Patents... 12,300 Goodwill... 5,520 (b) Current assets Supplies... $ 2,900 Merchandise inventory... 14,000 Notes receivable (due April 1, 2015)... 7,800 The notes payable of $28,000 is classified as a non-current liability. BRIEF EXERCISE 4-11 Working capital = Current assets Current liabilities Big: Working capital = $1,000,000 $900,000 = $100,000 Small: Working capital = $200,000 $100,000 = $100,000 Current ratio = Current assets Current liabilities Big River: Current ratio = $1,000,000 $900,000 = 1.11:1 Small Fry: Current ratio = $200,000 $100,000 = 2.00:1 The working capital is the same for both companies but Small Fry Company s current ratio is much stronger. The current ratio is more relevant. Solutions Manual 4-16 Chapter 4
BRIEF EXERCISE 4-12 (a) (1) Working capital = Current assets Current liabilities Working capital 2013 = $33,510 $24,800 = $8,710 Working capital 2014 = $35,100 $24,460 = $10,640 (2) Current ratio = Current assets Current liabilities Current ratio 2013 = $33,510 $24,800 = 1.35:1 Current ratio 2014 = $35,100 $24,460 = 1.43:1 (3) Acid-test ratio = (Cash + Accounts Receivable + Short-term Investments) Current liabilities Acid-test ratio 2013 = $20,430 $24,800 = 0.82:1 Acid-test ratio 2014 = $22,680 $24,460 = 0.93:1 (b) All three measures of Drew Co. s liquidity show improvement in 2014 compared to 2013. *BRIEF EXERCISE 4-13 Income Statement Balance Sheet Dr. Cr. Dr. Cr. Totals 75,000 95,500 191,000 170,500 Profit 20,500 20,500 Totals 95,500 95,500 191,000 191,000 Solutions Manual 4-17 Chapter 4
*BRIEF EXERCISE 4-14 Income Statement Balance Sheet Dr. Cr. Dr. Cr. Totals 53,875 43,425 55,550 66,000 Loss 10,450 10,450 Totals 53,875 53,875 66,000 66,000 Solutions Manual 4-18 Chapter 4
*BRIEF EXERCISE 4-15 (a) Dec. 31 Salaries Expense... 1,700 Salaries Payable... 1,700 To accrue salaries at year-end (b) Dec. 31 Income Summary... 1,700 Salaries Expense... 1,700 Closing entry (c) Jan. 1 Salaries Payable... 1,700 Salaries Expense... 1,700 To reverse Dec. 31 accrual. 4 Salaries Expense... 3,000 Cash... 3,000 To record Jan. 4 payment of salary. Solutions Manual 4-19 Chapter 4
*BRIEF EXERCISE 4-15 (Continued) (d) Salaries Expense Date Explanation Ref. Debit Credit Balance Dec. 31 Accrual 1,700 1,700 Dr. 31 Closing entry 1,700 0 Jan. 1 Reversing entry 1,700 1,700 Cr. 4 Payment of salary 3,000 1,300 Dr. Salaries Payable Date Explanation Ref. Debit Credit Balance Dec. 31 Accrual 1,700 1,700 Jan. 1 Reversing entry 1,700 0 The balances after posting the entries are a debit of $1,300 in Salaries Expense and $0 in Salaries Payable. Solutions Manual 4-20 Chapter 4
*BRIEF EXERCISE 4-16 (a) Dec. 31 Interest Receivable... 1,125 Interest Revenue... 1,125 To accrue interest at year-end ($90,000 5% 3/12 = $1,125) (b) Jan.1 Interest Revenue... 1,125 Interest Receivable... 1,125 To record reversing entry Mar. 1 Cash... 91,875 Notes Receivable... 90,000 Interest Revenue... 1,875 To record collection of note and interest ($90,000 5% 5/12 = $1,875) Solutions Manual 4-21 Chapter 4
EXERCISE 4-1 SOLUTIONS TO EXERCISES (a) When we look at the L. Welker, Capital account we know that the entry on the debit side of the account does not represent a loss for the month since the amount of this entry corresponds to the closing entry from the L. Welker, Drawings account. The entry on the credit side of the L. Welker, Capital account provides the amount of the profit for the year in the amount of $3,700, which corresponds to the closing entry that would be coming from the Income Summary account. (b) Total owner s equity at May 31 corresponds to the L. Welker, Capital account balance of $12,200. (c) May 31 Service Revenue... 16,800 Income Summary... 16,800 (d) 31 Income Summary... 13,100 Advertising Expense... 1,300 Rent Expense... 3,000 Salaries Expense... 8,800 31 Income Summary... 3,700 L. Welker, Capital... 3,700 31 L. Welker, Capital... 2,500 L. Welker, Drawings... 2,500 Income Summary Date Explanation Ref. Debit Credit Balance May 31 Close Revenues 16,800 16,800 31 Close Expenses 13,100 3,700 31 Closing entry 3,700 0 Solutions Manual 4-22 Chapter 4
EXERCISE 4-2 (a) VICTOIRE ESTHETICS Statement of Owner's Equity Month Ended August 31, 2014 B. Victoire, capital, August 1, 2014... $ 9,000 Add: Investment... 2,000 Profit... 7,000 18,000 Less: Drawings... 4,700 B. Victoire, capital, August 31, 2014... $13,300 (b) Aug. 31 Income Summary... 7,000 B. Victoire, Capital... 7,000 31 B. Victoire, Capital... 4,700 B. Victoire, Drawings... 4,700 Solutions Manual 4-23 Chapter 4
EXERCISE 4-2 (Continued) (b) (Continued) Income Summary Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 7,000 Cr 31 Closing entry 7,000 0 B. Victoire, Drawings Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 4,700 31 Closing entry 4,700 0 B. Victoire, Capital Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 11,000 31 Closing entry 7,000 18,000 31 Closing entry 4,700 13,300 Solutions Manual 4-24 Chapter 4
EXERCISE 4-3 (a) Aug. 31 Service Revenue... 35,900 Interest Revenue... 400 Income Summary... 36,300 31 Income Summary... 22,745 Depreciation Expense... 9,300 Insurance Expense... 4,100 Interest Expense... 1,500 Supplies Expense... 7,845 31 Income Summary... 13,555 T. Williams, Capital... 13,555 31 T. Williams, Capital... 18,500 T. Williams, Drawings... 18,500 Solutions Manual 4-25 Chapter 4
EXERCISE 4-3 (Continued) (b) Income Summary Clos. 22,745 Clos. 36,300 Bal. 13,555 Clos. 13,555 Bal. 0 T. Williams, Capital T. Williams, Drawings Bal. 85,500 Bal. 18,500 Clos. 18,500 Clos. 13,555 Clos. 18,500 Bal. 80,555 Bal. 0 Service Revenue Interest Revenue Clos. 35,900 Bal. 35,900 Clos. 400 Bal. 400 Bal. 0 Bal. 0 Depreciation Expense Interest Expense Bal. 9,300 Clos. 9,300 Bal. 1,500 Clos. 1,500 Bal. 0 Bal. 0 Insurance Expense Supplies Expense Bal. 4,100 Clos. 4,100 Bal. 7,845 Clos. 7,845 Bal. 0 Bal. 0 Solutions Manual 4-26 Chapter 4
EXERCISE 4-3 (Continued) (c) ALPINE BOWLING LANES Post-Closing Trial Balance August 31, 2014 Debit Credit Cash... $ 17,940 Accounts receivable... 10,980 Prepaid insurance... 820 Supplies... 740 Debt investments... 10,000 Equipment... 93,000 Accumulated depreciation equipment... $ 18,600 Accounts payable... 8,200 Unearned revenue... 980 Notes payable... 25,000 Interest payable... 145 T. Williams, capital... 80,555 $133,480 $133,480 Solutions Manual 4-27 Chapter 4
EXERCISE 4-4 (a) Apr. 2 Cash... 4,000 Tim Sasse, Capital... 4,000 (b) (c) and (e) 6 Supplies... 1,500 Cash... 1,500 15 Cash... 600 Service Revenue... 600 25 Cash... 2,200 Unearned Revenue... 2,200 Cash Supplies Apr. 2 4,000 Apr. 6 1,500 Apr. 6 1,500 Apr. 30 700 Apr. 15 600 Apr.30 800 Apr. 25 2,200 Bal. 5,300 Unearned Revenue Service Revenue Apr.30 800 Apr. 25 2,200 Apr. 15 600 Bal. 1,400 Apr. 30 600 Apr. 30 800 Clos. 2,000 Bal. 2,000 Bal. 0 Accounts Receivable Supplies Expense Apr. 30 600 Apr. 30 700 Clos. 700 Bal. 0 Income Summary Tim Sasse, Capital Clos. 700 Clos. 2,000 Apr. 2 4,000 Clos. 1,300 Clos. 1,300 Bal. 0 Bal. 5,300 Solutions Manual 4-28 Chapter 4
EXERCISE 4-4 (Continued) (c) (Continued) Apr. 30 Accounts Receivable... 600 Service Revenue... 600 30 Supplies Expense... 700 Supplies... 700 ($1,500 $800 = $700) 30 Unearned Revenue... 800 Service Revenue... 800 (d) SASSE ROOF REPAIRS Adjusted Trial Balance April 30, 2014 Debit Credit Cash... $ 5,300 Accounts receivable... 600 Supplies... 800 Unearned revenue... $ 1,400 Tim Sasse, capital... 4,000 Service revenue... 2,000 Supplies expense... 700 _ $7,400 $7,400 (e) Apr. 30 Service Revenues... 2,000 Income Summary... 2,000 30 Income Summary... 700 Supplies Expense... 700 30 Income Summary... 1,300 Tim Sasse, Capital... 1,300 Solutions Manual 4-29 Chapter 4
EXERCISE 4-5 (a) Dec. 31 Accounts Receivable... 1,440 Service Revenue... 1,440 31 Insurance Expense... 4,340 Prepaid Insurance... 4,340 ($7,440 12 7 = $4,340) 31 Depreciation Expense... 2,780 Accumulated Depreciation Equipment... 2,780 31 Supplies Expense... 4,510 Supplies... 4,510 ($5,260 $750 = $4,510) 31 Interest Receivable... 120 Interest Revenue... 120 [($12,000 4%) 12 3 = $120] (b) Dec. 31 Service Revenue... 113,740 Interest Revenue... 120 Income Summary... 113,860 ($112,300 + $1,440 = $113,740) 31 Income Summary... 51,030 Insurance Expense... 4,340 Salaries Expense... 39,400 Depreciation Expense... 2,780 Supplies Expense... 4,510 31 Income Summary... 62,830 H. Duguay, Capital... 62,830 31 H. Duguay, Capital... 53,500 H. Duguay, Drawings... 53,500 Solutions Manual 4-30 Chapter 4
EXERCISE 4-6 (a) 1. Accounts Payable ($1,750 $750)... 1,000 Cash... 1,000 2. Supplies... 860 Accounts Payable... 860 3. L. Choi, Drawings... 400 Salaries Expense... 400 4. Service Revenue... 700 Accounts Receivable... 700 5. Unearned Revenue... 350 Service Revenue... 350 (b) Balance Sheet Income Statement Owner's Assets Liabilities Equity Revenue Expenses Profit 1. O O NE NE NE NE 2. U U NE NE NE NE 3. NE NE O/U NE O U 4. O NE O O NE O 5. NE O U U NE U Solutions Manual 4-31 Chapter 4
EXERCISE 4-7 (a) 1. Cash... 625 Supplies... 625 Salaries Expense... 625 Cash... 625 2. Cash... 2,000 Short-Term Investments... 2,000 Cash... 2,000 T. D Addario, Capital... 2,000 3. Accounts Receivable... 870 Cash... 870 Cash... 780 Accounts Receivable... 780 4. Cash... 440 Supplies... 440 Accounts Payable... 440 Cash... 440 5. Accounts Payable... 3,500 Equipment Expense... 3,500 Equipment... 3,500 Notes Payable... 3,500 Solutions Manual 4-32 Chapter 4
EXERCISE 4-7 (Continued) (b) 1. Salaries Expense... 625 Supplies... 625 2. Cash... 4,000 Short-Term Investments... 2,000 T. D Addario, Capital... 2,000 3. Accounts Receivable ($870 $780). 90 Cash... 90 4. Accounts Payable... 440 Supplies... 440 5. Accounts Payable... 3,500 Equipment... 3,500 Equipment Expense... 3,500 Notes Payable... 3,500 Solutions Manual 4-33 Chapter 4
EXERCISE 4-8 (a) DONATELLO COMPANY Income Statement Year Ended July 31, 2014 Revenues Service revenue... $75,000 Interest revenue... _ 320 Total revenues... $75,320 Expenses Depreciation expense... 2,850 Rent expense... 18,550 Salaries expense... 36,050 Supplies expense... 20,850 Interest expense... 3,000 Total expenses... 81,300 Loss... $ 5,980 DONATELLO COMPANY Statement of Owner's Equity Year Ended July 31, 2014 B. Donatello, capital, August 1, 2013 ($28,285 $5,000) $23,285 Add: Investment... 5,000 28,285 Less: Loss... $ 5,980 Drawings... 16,500 0 22,480 B. Donatello, capital, July 31, 2014... $ 5,805 Solutions Manual 4-34 Chapter 4
EXERCISE 4-8 (Continued) (b) DONATELLO COMPANY Balance Sheet July 31, 2014 Assets Current assets Cash... $ 4,650 Accounts receivable... 11,400 Supplies... 750 Prepaid rent... 500 Total current assets... 17,300 Long-term investments Debt investment... 8,000 Property, plant, and equipment Equipment... $19,950 Less: Accumulated depreciation... 5,700 14,250 Patents... 18,300 Total assets... $57,850 Liabilities and Owner's Equity Current liabilities Accounts payable... $ 4,245 Interest payable... 750 Unearned revenue... 2,050 Total current liabilities... 7,045 Long-term liability Notes payable... 45,000 Total liabilities... 52,045 Owner's equity B. Donatello, capital... 5,805 Total liabilities and owner's equity... $57,850 Solutions Manual 4-35 Chapter 4
EXERCISE 4-9 (a) JPC ENTERPRISES Balance Sheet December 31, 2014 Assets Current assets Cash... $ 16,500 Accounts receivable... 197,000 Merchandise inventory... 173,200 Supplies... 10,100 Prepaid expenses... 6,900 Total current assets... 403,700 Long-term investments Equity investments... $ 45,800 Debt investments... 62,600 Notes receivable... 34,700 Total long-term investments... 143,100 Property, plant, and equipment Land... $105,600 Building... $256,300 Less: Accumulated depreciation... 79,900 176,400 Equipment... 92,100 Less: Accumulated depreciation... 71,100 21,000 303,000 Licences... 58,300 Goodwill... 36,000 Total assets... $944,100 Solutions Manual 4-36 Chapter 4
EXERCISE 4-9 (Continued) (a) (Continued) Liabilities and Owner's Equity Current liabilities Accounts payable... $210,100 Salaries payable... 28,700 Interest payable... 16,500 Unearned revenue... 27,400 Notes payable... 55,000 Current portion of mortgage payable... 17,250 Total current liabilities... 354,950 Long-term liabilities Mortgage payable ($230,000 $17,250)... 212,750 Total liabilities... 567,700 Owner's equity J. Chrowder, capital... 376,400 Total liabilities and owner's equity... $944,100 (b) Working capital = Current Assets Current Liabilities $403,700 $354,950 = $48,750 Current Ratio = Current Assets Current Liabilities $403,700 $354,950 = 1.14:1 Acid-test ratio = (Cash + Accounts receivable + Shortterm investments) Current liabilities = ($16,500 + $197,000) $354,950 = $213,500 $354,950 = 0.60:1 (c) The company's liquidity is not satisfactory, it s very poor. There is insufficient cash to pay for accounts payable and salaries payable that are likely due within days. Some of the investments might have to be sold to meet these obligations on time. Solutions Manual 4-37 Chapter 4
EXERCISE 4-10 (a) Working Capital = Current Assets Current Liabilities Fiscal years ending: Jan. 2, 2010: $2,441,973 $1,706,541 = $735,432 Jan. 1, 2011: $2,542,820 $1,527,567 = $1,015,253 Dec. 31, 2011: $2,695,647 $1,776,238 = $919,409 Current Ratio = Current Assets Current Liabilities Jan. 2, 2010: $2,441,973 $1,706,541 = 1.43:1 Jan. 1, 2011: $2,542,820 $1,527,567 = 1.66:1 Dec. 31, 2011: $2,695,647 $1,776,238 = 1.52:1 Acid-test ratio = (Cash + Accounts receivable) Current Liabilities Jan. 2, 2010: ($44,391 + $470,935) $1,706,541 = 0.30:1 Jan. 1, 2011: ($64,354 + $432,089) $1,527,567 = 0.32:1 Dec. 31, 2011: ($118,566 + $493,338) $1,776,238 = 0.34:1 (b) Shoppers Drug Mart s short-term debt-paying ability (current ratio) has deteriorated in the fiscal year ending December 31, 2011 compared to the previous fiscal year. The immediately preceding year was a vast improvement from its preceding fiscal year ending January 2, 1010. On the other, Shopper s immediate short-term liquidity (acidtest ratio) has improved steadily over the last two years. The excess of the current assets over the current liabilities (working capital) is substantial at each fiscal year-end. Solutions Manual 4-38 Chapter 4
*EXERCISE 4-11 Unadjusted Trial Balance SWIFT CREEK ENGINEERING Work Sheet Year Ended December 31, 2014 Adjustments Adjusted Trial Balance Income Statement Balance Sheet Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 8,450 8,450 8,450 Accounts receivable 6,250 1,440 7,690 7,690 Interest receivable 120 120 120 Supplies 5,260 4,510 750 750 Prepaid insurance 7,440 4,340 3,100 3,100 Notes receivable 12,000 12,000 12,000 Equipment 27,800 27,800 27,800 Accum. deprec. 8,340 equip. 2,780 11,120 11,120 Accounts payable 4,560 4,560 4,560 H. Duguay, capital 34,900 34,900 34,900 H. Duguay, draw. 53,500 53,500 53,500 Service revenue 112,300 1,440 113,740 113,740 Interest revenue 120 120 120 Depr. expense 2,780 2,780 2,780 Insurance expense 4,340 4,340 4,340 Salaries expense 39,400 39,400 39,400 Supplies expense 4,510 4,510 4,510 Totals 160,100 160,100 13,190 13,190 164,440 164,440 51,030 113,860 113,410 50,580 Profit 62,830 62,830 Totals 113,860 113,860 113,410 113,410 Solutions Manual 4-39 Chapter 4 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited.
*EXERCISE 4-12 (a) (1) Dec.31 Accounts Receivable... 4,400 Service Revenue... 4,400 31 Interest Expense... 1,500 Interest Payable... 1,500 (2) Dec.31 Service Revenue... 96,400 Income Summary... 96,400 31 Income Summary... 9,300 Interest Expense... 9,300 31 Income Summary... 87,100 I. Masterson, Capital... 87,100 (b) Jan. 1 Service Revenue... 4,400 Accounts Receivable... 4,400 1 Interest Payable... 1,500 Interest Expense... 1,500 (c) Jan. 10 Cash... 6,200 Service Revenue... 6,200 31 Interest Expense... 2,235 Cash... 2,235 Solutions Manual 4-40 Chapter 4
*EXERCISE 4-12 (Continued) (a), (b) and (c) Cash Date Explanation Ref. Debit Credit Balance Dec. 31 Unadjusted balance 7,600 Jan. 10 6,200 13,800 31 2,235 11,565 Accounts Receivable Date Explanation Ref. Debit Credit Balance Dec. 31 Unadjusted balance 24,000 31 Adjusting entry 4,400 28,400 Jan. 1 Reversing entry 4,400 24,000 Interest Payable Date Explanation Ref. Debit Credit Balance Dec. 31 Unadjusted balance 0 31 Adjusting entry 1,500 1,500 Jan. 1 Reversing entry 1,500 0 I. Masterson, Capital Date Explanation Ref. Debit Credit Balance Dec. 31 Unadjusted balance 48,000 31 Closing entry 87,100 135,100 Solutions Manual 4-41 Chapter 4
*EXERCISE 4-12 (Continued) (a), (b), and (c) (Continued) Income Summary Date Explanation Ref. Debit Credit Balance Dec. 31 Closing entry 96,400 96,400 31 Closing entry 9,300 87,100 31 Closing entry 87,100 0 Service Revenue Date Explanation Ref. Debit Credit Balance Dec. 31 Unadjusted balance 92,000 31 Adjusting entry 4,400 96,400 31 Closing entry 96,400 0 Jan. 1 Reversing entry 4,400 4,400 Dr. 10 6,200 1,800 Interest Expense Date Explanation Ref. Debit Credit Balance Dec. 31 Unadjusted balance 7,800 31 Adjusting entry 1,500 9,300 31 Closing entry 9,300 0 Jan. 1 Reversing entry 1,500 1,500 Cr. 31 2,235 735 Solutions Manual 4-42 Chapter 4
*EXERCISE 4-13 (a) It would be useful to prepare reversing entries for adjustment 1, 4, and 6. (b) (1) May 1 Service Revenue... 600 Accounts Receivable... 600 (4) May 1 Interest Payable... 545 Interest Expense... 545 (6) May 1 Property Tax Payable... 1,304 Property Tax Expense... 1,304 ($3,912 12 4) (c) Reversing entries are useful for these adjustments because it simplifies the recording of future transactions. Without reversing entries, transactions 1, 4, and 6 would require compound journal entries. If reversing entries are prepared, the future transactions can be recorded with simple journal entries. You will not have to remember what has gone before. The use of reversing entries does not change the amounts reported in the financial statements. It simply makes it easier to record future transactions. Since there are no future transactions related to items 2, 3, and 5, there is nothing to be gained by reversing these entries. Solutions Manual 4-43 Chapter 4
SOLUTIONS TO PROBLEMS PROBLEM 4-1A (a) Revenues Service revenue... $124,300 Interest revenue... 1,500 $125,800 Expenses Depreciation expense... 9,850 Insurance expense... 4,500 Interest expense... 3,960 Salaries expense... 30,000 Supplies expense... 5,700 Utilities expense... 5,400 59,410 Profit... $66,390 (b) MARINE FISHING CENTRE Statement of Owner's Equity Year Ended March 31, 2014 R. Falkner, capital, April 1, 2013 ($165,300 $2,300)... $ 163,000 Add: Investment... $ 2,300 Profit... 66,390 68,690 231,690 Less: Drawings... 46,200 R. Falkner, capital, March 31, 2014... $ 185,490 Solutions Manual 4-44 Chapter 4
PROBLEM 4-1A (Continued) (c) MARINE FISHING CENTRE Balance Sheet March 31, 2014 Assets Current assets Cash... $ 7,720 Interest receivable... 750 Supplies... 1,425 Total current assets... 9,895 Long-term debt investment... 30,000 Property, plant, and equipment Land... $46,800 Building... $186,900 Less: Accumulated depreciation.. 31,150 155,750 Equipment... 36,200 Less: Accumulated depreciation. 18,100 18,100 220,650 Total assets... $260,545 Liabilities and Owner's Equity Current liabilities Accounts payable... $5,875 Interest payable... 990 Unearned revenue... 2,190 Current portion of notes payable... 6,000 Total current liabilities... 15,055 Long-term liabilities Notes payable... 60,000 Total liabilities... 75,055 Owner's equity R. Falkner, capital... 185,490 Total liabilities and owner's equity... $260,545 Solutions Manual 4-45 Chapter 4
PROBLEM 4-1A (Continued) (d) GENERAL JOURNAL Date Account Titles and Explanation Debit Credit Mar. 31 Service Revenue... 124,300 Interest Revenue... 1,500 Income Summary... 125,800 31 Income Summary... 59,410 Depreciation expense... 9,850 Insurance expense... 4,500 Interest expense... 3,960 Salaries expense... 30,000 Supplies expense... 5,700 Utilities expense... 5,400 31 Income Summary... 66,390 R. Falkner, Capital... 66,390 31 R. Falkner, Capital... 46,200 R. Falkner, Drawings... 46,200 Solutions Manual 4-46 Chapter 4
PROBLEM 4-1A (Continued) (e) Income Summary Clos. 59,410 Clos. 125,800 Bal. 66,390 Clos. 66,390 Bal. 0 R. Falkner, Capital R. Falkner, Drawings Bal. 165,300 Bal. 46,200 Clos. 46,200 Clos. 66,390 Clos. 46,200 Bal. 185,490 Bal. 0 Service Revenue Interest Revenue Clos. 124,300 Bal. 124,300 Clos. 1,500 Bal. 1,500 Bal. 0 Bal. 0 Depreciation Expense Insurance Expense Bal. 9,850 Clos. 9,850 Bal. 4,500 Clos. 4,500 Bal. 0 Bal. 0 Interest Expense Salaries Expense Clos. 3,960 Bal. 3,960 Bal. 30,000 Clos. 30,000 Bal. 0 Bal. 0 Supplies Expense Utilities Expense Bal. 5,700 Clos. 5,700 Bal. 5,400 Clos. 5,400 Bal. 0 Bal. 0 Solutions Manual 4-47 Chapter 4
PROBLEM 4-1A (Continued) (f) MARINE FISHING CENTRE Post-Closing Trial Balance March 31, 2014 Debit Credit Cash... $ 7,720 Interest receivable... 750 Supplies... 1,425 Debt investments... 30,000 Land... 46,800 Building... 186,900 Accumulated depreciation building... $ 31,150 Equipment... 36,200 Accumulated depreciation equipment... 18,100 Accounts payable... 5,875 Interest payable... 990 Unearned revenue... 2,190 Notes payable... 66,000 R. Falkner, capital... 185,490 $309,795 $309,795 The balance in the R. Falkner, capital account after the closing entries have been posted will be $185,490 as shown in the above adjusted trial balance. This balance corresponds to the ending balance on the statement of owner s equity in part (b) above. Solutions Manual 4-48 Chapter 4
PROBLEM 4-1A (Continued) Taking It Further: When deciding how to present financial information on the classified balance sheet, Marine Fishing Centre could show the presentation as was followed in part (c) above but it also had the alternative to prepare the classified balance sheet following the International Financial Reporting Standards (IFRS). If it followed IFRS, the statement would likely have been titled Statement of Financial Position. The content of the balance sheet would have been the same as to amounts and key sub-totals as in part (c) above but the sequence of the major categories of the elements in the balance sheet would have changed. For the IFRS format, the presentation follows the following sequence: long-term assets, including properly plant and equipment and then intangible assets, current assets (in increasing liquidity order), shareholders equity, non-current liabilities and current liabilities. Solutions Manual 4-49 Chapter 4
PROBLEM 4-2A (a) GENERAL JOURNAL Date Account Titles and Explanation Debit Credit Jan. 31 Accounts Receivable... 1,550 Service Revenue... 1,550 31 Insurance Expense ($6,420 11/12). 5,885 Prepaid Insurance... 5,885 31 Supplies Expense ($5,240 $580)... 4,660 Supplies... 4,660 31 Depreciation Expense... 3,800 Accumulated Depreciation Building ($90,000 45)... 2,000 Accumulated Depreciation Equipment ($27,000 15)... 1,800 31 Salaries Expense... 1,520 Salaries Payable... 1,520 31 Interest Expense ($102,000 6% 1/12) 510 Interest Payable... 510 31 Unearned Revenue... 850 Service Revenue... 850 Solutions Manual 4-50 Chapter 4
PROBLEM 4-2A (Continued) (b) SPARTAN CYCLE REPAIR SHOP Adjusted Trial Balance January 31, 2014 Debit Credit Cash... $ 3,200 Accounts receivable ($6,630 + $1,550)... 8,180 Prepaid insurance ($6,420 $5,885)... 535 Supplies ($5,240 $4,660)... 580 Land... 50,000 Building... 90,000 Accumulated depreciation building ($11,000 + $2,000)... $ 13,000 Equipment... 27,000 Accumulated depreciation equipment ($4,500 + $1,800)... 6,300 Accounts payable... 6,400 Interest payable... 510 Salaries payable... 1,520 Unearned revenue ($1,950 $850)... 1,100 Mortgage payable... 102,000 H. Dude, capital... 61,000 H. Dude, drawings... 101,100 Service revenue ($235,550 + $1,550 + $850)... 237,950 Depreciation expense... 3,800 Insurance expense... 5,885 Interest expense ($5,610 + $510)... 6,120 Salaries expense ($115,200 + $1,520)... 116,720 Supplies expense... 4,660 Utilities expense... 12,000 $429,780 $429,780 Solutions Manual 4-51 Chapter 4
PROBLEM 4-2A (Continued) (c) SPARTAN CYCLE REPAIR SHOP Income Statement Year Ended January 31, 2014 Service revenue... $237,950 Expenses Salaries expense... $116,720 Utilities expense... 12,000 Interest expense... 6,120 Insurance expense... 5,885 Supplies expense... 4,660 Depreciation expense... 3,800 Total expenses... 149,185 Profit... $ 88,765 SPARTAN CYCLE REPAIR SHOP Statement of Owner's Equity Year Ended January 31, 2014 H. Dude, capital, February 1, 2013 ($61,000 $5,000)... $ 56,000 Add: Investment... $ 5,000 Profit... 88,765 93,765 149,765 Less: Drawings... 101,100 H. Dude, capital, January 31, 2014... $ 48,665 Solutions Manual 4-52 Chapter 4
PROBLEM 4-2A (Continued) (c) (Continued) SPARTAN CYCLE REPAIR SHOP Balance Sheet January 31, 2014 Assets Current assets Cash... $ 3,200 Accounts receivable... 8,180 Prepaid insurance... 535 Supplies... 580 Total current assets... 12,495 Property, plant, and equipment Land... $50,000 Building... $90,000 Less: Accumulated depreciation... 13,000 77,000 Equipment... $27,000 Less: Accumulated depreciation.. 6,300 20,700 147,700 Total assets... $160,195 Liabilities and Owner's Equity Current liabilities Accounts payable... $ 06,400 Salaries payable... 1,520 Interest payable... 510 Unearned revenue... 1,100 Current portion of mortgage payable... 4,500 Total current liabilities... 14,030 Long-term liabilities Mortgage payable... 97,500 Total liabilities... 111,530 Owner's equity H. Dude, capital... 48,665 Total liabilities and owner's equity... $160,195 Solutions Manual 4-53 Chapter 4
PROBLEM 4-2A (Continued) (d) GENERAL JOURNAL Date Account Titles and Explanation Debit Credit Jan 31 Service Revenue... 237,950 Income Summary... 237,950 31 Income Summary... 149,185 Salaries Expense... 116,720 Utilities Expense... 12,000 Interest Expense... 6,120 Insurance Expense... 5,885 Supplies Expense... 4,660 Depreciation Expense... 3,800 31 Income Summary... 88,765 H. Dude, Capital... 88,765 31 H. Dude, Capital... 101,100 H. Dude, Drawings... 101,100 Taking It Further: Likely the reason that Henry had to invest $5,000 cash into the business in November of 2013 is because during the year he withdrew $101,100 cash when the business profit was only $88,765. Henry should be concerned that his capital balance is diminishing and he should try to reduce his drawings in the coming year. Solutions Manual 4-54 Chapter 4
PROBLEM 4-3A (a) GENERAL JOURNAL Date Account Titles and Explanation Debit Credit July 1 Cash... 20,000 L. Chang, Capital... 20,000 1 Equipment... 25,000 Cash... 5,000 Notes Payable... 20,000 3 Supplies... 2,100 Accounts Payable... 2,100 5 Prepaid Insurance... 1,800 Cash... 1,800 12 Accounts Receivable... 4,500 Service Revenue... 4,500 18 Accounts Payable... 1,400 Cash... 1,400 20 Salaries Expense... 2,000 Cash... 2,000 21 Cash... 3,400 Accounts Receivable... 3,400 25 Accounts Receivable... 9,000 Service Revenue... 9,000 J1 Solutions Manual 4-55 Chapter 4
PROBLEM 4-3A (Continued) (a) (Continued) July 31 Fuel Expense... 550 Cash... 550 31 L. Chang, Drawings... 1,600 Cash... 1,600 (a), (c), and (f) Cash Date Explanation Ref. Debit Credit Balance July 1 1 5 18 20 21 31 31 J1 J1 J1 J1 J1 J1 J1 J1 20,000 3,400 5,000 1,800 1,400 2,000 550 1,600 20,000 15,000 13,200 11,800 9,800 13,200 12,650 11,050 Accounts Receivable Date Explanation Ref. Debit Credit Balance July 12 21 25 31 Adjusting J1 J1 J1 J2 4,500 9,000 1,500 3,400 4,500 1,100 10,100 11,600 Solutions Manual 4-56 Chapter 4
PROBLEM 4-3A (Continued) (a), (c) and (f) (Continued) Supplies Date Explanation Ref. Debit Credit Balance July 3 31 Adjusting J1 J2 2,100 1,400 2,100 700 Prepaid Insurance Date Explanation Ref. Debit Credit Balance July 5 31 Adjusting J1 J2 1,800 150 1,800 1,650 Equipment Date Explanation Ref. Debit Credit Balance July 1 J1 25,000 25,000 Accumulated Depreciation Equipment Date Explanation Ref. Debit Credit Balance July 31 Adjusting J2 521 521 Solutions Manual 4-57 Chapter 4
PROBLEM 4-3A (Continued) (a), (c) and (f) (Continued) Accounts Payable Date Explanation Ref. Debit Credit Balance July 3 18 J1 J1 1,400 2,100 2,100 700 Salaries Payable Date Explanation Ref. Debit Credit Balance July 31 Adjusting J2 800 800 Interest Payable Date Explanation Ref. Debit Credit Balance July 31 Adjusting J2 92 92 Notes Payable Date Explanation Ref. Debit Credit Balance July 1 J1 20,000 20,000 Solutions Manual 4-58 Chapter 4
PROBLEM 4-3A (Continued) (a), (c) and (f) (Continued) L. Chang, Capital Date Explanation Ref. Debit Credit Balance July 1 31 31 Closing Closing J1 J3 J3 1,600 20,000 9,487 20,000 29,487 27,887 L. Chang, Drawings Date Explanation Ref. Debit Credit Balance July 31 31 Closing J1 J3 1,600 1,600 1,600 0 Income Summary Date Explanation Ref. Debit Credit Balance July 31 31 31 Closing Closing Closing J3 J3 J3 5,513 9,487 15,000 15,000 9,487 0 Service Revenue Date Explanation Ref. Debit Credit Balance July 12 25 31 31 Adjusting Closing J1 J1 J2 J3 15,000 4,500 9,000 1,500 4,500 13,500 15,000 0 Solutions Manual 4-59 Chapter 4
PROBLEM 4-3A (Continued) (a), (c) and (f) (Continued) Fuel Expense Date Explanation Ref. Debit Credit Balance July 31 31 Closing J1 J3 550 550 550 0 Salaries Expense Date Explanation Ref. Debit Credit Balance July 20 31 31 Adjusting Closing J1 J2 J3 2,000 800 2,800 2,000 2,800 0 Supplies Expense Date Explanation Ref. Debit Credit Balance July 31 31 Adjusting Closing J2 J3 1,400 1,400 1,400 0 Depreciation Expense Date Explanation Ref. Debit Credit Balance July 31 31 Adjusting Closing J2 J3 521 521 521 0 Solutions Manual 4-60 Chapter 4
PROBLEM 4-3A (Continued) (a), (c) and (f) (Continued) Insurance Expense Date Explanation Ref. Debit Credit Balance July 31 31 Adjusting Closing J2 J3 150 150 150 0 Interest Expense Date Explanation Ref. Debit Credit Balance July 31 31 Adjusting Closing J2 J3 92 92 92 0 (b) LEE S WINDOW WASHING Trial Balance July 31, 2014 Debit Credit Cash... $11,050 Accounts receivable... 10,100 Supplies... 2,100 Prepaid insurance... 1,800 Equipment... 25,000 Accounts payable... $ 700 Solutions Manual 4-61 Chapter 4
Notes payable... 20,000 L. Chang, capital... 20,000 L. Chang, drawings... 1,600 Service revenue... 13,500 Fuel expense... 550 Salaries expense... 2,000 Totals... $54,200 $54,200 Solutions Manual 4-62 Chapter 4
PROBLEM 4-3A (Continued) (c) GENERAL JOURNAL Date Account Titles and Explanation Debit Credit July 31 Accounts Receivable... 1,500 Service Revenue... 1,500 31 Depreciation Expense... 521 Accumulated Depreciation Equipment... 521 ($25,000 4 years) 1/12 31 Insurance Expense... 150 Prepaid Insurance... 150 ($1,800 12) 31 Supplies Expense... 1,400 Supplies... 1,400 ($2,100 $700) 31 Salaries Expense... 800 Salaries Payable... 800 31 Interest Expense... 92 Interest Payable... 92 ($20,000 5.5% 1/12) J2 Solutions Manual 4-63 Chapter 4
PROBLEM 4-3A (Continued) (d) LEE S WINDOW WASHING Adjusted Trial Balance July 31, 2014 Debit Credit Cash... $11,050 Accounts receivable... 11,600 Supplies... 700 Prepaid insurance... 1,650 Equipment... 25,000 Accumulated depreciation equipment... $ 521 Accounts payable... 700 Salaries payable... 800 Interest payable... 92 Notes payable... 20,000 L. Chang, capital... 20,000 L. Chang, drawings... 1,600 Service revenue... 15,000 Solutions Manual 4-64 Chapter 4