2100 Solutions - CH3

Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
CHAPTER 3
The Accounting Information System
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives 1. Analyse the effect of business transactions on the basic accounting equation. Explain what an account is and how it helps in the recording process. Define debits and credits and explain how they are used to record business transactions. Identify the basic steps in the recording process. Explain what a journal is and how it helps in the recording process. Explain what a ledger is and how it helps in the recording process. Explain what posting is and how it helps in the recording process. Explain the purposes of a trial balance. Questions 1, 2, 3 Brief Exercises 1 Exercises 1, 2, 3, 4, 13 A Problems 1A, 2A B Problems 1B, 2B
2.
3.
5, 6, 7, 8, 9, 10, 11, 12, 13 14
2, 3
5, 6
3A, 4A
3B, 4B
4.
5.
15, 16
4, 6, 7
7, 8, 9, 12, 13
5A, 6A, 7A 5B, 6B, 7B
6.
17
7.
18
10, 11, 12, 13 10, 11, 12, 14, 15
6A, 7A
6B, 7B
8.
19, 20, 21
9, 10
6A, 7A, 8A, 9A, 10A
6B, 7B, 8B, 9B, 10B
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Chapter 3
Copyright 2004 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
ASSIGNMENT CHARACTERISTICS TABLE

Problem Number 1A 2A 3A 4A 5A 6A 7A 8A 9A 10A 1B 2B 3B 4B 5B
Solutions Manual
Description Analyse transactions, classify cash flows, and calculate net earnings. Analyse transactions and prepare financial statements. Identify normal account balance and associated financial statement. Identify debits, credits, and normal balances; calculate cash flow and net earnings. Journalize transactions. Journalize transactions, post, and prepare trial balance. Journalize transactions, post, and prepare trial balance. Analyse errors and their effects on trial balance. Prepare corrected trial balance. Prepare trial balance and financial statements. Analyse transactions, classify cash flows, and calculate net earnings. Analyse transactions and prepare financial statements. Identify normal account balance and associated financial statement. Identify debits, credits, and normal balances; calculate cash flow and net earnings. Journalize transactions.
3-2
Difficulty Level Moderate Moderate Simple Simple Moderate Moderate Moderate Moderate Complex Moderate Moderate Moderate Simple Simple Moderate
Time Allotted (min.) 40-50 40-50 20-30 30-40 30-40 40-50 40-50 30-40 40-50 40-50 40-50 40-50 20-30 30-40 30-40
Chapter 3
Problem Number 6B 7B 8B 9B 10B
Description Journalize transactions, post, and prepare trial balance. Journalize transactions, post, and prepare trial balance. Analyse errors and their effects on trial balance. Prepare corrected trial balance. Prepare trial balance and financial statements.
Difficulty Level Moderate Moderate Moderate Complex Moderate
Time Allotted (min.) 40-50 40-50 30-40 40-50 40-50
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Chapter 3
ANSWERS TO QUESTIONS
1. Yes, a business can enter into a transaction in which only the left side of the accounting equation is affected. An example would be a transaction where an increase in one asset is offset by a decrease in another asset. An increase in the Equipment account which is offset by a decrease in the Cash account is a specific example. Accounting transactions are the economic events of the enterprise recorded by accountants because they affect the basic equation. (a) The death of a major shareholder of the company is not an accounting transaction, as it does not affect the basic equation. (b) Supplies purchased on account is an accounting transaction because it affects the basic equation. (c) An employee being fired is not an accounting transaction, as it does not affect the basic equation. (d) Paying a cash dividend to shareholders is an accounting transaction as it does affect the basic equation. (a) (b) (c) (d) Decrease assets and decrease shareholders' equity. Increase assets and increase liabilities. Increase assets and increase shareholders' equity. Decrease assets and decrease liabilities.
2.
3.
4.
An account consists of three parts: (a) the title, (b) the left or debit side, and (c) the right or credit side. Because the alignment of these parts resembles the letter T, it is referred to as a T account. Charles is incorrect. The double-entry system merely records the dual effect of a transaction on the accounting equation. A transaction is not recorded twice; it is recorded once, with a dual effect. Natalie is incorrect. A debit balance only means that debit amounts exceed credit amounts in an account. Conversely, a credit balance only means that credit amounts are greater than debit amounts in an account. Thus, a debit or credit balance is neither favourable nor unfavourable. (a) (b) (c) Asset accounts are increased by debits and decreased by credits. Liability accounts are decreased by debits and increased by credits. The Common Shares and revenue accounts are decreased by debits and increased by credits. The dividend and expense accounts are increased by debits and decreased by credits.
5.
6.
7.
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Chapter 3
Questions (Continued)
8. (a) (b) (c) (d) (e) (f) (g) (h) 9. (a) (b) (c) (d) (e) (f) 10. (a) (b) (c) 11. (a) (b) (c) (d) (e) (f) Accounts Receivable Cash Dividends Accounts Payable Service Revenue Income Tax Expense Common Shares Unearned Revenue Accounts Receivable Accounts Payable Equipment Dividends Supplies Service Revenue debit balance debit balance debit balance credit balance credit balance debit balance credit balance credit balance asset liability asset shareholders' equity asset shareholders equity debit balance credit balance debit balance debit balance debit balance credit balance
Debit Supplies and credit Accounts Payable. Debit Cash and credit Notes Payable. Debit Salaries Expense and credit Cash. Cash Accounts Receivable Dividends Accounts Payable Salaries Expense Service Revenue both debit and credit entries both debit and credit entries debit entries only both debit and credit entries debit entries only credit entries only
12. The balance in total Shareholders Equity should not equal the balance in the Cash account. The balance in Shareholders Equity includes Common Shares (investment by shareholders) and Retained Earnings (net earnings retained in the business). Investment by shareholders would normally be made in cash. The Retained Earnings component would include earnings calculated on an accrual basis and therefore would not equal the entries to the Cash account. 13. Two other accounts that the company might have used to record a cash receipt from a customer are: (1) Unearned revenue where customer paid in advance. (2) Accounts Receivable - where the customer was making a payment on a previous credit purchase.
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Chapter 3
14. The basic steps in the recording process are: (1) Analyse each transaction in terms of its effect on the accounts. (2) Enter the transaction information in the general journal (book of original entry). (3) Transfer the journal information to the appropriate accounts in the general ledger (book of accounts). 15. This would not be a more efficient process because all transaction would be posted individually rather than posting summary amounts. 16. (a) Cash 9,000 Common Shares 9,000 (Invested cash in the business in exchange for common shares) 800 800
(b)
Prepaid Insurance Cash (Paid one-year insurance policy)
(c)
Supplies 1,500 Accounts Payable (Purchased supplies on account) Cash 7,500 Service Revenue (Received cash for services rendered)
1,500
(d)
7,500
17. (a) (b)
The general ledger is the entire group of accounts maintained by a company, including all the asset, liability, and shareholders' equity accounts. The chart of accounts is important, particularly for a company that has a large number of accounts because it helps organize the accounts and identify their location in the ledger.
18. Posting from the general journal to the general ledger should be performed on a timely basis to ensure that the general ledger reflects the most up-to-date accounting information. With the use of computers in the recording process, entries posted to the general journal are usually simultaneously posted to the general ledger. The more frequently the journal entries are posted the more accurate the accounting records.
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Chapter 3
19. A trial balance is a list of accounts and their balances at a given time. The primary purpose of a trial balance is to prove the mathematical equality of debits and credits after all journalized transactions have been posted. A trial balance also facilitates the discovery of errors in journalizing and posting. In addition, it is useful in preparing financial statements. The main limitation of the trial balance is that numerous errors may still exist even though the debit and credit columns of the trial balance agree. For example, provided the debits and credit are equal, a trial balance will still balance even though a journal entry has been omitted or if an entry is posted to the wrong account. 20. The proper sequence is as follows: 2. An accounting transaction occurs. 3. Information is entered in the general journal. 1. Debits and credits are posted to the general ledger. 5. A trial balance is prepared. 4. Financial statements are prepared. 21. (a) equal. (b) The trial balance would balance because the debits and credits would still be The trial balance would not balance because the debit side would be $810 higher than the credit side
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Chapter 3
SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-1
Assets a . b . c. d . e . f. + + + +/Liabilities + NE NE NE NE NE Shareholders Equity NE + + NE
BRIEF EXERCISE 3-2

(a) Debit Effect 1. 2. 3. 4. 5. 6. Accounts Payable Advertising Expense Service Revenue Accounts Receivable Unearned Service Revenue Dividends Decrease Increase Decrease Increase Decrease Increase (a) Credit Effect Increase Decrease Increase Decrease Increase Decrease (b) Normal Balance Credit Debit Credit Debit Credit Debit
BRIEF EXERCISE 3-3

June 1 2 3 12 30 Account Debited Cash Equipment Rent Expense Accounts Receivable Income Tax Expense Account Credited Common Shares Accounts Payable Cash Service Revenue Cash
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Chapter 3
BRIEF EXERCISE 3-4

June 1 2 3 12 30 Cash Common Shares Equipment Accounts Payable Rent Expense Cash Accounts Receivable Service Revenue Income Tax Expense Cash 900 900 500 500 300 300 100 100 2,500 2,500
BRIEF EXERCISE 3-5

The basic steps in the recording process are: 1. 2. 3. Analyse each transaction. In this step, business documents are examined to determine the effects of the transaction on the accounts. Enter each transaction in the general journal. This step is called journalizing and it results in making a chronological record of the transactions. Transfer general journal information to general ledger accounts. This step is called post ing. Posting makes it possible to accumulate the effects of journalized transactions on individual accounts.
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Chapter 3
BRIEF EXERCISE 3-6

Aug. 1 (a) Basic Analysis The asset Cash is increased. The shareholders' equity account Common Shares is increased. Aug. 4 (a) Basic Analysis The asset Prepaid Insurance is increased. The asset Cash is decreased. Aug. 16 (a) Basic Analysis The asset Cash is increased. The revenue Service Revenue is increased. Aug. 27 (a) Basic Analysis The expense Salaries Expense is increased. The asset Cash is decreased. (b) (b) (b) (b) Debit-Credit Analysis Debits increase assets: debit Cash $5,000. Credits increase shareholders' equity: credit Common Shares $5,000. Debit-Credit Analysis Debits increase assets: debit Prepaid Insurance $2,100 Credits decrease assets: credit Cash $2,100. Debit-Credit Analysis Debits increase assets: debit Cash $900 Credits increase revenues: credit Service Revenue $900. Debit-Credit Analysis Debits increase expenses: debit Salaries Expense $500. Credits decrease assets: credit Cash $500.
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Chapter 3
BRIEF EXERCISE 3-7

Aug. 1 4 16 27 Cash Common Shares Prepaid Insurance Cash Cash Service Revenue Salaries Expense Cash 5,000 5,000 2,100 2,100 900 900 500 500
BRIEF EXERCISE 3-8

Accounts Receivable May 5 Bal. 3,200 1,300 May 12 1,900 Service Revenue May 5 May 15 Bal. 3,200 2,000 5,200
Cash May 12 May 15 Bal. 1,900 2,000 3,900 Income Tax Payable May 15 750 May 15
Income Tax Expense 750
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Chapter 3
BRIEF EXERCISE 3-9

CARLAND INC. Trial Balance June 30, 2004 Debit Cash Accounts Receivable Equipment Accumulated Amortization Accounts Payable Unearned Service Revenue Common Shares Retained Earnings Dividends Service Revenue Salaries Expense Rent Expense Income Tax Expense Totals $ 8,400 3,000 17,000 $ 3,400 4,000 150 20,000 1,090 1,200 6,600 4,000 1,000 640 $35,240 ______ $35,240 Credit
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Chapter 3
BRIEF EXERCISE 3-10

ING LIMITED Trial Balance December 31, 2004 Debit Cash Prepaid insurance Accounts payable Unearned revenue Common shares Retained earnings Dividends Service revenue Salaries expense Rent expense Income tax expense Totals $17,600 3,500 $ 3,000 2,200 10,000 7,000 4,500 25,600 18,600 2,400 1,200 $47,800 00 0000 $47,800 Credit
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Chapter 3
SOLUTIONS TO EXERCISES
EXERCISE 3-1
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Increase in assets and increase in shareholders' equity. Decrease in assets and decrease in shareholders' equity. Increase in assets and increase in liabilities. Increase in assets and increase in shareholders' equity. Decrease in assets and decrease in shareholders' equity. Increase in assets and decrease in assets. No effect overall. Increase in liabilities and decrease in shareholders' equity. Increase in assets, decrease in assets and increase in liabilities. Increase in assets and increase in shareholders' equity. Decrease in assets and decrease in shareholders equity.
EXERCISE 3-2
Transaction 1. 2. 3. 4. 5. 6. 7. 8. Assets +19,000 -4,000 +15,000 -15,000 +3,000 -11,000 +32,000 -19,000 +1,000 Liabilities Shareholders Equity +19,000 NE NE -4,000 NE NE NE NE -19,000 +1,000 NE +3,000 -11,000 +32,000 NE NE Revenues NE NE NE +3,000 NE NE NE NE Expenses NE +4,000 NE NE +11,000 NE NE NE Net Earnings NE -4,000 NE +3,000 -11,000 NE NE NE
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Chapter 3
EXERCISE 3-3
(a) 1. Shareholders invested $15,000 cash in the business. 2. Purchased office equipment for $5,000, paying $1,000 in cash and the balance of $4,000 on account. 3. Paid $750 cash for supplies. 4. Earned $8,000 in revenue, receiving $4,600 cash and $3,400 on account. 5. Paid $1,500 cash on accounts payable. 6. Paid $2,000 cash dividends to shareholders. 7. Paid $800 cash for rent. 8. Collected $450 cash from customers on account. 9. Paid salaries of $2,900. 10. Incurred $500 of utilities expense on account. 11. Paid $1,500 of income tax expense. (b) Issued common Shares Service revenue Dividends Rent expense Salaries expense Utilities expense Income tax expense Increase in shareholders' equity (c) Service revenue Rent expense Salaries expense Utilities expense Income tax expense Net earnings $15,000 8,000 (2,000) (800) (2,900) (500) (1,500) $15,300 $8,000 (800) (2,900) (500) (1,500) $2,300
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Chapter 3
EXERCISE 3-4
HAGIWARA INC. Statement of Earnings Month Ended August 31, 2004 Revenues Service revenue Expenses Salaries expense Rent expense Utilities expense Total expenses Earnings before income tax Income tax expense Net earnings $8,000 2,900 800 500 4,200 3,800 1,500 $2,300
HAGIWARA INC. Statement of Retained Earnings Month Ended August 31, 2004 Retained earnings, August 1 Add: Net earnings Less: Dividends Retained earnings, August 31 $0,000 2,300 2,300 2,000 $ 300
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Chapter 3
EXERCISE 3-4 (Continued)
HAGIWARA INC. Balance Sheet August 31, 2004 Assets Current assets Cash Accounts receivable Supplies Total current assets Property, plant and equipment Office equipment0 Total assets $ 9,600 2,950 750 $13,300 5,000 $18,300
Liabilities and Shareholders' Equity Liabilities Accounts payable Shareholders' equity Common shares Retained earnings Total shareholders equity Total liabilities and shareholders equity $ 3,000 $15,000 300 15,300 $18,300
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Chapter 3
EXERCISE 3-5
Account Accounts payable Accounts receivable Cash and cash equivalents Common stock Dividends Income taxes payable Interest expense Interest income Inventories Prepaid expenses Property and equipment Revenues Normal Balance Credit Debit Debit Credit Debit Credit Debit Credit Debit Debit Debit Credit Financial Statement Balance sheet Balance sheet Balance sheet Balance sheet Statement of retained earnings Balance sheet Statement of earnings Statement of earnings Balance sheet Balance sheet Balance sheet Statement of earnings Account Classification Current liability Current asset Current asset Shareholders equity N/A Current liability Expense Revenue Current asset Current asset Property, plant and equipment Revenue
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Chapter 3
EXERCISE 3-6
Account Debited Transaction 1. 2. 3. 4. 5. 6. 7. 8. (a) Basic Type Asset Asset Asset Asset (b) Specific Account Cash Vehicle Supplies Accounts Receivable (c) Effect Increase Increase Increase Increase Increase Increase Decrease Increase (d) Dr./Cr. Debit Debit Debit Debit Debit Debit Credit Debit (a) Basic Type Shareholders Equity Asset Liability Shareholders Equity Asset Asset Asset Asset Account Credited (b) Specific Account Common Shares Cash Accounts Payable Service Revenue Cash Accounts Receivable Cash Cash (c) Effect Increase Decrease Increase Increase Decrease Decrease Decrease Decrease (d) Dr./Cr. Credit Debit Credit Credit Debit Debit Debit Debit
Shareholders Advertising Equity Expense Asset Liability Cash Accounts Payable
Shareholders Dividends Equity
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Chapter 3
EXERCISE 3-7
General Journal Trans. 1. 2. 3. 4. 5. 6. 7. 8. Account Titles Cash Common Shares Vehicle Cash Supplies Accounts Payable Accounts Receivable Service Revenue Advertising Expense Cash Cash Accounts Receivable Accounts Payable Cash Dividends Cash Debit 10,000 10,000 018,000 018,000 00,500 00,500 02,600 02,600 00,200 00,200 00,700 00,700 00,300 00,300 00,500 00,500 Credit
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Chapter 3
EXERCISE 3-8
Oct. 1 2 3 6 10 27 30 Debits increase assets: Credits increase shareholders' equity: No accounting transaction. Debits increase assets: Credits increase liabilities: Debits increase assets: Credits increase revenues: Debits increase assets: Credits increase revenues: Debits decrease liabilities: Credits decrease assets: Debits increase expenses: Credits decrease assets: Debit Office Furniture $1,900. Credit Accounts Payable $1,900. Debit Accounts Receivable $6,200. Credit Service Revenue $6,200. Debit Cash $140. Credit Service Revenue $140. Debit Accounts Payable $700. Credit Cash $700. Debit Salaries Expense $2,500. Credit Cash $2,500. Debit Cash $25,000. Credit Common Shares $25,000.
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Chapter 3
EXERCISE 3-9
General Journal Date Oct. 1 2 3 6 10 27 30 Account Titles Cash Common Shares No entry. Office Furniture Accounts Payable Accounts Receivable Service Revenue Cash Service Revenue Accounts Payable Cash Salaries Expense Cash 01,900 01,900 06,200 06,200 00,140 00,140 00,700 00,700 00,2,500 00,2,500 Debit 25,000 25,000 Credit
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Chapter 3
EXERCISE 3-10
(a) Cash Oct. 1 10 Bal. 25,000 140 21,940 Common Shares Accounts Receivable Oct. 1 Oct. 6 Bal. 6,200 Bal. 6,200 Service Revenue Office Furniture Oct. 3 Bal. 1,900 1,900 Salaries Expense Oct. 30 Bal. 2,500 2,500 Oct. 6 Oct. 10 Bal. 6,200 140 6,340 25,000 25,000 Oct. 27 30 700 2,500 Oct. 27 Accounts Payable 700 Oct. 3 Bal. 1,900 1,200
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Chapter 3

(b) AUBUT REAL ESTATE AGENCY CORPORATION Trial Balance October 31, 2004 Debit Cash Accounts receivable Office furniture Accounts payable Common shares Service revenue Salaries expense Totals $21,940 006,200 1,900 $ 1,200 25,000 0 6,340 ______ $32,540 Credit
2,500 9$32,540
EXERCISE 3-11
(a) Cash Aug. 1 10 31 Bal. 1,600 2,900 600 4,100 Aug. 12 1,000 Service Revenue Aug. 10 25 Bal. Accounts Receivable Aug. 25 Bal. 1,800 1,200 Office Equipment Aug. 12 Bal. 4,000 4,000 Aug. 31 600 2,900 1,800 4,700 Bal. 1,600
Notes Payable Aug. 12 Bal. 3,000 3,000
Common Shares Aug. 1 1,600

(b) KANG, INC. Trial Balance August 31, 2004 Debit Cash Accounts Receivable Office Equipment Notes Payable Common Shares Service Revenue Totals $4,100 00,1,200 04,000 _____ $9,300 $3,000 01,600 4,700 $9,300 Credit
EXERCISE 3-12
(a) Oct. 1 Cash 4,000 Common Shares 4,000 (Invested cash in business in exchange for common shares) Furniture 3,000 Accounts Payable (Purchased furniture on account) Supplies Cash (Purchased supplies) 400 400 3,000
Accounts Receivable 800 Service Revenue (Billed clients for services provided) Cash 750 Service Revenue (Received cash for services rendered) Cash Notes Payable (Obtained loan from bank) 8,000
800
10
750
10
8,000
12
Accounts Payable 1,500 Cash (Made payment on accounts payable) Rent Expense Cash (Paid cash for rent) 250
1,500
15
250
20
Cash 800 Accounts Receivable (Received cash in payment of account) Accounts Receivable 740 Service Revenue (Billed clients for services provided)
800
20
740

(a) (Continued) Oct. 25 Cash 2,000 Common Shares 2,000 (Invested cash in business in exchange for common shares) Dividends Cash (Paid cash dividends) Store Wages Expense Cash (Paid wages) Supplies Expense Supplies (Used supplies for operating) 300 300 500 500 180 180
30
31
31
(b) HOLLY CORP. Trial Balance October 31, 2004 Debit Cash Accounts Receivable Supplies Furniture Notes Payable Accounts Payable Common Shares Dividends Service Revenue Store Wages Expense Supplies Expense Rent Expense Totals $12,600 00740 000,220 003,000 $08,000 0001,500 006,000 000,300 002,290 000,500 000,180 250 $17,790 ______ $17,790 Credit
EXERCISE 3-13
(a) Accounts Shareholders + Equipment = Payable + Equity = = = = +$15,000 Investment +15,000 +7,000 ____ _____ 7,000 + +15,000 -3,000 ______ 4,000 + +15,000 _____ -500 Dividends $4,000 + $14,500
Cash Sept. 1 5 25 30
+$15,000 +15,000 5,000 +12,000 +10,000 + 12,000 +3,000 ______ +7,000 + 12,000 + -500 ______ $ 6,500 + +$12,000
(b) General Journal Date Sept. 1 5 Account Titles Cash Common Shares Equipment Cash Accounts Payable Accounts Payable Cash Dividends Cash Debit 15,000 15,000 12,000 05,000 07,000 03,000 03,000 00,500 00,500 Credit
25 30

(c) Cash Sept. 1 15,000 Sept. 5 Sept. 25 Sept. 30 6,500 Dividends Equipment Sept. 5 Bal. 12,000 12,000 Sept. 30 Bal. 500 500 5,000 3,000 500 Common Shares Sept. 1 Bal. 15,000 15,000
Bal.
Accounts Payable Sept. 25 3,000 Sept. 5 Bal. 7,000 4,000
EXERCISE 3-14
Error 1. 2. 3. 4. 5. 6.
(a) In Balance No Yes Yes No Yes No
(b) Difference $400 0 0 $300 0 $9
(c) Larger Column Debit n/a n/a Credit n/a Credit
EXERCISE 3-15
(a) SPEEDY DELIVERY SERVICE, INC. Trial Balance July 31, 2004 Debit Cash ($111,640 - $83,920 debit total of all accts. without cash) Accounts Receivable Prepaid Insurance Delivery Equipment Accumulated Amortization Accounts Payable Salaries Payable Notes Payable Common Shares Retained Earnings Dividends Service Revenue Amortization Expense Salaries Expense Gas and Oil Expense Repair Expense Insurance Expense Income Tax Expense Totals $ 27,720 13,640 1,960 49,360 $ 19,745 7,390 815 18,450 40,000 4,630 700 20,610 9,870 4,420 750 1,200 520 1,500 $111,640 Credit
000 0000 $111,640

(b) SPEEDY DELIVERY SERVICE, INC. Statement of Earnings Year Ended July 31, 2004 Revenues Service revenue Expenses Amortization expense Salaries expense Gas and oil expense Repair expense Insurance expense Total expenses Earnings before income tax Income tax expense Net earnings $ 20,610 9,870 4,420 750 1,200 520 16,760 3,850 1,500 $ 2,350
SPEEDY DELIVERY SERVICE, INC. Statement of Retained Earnings Year Ended July 31, 2004 Retained earnings, August 1, 2003 Add: Net earnings Less: Dividends Retained earnings, July 31, 2004 $4,630 2,350 6,980 700 $6,280

(b) (Continued) SPEEDY DELIVERY SERVICE, INC. Balance Sheet July 31, 2004 Assets Current assets Cash Accounts receivable Prepaid insurance Total current assets Property, plant and equipment Delivery equipment0 Less: Accumulated amortization Total property, plant and equipment Total assets $27,720 13,640 1,960 $43,320 $49,360 (19,745) 29,615 $72,935
Liabilities and Shareholders' Equity Liabilities Accounts payable $7,390 Salaries payable 815 Total current liabilities Notes payable Total liabilities Shareholders' equity Common shares $40,000 Retained earnings 6,280 Total shareholders equity Total liabilities and shareholders equity
$ 8,205 18,450 26,655
46,280 $72,935
SOLUTIONS TO PROBLEMS
PROBLEM 3-1A
(a) and (b) TransAction 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Total Cash Flow Statement F I O O O O F O O O O O +120 -1,000 $10,180 $280 $400 $5,000 $250 $15,000 +4,100 -500 -1,500 -140 +400 -120 -1,000 (h) $610 Cash +$15,000 - 5,000 - 500 - 400 + $400 + $250 - 250 (b) +4,100 (c) -500 (d) -1,500 (e) -140 (f) +400 (g) Accounts Receivabl e Supplies Equipment +$5,000 - $500 (a) Accounts Payable Common Shares +$15,000 Retained Earnings
PROBLEM 3-1A (Continued) (a) (Continued) Key to Retained Earnings column on previous page. (a) (b) (c) (d) (e) (f ) (g) (h) (c) Service revenue Expenses Salaries expense Rent expense Advertising expense Utilities expense Income tax expense Net earnings OR Increase in retained earnings Add: Dividends Net earnings $ 610 500 $1,110 $4,500 $1,500 500 250 140 1,000 Rent expense Advertising expense Service revenue Dividends Salaries expense Utilities expense Service revenue Income tax expense
3,390 $1,110
PROBLEM 3-2A
(a) CORSO CARE CORP. Cash Bal. 1. 2. 3. 4. 5. 6. 7. 8. 9. $ 9,000 3,100 +1,600 -1,000 +2,300 600 1,700 Accounts Office Notes Accounts Common + Receivable + Supplies + Equipment = Payable + Payable + Shares $1,700 1,600 +6,600 +4,100 $600 $6,000 $3,600 3,100 +3,100 $13,000 + Retained Earnings $ 700
+7,000 -2,500 $11,000
00 000 $6,700
0 0 $600
00 000 $10,100
+$7,000 700 000 $7,000
+170 00 000 $3,770
00 0 00 $13,000
+8,900 600 700 900 100 170 -2,500 $4,630
(a) (b) (c) (d) (e) (f) (g)
$28,400 = $28,400
PROBLEM 3-2A (Continued) Key to Retained Earnings column on previous page. (a) (b) (c) (d) (e) (f ) (g) Service revenue Dividends Salaries expense Rent expense Advertising expense Utility expense Income tax expense CORSO CARE CORP. Statement of Earnings Month Ended September 30, 2004 Revenues Service revenue Expenses Rent expense Salaries expense Utilities expense Advertising expense Total expenses Earnings before taxes Income tax expense Net earnings $8,900 900 700 170 100 1,870 7,030 2,500 $4,530
(b)
CORSO CARE CORP. Statement of Retained Earnings Month Ended September 30, 2004 Retained earnings, September 1 Add: Net earnings Less: Dividends Retained earnings, September 30 $0,700 4,530 5,230 0 600 $4,630
PROBLEM 3-2A (Continued) (b) (Continued) CORSO CARE CORP. Balance Sheet September 30, 2004 Current assets Cash Accounts receivable Supplies Total current assets Office equipment Total assets Assets $11,000 6,700 600
$18,300 10,100 $28,400
Liabilities Notes payable $ 7,000 Accounts payable 3,770 Total liabilities Shareholders' equity Common shares $13,000 Retained earnings 3 4,630 Total shareholders equity 0 Total liabilities and shareholders' equity
Liabilities and Shareholders' Equity
$10,770
17,630 $28,400
PROBLEM 3-3A
Account Accounts payable and accrued items Accounts receivable Capital assets Normal Financial Balance Statement Credit Balance Sheet Debit Debit Balance Sheet Balance Sheet Balance Sheet Classification Current Liabilities Current Assets Property, Plant and Equipment Current Assets
Cash and short-term Debit deposits Cost of goods sold and Debit selling, general and administrative expenses Depreciation and amortization expense Dividends Income tax expense Income tax payable Investments Investment income Merchandise inventories Prepaid expenses Retained earnings Sales Share capital Debit Debit Debit Credit Debit Credit Debit Debit Credit Credit Credit
Statement of Earnings Expense
Statement of Earnings Expense Statement of Retained Earnings N/A
Statement of Earnings Expense Balance Sheet Balance Sheet Current Liabilities
Short-term or Longterm investments Statement of Earnings Revenue Balance Sheet Balance Sheet Balance Sheet Current Assets Current Assets Shareholders Equity
Statement of Earnings Revenues Balance Sheet Shareholders Equity
PROBLEM 3-4A
(a) (1) TransBasic action Type 1. Asset Account Debited (2) (3) (4) Specific Account Effect Dr./Cr. Cash Increase Debit (1) Basic Type Shareholders Equity Shareholders Equity (Revenue) Asset Liability 4. 5. Asset Shareholders Equity (Expense) Asset Cash Wages Expense Increase Debit Increase Debit Liability Asset Account Credited (2) (3) Specific Account Effect Common Increase Shares Service Revenue Cash Note Payable Unearned Revenue Cash Increase (4) Dr./Cr. Credit
2.
Asset
Cash
Increase Debit
Credit
3.
Asset
Vehicle
Increase Debit
Decrease Credit Increase Increase Credit Credit
Decrease Credit
6.
Accounts Increase Debit Receivable Supplies Cash Increase Debit Increase Debit
7. 8.
Asset Asset
Shareholders Equity (Revenue) Liability Asset
Service Revenue Accounts Payable Accounts Receivable
Increase
Credit
Increase
Credit
Decrease Credit
PROBLEM 3-4A (Continued)

(a) (Continued) Account Debited (2) (3) Specific Account Effect Account Credited (2) (3) Specific Account Effect Cash
Transaction 9.
(1) Basic Type Shareholders Equity (Expense) Shareholders Equity (Expense
(4) Dr./Cr.
(1) Basic Type Asset
(4) Dr./Cr.
Rent Increase Debit Expense
Decrease Credit
10.
Income Increase Debit Tax Expense
Asset
Cash
Decrease Credit
(b)
Cash Flow Issue shares Provide services Payment for truck Deposit from customers Payment of wages Collection from customers Payment of rent Payment of income taxes Ending cash Net Earnings Provide services Payment of wages Bill customers Payment of rent Payment of income tax Net earnings
$10,000 2,500 (10,000) 5,000 (2,000) 20,000 (1,500) (800) $23,200 $ 2,500 (2,000) 20,000 (1,500) (800) $18,200
PROBLEM 3-5A
Date
Account Titles and Explanation
Debit 75,000
Credit 75,000
Apr. 1 Cash Common Shares (Issued shares for cash) 4 Land Cash Note Payable (Purchased land for cash, note) 8 Advertising Expense Accounts Payable (Incurred advertising expense on account) 11 Salaries Expense Cash (Paid salaries) 12 No entry. 13 Prepaid Insurance Cash (Paid for one-year insurance policy) 17 Dividends Cash (Payment of cash dividend) 20 Cash Admission Revenue (Received cash for admission fees) PROBLEM 3-5A (Continued)
50,000
10,000 40,000
01,800
01,800
01,700
01,700
03,000
03,000
00,600
00,600
05,700
05,700
Date Account Titles and Explanation Apr. 25 Cash Unearned Admissions Revenue (Received advance for future services) 30 Cash Admission Revenue (Received cash for admission fees) 30 Accounts Payable Cash (Paid creditor on account)
Debit Credit 07,500 07,500
7,875
7,875
0,700
0,700
PROBLEM 3-6A
(a) Date Account Titles and Explanation Debit 52,000 52,000 Credit
May 1 Cash Common Shares (Issued shares for cash) 2 No entry. Not an accounting transaction. 3 Supplies Accounts Payable (Purchased supplies on account) 7 Rent Expense Cash (Paid office rent) 11 Accounts Receivable Service Revenue (Billed client for services provided) 12 Cash Unearned Revenue (Received an advance for future services) 17 Cash Service Revenue (Received cash for revenue earned) 31 Salaries Expense Cash (Paid salaries) 31 Accounts Payable ($800 X 40%) Cash (Paid creditor on account) 31 Income Tax Expense Cash (Paid income taxes)
0800 0800 00,900 00,900 01,100 01,100 04,200 04,200
04,200 04,200 01,000 01,000 00,320 00,320 00,100 00,100

(b) May 1
Cash 52,000 May 7 900
May 12 May 17 Bal.
4,200 May 31 4,200 May 31 May 31 58,080
1,000 320 100 May 31
Accounts Payable 320 May 3 Bal. 800 480
Accounts Receivable May 11 Bal. 1,100 1,100 Unearned Revenue May 12 Bal. Supplies May 3 Bal. 800 800 Common Shares May 1 Bal. 52,000 52,000 4,200 4,200
Bal.
1,000

Service Revenue May 11 May 17 Bal. 1,100 4,200 5,300 Income Tax Expense Salaries Expense May 31 1,000 May 31 Bal. 100 100 May 7 Bal. Rent Expense 900 900
(c)
ASTROMECH ACCOUNTING SERVICES INC. Trial Balance May 31, 2004 Debit Cash Accounts Receivable Supplies Accounts Payable Unearned Revenue Common Shares Service Revenue Salaries Expense Rent Expense Income Tax Expense Totals $58,080 001,100 00800 Credit
001,000 900 100 $61,980
$00,480 004,200 052,000 005,300 _ ___ $61,980
PROBLEM 3-7A
(a) and (c)
Apr. 1 Bal. Apr. 9 Apr. 25 Apr. 30 Bal. Apr. 30 Bal. Apr. 30 Bal. Apr. 1 Bal. Bal. Apr. 1 Bal. Bal. Apr. 1 Bal. Bal. Cash 6,000 Apr. 2 3,800 Apr. 10 3,000 Apr. 12 85 Apr. 29 Apr. 30 5,885 Accounts Receivable 85 85 Prepaid Rentals 1,000 1,000 Land 10,000 10,000 Buildings 8,000 8,000 Equipment 6,000 6,000 Apr. 12 Bal. Apr. 2 Apr. 20 Bal. Apr. 29 Bal. 1,000 3,000 400 1,600 1,000 Common Shares Apr. 1 Bal. Bal. Admission Revenue Apr. 9 Apr. 25 Bal. Concession Revenue Apr. 30 Bal. Advertising Expense 400 400 Film Rental Expense 1,000 500 1,500 Salaries Expense 1,600 1,600
20,000 20,000 3,800 3,000 6,800 170 170
Apr. 10
Accounts Payable 1,000 Apr. 1 Bal. Apr. 20 Bal. Mortgage Payable 2,000 Apr. 1 Bal. Bal.
2,000 500 1,500 8,000 6,000
Apr. 10

(b)
Date
Debit 0,1,000
Credit 0,1,000
Apr. 2 Film Rental Expense Cash (Paid film rental) 3 No entry not a transaction. 9 Cash Admission Revenue (Received cash for admissions) 10 Mortgage Payable Accounts Payable Cash (Made payments on mortgage and accounts payable) 11 No entry. Not a transaction. 12 Advertising Expense Cash (Paid advertising expenses) 20 Film Rental Expense Accounts Payable (Rented film on account) 25 Cash Admission Revenue (Received cash for admissions) 29 Salaries Expense Cash (Paid salaries expense) PROBLEM 3-7A (Continued) (b) (Continued)
3,800
3,800
2,000 1,000
3,000
0,400
0,400
0,500
0,500
3,000
3,000
1,600
1,600
Date
Debit 0,085 0,085
Credit
Apr. 30 Cash Accounts Receivable Concession Revenue (17% X $1,000) (Received cash and balance on account for concession revenue) 30 Prepaid Rentals Cash (Paid cash for future film rental) (d) LAKE THEATRE, INC. Trial Balance April 30, 2004 Debit Cash Accounts Receivable Prepaid Rentals Land Buildings Equipment Accounts Payable Mortgage Payable Common Shares Admission Revenue Concession Revenue Advertising Expense Film Rental Expense Salaries Expense Totals $05,885 000,085 000,1,000 010,000 008,000 006,000 Credit
0,170
0,1,000
0,1,000
000,400 001,500 1,600 $34,470
$01,500 006,000 020,000 006,800 000,170 000 000 $34,470
PROBLEM 3-8A
(a) Correct: 8 Incorrect: 1, 2, 3, 4, 5, 6, and 7
(b) (1) Error In Balance 1. No 2. Yes 3. No 4. Yes 5. Yes 6. No 7. Yes (2) Difference $90 Nil $750 Nil Nil $500 Nil (3) Larger Column Credit N/A Debit N/A N/A Debit N/A
PROBLEM 3-9A SAGINAW LTD. Trial Balance May 31, 2004 Debit Cash ($7,490 + $420) Accounts Receivable ($2,570 $210) Prepaid Insurance ($700 + $100) Supplies Equipment ($8,000 - $420) Accumulated Amortization Accounts Payable ($4,500 - $100 + $420) Common Shares ($5,700 + $700) Dividends Retained Earnings Service Revenue ($6,960 - $210) Salaries Expense Advertising Expense Amortization Expense Insurance Expense Income Tax Expense ($200 + $100) Totals $ 7,910 2,360 040800 420 4207,580 $ 3,200 04,820 0 6,400 700 6,000 006,750 4,200 1,100 1,600 200 300 00 0000 $27,170 $27,170 Credit
PROBLEM 3-10A
(a)
HUDSONS BAY COMPANY Trial Balance January 31, 2003 (thousands) Debit Capital stock Cash in stores Credit card receivables Dividends Fixed assets Goodwill Income tax expense Interest expense Long-term debt Long-term debt due within one year Long-term receivables Merchandise inventories Operating expenses Other accounts payable and accrued expenses Other accounts receivables Other assets Other long-term liabilities Other shareholders equity items Prepaid expenses and other current assets Retained earnings Sales and revenue Short-term borrowings Short-term deposits Trade accounts payable Totals $ 7,308 559,151 38,912 1,205,333 152,294 42,421 45,428 12,105 1,551,104 7,184,503 117,412 496,702 122,860
Credit $1,454,655
388,543 258,870
541,599
230,824 199,231 668,304 7,383,813 24,744
51,418 0000000000 436,368 $11,586,951 $11,586,951
Problem 3-10A (Continued) (b) HUDSONS BAY COMPANY Statement of Earnings Year Ended January 31, 2004 (thousands) Revenues Sales and revenue Expenses Operating expenses Interest expense Total expenses Earnings before income tax Income tax expense Net earnings $7,383,813 7,184,503 45,428 7,229,931 153,882 42,421 $ 111,461
HUDSONS BAY COMPANY Statement of Retained Earnings Year Ended January 31, 2004 (thousands) Retained earnings, February 1, 2003 Add: Net earnings Less: Dividends Retained earnings, January 31, 2004 $ 668,304 111,461 779,765 38,912 $ 740,853
PROBLEM 3-10A (Continued) (b) (Continued) HUDSONS BAY COMPANY Balance Sheet January 31, 2004 (thousands) Current assets Cash in stores Short-term deposits Credit card receivables Other accounts receivable Merchandise inventories Prepaid expenses and other current assets Total current assets Long-term receivables Property, plant and equipment Goodwill Other assets Total assets Assets $ 7,308 51,418 559,151 117,412 1,551,104 122,860 $2,409,253 12,105 1,205,333 152,294 496,702 $4,275,687
PROBLEM 3-10A (Continued) (b) (Continued) Liabilities and Shareholders' Equity Liabilities Trade accounts payable $436,368 Other accounts payable and accrued 541,599 liabilities Short-term borrowings 24,744 Long-term debt due within one year 258,870 Total current liabilities Long-term liabilities Long-term debt $388,543 Other long-term liabilities 230,824 Total long-term liabilities Total liabilities Shareholders' equity Capital stock $1,454,655 Other shareholders equity items 199,231 Retained earnings 740,853 Total shareholders equity Total liabilities and shareholders equity
$1,261,581
619,367 1,880,948
2,394,739 $4,275,687
PROBLEM 3-1B
(a) and (b) Transaction 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Total O O F O O O O -600 +1,000 -400 -300 -1,200 +8,000 -2,000 $21,300 $0 $600 $2,500 $0 $20,000 -8,000 -2,000 (f) $4,400 -300 -1,200 (e) +$8,000 +$600 +9,000 (c) -400 (d) Cash Flow Statement F O I Cash +$20,000 - 700 - 2,500 +$2,500 +$300 -300 (b) Accounts Receivabl e Supplies Equipment Accounts Payable Common Shares +$20,000 Retained Earnings -$700 (a)
PROBLEM 3-1B (Continued) (a) (Continued) Key to Retained Earnings column on previous page. (a) (b) (c) (d) (e) (f ) (c) Service revenue Expenses Salaries expense Rent expense Advertising expense Income tax expense Net earnings OR Increase in retained earnings Add: Dividends Net earnings $4,400 400 $4,800 $9,000 $1,200 700 300 2,000 Rent expense Advertising expense Service revenue Dividends Salaries expense Income tax expense
4,200 $4,800
PROBLEM 3-2B
(a) IVAN IZO, INC. Cash Bal. 1. 2. 3. 4. 5. 6. 7. 8. 9. $4,000 +2,000 2,700 +3,000 400 2,750 550 +2,000 0 -1,300 $3,300 Accounts Office Notes Accounts Common Retained + Receivable + Supplies + Equipment = Payable + Payable + Shares + Earnings $2,500 2,000 +3,400 $500 $5,000 , 00 +2,000 $4,200 2,700 +1,600 $6,500 $1,300 +6,400 (a) 1,500 900 350 550 0000 0 $6,500 (b) (c) (d) (e)
0 0000 0 $3,900 00 0 $500 00 $7,000
+$2,000 + 0000 0 $2,000
+300 00 $3,400
300 (f) -1,300 (g) $2,800
$14,700 = $14,700
PROBLEM 3-2B (Continued) (a) Continued) Key to Retained Earnings column on previous page. (a) (b) (c) (d) Service revenue Salaries expense Rent expense Advertising expense (e) Dividends (f) Utilities expense (g) Income tax expense
(b)
IVAN IZO, LLP. Statement of Earnings Month Ended August 31, 2004 Revenues Service revenue Expenses Salaries expense Rent expense Utilities expense Advertising expense Total expenses Earnings before income tax Income tax expense Net earnings $6,400 1,500 900 300 350 3,050 3,350 1,300 $ 2,050
IVAN IZO, LLP. Statement of Retained Earnings Month Ended August 31, 2004 Retained earnings, August 1 Add: Net earnings Less: Dividends Retained earnings, August 31 $1,300 0 2,050 3,350 550 $2,800
PROBLEM 3-2B (Continued) (b) (Continued) IVAN IZO, INC. Balance Sheet August 31, 2004 Assets Current assets Cash Accounts receivable Supplies Total current assets Office equipment Total assets $3,300 3,900 500
$ 7,700 7,000 $14,700
Liabilities and Shareholders' Equity Liabilities Notes payable Accounts payable Total liabilities Shareholders' equity Common shares Retained earnings Total shareholders equity Total liabilities and shareholders' equity $2,000 3,400 $6,500 2,800
$ 5,400
9,300 $14,700
PROBLEM 3-3B
Account Accounts receivable Amortization expense Common shares Cost of goods sold Equipment Income tax expense Income tax payable Insurance expense Interest revenue Inventories Long-term debt Notes payable Prepaid insurance Retained earnings Sales revenue Normal Balance Debit Debit Credit Debit Debit Debit Credit Debit Credit Debit Credit Credit Debit Credit Credit Financial Statement Balance Sheet Balance Sheet Classification Current Assets Shareholders Equity
Statement of Earnings Expense Statement of Earnings Expense Balance Sheet Property, Plant and Equipment Statement of Earnings Expense Balance Sheet Current Liabilities Statement of Earnings Expense Statement of Earnings Revenue Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet Current Assets Long-term Liabilities Short or Long-term Liabilities Current Assets Shareholders Equity Current Liabilities
Statement of Earnings Revenues
Unearned sales revenue Credit
PROBLEM 3-4B
(a) (1) TransBasic action Type 1. Asset 2. 3. Asset Asset Account Debited (2) (3) (4) Specific Dr./Cr. Effect Account Supplies Increase Debit Furniture Increase Debit (1) Basic Type Liability Liability Account Credited (2) (3) (4) Specific Dr./Cr. Effect Account Accounts Increase Credit Payable Note Increase Credit Payable
Cash and Increase Debit Accounts Receivable Increase Debit
Shareholders Revenue Increase Credit Equity (Revenue) Asset Cash Decrease Credit
4.
Shareholders Dividends Equity (Capital) Liability Asset Accounts Payable Cash
5. 6.
Decrease Debit Increase Debit
Asset Asset
Cash
Decrease Credit
Accounts Decrease Credit Receivable Cash Decrease Credit
7.
Shareholders Operating Equity Expenses (Expense) Shareholders Wages or Equity Operating (Expense) Expenses
Increase Debit
Asset
8.
Increase Debit
Liability
Wages Increase Credit Payable
PROBLEM 3-4B (Continued) (b) Cash Flow Cash sales Paid dividends Payment on supplies accounts payable Collection from customers Payment of operating expenses Ending cash Net Earnings Fees earned Operating expenses Wages expense Net earnings $30,000 (1,000) (600) 20,000 (12,000) $36,400 $90,000 (12,000) (4,000) $74,000
PROBLEM 3-5B
Date Account Titles and Explanation Debit 60,000 Credit 60,000
Mar. 1 Cash Common Shares (Issued shares for cash) 3 Land Building Equipment Cash (Purchased Lee's Golf Land) 5 Advertising Expense Cash (Paid for advertising) 6 Prepaid Insurance Cash (Paid for one-year insurance policy) 10 Equipment Accounts Payable (Purchased equipment on account) 18 Cash Golf Revenue (Received cash for revenue earned) 19 Cash Unearned Golf Revenue (Received cash for coupon books sold)
43,000 19,000 06,000
68,000
01,600
01,600
01,800
01,800
04,900
04,900
, 1,200
01,200
05,000
05,000
PROBLEM 3-5B (Continued) Date Account Titles and Explanation Debit 00 , 500 Credit 00, 500
Mar. 25 Dividends Cash (Payment of cash dividend) 30 Salaries Expense Cash (Paid salaries expense) 30 Accounts Payable Cash (Paid creditor on account) 31 Cash Golf Revenue (Received cash for revenue earned)
0,700
0,700
4,900
4,900
0,500
0,500
PROBLEM 3-6B
(a) Date Account Titles and Explanation Debit 16,000 Credit 16,000
Apr. 1 Cash Common Shares (Issued shares for cash) 1 No entry. Not a transaction. 2 Rent Expense Cash (Paid monthly office rent) 3 Supplies Accounts Payable (Purchased supplies on account) 10 Accounts Receivable Service Revenue (Billed clients for services rendered) 11 Cash Unearned Revenue (Received cash advance for future service) 20 Cash Service Revenue (Received cash for revenue earned) 30 Salaries Expense Cash (Paid monthly salary) PROBLEM 3-6B (Continued) (a) (Continued)
00,800
00,800
01,500
0 1,500
0,1,100
01,100
00,500
00,500
01,500
01,500
01,200
01,200
Date
Debit 600
Credit 600
Apr. 30 Accounts Payable Cash (Paid Halo Company on account)
PROBLEM 3-6B (Continued) (b)

Cash Apr. 1 Apr. 11 Apr. 20 Bal. 16,000 Apr. 2 500 Apr. 30 1,500 Apr. 30 15,400 Salaries Expense Accounts Receivable Apr. 30 Apr. 10 Bal. 1,100 Bal. 1,100 Rent Expense Supplies Apr. 2 Apr. 3 Bal. 1,500 Bal. 1,500 Accounts Payable Apr. 30 600 Apr. 3 Bal. Unearned Revenue Apr. 11 Bal. 500 500 1,500 900 800 800 1,200 1,200 800 1,200 600 Service Revenue Apr. 10 Apr. 20 Bal. 1,100 1,500 2,600
Common Shares Apr. 1 Bal. 16,000 16,000
PROBLEM 3-6B (Continued) (c) VIRMANI ARCHITECTS INC. Trial Balance April 30, 2004 Debit Cash Accounts Receivable Supplies Accounts Payable Unearned Revenue Common Shares Service Revenue Salaries Expense Rent Expense Totals $15,400 001,100 001,500 Credit
001,200 800 $20,000
$00,900 000,500 016,000 002,600 ______ $20,000
PROBLEM 3-7B
(a) and (c)
Cash Mar. 1 Bal. Mar. 9 Mar. 20 Mar. 31 Mar. 31 Bal. 16,000 6,500 7,500 600 20,000 27,400 Accounts Receivable Mar. 31 Bal. 600 600 Land Mar. 1 Bal. Bal. 42,000 42,000 Buildings Mar. 1 Bal. Bal. 18,000 18,000 Advertising Expense Mar. 12 Equipment Mar. 1 Bal. Bal. 16,000 16,000 Accounts Payable Bal. 800 800 Concession Revenue Mar. 31 Bal. 1,200 1,200 Admission Revenue Mar. 9 Mar. 20 Mar. 31 Bal. 6,500 7,500 20,000 34,000 Mar. 2 Mar. 10 Mar. 12 Mar. 20 Mar. 31 4,000 10,600 800 4,000 3,800 Mar. 10 10,600 Mar. 1 Bal. 12,000 Mar. 2 8,000 Bal. Common Shares Mar. 1 Bal. 80,000 Bal. 80,000 9,400
PROBLEM 3-7B (Continued) (a) (Continued)

Film Rental Expense
Mar. 2 Mar. 20 Bal.
12,000 4,000 16,000 Salaries Expense
Mar. 31 Bal.
3,800 3,800
PROBLEM 3-7B (Continued) (b) Date Mar. 2 Account Titles and Explanation Film Rental Expense Accounts Payable Cash (Rented films for cash and on account) No entry. Cash Admission Revenue (Received cash for admissions) Accounts Payable ($8,000 + $2,600) Cash (Paid creditors on account) No entry. Advertising Expense Cash (Paid advertising expenses) Cash Admission Revenue (Received cash for admissions) Film Rental Expense Cash (Paid film rental) Salaries Expense Cash (Paid salaries expense) 00,800 0 7,500 00,800 0 7,500 06,500 06,500 Debit 12,000 Credit 08,000 04,000
3 9
10
10,600
10,600
11 12
20
20
04,000
04,000
31
03,800
03,800
PROBLEM 3-7B (Continued) (b) (Continued)
Date
Debit 00,600 00,600
Credit
Mar. 31 Cash Accounts Receivable Concession Revenue (15% X $8,000) (Received cash and balance on account for concession revenue) 31 Cash Admission Revenue (Received cash for admissions) THE STAR THEATRE, INC. Trial Balance March 31, 2004 Debit Cash Accounts Receivable Land Buildings Equipment Accounts Payable Common Shares Admission Revenue Concession Revenue Advertising Expense Film Rental Expense Salaries Expense Totals
01,200
20,000
20,000
(d)
Credit
$ 27,400 0000,600 0042,000 0018,000 0016,000
0000,800 0016,000 3,800 $124,600
$09,400 0080,000 0034,000 0001,200 0 000000 $124,600
Kimmel, Weygandt, Kieso, Trenholm Edition
Financial Accounting, Second Canadian
PROBLEM 3-8B
Error 1. 2. 3. 4. 5. 6. 7. 8.
(a) In Balance No Yes Yes Yes No Yes Yes Yes
(b) Difference $600 Nil Nil Nil $250 Nil Nil Nil
(c) Larger Column Credit N/A N/A N/A Credit N/A N/A N/A
PROBLEM 3-9B
WARGO LTD. Trial Balance June 30, 2004 Debit Cash ($5,652 + $180) Accounts Receivable ($3,230 - $180 + $54) Supplies ($800 - $340) Equipment ($3,000 + $340) Accumulated amortization Accounts Payable Unearned Revenue Common Shares Dividends ($800 + $600) Service Revenue ($4,380 + $801) Salaries Expense ($3,400 - $600) Office Expense Amortization Expense Income Tax Expense Totals $ 5,832 3,104 460 3,340 Credit
1,400 2,800 910 50 200 $18,096
$ 50 02,665 001,200 009,000 005,181
______ $18,096
PROBLEM 3-10B
(a) TAGGAR ENTERPRISES INC. Trial Balance June 30, 2004 Accounts Receivable Accumulated Amortization Amortization Expense Cash Common Shares Cost of Goods Sold Equipment Income Tax Expense Income Tax Payable Insurance Expense Interest Expense Inventories Land Long-Term Debt Long-Term Investment Notes Payable, due 2008 Prepaid Insurance Retained Earnings, July 1, 2003 Sales Revenue Totals Debit $ 500 150 180 870 1,500 160 130 225 510 800 495 90 _____ $5,610 Credit $ 300 550
160
1,200 1,000 400 2,000 $5,610
Problem 3-10B (Continued) (b) TAGGAR ENTERPRISES INC. Statement of Earnings Year Ended June 30, 2004 Sales revenue Expenses Cost of goods sold Insurance expense Amortization expense Interest expense Total expenses Earnings before income taxes Income tax expense Net earnings $2,000 870 130 150 225 1,375 625 160 $ 465
TAGGAR ENTERPRISES INC. Statement of Retained Earnings Year Ended June 30, 2004 Retained earnings, July 1 Add: Net earnings Retained earnings, June 30 $0,400 0__ 465 $ 865
PROBLEM 3-10B (Continued) (b) (Continued) TAGGAR ENTERPRISES INC. Balance Sheet June 30, 2004 Current assets Cash Accounts receivable Inventories Prepaid insurance Total current assets Long-term investment Property, plant and equipment Land Equipment $1,500 Less: accumulated amortization, equipment 300 Total property, plant and equipment Total assets Assets
$180 500 510 90
$1,280 495
$ 800 1,200
2,000 $3,775
Liabilities and Shareholders Equity Current liabilities Income tax payable Long-term liabilities Notes payable Long-term debt Total long-term liabilities Total liabilities Shareholders equity Common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ 160 $1,000 1,200
2,200 2,360
$550 865
1,415 $ 3,775
BYP 3-1 FINANCIAL REPORTING PROBLEM

(a) Account Accounts payable and accrued liabilities Accounts receivable Depreciation expense Fixed assets Interest expense Sales (b) 1. 2. 3. 4. 5. 6. Cash is decreased. Cash is increased. Accumulated depreciation is increased. Accounts payable is increased. Interest payable is increased. Accounts receivable is increased. Increase Side Credit Debit Debit Debit Debit Credit Decrease Side Debit Credit Credit Credit Credit Debit Normal Balance Credit Debit Debit Debit Debit Credit
BYP 3-2 COMPARATIVE ANALYSIS PROBLEM

(a) LOBLAW COMPANIES LIMITED Trial Balance December 28, 2002 (in millions) Cash and cash equivalents Short-term investments Accounts receivable Inventories Future income taxes Prepaid expenses and other assets Fixed assets Goodwill Future income taxes, long-term Other assets Commercial paper Accounts payable and accrued liabilities Income taxes Long-term debt due within one year Long-term debt Future income taxes Other liabilities Share capital Retained earnings (note 1) Impact of implementing new accounting standard Premium on common stock purchased for cancellation Dividendscommon shares Sales Cost of sales, selling and administrative Depreciation Interest expense Income taxes Totals Debit $ 823 304 605 1,702 68 24 5,587 1,599 15 383 Credit
533 2,336 179 106 3,420 68 344 1,195 2,375
25 16 133 23,082 21,425 354 161 ____414 $ 33,638
______ $33,638
BYP 3-2 (Continued)

(b) SOBEYS INC. Trial Balance May 3, 2003 (in thousands) Account Cash Temporary investments Receivables Inventories Prepaid expenses Current future tax assets Current portion mortgage and loans receivable Current assets of discontinued operations Mortgage and loans receivable Property and equipment Goodwill Non-current future tax assets Deferred costs Accounts payable and accrued liabilities Income taxes payable Future tax liabilities Long-term debt due within one year Long-term debt Employee future benefit obligations Non-current future tax liabilities Deferred revenue Capital stock Retained earnings (note 1) Dividends paid Excess of purchase price over average paid up capital of common shares purchased for cancellation Sales Cost of sales, selling and administrative expenses Depreciation and amortization Interest expense-long-term debt Income taxes Totals Debit $ 123.1 191.4 285.4 444.0 30.5 2.7 15.4 1.9 134.6 1,243.9 555.6 28.5 135.5 Credit
$ 971.9 37.4 21.1 150.1 435.3 75.5 57.7 6.7 903.4 382.0 23.8 3.8 10,414.5 9,964.4 124.0 41.7 105.4 $13,455.6
00000000 $13,455.6
BYP 3-2 (Continued)

Note 1Replace retained earnings on the balance sheet with opening retained earnings from the statement of retained earnings and include the dividends paidby including the income statement accounts the net earnings is included.
BYP 3-3 RESEARCH CASE

(a) NAICS industries are identified by a 6-digit code. The longer code accommodates a larger number of sectors and allows more flexibility in designating subsectors. It also provides for additional detail not necessarily appropriate for all three NAICS countries. The international NAICS agreement fixes only the first five digits of the code. The sixth digit, where used, identifies subdivisions of NAICS industries that accommodate user needs in individual countries. Thus, 6-digit Canadian codes may differ from counterparts in U.S. or Mexico, but at the 5-digit level they are standardized. The first two digits identify the sector, the fourth digit identifies the industry group, and the sixth digit identifies special national subdivisions of NAICS industries on a country-by-country basis when necessary. (b) The NAICS industry 517210 is Cellular and Other Wireless Telecommunications. This industry is in: Information and cultural industries sector sector Telecommunications subsector Wireless telecommunications carriers 51721 NAICS industry Wireless Telecommunications Carriers (except satellite) 517210 Canadian specific industry Cellular and Other Wireless Telecommunications. (c) 1. 2. 3. 4. 5. 11 51 52 55 71 51 517 5172
(d) Answer will depend on the company chosen. Some answers could include 71112 dance companies; 711211 sports teams and clubs; and, 71111 theatre companies and dinner theatres.
BYP 3-4 INTERPRETING FINANCIAL STATEMENTS

(a) Account Cash and cash equivalents Accounts receivables and prepaid expenses Inventories Property, plant and equipment Other assets Bank and other payables Accounts payable and accrued expenses Dividends payable Long-term debt Share capital Retained earnings Dividends Sales and revenues from services Gain on disposal of assets Cost of goods sold Depreciation and amortization Operating, general and administrative expense Interest expense Other expenses Income tax recovery Totals Debit $ 39,117 212,454 469,172 724,926 138,305 Credit
$ 388,722 344,836 4,728 338,342 460,688 74,919 4,728 4,130,154 17,221 3,669,961 82,958 382,420 48,408 4,236 000000000 $5,776,685
00017,075 $5,776,685
BYP 3-4 (Continued)

(b) Account Assets = Liabilities + Shareholders Equity
Cash and cash equivalents $ 39,117 Accounts receivables and prepaid 212,454 expenses Inventories 469,172 Property, plant and equipment 724,926 Other assets 138,305 Bank and other payables $ 388,722 Accounts payable and accrued 344,836 expenses Dividends payable 4,728 Long-term debt 338,342 Share capital Retained earnings Dividends Sales and revenues from services Gain on disposal of assets Cost of goods sold Depreciation and amortization Operating, general and administrative expense Interest expense Other expenses Income tax recovery 000000000 000000000 Totals $1,583,974 = $1,076,628 +
$ 460,688 74,919 (4,728) 4,130,154 17,221 (3,669,961) (82,958) (382,420) (48,408) (4,236) 17,075 $ 507,346
BYP 3-5 A GLOBAL FOCUS

Order Trial balances in Canada vary in format. Some companies organize them in financial statement order; others in alphabetical order. The trial balance as presented for Holmen AB is in neither of these formats it is arranged by type of asset, liability and equity. The assets are in order of longevity not currency. Specific differences 1. 2. 3. 4. 5. 6. 7. Goodwill, leases and similar rights these items are not generally grouped together. Short-term placements would be called short-term investments. Shares and participations would be called common and preferred shares. Restricted and non restricted equity are not terms used in Canada but they are similar in intent (i.e. limited liability for share capital doesnt allow this amount to be distributed to shareholders). Financial liabilities would be called long-term liabilities (from financing sources). Revenues net turnover would be sales. Depreciation would be called amortization.
BYP 3-6 FINANCIAL ANALYSIS ON THE WEB

Due to the frequency of change with regard to information available on the world wide web, the Accounting on the Web cases are updated as required. Their suggested solutions are also updated whenever necessary, and can be found online in the Instructor Resources section of our home page (www.wiley.com/canada/kimmel).
BYP 3-7 COLLABORATIVE LEARNING ACTIVITY

(a) May 1 5 7 9 14 15 20 31 Correct. Cash Lesson Revenue Cash Unearned Revenue Hay and Feed Supplies Accounts Payable Office Equipment Cash Dividends Cash Cash Riding Revenue Correct. 250 500 1,700 1,700 800 800 400 400 154 154 250 500
(b) The error in the entries of May 14 and May 20 would prevent the trial balance from balancing. (c) Net earnings as reported Add: May 9, Hay and feed expense May 15, Salaries expense (Dividends declared and paid) Less: May 7, Boarding revenue unearned Correct net earnings (d) Cash as reported Add: May 9, Purchase on account May 20, Transposition error $12,475 $1,700 9 1,709 $14,184 $4,500 $1,700 4002,100 6,600 500 $6,100
BYP 3-8 COMMUNICATION ACTIVITY

To: Accounting Instructor
From: Accounting Student Re: Steps in Recording Process
In the first transaction, bills totaling $6,000 were sent to customers for services rendered. Therefore, the asset Accounts Receivable is increased $6,000 and the revenue Service Revenue is increased $6,000. Debits increase assets and credits increase revenues, so the journal entry is: Accounts Receivable Service Revenue (Bill customer for services rendered) 6,000 6,000
The $6,000 amount is then posted to the debit side of the general ledger account Accounts Receivable and to the credit side of the general ledger account Service Revenue. In the second transaction, $2,000 was paid in salaries to employees. Therefore, the expense Salaries Expense is increased $2,000 and the asset Cash is decreased $2,000. Debits increase expenses and credits decrease assets, so the journal entry is: Salaries Expense Cash (Salaries paid) 2,000 2,000
The $2,000 amount is then posted to the debit side of the general ledger ac count Salaries Expense and to the credit side of the general ledger account Cash.
BYP 3-9 ETHICS CASE

(a) The stakeholders in this situation are: Vu Hung, assistant chief accountant; Users of the company's financial statements such as shareholders and regulators (b) By adding $1,000 to the Equipment account, the account total is intentionally misstated. By not locating the error causing the imbalance, some other account may also be misstated by $1,000. If the amount of $1,000 is determined to be immaterial, and the intent is not to commit fraud (cover up an embezzlement or other misappropriation of assets), Vu's action might not be considered unethical in the preparation of interim financial statements. However, if Vu is violating a company accounting policy by her action, then she is acting unethically. (c) Vu's alternatives are: 1. 2. 3. Miss the deadline but find the error causing the imbalance. Tell her supervisor of the imbalance and suffer the consequences. Do as she did and locate the error later, making the adjustment in the next quarter.
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Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

5, 6, 7, 8, 9, 10, 11, 12, 13 14

5A, 6A, 7A 5B, 6B, 7B

10, 11, 12, 13 10, 11, 12, 14, 15

6A, 7A, 8A, 9A, 10A

6B, 7B, 8B, 9B, 10B

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE

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Financial Accounting, Second Canadian Edition

Problem Number 6B 7B 8B 9B 10B

Difficulty Level Moderate Moderate Moderate Complex Moderate

Time Allotted (min.) 40-50 40-50 30-40 40-50 40-50

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

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Financial Accounting, Second Canadian Edition

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Financial Accounting, Second Canadian Edition

Prepaid Insurance Cash (Paid one-year insurance policy)

17. (a) (b)

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Financial Accounting, Second Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-2

BRIEF EXERCISE 3-3

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Financial Accounting, Second Canadian Edition

BRIEF EXERCISE 3-4

BRIEF EXERCISE 3-5

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Financial Accounting, Second Canadian Edition

BRIEF EXERCISE 3-6

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Financial Accounting, Second Canadian Edition

BRIEF EXERCISE 3-7

BRIEF EXERCISE 3-8

Income Tax Expense 750

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Financial Accounting, Second Canadian Edition

BRIEF EXERCISE 3-9

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Financial Accounting, Second Canadian Edition

BRIEF EXERCISE 3-10

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Financial Accounting, Second Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

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Financial Accounting, Second Canadian Edition

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Financial Accounting, Second Canadian Edition

EXERCISE 3-4 (Continued)

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Financial Accounting, Second Canadian Edition

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Financial Accounting, Second Canadian Edition

Shareholders Advertising Equity Expense Asset Liability Cash Accounts Payable

Shareholders Dividends Equity

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