2100 Solutions - CH4

Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
CHAPTER 4
Accrual Accounting Concepts
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives
Questions
Brief
Exercises
Exercises
A
Problems
B
Problems
*1.
Explain the revenue

recognition principle and
the matching principle.
1, 2, 3, 4
1, 2
1A
1B
*2.
Differentiate between
the cash basis and the
accrual basis of accounting.
2A, 3A
2B, 3B
*3.
Explain why adjusting

entries are needed, and
identify the major types
of adjusting entries.
6, 7
*4.
Prepare adjusting entries

for prepayments.
8, 9, 10, 11,
12, 17, 18,
19
4, 5, 6, 7,11 4, 5, 6, 7, 8, 2A, 3A, 4A,

10, 11
5A, 6A, 7A,
8A, 9A, 10A,
11A, 12A
2B, 3B, 4B
5B, 6B, 7B
8B, 9B, 10B,
11B, 12B
*5.
Prepare adjusting entries

for accruals.
13, 14, 15,

16, 17, 18,
19
8,9,10,11
4, 5, 6, 7, 8, 2A, 3A, 4A,

9, 10, 11
5A, 6A, 7A,
8A, 9A, 10A,
11A, 12A
2B, 3B, 4B,

5B, 6B, 7B,
8B, 9B, 10B,
11B, 12B
*6.
Describe the nature and

purpose of the adjusted
trial balance.
20
12, 13
10, 11, 12
8A, 9A, 10A, 8B, 9B, 10B,

11A, 12A
11B, 12B
*7.
Explain the purposes of

closing entries.
21, 22, 23
14, 15
13
9A, 10A,
12A
9B, 10B,
12B
8.
Describe the required

steps in the accounting
cycle.
24, 25
12A
12B
Solutions Manual
4-1
Copyright 2004 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
ASSIGNMENT CHARACTERISTICS TABLE

Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
Simple
10-15
1A
Identify accounting assumptions, principles, and

constraints.
2A
Convert earnings from cash to accrual basis.
Complex
30-40
3A
Convert earnings from cash to accrual basis; prepare

accrual-based financial statements.
Complex
40-50
4A
Prepare original and adjusting entries.
Simple
20-30
5A
Prepare adjusting entries.
Simple
20-30
6A
Simple
20-30
7A
Prepare adjusting entries and corrected statement of

earnings.
Moderate
40-50
8A
Prepare adjusting entries, post, and prepare adjusted

trial balance.
Moderate
30-40
9A
Prepare adjusting entries, post, prepare adjusted trial

balance, financial statements, and closing entries.
Moderate
50-60
10A
Prepare adjusting entries and financial statements;

identify accounts to be closed.
Moderate
40-50
11A
Complete accounting cycle through to preparation of

financial statements.
Moderate
70
12A
Complete all steps in accounting cycle.
Moderate
70
1B
Identify accounting assumptions, principles, and

constraints.
Simple
10-15
2B
Convert earnings from cash to accrual basis.
Complex
30-40
3B
Convert earnings from cash to accrual basis; prepare

accrual-based financial statements.
Complex
40-50
4B
Simple
20-30
Solutions Manual
4-2
Problem
Number
5B
Description
Prepare adjusting entries.
Difficulty
Level
Simple
Time
Allotted (min.)
20-30
Simple
20-30
6B
7B
Prepare adjusting entries and corrected statement of

earnings.
Moderate
40-50
8B
Prepare adjusting entries, post, and prepare adjusted

trial balance.
Moderate
30-40
9B
Prepare adjusting entries, post, prepare adjusted trial

balance, financial statements, and closing entries.
Moderate
50-60
10B
Prepare adjusting entries and financial statements;

identify accounts to be closed.
Moderate
40-50
11B
Complete accounting cycle through to preparation of

financial statements.
Moderate
70
12B
Complete all steps in accounting cycle.
Moderate
70
Solutions Manual
4-3
ANSWERS TO QUESTIONS
1.
(a)
(b)
Under the time period assumption, an accountant is required to determine the

relevance of each accounting transaction to specific accounting periods.
An accounting time period of one year in length is referred to as a fiscal year.
2.
The two generally accepted accounting principles that pertain to adjusting the
accounts are (1) the revenue recognition principle, which states that revenue should
be recognized in the time period in which it is earned, and (2) the matching principle,
which states that efforts (expenses) must be matched with accomplishments
(revenues).
3.
The law firm should recognize the revenue in April. The revenue recognition principle
states that revenue should be recognized in the accounting period in which it is
earned. In this case, the revenue was earned in April when the work was performed.
4.
Expenses of $4,500 should be deducted from the revenues in April. Under the
matching principle efforts (expenses) should be matched in the same period as
accomplishments (revenues). The $2,000 of expense incurred in March would be
recorded as a prepaid expense until April.
5.
(a)
(b)
Information presented on an accrual basis is useful because it reveals important

information about the relationship between efforts and results. This information
is useful in predicting future results. Trends in revenues and expenses are thus
more meaningful.
Information presented on a cash basis is useful for predicting the future
availability of cash. Cash basis financial statements provide useful information
about a company's sources and uses of cash.
6.
The financial information in a trial balance may not be up-to-date because:

(1)
Some events are not journalized daily because it is unnecessary and
inexpedient to do so.
(2)
The expiration of some costs occurs with the passage of time rather than as a
result of recurring daily transactions.
(3)
Some items may be unrecorded because the transaction data are not known.
7.
The two categories of adjusting entries are prepayments and accruals. Prepayments
consist of revenues and expenses paid before they are earned or incurred such as
prepaid expenses and unearned revenues. Accruals consist of revenues and
expenses earned or incurred prior to payment.
8.
In a prepaid expense adjusting entry, expenses are debited and assets are credited.
9.
No. Amortization is the process of allocating the cost of an asset to expense over its
useful life. Amortization results in the presentation of the book value of the asset, not
its market value.
Solutions Manual
4-4
Questions (Continued)
10.
Amortization expense is an expense account whose normal balance is a debit. This

account shows the cost of a long-lived asset that has expired during the current
accounting period. Accumulated amortization is a contra asset account whose normal
balance is a credit. The balance in this account is the amortization that has been
recognized from the date of acquisition to the balance sheet date.
11.
1st Fiscal Year-end

Equipment $12,000
Less: Accumulated Amortization... 4,000
$8,000
2nd Fiscal Year-end

Equipment $12,000
Less: Accumulated Amortization... 8,000
$4,000
12.
In an unearned revenue adjusting entry, liabilities are debited and revenues are
credited.
13.
Accrued revenues affect asset and revenue accounts. An asset is debited and
revenue is credited.
14.
Accrued liabilities affect liability and expense accounts. An expense is debited and a
liability is credited.
15.
Net earnings was understated $300 because prior to adjustment revenues are
understated by $900 and expenses are understated by $600. The difference in this
case is $300 ($900 $600).
16.
The entries are:

Dec. 31
Jan. 9
Salaries Expense..
Salaries Payable....
1,700
Salaries Payable..
Salaries Expense.....
Cash........
1,700
3,300
Salaries Payable
Accumulated Amortization
Interest Expense
(d)
(e)
(f)
1,700
5,000
17.
(a)
(b)
(c)
Supplies Expense
Service Revenue
Service Revenue
18.
Disagree. An adjusting entry affects only one balance sheet account and one
statement of earnings account.
Solutions Manual
4-5
Questions (Continued)
19.
Adjusting entries never involve the Cash account. In making adjusting entries for
prepayments the cash has already been paid or received and recorded. The adjusting
journal entry must be prepared to reflect the fact that the related revenue or expense
has not yet been earned or incurred. An accrual entry reflects the fact that although
the cash has not been paid or received, either revenue has been earned or an
expense has been incurred. Again there is no impact on the Cash account because
cash has not yet been received or paid.
20.
Financial statements can be prepared from an adjusted trial balance because the
balances of all accounts have been adjusted to show the effects of all financial events
that have occurred during the accounting period.
21.
(1)
(2)
(3)
(4)
(Dr) Individual revenue accounts and (Cr.) Income Summary

(Dr) Income Summary and (Cr.) Individual expense accounts
(Dr) Income Summary and (Cr.) Retained Earnings (for net earnings)
(Dr) Retained earnings and (Cr) Income Summary (for net loss)
(Dr) Retained Earnings and (Cr.) Dividends
22.
The post-closing trial balance contains only balance sheet accounts. Its purpose is to
prove the equality of the permanent account balances that are carried forward into the
next accounting period.
23.
The accounts that will not appear in the post-closing trial balance are Amortization
Expense, Dividends, and Service Revenue.
24.
The steps that involve journalizing are (1) journalize the transactions, (2) journalize the
adjusting entries, and (3) journalize the closing entries.
25.
The three trial balances are the (1) trial balance, (2) adjusted trial balance, and (3) postclosing trial balance.
Solutions Manual
4-6
SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1
The revenue recognition principle dictates that revenue must be recognized in the period in
which it is earned. In a service environment, such as a university, revenue is considered
earned at the time the service is performed. Once the term starts, of the tuition should be
recognized each month and matched against the cost of providing this service (e.g., salaries,
utilities, etc.).
BRIEF EXERCISE 4-2
(a)
(b)
(c)
(d)
(e)
(f)
Cash
-$100
0
0
+800
2,500
0
Net Earnings
$0
50
+1,000
0
0
500
BRIEF EXERCISE 4-3

Item
(1)
Type of Adjustment
(2)
Accounts Before Adjustment
(a)
Prepaid Expenses
Assets Overstated
Expenses Understated
(b)
Accrued Revenues
Assets Understated
Revenues Understated
(c)
Accrued Revenues
Assets Understated
(d)
Unearned Revenues
Liabilities Overstated
(e)
Prepaid Expenses
Assets Overstated
(f)
Accrued Expenses
Liabilities Understated
Solutions Manual
4-7
BRIEF EXERCISE 4-4

Dec. 31
Advertising Supplies Expense.........................................

Advertising Supplies...............................................
Advertising Supplies
Dec. 31
8,800 Dec. 31
Dec. 31 Bal. 1,500
7,300
7,300
Advertising Supplies Expense

Dec. 31
7,300
7,300
BRIEF EXERCISE 4-5

Dec. 31
Amortization ExpenseEquipment.................................
Accumulated AmortizationEquipment.................
Amortization Expense
Equipment
Dec. 31
4,400
4,400
4,400
Equipment
Dec. 31
4,400
SHAH CORPORATION
Balance Sheet (partial)
December 31
Assets
Property, plant, and equipment

Equipment.............................................................................
Less: Accumulated amortization.........................................
$22,000
4,400
$17,600
BRIEF EXERCISE 4-6

June
Dec. 31
Prepaid Insurance............................................................
Cash........................................................................
12,000
Insurance Expense ($12,000 x 7/12)...............................

Prepaid Insurance...................................................
7,000
Prepaid Insurance
June 1
12,000 Dec. 31
Dec. 31 Bal. 5,000
7,000
Dec. 31
12,000
7,000
Insurance Expense
7,000
Solutions Manual
4-8
BRIEF EXERCISE 4-7

June
Dec. 31
Cash.................................................................................
Unearned Insurance Revenue................................
12,000
Unearned Insurance Revenue.........................................

Insurance Revenue.................................................
7,000
Unearned Insurance Revenue

Dec. 31
7,000 June 1
12,000
Dec. 31 Bal. 5,000
12,000
Insurance Revenue
Dec. 31
7,000
7,000
BRIEF EXERCISE 4-8

(a)
(b)
(c)
Dec. 28
Dec. 31
Jan.
Salaries Expense....................................................
Cash...............................................................
5,000
Salaries Payable............................................
1,000
Salaries Payable.....................................................
Cash...............................................................
4,000
1,000
5,000
1,000
5,000
BRIEF EXERCISE 4-9

(a)
(b)
(c)
July 1, 2004
Dec. 31, 2004

Dec. 31, 2005
Vehicle Truck..............................................
Note Payable..........................................
Cash .......................................................
40,000
Interest Expense ($22,000 X 6% X 6/12)......

Interest Payable......................................
660
Note Payable.................................................
Interest Payable.............................................
Interest Expense ($22,000 X 6%)..................
Cash........................................................
22,000
660
1,320
22,000
18,000
660
23,980
Solutions Manual
4-9
BRIEF EXERCISE 4-10

(a)
$2,500 ($2,500 - $0)
(b)
$4,500 ($2,500 + $3,500 - $1,500)
(c)
$3,000 ($1,500 - $2,000 X = $2,500)

Income Tax Payable
Payment
Payment (b) 4,500

Payment
2,000
Expense
2004 Bal.
Expense
2005 Bal.
Expense
2006 Bal.
0
2,500
(a) 2,500
3,500
1,500
(c) 3,000
2,500
BRIEF EXERCISE 4-11

Account
(1)
Type of Adjustment
(2)
Related Account
(a)
Accounts Receivable
Accrued Revenues
Service Revenue
(b)
Prepaid Insurance
Prepaid Expenses
Insurance Expense
(c)
Equipment
No adjustment required
N/A
(d)
Accum. Amortization
Equipment
Prepaid Expenses
(e)
Notes Payable
No adjustment required
N/A
(f)
Interest Payable
Accrued Expenses
Interest Expense
(g)
Unearned Service Revenue
Unearned Revenues
Service Revenue
Solutions Manual
4-10
BRIEF EXERCISE 4-12

LUMAS CORPORATION
Statement of Earnings
Year Ended December 31, 2004
Revenues
Service revenue......................................................................
Expenses
Salaries expense....................................................................
Rent expense.........................................................................
Insurance expense.................................................................
Supplies expense...................................................................
Amortization expense.............................................................
Total expenses..............................................................
Earnings before income taxes.........................................................
Income tax expense........................................................................
Net earnings....................................................................................
$37,000
$13,000
3,500
2,000
1,500
1,000
21,000
16,000
6,400
$ 9,600
BRIEF EXERCISE 4-13

LUMAS CORPORATION
Statement of Retained Earnings
Retained earnings, January 1................................................................................
Add: Net earnings.................................................................................................
Less: Dividends.....................................................................................................
Retained earnings, December 31..........................................................................
$15,600
9,600
25,200
6,000
$19,200
BRIEF EXERCISE 4-14

The accounts that will appear in the post-closing trial balance are:
Retained Earnings
Supplies
Accounts Payable
Solutions Manual
4-11
BRIEF EXERCISE 4-15

July 31 Green Fees.....................................................
Income Summary....................................
26,000
July 31 Income Summary...........................................

Salaries Expense.....................................
Maintenance Expense.............................
Income tax Expense................................
16,700
July 31 Income Summary...........................................

Retained Earnings...................................
9,300
Green Fees
July 31
26,000 July 31 Bal.
July 31 Bal.
0
Salaries Expense
July 31 Bal. 8,200 July 31
July 31 Bal.
0
9,300
8,200
2,500
Income Tax Expense

July 31 Bal.
0
6,000
July 31
July 31
8,200
2,500
6,000
26,000
Maintenance Expense
July 31 Bal.
0
Income Summary
16,700 July 31
9,300
July 31 Bal.
26,000
26,000
0
Retained Earnings
July 1
50,000
July 31
9,300
July 31 Bal. 59,300
Solutions Manual
4-12
SOLUTIONS TO EXERCISES
EXERCISE 4-1
(a)
Since the sales effort is not complete until the flight actually occurs, revenue should
not be recognized until December. Air Canada should recognize the revenue in
December when the customer has been provided with the flight.
(b)
If Leons is reasonably certain of collection, revenue should be recognized at the time

of sale. If the company has concerns over the collectibility of the accounts receivable,
revenue should not be recognized until the time that collection is reasonably assured.
(c)
Revenue should be recognized on a per game basis over the season from April to
October.
(d)
Interest revenue should be accrued and recognized by RBC evenly over the term of
the loan.
(e)
Revenue should be recognized when the sweater is shipped to the customer in

September provided there is reasonable assurance of collectibility.
EXERCISE 4-2
(a)
(b)
(c)
(d)
(e)
Revenue recognition principle

Going concern assumption
Time period assumption
Cost principle
Economic entity assumption
EXERCISE 4-3
(a) and (b)
Service revenue
Less:
Operating expenses
Insurance expense
Earnings before income taxes
Less: Income tax expense
Net earnings
Cash Basis
$22,000
Accrual Basis
$26,000
013,500
2,500
16,000
$6,000
015,000
011,000
4,400
$ 6,600
Solutions Manual
4-13
EXERCISE 4-3 (Continued)

(c)
The accrual basis of accounting provides more useful information for decision makers
because it recognizes revenues when earned and expenses when incurred. By
recognizing revenue when it is earned and properly matching revenue and expenses,
the accrual basis provides a better measurement of performance.
EXERCISE 4-4
Item
(1)
Type of Adjustment
(2)
Accounts Before Adjustment
1.
Accrued Revenues
Assets: Accounts Receivable understated by $600

Revenues: Service Revenue understated by $600
2.
Prepaid Expenses
Assets: Supplies overstated by $1,700

Expenses: Supplies Expense understated by
$1,700
3.
Accrued Expenses
Expenses: Income Tax Expense understated by

$225
Liabilities: Income Tax Payable understated by
$225
4.
Unearned Revenues
Liabilities: Unearned Revenue overstated by $260

Revenues: Service Revenue understated by $260
5.
Accrued Expenses
Expenses: Salaries Expense understated by $800

Liabilities: Salaries Payable understated by $800
6.
Prepaid Expenses
Assets: Prepaid Insurance overstated $350

Expenses: Insurance Expense understated by
$350
Solutions Manual
4-14
EXERCISE 4-5
1.
Mar. 031
2.
31
3.
31
4.
31
5.
31
6.
31
Amortization Expense ($500 X 3).................................

Accumulated AmortizationEquipment..............
1,500
Unearned Rent Revenue..............................................

Rent Revenue ($10,200 X 1/3)............................
3,400
Interest Expense...........................................................
Interest Payable...................................................
600
Supplies Expense.........................................................
Supplies ($4,000 $850)....................................
3,150
Insurance Expense ($200 X 3).....................................

Prepaid Insurance................................................
600
Income Tax Expense....................................................

Income Tax Payable............................................
15,000
Accounts Receivable....................................................
Service Revenue.................................................
900
Utilities Expense...........................................................
Utilities Payable...................................................
5,200
Amortization Expense...................................................
Accumulated AmortizationDental Equipment. .
600
Interest Expense ($60,000 X 8% X 1/12).....................

Interest Payable...................................................
400
Insurance Expense ($5,000 12)................................

Prepaid Insurance................................................
417
Supplies Expense ($1,800 $500)..............................

Supplies...............................................................
1,300
1,500
3,400
600
3,150
600
15,000
EXERCISE 4-6
1.
2.
3.
Jan.
31
31
31
31
4.
5.
31
31
900
5,200
600
400
417
1,300
Solutions Manual
4-15
EXERCISE 4-7
WELLER CORP.
Month Ended July 31, 2005
Revenues
Service revenue ($5,500 + $750)..............................................
Expenses
Wages expense ($2,300 + $300)...............................................
Supplies expense ($1,000 $400)............................................
Utilities expense.........................................................................
Insurance expense.....................................................................
Amortization expense.................................................................
Total expenses..................................................................
Earnings before income taxes............................................................
Income tax expense............................................................................
Net earnings........................................................................................
$6,250
$2,600
600
800
300
150
4,450
1,800
600
$1,200
EXERCISE 4-8
(a)
July
10
14
15
20
31
(b)
July
31
31
31
31
Supplies........................................................................
Cash.....................................................................
300
Cash .............................................................................
Service Revenue.................................................
3,000
Salaries Expense..........................................................
Cash.....................................................................
1,200
Cash ..........................................................................
Unearned Service Revenue................................
700
Cash .............................................................................
Service Revenue.................................................
800
Supplies Expense.........................................................
Supplies...............................................................
700
Accounts Receivable....................................................
Service Revenue.................................................
500
Salaries Expense..........................................................
Salaries Payable..................................................
1,200
Unearned Service Revenue.........................................

Service Revenue.................................................
1,200
300
3,000
1,200
700
800
700
500
1,200
1,200
Solutions Manual
4-16
EXERCISE 4-9
(a)
(b)
Income Tax Expense ([$750 X 12] $12,000)................................

Income Tax Payable.............................................................
3,000
Utilities Expense .............................................................................

Utilities Payable....................................................................
900
Salaries Expense ($1,500 X 3/5 days)............................................

Salaries Payable...................................................................
Interest Expense ($10,000 X 6% X 1/12)........................................
Interest Payable....................................................................
900
3,000
900
900
50
50
Arsenaults accrued expenses reported on its year-end classified balance sheet would
be ($3,000 +$900 + $900 + $50) $4,850. They would be classified as current liabilities.
EXERCISE 4-10
Answer
Calculation
(a)
Supplies balance = $900
Supplies expense
Add: Supplies (Jan. 31)
Less: Supplies purchased
Supplies (Jan. 1)
(b)
Total premium = $7,200
Total premium = Monthly premium X 12;

$600 X 12 = $7,200
Purchase date = June 1, 2003
Purchase date:On Jan. 31, there are 4

months coverage remaining ($600
X 4). Thus, the purchase date was 8 months
earlier on June 1, 2003.
Salaries payable = $1,900
Cash paid
Salaries payable (Jan. 31, 2004)
(c)
Less: Salaries expense

Salaries payable (Dec. 31, 2003)
(d)
Service revenue = $1,650
Service revenue
Unearned revenue (Jan. 31, 2004)
Cash received in Jan.
Unearned revenue (Dec. 31, 2003)
$950)
800)
(850)
$900)
$2,500
1,200
3,700
1,800
$1,900
$2,500
750
3,250
1,600
$1,650
Solutions Manual
4-17
EXERCISE 4-11
Aug.
31
31
31
31
31
31
31
Accounts Receivable.............................................................
Service Revenue..........................................................
700
Office Supplies Expense.......................................................

Office Supplies.............................................................
1,600
Insurance Expense................................................................
Prepaid Insurance........................................................
1,500
Amortization Expense...........................................................
Accumulated AmortizationOffice Equipment............
1,200
Salaries Expense..................................................................
Salaries Payable..........................................................
1,000
Income Tax Expense............................................................

Income Tax Payable....................................................
3,500
Unearned Rent Revenue......................................................

Rent Revenue..............................................................
800
700
1,600
1,500
1,200
1,000
3,500
800
Solutions Manual
4-18
EXERCISE 4-12
INUIT INC.
Year Ended August 31, 2004
Revenues
Service revenue......................................................................
Rent revenue..........................................................................
Total revenues...............................................................
Expenses
Salaries expense....................................................................
Rent expense.........................................................................
Office supplies expense.........................................................
Insurance expense.................................................................
Amortization expense.............................................................
Total expenses..............................................................
Earnings before income taxes.........................................................
Income tax expense........................................................................
Net earnings....................................................................................
$34,700
11,800
46,500
$18,000
15,000
1,600
1,500
1,200
37,300
9,200
3,500
$5,700
INUIT INC.
Year Ended August 31, 2004
Retained earnings, September 1, 2003.................................................................
Add: Net earnings.................................................................................................
Less: Dividends.....................................................................................................
Retained earnings, August 31, 2004......................................................................
$5,600
5,700
11,300
800
$10,500
Solutions Manual
4-19
EXERCISE 4-12 (Continued)

INUIT INC.
Balance Sheet
August 31, 2004
Assets
Current assets
Cash.......................................................................................
Accounts receivable...............................................................
Office supplies........................................................................
Prepaid insurance...................................................................
Total current assets.......................................................
Office equipment....................................................................
Less: Accum. amortizationoffice equipment......................
Total assets...................................................................
$ 9,600
9,500
700
2,500
22,300
$14,000
4,800
9,200
$31,500
Liabilities and Shareholders Equity

Current liabilities
Accounts payable..........................................................................................
Salaries payable............................................................................................
Income tax payable.......................................................................................
Unearned rent revenue.................................................................................
Total current liabilities..........................................................................
Shareholders equity
Common shares............................................................................................
Retained earnings.........................................................................................
Total shareholders equity....................................................................
Total liabilities and shareholders equity..............................................
$5,800
1,000
3,500
700
11,000
10,000
10,500
20,500
$31,500
Solutions Manual
4-20
EXERCISE 4-13
Aug.
31
31
031
31
Service Revenue..............................................................
Rent Revenue..................................................................
Income Summary....................................................
34,700
11,800
Income Summary.............................................................
Office Supplies Expense........................................
Rent Expense.........................................................
Insurance Expense.................................................
Amortization Expense.............................................
Income Tax Expense..............................................
40,800
Income Summary.............................................................
Retained Earnings..................................................
5,700
Retained Earnings...........................................................
Dividends................................................................
800
46,500
18,000
1,600
15,000
1,500
1,200
3,500
5,700
800
Solutions Manual
4-21
SOLUTIONS TO PROBLEMS
PROBLEM 4-1A
(a) 2.
Going concern assumption
(b) 3.
Monetary unit assumption
(c) 9.
Materiality
(d) 4.
(e) 6.
Revenue recognition principle
(f)
Cost-benefit
10.
(g) 1.
(h) 5.
Full disclosure principle
Solutions Manual
4-22
PROBLEM 4-2A
$45,000
-1,400
Cash basis earnings

Accounts receivable arise from sales that have been made, thus
revenue must be recognized for balance outstanding at the end of
the current year
Accounts receivable collected in current year, for sales made in
previous year must be deducted from earnings
Prepaid expenses at year end should be set up as an asset rather
than expensed, this increases earnings
Prepaid expenses at the end of the previous year should be
expensed this year, this decreases earnings
Accounts payable owing at the end of the current year should be
accrued, thus reducing earnings
Accounts payable owed at the end of the previous year should not
be deducted from the current years earnings, thus increasing
earnings
Unearned revenue at the end of the current year should be
accrued, thus reducing earnings.
+1,500
Unearned revenue at the end of the previous year should not be

deducted from the current years income, thus increasing earnings
+3,600
-2,700
+1,500
-1,300
-1,500
+2,200
$46,900
Accrual basis earnings.
Solutions Manual
4-23
PROBLEM 4-3A
(a)
THE RADICAL EDGE LTD.

Six Months Ended April 30, 2004
Revenues
Repair services ($32,150 + $650)......................
Expenses
Wage expense ($2,600 + $220).........................
Rent expense ($1,225 - $175)...........................
Advertising expense...........................................
Amortization expense ($9,200 5 x 6/12).........
Utilities expense.................................................
Total expenses...........................................
Earnings before taxes................................................
Income tax expense..................................................
Net earnings..............................................................
$32,800
$2,820
1,050
375
920
970
6,135
26,665
10,000
$16,665
Solutions Manual
4-24
PROBLEM 4-3A (Continued)

(b)
THE RADICAL EDGE LTD.
Balance Sheet
April 30, 2004
Assets
Current assets
Cash..............................................................
Rent deposit..................................................
Accounts receivable .....................................
Total current assets...............................
Equipment.....................................................
Less: Accumulated amortization..................
Total assets..........................................................
$27,780
175
650
28,605
$9,200
920
8,280
$36,885

Current liabilities
Wages payable..............................................
Shareholders equity
Common shares............................................
Retained earnings.........................................
Total shareholders equity.....................
Total liabilities and shareholders equity...............
$ 220
$20,000
16,665
36,665
$36,885
Solutions Manual
4-25
PROBLEM 4-4A
1.
Jan. 2
Dec. 31
2.
Aug. 1
Dec. 31
3.
4.
Dec. 15
Office Supplies....................................................
Cash.........................................................
2,800
Supplies Expense ($2,800 $300)..................

Office Supplies.........................................
2,500
Prepaid Insurance............................................
Cash.........................................................
3,600
Insurance Expense ($3,600 x 5/12).................

Prepaid Insurance....................................
1,500
Prepaid Rent....................................................
Cash.........................................................
500
2,800
2,500
3,600
1,500
500
Dec. 31
No entry required
Nov. 15
Cash................................................................
Unearned Revenue..................................
1,200
Unearned Revenue ($400 x 2).........................

Revenue...................................................
800
Dec. 31
1,200
800
Solutions Manual
4-26
PROBLEM 4-5A
1.
2.
3.
4.
Dec. 31
31
31
31
Salaries Expense........................................
Salaries Payable..................................
(6 X $800 X 2/5 = $1,920)
(2 X $500 X 2/5 = $400)
2,320
Unearned Rent Revenue.............................

Rent Revenue......................................
(5 X $4,000 X 2 = $40,000)
(4 X $8,500 X 1 = 34,000)
Total rent earned $74,000)
74,000
Advertising Expense....................................
Prepaid Advertising.............................
(A650 $500 per month
for 8 months = $4,000)
(B974 $300 per month
for 5 months = 1,500)
$5,500
5,500
Interest Expense.........................................
Interest Payable...................................
($80,000 X 9% X 8/12)
4,800
2,320
74,000
5,500
4,800
Solutions Manual
4-27
PROBLEM 4-6A
1. (a)
(b) Dec. 31
2. (a) June 1
(b) Dec. 31
3.
Dec. 31
4. (a) July 1
(b) Dec. 31
5.
Dec. 31
Office Supplies..............................................
Cash..............................................................
1,500
Supplies Expense ($300 + $1,500 $500)...

Office Supplies.........................................
1,300
Cash..............................................................
Note Payable............................................
4,000
Interest Expense...........................................
Interest Payable ($4,000 X 8% x 7/12)....
187
Utilities Expense............................................
Accounts Payable....................................
1,400
Truck.............................................................
Cash.........................................................
38,000
Amortization Expense ($7,600 X 6/12)..........

Accumulated Amortization Truck..........
3,800
Income Tax Expense ($13,000 - $10,000)....

Income Tax Payable................................
3,000
1,500
1,300
4,000
187
1,400
38,000
3,800
3,000
Solutions Manual
4-28
PROBLEM 4-7A
(a)
1.
2.
3.
4.
5.
6.
March 31 Travel Service Fees.................................

Unearned Fees................................
28,000
31 Supplies Expense....................................
Supplies ($3,200 $800)................
2,400
31 Insurance Expense ($1,200 x 3/12).........

Prepaid Insurance...........................
300
31 Utilities Expense.......................................
Accounts Payable............................
180
31 Salaries Expense ($175 x 3 x 2)..............

Salaries Payable.............................
1,050
31 Interest Expense (10,000 x 5% x 1/12)....

Interest Payable..............................
42
28,000
2,400
300
180
1,050
42
Solutions Manual
4-29

(b)
TRY- US TRAVEL AGENCY LTD.
Quarter Ended March 31, 2004
Revenues
Travel service fees ($50,000 $28,000)...........
Expenses
Amortization expense........................................
Salaries expense ($6,000 + $1,050)..................
Utilities expense ($400 + $180).........................
Supplies expense...............................................
Insurance expense.............................................
Interest expense................................................
Total expenses...........................................
Earnings before income taxes...................................
Net earnings..............................................................
(c)
$22,000
$2,600
400
7,050
580
2,400
300
42
13,372
8,628
1,500
$ 7,128
The generally accepted accounting principles pertaining to the statement

of earnings not recognized by Paul were the revenue recognition principle
and the matching principle.
The revenue recognition principle states that revenue is recognized when it
is earned. The fees of $28,000 for summer rentals have not been earned
and, therefore, should not be reported in earnings for the quarter ended
March 31.
The matching principle dictates that efforts (expenses) be matched with
accomplishments (revenue) whenever it is reasonable and practicable to
do so. This means that the expenses should include amounts incurred in
March but not paid until April, and any other costs related to the operations
of the business during the period JanuaryMarch.
The difference in reported expenses was $3,972 ($13,372 + $1,500 $10,900). The overstatement of revenues ($28,000) plus the
Solutions Manual
4-30
understatement of expenses ($3,972) equals the difference in reported

earnings of $31,972 ($39,100 - $7,128).
Solutions Manual
4-31
PROBLEM 4-8A
(a)
Date
1.
2.
3.
4.
5.
6.
7.
8.
Account Titles
Dec. 31 Accounts Receivable

Service Revenue
31 Insurance Expense
Prepaid Insurance
($3,600 2 years)
31 Amortization Expense
Accumulated AmortizationAuto.
Debit
11,500
11,500
1,800
1,800
11,600
11,600
31 Interest Expense
Interest Payable
2,250
31 Unearned Service Revenue

Service Revenue
1,000
31 Salaries Expense (4 x $900)

Salaries Payable
3,600
31 Repairs Expense
Accounts Payable
31 Income Tax Expense
Income Taxes Payable
Credit
2,250
1,000
3,600
650
650
2,600
2,600
Solutions Manual
4-32

(b)
Cash
Dec. 31 Bal. 12,400
Unearned Service Revenue

Dec. 31
1,000 Dec. 31 Bal. 2,500
Dec. 31 Bal. 1,500
Accounts Receivable
Dec. 31 Bal. 3,200
Dec. 31
11,500
Dec. 31 Bal. 14,700
Prepaid Insurance
Dec. 31 Bal. 3,600 Dec. 31
Dec. 31 Bal. 1,800
Common Shares
Dec. 31 Bal. 18,000
1,800
Automobiles
Dec. 31 Bal. 58,000
Automobiles
Dec. 31
11,600
Dec. 31 Bal. 11,600
Accounts Payable
Dec. 31
Dec. 31 Bal.
650
650
Notes Payable
Dec. 31
045,000
Dec. 31 Bal. 45,000
Salaries Payable
Dec. 31
03,600
Dec. 31 Bal. 3,600
Interest Payable
Dec. 31
0 2,250
Dec. 31 Bal. 0 2,250
Dec. 31
Dec. 31 Bal.
Service Revenue
Dec. 31 Bal. 96,000
Dec. 31
11,500
Dec. 31
1,000
Dec. 31 Bal.108,500
2,600
2,600
Salaries Expense
Dec. 31 Bal. 57,000
Dec. 31
3,600
Dec. 31 Bal. 60,600
Repairs Expense
Dec. 31 Bal. 6,000
Dec. 31
650
Dec. 31 Bal. 6,650
Rent Expense
Dec. 31 Bal. 12,000
Gas and Oil Expense
Dec.31 Bal. 09,300
Dec. 31
11,600
Dec. 31 Bal. 11,600
Insurance Expense
Dec. 31
1,800
Dec. 31 Bal. 1,800
Dec. 31
Dec. 31 Bal.
Interest Expense
2,250
2,250
Income Tax Expense

Dec. 31
2,600
Dec. 31 Bal. 2,600
Solutions Manual
4-33
Solutions Manual
4-34

(c)
ORTEGA LIMO SERVICE LTD.
Adjusted Trial Balance
December 31, 2004
Cash......................................................................
Accounts Receivable.............................................
Prepaid Insurance.................................................
Automobiles...........................................................
Accumulated AmortizationAutomobiles.............
Accounts Payable..................................................
Interest Payable.....................................................
Salaries Payable....................................................
Income Taxes Payable..........................................
Unearned Service Revenue..................................
Notes Payable.......................................................
Common Shares....................................................
Service Revenue...................................................
Salaries Expense...................................................
Rent Expense........................................................
Repairs Expense...................................................
Gas and Oil Expense.............................................
Amortization Expense............................................
Insurance Expense................................................
Interest Expense....................................................
Income Tax Expense.............................................
Totals
Debit
$ 12,400
14,700
1,800
58,000
Credit
$ 11,600
650
2,250
3,600
2,600
1,500
45,000
18,000
108,500
60,600
12,000
6,650
9,300
11,600
1,800
2,250
00
2,600 _____ __
$193,700 $193,700
Solutions Manual
4-35
PROBLEM 4-9A
(a) 1. Aug. 31
2.
3.
4.
5.
31
31
Insurance Expense ($300 X 3)..................

Prepaid Insurance.............................
900
Supplies Expense ($4,300 $1,200)........

Supplies.............................................
3,100
Amortization ExpenseCottages.............
($6,000 X 3/12)
Accum. Amort.Cottages.................
1,500
900
3,100
1,500
31
Amortization ExpenseFurniture............. 1,250

($5,000 X 3/12)
Accum. Amort.Furniture.................
1,250
31
Unearned Rent Revenue..........................

Rent Revenue....................................
5,000
Salaries Expense......................................
Salaries Payable................................
400
31
5,000
400
6.
31
Accounts Receivable................................. 1,800

Rent Revenue....................................
1,800
7.
31
Interest Expense.......................................
Interest Payable.................................
[($90,000 X 8%) X 1/12]
600
Income Tax Expense................................

Income Tax Payable.................................
4,000
8.
31
600
4,000
Solutions Manual
4-36

(b)
Cash
Aug. 31 Bal. 15,600
Aug. 31
Aug. 31 Bal.
Accounts Receivable
Aug. 31
1,800
Aug. 31 Bal.
1,800
400
400
Interest Payable
Aug. 31
600
Aug. 31 Bal. 600
Prepaid Insurance
Aug. 31 Bal. 5,400 Aug. 31
Aug. 31 Bal. 4,500
900
Income Tax Payable

Aug. 31 Bal. 5,000
Aug. 31
4,000
Aug. 31 Bal. 9,000
Supplies
Aug. 31 Bal. 4,300 Aug. 31
Aug. 31 Bal. 1,200
3,100
Mortgage Payable
Aug. 31 Bal. 90,000
Common Shares
Aug. 31 Bal. 100,000
Land
Aug. 31 Bal. 50,000
Dividends
Aug. 31 Bal. 5,000
Aug. 31 Bal. 5,000
Cottages
Aug. 31 Bal.125,000
Cottages
Aug. 31
1,500
Aug. 31 Bal. 1,500
Furniture
Aug. 31 Bal. 26,000
Furniture
Aug. 31
1,250
Aug. 31 Bal. 1,250
Accounts Payable
Aug. 31 Bal.
Aug. 31
Unearned Rent Revenue

5,000 Aug. 31 Bal.
Aug. 31 Bal.
Salaries Payable
Rent Revenue
Aug. 31 Bal. 90,000
Aug. 31
5,000
Aug. 31
1,800
Aug. 31 Bal. 96,800
Salaries Expense
Aug. 31 Bal. 51,000
Aug. 31
400
Aug. 31 Bal. 51,400
Utilities Expense
Aug. 31 Bal. 9,400
6,500
6,800
1,800
Repair Expense
Aug. 31 Bal. 3,600
Insurance Expense
Aug. 31
900
Aug. 31 Bal. 900
Solutions Manual
4-37

(b)
(Continued)
Supplies Expense
Aug. 31
3,100
Aug. 31 Bal. 3,100
Income Tax Expense
Aug. 31 Bal. 3,000
Aug. 31
00 4,000
Aug. 31 Bal. 7,000
Cottages
Aug. 31
1,500
Aug. 31 Bal. 1,500
Furniture
Aug. 31
1,250
Aug. 31 Bal. 1,250
Aug. 31
Aug. 31 Bal.
Interest Expense
600
600

(c)
HIGHLAND COVE RESORT INC.
August 31, 2005
Cash...................................................................
Accounts Receivable.........................................
Prepaid Insurance..............................................
Supplies.............................................................
Land...................................................................
Cottages.............................................................
Accumulated AmortizationCottages...............
Furniture.............................................................
Debit
$15,600
1,800
4,500
1,200
50,000
125,000
26,000
Credit
$1,500
1,250
6,500
1,800
400
600
9,000
90,000
Solutions Manual
4-38
Accumulated AmortizationFurniture...............
100,000
5,000
Accounts Payable..............................................
Unearned Rent Revenue...................................
Salaries Payable................................................
Interest Payable.................................................
Income Tax Payable..........................................
Mortgage Payable..............................................
51,400
9,400
3,600
900
7,000
3,100
1,500
1,250
600
$307,850
96,800
0000,
_____ __
$307,850
Common Shares................................................
Dividends...........................................................
Rent Revenue....................................................
Salaries Expense...............................................
Utilities Expense................................................
Repair Expense.................................................
Insurance Expense............................................
Income Tax Expense.........................................
Supplies Expense..............................................
Amortization ExpenseCottages......................
Amortization ExpenseFurniture......................
Interest Expense................................................
Totals
Solutions Manual
4-39

(d)

Three Months Ended August 31, 2005
Revenues
Rent revenue....................................................
Expenses
Salaries expense..............................................
Utilities expense...............................................
Repair expense................................................
Supplies expense.............................................
Amortization expensecottages......................
Insurance expense...........................................
Interest expense...............................................
Amortization expensefurniture......................
Total expenses.........................................
Earnings before income tax.....................................
Income tax expense.................................................
Net earnings.............................................................
$96,800
$51,400
9,400
3,600
3,100
1,500
900
600
1,250
71,750
25,050
7,000
$18,050

Three Months Ended August 31, 2005
Retained earnings, June 1..........................................................
Add: Net earnings......................................................................
Less: Dividends..........................................................................
Retained earnings, August 31.....................................................
$ 0
18,050
18,050
5,000
$13,050
Solutions Manual
4-40

(d)
(Continued)
Balance Sheet
August 31, 2005
Assets
Current assets
Cash............................................................
$15,600
Accounts receivable.....................................
1,800
Prepaid insurance........................................
4,500
Supplies.......................................................
1,200
Total current assets................................
Property, plant and equipment
Land............................................................. $ 50,000
Cottages......................................................
$125,000
Less: Accum. amortizationcottages........
1,500
123,500
Furniture...................................................... $ 26,000
Less: Accum. amortizationfurniture.........
1,250
24,750
Total property, plant, and equipment......
Total assets.........................................................
$23,100
198,250
$221,350
Solutions Manual
4-41

(d)
(Continued)
Current liabilities
Accounts payable..........................................
Salaries payable............................................
Interest payable.............................................
Unearned rent revenue.................................
Income tax payable.......................................
Total current liabilities....................................
Mortgage payable.................................................
Total liabilities........................................
Shareholders equity
Common shares............................................
Total liabilities and shareholders equity
(e)
Aug. 31
31
031
31
$6,500
400
600
1,800
9,000
$ 18,300
90,000
108,300
100,000
13,050
113,050
$221,350
Rent Revenue....................................................
Income Summary........................................
96,800
Income Summary...............................................
Utilities Expense.........................................
Repair Expense..........................................
Insurance Expense.....................................
Supplies Expense.......................................
Amortization Expense - Cottages...............
Amortization Expense - Furniture...............
Income Tax Expense..................................
78,750
Income Summary...............................................
Retained Earnings......................................
18,050
Retained Earnings..............................................
Dividends....................................................
5,000
96,800
51,400
9,400
3,600
900
600
3,100
1,500
1,250
7,000
18,050
5,000
Solutions Manual
4-42
PROBLEM 4-10A
(a) Dec. 31
31
31
31
31
31
31
31
Accounts Receivable.......................................
Advertising Revenue................................
3,500
Art Supplies Expense......................................

Art Supplies..............................................
2,400
Insurance Expense..........................................
850
Amortization Expense......................................
Accumulated Amortization.......................
7,000
Interest Expense..............................................
Interest Payable.......................................
225
Unearned Advertising Revenue.......................

Advertising Revenue................................
400
Salaries Expense.............................................
Salaries Payable......................................
1,300
Income Tax Expense.......................................

Income tax Payable.................................
2,500
3,500
2,400
850
7,000
225
400
1,300
2,500
Solutions Manual
4-43

(b)
GRANT ADVERTISING AGENCY LIMITED
Revenues
Advertising revenue...........................................
Expenses
Salaries expense............................................... $11,300
Amortization expense........................................ 7,000
Rent expense..................................................... 14,000
Art supplies expense.......................................... 2,400
850
225
Total expenses...........................................
Earnings before income tax expense........................
Net earnings..............................................................
$62,500
35,775
26,725
10,000
$16,725

Retained earnings, January 1.....................................................
Add: Net earnings......................................................................
Less: Dividends..........................................................................
Retained earnings, December 31................................................
$11,650
16,725
28,375
12,000
$16,375
Solutions Manual
4-44

(b)
(Continued)
Balance Sheet
December 31, 2004
Assets
Current assets
Cash.................................................................
Accounts receivable.........................................
Art supplies.......................................................
Prepaid insurance............................................
Total current assets..........................................
Printing equipment...........................................
Less: Accumulated amortization.....................
Total assets..............................................................
$11,000
21,500
6,000
2,500
41,000
$60,000
35,000
25,000
$66,000

Current liabilities
Notes payable..................................................
Accounts payable.............................................
Interest payable................................................
Unearned advertising revenue.........................
Income tax payable..........................................
Salaries payable...............................................
Total current liabilities...............................
Shareholders equity
Common shares...............................................
Retained earnings............................................
Total shareholders equity.........................
Total liabilities and shareholders equity..................
$15,000
5,000
225
5,600
2,500
1,300
29,625
20,000
16,375
36,375
$66,000
Solutions Manual
4-45

(c) Advertising Revenue, Salaries Expense, Amortization Expense, Rent
Expense, Art Supplies Expense, Insurance Expense, Interest Expense,
Income Tax Expense and Dividends.
(d) Interest expense = $5,000 x ?% x 3/12 = $225
Interest rate = 18%
(e) Salaries Expense, $11,300, less Salaries Payable 12/31/04, $1,300 =
$10,000. Total payments, $13,500 $10,000 = $3,500 Salaries Payable
12/31/03.
Solutions Manual
4-46
PROBLEM 4-11A
(a), (c) and (e)
Cash
Sept. 1 Bal. 4,880 Sept. 8
Sept. 10
1,200 Sept. 20
Sept. 12
3,400 Sept. 22
Sept. 29
650 Sept. 25
Sept. 30
Sept. 30 Bal. 2,330
Accounts Receivable
Sept. 1 Bal. 3,720 Sept. 10
Sept. 27
900
Sept. 30 Bal. 3,420
Supplies
Sept. 1 Bal. 800 Sept. 30
Sept. 17
1,500
Sept. 30 Bal. 1,800
1,100
4,500
500
1,200
500
1,200
500
Store Equipment
Sept. 1 Bal. 15,000
Sept. 15
3,000
Sept. 30 Bal. 18,000
Sept. 1 Bal.
Sept. 30
Sept. 30 Bal.
1,500
250
1,750
Accounts Payable
4,500 Sept. 1 Bal.
Sept. 15
Sept. 17
Sept. 30 Bal.
3,100
3,000
1,500
3,100
Sept. 20
Solutions Manual
4-47

(a), (c), and (e) (Continued)
Sept. 30
Sept. 8
Unearned
Service Revenue
350 Sept. 1 Bal. 400
Sept. 29
650
Sept. 30 Bal. 700
Salaries Expense
Sept. 8
400
Sept. 25
1,200
Sept. 30
400
Sept. 30 Bal. 2,000
Salaries Payable
700 Sept. 1 Bal. 700
Sept. 30
400
Sept. 30 Bal. 400
Rent Expense
Sept. 22
500
Sept. 30 Bal. 500
Common Shares
Sept. 1 Bal. 10,000
Sept. 30 Bal. 10,000
Income Tax Expense

Sept. 30
500
Sept. 30 Bal. 500
Retained Earnings
Sept. 1 Bal. 8,700
Sept. 30 Bal. 8,700
Service Revenue
Sept. 12
Sept. 27
Sept. 30
Sept. 30 Bal.
3,400
900
350
4,650
Sept. 30
250
Sept. 30 Bal.
250
Supplies Expense
Sept. 30
500
Sept. 30 Bal.
500
Solutions Manual
4-48

(b)
General Journal
Date
Account Titles
Sept. 8
Salaries Payable.............................................
Salaries Expense............................................
Debit
700
400
Credit
1,100
Cash........................................................
10
Cash................................................................
1,200
1,200
Accounts Receivable...............................
12
Cash................................................................
3,400
3,400
Service Revenue.....................................
15
17
20
22
25
27
29
Store Equipment.............................................
3,000
Supplies..........................................................
1,500
Accounts Payable...........................................
Cash........................................................
4,500
Rent Expense..................................................
Cash........................................................
500
Salaries Expense............................................
Cash........................................................
1,200
Service Revenue.....................................
900
Cash................................................................
650
3,000
1,500
4,500
500
1,200
900
650
Unearned Service Revenue....................
30
Income Tax Expense......................................

Cash.........................................................
500
500

(d) and (f)
RIJO EQUIPMENT REPAIR CORP.
Trial Balance
September 30, 2004
Cash.............................................
Accounts Receivable....................
Supplies........................................
Store Equipment...........................
Accumulated Amortization............
Accounts Payable.........................
Unearned Service Revenue.........
Salaries Payable..........................
Common Shares..........................
Retained Earnings........................
Service Revenue..........................
Amortization Expense..................
Supplies Expense.........................
Salaries Expense.........................
Income Tax Expense...................
Rent Expense...............................
Totals
(e) 1. Sept. 30
2.
3.
4.
30
30
30
Before
Adjustment
Dr.
Cr.
$2,330
3,420
2,300
18,000
$1,500
3,100
1,050
10,000
8,700
4,300
1,600
500
000
500 __ ____
$28,650 $28,650
After
Adjustment
Dr.
Cr.
$2,330
3,420
1,800
18,000
$1,750
3,100
700
400
10,000
8,700
4,650
250
500
2,000
500
00
500 ____ __
$29,300 $29,300
Supplies Expense......................................
Supplies ($2,300 $1,800)................
500
Salaries Expense.......................................
400
Amortization Expense................................
Accumulated Amortization..................
250
Unearned Service Revenue.......................

Service Revenue................................
350
500
400
250
350

(g)
Month Ended September 30, 2004
Revenues
Service revenue....................................................
Expenses
Salaries expense..................................................
Supplies expense..................................................
Rent expense........................................................
Amortization expense...........................................
Total expenses..............................................
Earnings before income tax..........................................
Income tax expense......................................................
Net earnings.................................................................
$4,650
$2,000
500
500
250
3,250
1,400
500
$ 900

Month Ended September 30, 2004
Retained earnings, September 1...................................................
Add: Net earnings........................................................................
Retained earnings, September 30.................................................
$8,700
900
$9,600

(g)
(Continued)
Balance Sheet
September 30, 2004
Assets
Current assets
Cash.................................................................
Supplies............................................................
Store equipment...............................................
Total assets..............................................................
$2,330
3,420
1,800
7,550
$18,000
1,750
16,250
$23,800

Current liabilities
Accounts payable................................................................
Salaries payable..................................................................
Unearned service revenue..................................................
Total current liabilities..................................................
Shareholders equity
Common shares..................................................................
Retained earnings...............................................................
Total shareholders equity............................................
Total liabilities and shareholders equity......................................
$3,100
400
700
4,200
10,000
9,600
19,600
$23,800
PROBLEM 4-12A
(a)
Date
Mar. 1
1
2
3
5
14
18
20
21
28
31
General Journal
Account Titles
Debit
Cash.................................................................
Common Shares.......................................
10,000
Equipment.........................................................
Cash..........................................................
Note Payable.............................................
26,000
Rent Expense...................................................
Cash..........................................................
500
Cleaning Supplies.............................................
Accounts Payable.....................................
1,200
Prepaid Insurance.............................................
Cash..........................................................
1,800
Accounts Receivable........................................
Service Revenue.......................................
4,800
Accounts Payable.............................................
Cash..........................................................
500
Salaries Expense..............................................
Cash..........................................................
1,500
Cash.................................................................
Accounts Receivable.................................
2,600
Service Revenue.......................................
3,500
Gas & Oil Expense............................................

Cash..........................................................
350
Credit
10,000
6,000
20,000
500
1,200
1,800
4,800
500
1,500
2,600
3,500
350

(a)
(Continued)
Mar. 31
Dividends..........................................................
Cash..........................................................
900
900

(b), (e) and (h)
Cash
Mar. 1
10,000 Mar. 1
Mar. 21
2,600 Mar. 2
Mar. 5
Mar. 18
Mar. 20
Mar. 31
Mar. 31
Mar. 31 Bal. 1,050
Accounts Receivable
Mar. 14
4,800 Mar. 21
Mar. 28
3,500
Mar. 31
600
Mar. 31 Bal. 6,300
Cleaning Supplies
Mar. 3
1,200 Mar. 31
Mar. 31 Bal. 400
Prepaid Insurance
Mar. 5
1,800 3/31
Mar. 31 Bal. 1,650
6,000
500
1,800
500
1,500
350
900
Mar. 18
133
133
Common Shares
Mar. 1
10,000
Mar. 31 Bal. 10,000
150
Accounts Payable
500 Mar. 3
1,200
Mar. 31 Bal.
700
Interest Payable
Mar. 31
Mar. 31 Bal.
Notes Payable
Mar. 1
20,000
Mar. 31 Bal. 20,000
800
Equipment
Mar. 31
400
Mar. 31 Bal.
400
500
500
Income Tax Payable

Mar. 31
1,600
Mar. 31 Bal. 1,600
2,600
Equipment
Mar. 1
26,000
Mar. 31 Bal. 26,000
Salaries Payable
Mar. 31
Mar. 31 Bal.
Mar. 31
Mar. 31
Mar. 31 Bal.
Mar. 31
Mar. 31
Retained Earnings
900 Mar. 31
2,967
Mar. 31 Bal. 2,067
Dividends
900 Mar. 31
0
900
Income Summary
5,933 Mar. 31
8,900
2,967
Mar. 31 Bal. 0

(b), (e), and (h) (Continued)
Mar. 31
Service Revenue
8,900 Mar. 14
4,800
Mar. 28
3,500
Mar. 31
600
Mar. 31 Bal. 0
Mar. 31
400 Mar. 31
Mar. 31 Bal.
0
Insurance Expense
Mar. 31
150 Mar. 31
Mar. 31 Bal. 0
400
150
Cleaning Supplies Expense

Mar. 31
800 Mar. 31
Mar. 31 Bal.
0
800
Rent Expense
Mar. 2
500 Mar. 31
Mar. 31 Bal.
0
500
Mar. 20
Mar. 31
Mar. 31 Bal.
Salaries Expense
1,500 Mar. 31
500
0
2,000
Gas & Oil Expense

Mar. 31
350 Mar. 31
Mar. 31 Bal.
0
350
Interest Expense
Mar. 31
133 Mar. 31
Mar. 31 Bal.
0
133
Income Tax Expense

Mar. 31
1,600 Mar. 31
Mar. 31 Bal.
0
1,600

(c) and (f)
EWOKS CARPET CLEANERS LTD.
Trial Balance
March 31, 2004
Cash.....................................................
Accounts Receivable............................
Cleaning Supplies................................
Prepaid Insurance................................
Equipment............................................
Accumulated Amortization...................
Accounts Payable................................
Note Payable.......................................
Common Shares..................................
Dividends.............................................
Service Revenue..................................
Gas & Oil Expense...............................
Salaries Expense.................................
Amortization Expense..........................
Insurance Expense..............................
Cleaning Supplies Expense.................
Rent Expense......................................
Interest Expense..................................
Income Tax Expense...........................
Totals
Before
Adjustment
Debit
Credit
$1,050
5,700
1,200
1,800
26,000
$ 700
20,000
10,000
900
350
1,500
8,300
500
___ ___ ____ __
$39,000 $39,000
After
Adjustment
Debit
Credit
$ 1,050
6,300
400
1,650
26,000
$ 400
700
500
133
1,600
20,000
10,000
900
8,900
350
2,000
400
150
800
55500
133
1,600
____
$42,233
__
$42,233

(d)
1.
2.
3.
4.
5.
6.
7.
General Journal
Date
Account Titles
March 31
Accounts Receivable................................
Service Revenue..............................
600
Amortization Expense..............................
Accumulated Amortization................
400
Interest Expense ($20,000 X 8% X 1/12).

Interest Payable...............................
133
Insurance Expense..................................
Prepaid Insurance ($1,800 X 1/12)...
150
Cleaning Supplies Expense.....................

Cleaning Supplies ($1,200 $400). .
800
Salaries Expense.....................................
Salaries Payable..............................
500
Income Tax Expense...............................

Income Tax Payable.........................
1,600
31
31
31
31
31
31
Debit
Credit
600
400
133
150
800
500
1,600

(g)
Month Ended March 31, 2004
Revenues
Service revenue..................................................
Expenses
Salaries expense.................................................
Cleaning supplies expense..................................
Amortization expense..........................................
Gas & oil expense...............................................
Rent expense......................................................
Interest expense..................................................
Insurance expense..............................................
Total expenses............................................
Earnings before income tax........................................
Income tax expense............................................
Net earnings................................................................
$8,900
$2,000
800
400
350
500
133
150
4,333
4,567
1,600
$2,967

Month Ended March 31, 2004
Retained earnings, March 1......................................
Add: Net earnings....................................................
Less: Dividends........................................................
Retained earnings, March 31.....................................
$ 0
2,967
2,967
900
$2,067

(g)
(Continued)
Balance Sheet
March 31, 2004
Assets
Current assets
Cash...................................................................
Accounts receivable...........................................
Cleaning supplies...............................................
Prepaid insurance..............................................
Total current assets....................................
Equipment..........................................................
Less: Accumulated amortization.......................
Total assets...............................................................
$ 1,050
6,300
400
1,650
9,400
$26,000
400
25,600
$35,000

Current liabilities
Accounts payable...............................................
Interest payable.................................................
Income tax payable............................................
Salaries payable................................................
Total current liabilities................................
Long-term liabilities
Note payable......................................................
Total liabilities.............................................
Shareholders equity
Common shares.................................................
Retained earnings..............................................
Total shareholders equity..........................
Total liabilities and shareholders equity....................
$ 700
133
1,600
500
2,933
20,000
22,933
10,000
2,067
12,067
$35,000

(h)
General Journal
Date
Mar.
Account Titles
Debit
Service Revenue...............................................
Income Summary......................................
8,900
Income Summary..............................................
Amortization Expense...............................
Insurance Expense...................................
Cleaning Supplies Expense......................
Gas & Oil Expense....................................
Rent Expense............................................
5,933
2,967
31
Income Summary..............................................
Retained Earnings.....................................
900
31
Retained Earnings............................................
Dividends..................................................
31
31
Credit
8,900
2,000
400
150
800
350
1,600
133
500
2,967
900

(i)
Post-Closing Trial Balance
March 31, 2004
Cash......................................................................
Cleaning Supplies..................................................
Equipment.............................................................
Accumulated AmortizationEquipment................
Note Payable.........................................................
Common Shares....................................................
Retained Earnings.................................................
Totals
Debit
$1,050
6,300
1,650
400
26,000
___ ___
$35,400
Credit
$ 400
700
500
133
1,600
20,000
10,000
2,067
$35,400
PROBLEM 4-1B
(a) 7.
Matching principle
(b) 10. Cost-benefit

(c) 3.
Monetary unit assumption
(d) 4.
(e) 8.
Cost principle
(f)
1.
(g) 5.
Full disclosure principle
(h)
Materiality
9.
PROBLEM 4-2B
$35,190
+2,500
-3,400
+1,160
-1,300
-2,400
+1,200
$32,950
Cash basis earnings

Accounts receivable arise from sales that have been made, thus
revenue must be recognized for balance outstanding at the end of
the current year
Accounts receivable collected in current year, for sales made in
previous year must be deducted from earnings
Supplies at year end should be set up as an asset rather than
expensed, this increases earnings
Supplies at the end of the previous year should be expensed this
year, this decreases earnings
Wages payable owing at the end of the current year should be
accrued, thus reducing earnings
Wages payable owed at the end of the previous year should not be
deducted from the current years earnings, thus increasing
earnings
Accrual basis earnings
PROBLEM 4-3B
(a)
CREATIVE DESIGNS LTD.
Revenues
Design revenue ($61,500 + (6) $3,800).............
Expenses
Wage expense ($18,400 + (5) $400).................
Supplies expense ($6,200 (2) $1,800)............
Rent expense ($9,600 (3) $600).....................
Automobile expense ((7) 10,000 X $0.30))........
Amortization expense ($16,400 (1) 5)............
Telephone expense...........................................
Insurance expense ............................................
Total expenses...........................................
Earnings before tax...................................................
Net earnings..............................................................
$65,300
$18,800
4,400
9,000
3,000
3,600
3,280
980
1,800
44,860
20,440
4,000
$16,440
PROBLEM 4-3B (Continued)

(b)
CREATIVE DESIGNS LTD.
Balance Sheet
December 31, 2004
Assets
Current assets
Cash..............................................................
Rent deposit (3).............................................
Accounts receivable (6).................................
Supplies (2)...................................................
Total current assets.......................................
Property, plant and equipment
Equipment.....................................................
Less: Accumulated amortizationequip. (1)
$ 16,520
600
3,800
1,800
22,720
$16,400
3,280
Total assets...........................................................
13,120
$35,840

Current liabilities
Wages payable (5)........................................
$ 400
3,000

Shareholders equity
Common shares.............................................. $20,000
Retained earnings ($16,440 $4,000).......... 12,440
3,400
Accounts payable ((7) $10,000 X $0.30).....
32,440
$35,840
PROBLEM 4-4B
1.
Jan. 2
Dec. 31
2.
Sept. 1
Dec. 31
3.
Nov. 15
Dec. 31
4.
Dec. 1
Dec. 31
Office Supplies.................................................
Cash.........................................................
4,500
Supplies Expense ($4,500 $500)..................

Office Supplies.........................................
4,000
Prepaid Insurance............................................
Cash.........................................................
3,600
Insurance Expense ($3,600 X 4/12)................

1,200
Cash................................................................
Unearned Revenue..................................
1,200
Unearned Revenue .........................................

Service Revenue......................................
600
Cash................................................................
Unearned Rent Revenue.........................
920
Unearned Rent Revenue ($920 2)................

Rental Revenue.......................................
460
4,500
4,000
3,600
1,200
1,200
600
920
460
PROBLEM 4-5B
1.
2.
3.
4.
Jan. 31
Jan. 31
Jan. 31
Jan. 31
Insurance Expense..........................................
[($9,600 2)
=$4,800
[($4,800 X 12/18). =3,200
$8,000]
8,000
Unearned Subscription Revenue.....................

Subscription Revenue..............................
[Nov. 200 X $50 X 3/12 = $2,500
[Dec. 300 X $50 X 2/12 = 2,500
[Jan. 480 X $50 X 1/12 = 2,000
$7,000]
7,000
($50,000 X 7% X 5/12)
1,458
[5 X $600 X 2/5 = $ 1,200
[3 X $800 X 2/5 = 960
$2,160]
2,160
8,000
7,000
1,458
2,160
PROBLEM 4-6B
1. (a)
Office Supplies.................................................
Cash.........................................................
1,460
(b) Dec. 31 Supplies Expense ($1,460 + $640 $740)......

Office Supplies.........................................
1,360
2. (a) Feb. 1 Cash................................................................

Note Payable............................................
10,000
(b) Dec. 31 Interest Expense (Long-Term).........................

Interest Payable ($10,000 X 6% X 1/12). .
50
Dec. 31 Telephone Expense.........................................

400
4. (a) Jan. 1 Truck................................................................

Cash.........................................................
28,000
(b) Dec. 31 Amortization Expense......................................

Accumulated Amortization Truck..........
5,600
5. (a) Dec. 31 Wage Expense................................................

Wages Payable ($3,000 X 4/6)................
2,000
3.
1,460
1,360
10,000
50
400
28,000
5,600
2,000
PROBLEM 4-7B
(a)1.
2.
3.
March 31 Travel Court Rental Fees.........................

Unearned Fee Revenue..................
28,000
31 Supplies Expense....................................
Supplies ($5,200 $1,300).............
3,900
31 Insurance Expense ($7,200 X 3/5)...........

Prepaid Insurance...........................
4,320
28,000
3,900
4,320
Note: If we assume that adjusting entries are made quarterly, then the
balance of $7,200 in the Prepaid Insurance account is the balance
adjusted to December 31. Therefore, there are 5 months remaining in
the policy (January 1 May 31) at December 31, of which three are
now expired (January 1 March 31).
4.
5.
6.
7.
31 Advertising Expense................................
Repairs Expense......................................
Utilities Expense.......................................
Accounts Payable............................
410
4,260
380
31 Wages Expense ($350 x 3)......................

Wages Payable...............................
1,050
31 Interest Expense ($12,000 x 5% x 3/12). .

Interest Payable..............................
150
31 Income Tax Expense...............................

Income Tax Payable........................
6,000
5,050
1,050
150
6,000

(b)
HOLIDAY TRAVEL COURT LTD.
Quarter Ended March 31, 2004
Revenues
Travel court rental fees ($95,000 $28,000).....
Expenses
Wages expense ($29,800 + $1,050)..................
Advertising expense ($5,200 + $410)................
$30,850
5,610
3,900
Repairs expense ($4,000 + $4,260)...................
8,260
Utilities expense ($900 + $380).........................
Total expenses...........................................
Net earnings..............................................................
6,000
1,280
800
150
$67,000
56,850
10,150
6,000
$4,150
(c) The generally accepted accounting principles pertaining to the statement of

earnings not recognized by Alice were the revenue recognition principle
and the matching principle.
The revenue recognition principle states that revenue is recognized when it
is earned. The fees of $28,000 for summer rentals have not been earned
and, therefore, should not be reported in earnings for the quarter ended
March 31.
The matching principle dictates that efforts (expenses) be matched with
accomplishments (revenue). This means that the expenses should include
amounts incurred in March but not paid until April, and any other costs
related to the operations of the business during the period January
March.
The difference in reported expenses was $22,150 ($56,850 + $6,000 $40,700).

The overstatement of revenues ($28,000) plus the
understatement of expenses ($22,150) equals the difference in reported
earnings of $50,150 ($54,300 - $4,150).
PROBLEM 4-8B
(a)
Date
1.
2.
3.
4.
5.
6.
7.
2005
June 30
30
30
30
30
30
30
Account Titles
Insurance Expense.......................................
Prepaid Insurance
($7,200 12 months)............................
Debit
600
Amortization Expense.................................. 2,550

Accum. Amortization - Office Equip......
Accum. Amortization Buses...............
Interest Expense..........................................
Interest Payable....................................
310
Unearned Revenue......................................
Tour Revenue ($1,500 X 6 tours).........
9,000
Salaries Expense.........................................
Salaries Payable...................................
1,600
Accounts Receivable....................................
Tour Revenue.......................................
1,200
Income Tax Expense....................................

Income Taxes Payable.........................
2,000
Credit
600
50
2,500
310
9,000
1,600
1,200
2,000

(b)
Jun. 30 Bal.
Cash
3,000
Jun. 30
Accounts Receivable
Jun. 30
1,200
Jun. 30 Bal. 1,200
Prepaid Insurance
Jun. 30 Bal. 7,200 Jun. 30
Jun. 30 Bal. 6,600
Jun. 30 Bal.
Unearned Revenue
9,000 Jun. 30 Bal. 15,000
Jun. 30 Bal. 6,000
Common Shares
Jun. 30 Bal.
Tour Revenue
Jun. 30 Bal. 15,900
Jun. 30
9,000
Jun. 30
1,200
Jun. 30 Bal. 26,100
600
Office Equipment
1,800
Accum. Amortiz. Office Equip.

Jun. 30
50
Jun. 30 Bal.
50
Buses
Jun. 30 Bal. 140,000
Salaries Expense
Jun. 30 Bal. 9,000
Jun. 30
1,600
Jun. 30 Bal. 10,600
Advertising Expense
Jun. 30 Bal.
800
Accum. Amortiz.Buses
Jun. 30
2,500
Jun. 30 Bal. 2,500
Notes Payable
Jun. 30 Bal. 62,000
Interest Payable
Jun. 30
Jun. 30 Bal.
310
310
Salaries Payable
Jun. 30
Jun. 30 Bal.
1,600
1,600

Jun. 30
2,000
Jun. 30 Bal. 2,000
70,000
Jun. 30
2,550
Jun. 30 Bal. 2,550
Gas and Oil Expense
Jun. 30
1,100
Jun. 30 Bal. 1,100
Jun. 30
Jun. 30 Bal.
Interest Expense
310
310
Income Tax Expense

Jun. 30
2,000
Jun. 30 Bal. 0 2,000
Insurance Expense
Jun. 30
600
Jun. 30 Bal.
600

(c)
SCENIC TOURS LIMITED
June 30, 2005
Cash......................................................................
Office Equipment...................................................
Accumulated AmortizationOffice Equipment......
Buses.....................................................................
Accumulated AmortizationBuses.......................
Notes Payable.......................................................
Unearned Service Revenue..................................
Common Shares....................................................
Tour Revenue........................................................
Salaries Expense...................................................
Advertising Expense..............................................
Amortization Expense............................................
Interest Expense....................................................
Income Tax Expense.............................................
Gas and Oil Expense.............................................
Insurance Expense................................................
Totals
Debit
$ 3,000
1,200
6,600
1,800
140,000
Credit
50
2,500
62,000
310
2,000
1,600
6,000
70,000
26,100
10,600
800
2,550
310
2,000
1,100
600 00 00000
$170,560 $170,560
PROBLEM 4-9B
(a) 1. May 31
Insurance Expense....................................
Prepaid Insurance..............................
300
300
2.
31
Supplies Expense...................................... 1,250

Supplies.............................................
1,250
($2,600 $1,350)
3.
31
Amortization ExpenseLodge..................
($3,500 X 1/12)
Accumulated AmortizationLodge....
292
Amortization ExpenseFurniture..............
($3,360 X 1/12)
Accumulated AmortizationFurniture
280
Interest Expense........................................
Interest Payable.................................
[($35,000 X 7%) X 1/12]
204
Unearned Rent Revenue...........................

Rent Revenue....................................
1,500
Salaries Expense.......................................
500
Income Tax Expense.................................

Income Taxes Payable.......................
1,700
31
4.
5.
6.
7.
31
31
31
31
292
280
204
1,500
500
1,700

(b)
May 31 Bal.
Cash
2,500
Prepaid Insurance
May 31 Bal. 1,800 May 31
May 31 Bal. 1,500
Supplies
May 31 Bal. 2,600 May 31
May 31 Bal. 1,350
Unearned Rent Revenue

May 31
1,500 May 31 Bal.
May 31 Bal.
4,500
3,000
Salaries Payable
May 31
May 31 Bal.
500
500
Interest Payable
May 31
May 31 Bal.
204
204
Mortgage Payable
May 31 Bal.
35,000
Common Shares
May 31 Bal.
60,000
Rent Revenue
May 31 Bal.
May 31
May 31 Bal.
9,000
1,500
10,500
300
1,250
Land
May 31 Bal. 15,000
Lodge
May 31 Bal. 70,000
Accum. AmortizationLodge
May 31
292
May 31 Bal.
292
Furniture
May 31 Bal. 16,800
Accum. AmortizationFurniture
May 31
280
May 31 Bal.
280
May 31 Bal.
May 31
May 31 Bal.
Salaries Expense
3,000
500
3,500
Accounts Payable
May 31 Bal.
4,700
Utilities Expense
May 31 Bal. 1,000

May 31
May 31 Bal.
1,700
1,700
Advertising Expense
May 31 Bal. 500

(b) (Continued)
May 31
May 31 Bal.
Interest Expense
204
204
Income Tax Expense

May 31
1,700
May 31 Bal. 1,700
Supplies Expense
May 31
1,250
May 31 Bal.
1,250
Amortization ExpenseLodge
May 31
292
May 31 Bal.
292
Amortization ExpenseFurniture
May 31
280
May 31 Bal.
280
Insurance Expense
May 31
300
May 31 Bal. 300

(c)
RIVER RUN MOTEL LTD.
May 31, 2004
Debit
Cash...................................................................
Prepaid Insurance..............................................
Supplies.............................................................
Land...................................................................
$2,500
1,500
1,350
15,000
70,000
16,800
Lodge.................................................................
Accumulated AmortizationLodge....................
Furniture.............................................................
Accumulated AmortizationFurniture...............
Accounts Payable..............................................
Unearned Rent Revenue...................................
Salaries Payable................................................
Interest Payable.................................................
Income Taxes Payable......................................
Mortgage Payable..............................................
Common Shares................................................
3,500
1,000
500
204
1,700
300
1,250
292
280
$116,176
Credit
$ 292
280
4,700
3,000
500
204
1,700
35,000
60,000
10,500
000000 0
$116,176
Rent Revenue....................................................
Salaries Expense...............................................
Utilities Expense................................................
Advertising Expense..........................................
Interest Expense................................................
Income Tax Expense.........................................
Insurance Expense............................................
Supplies Expense..............................................
Amortization ExpenseLodge..........................
Amortization ExpenseFurniture......................
Totals.............................................................

(d)
Month Ended May 31, 2004
Revenues
Rent revenue.....................................................
Expenses
Salaries expense...............................................
Amortization expenselodge............................
Amortization expensefurniture........................
Total expenses...........................................
Net earnings..............................................................
$10,500
$3,500
1,000
1,250
500
204
300
292
280
7,326
3,174
1,700
$1,474

Month Ended May 31, 2004
Retained earnings, May 1...........................................................
Add: Net earnings......................................................................
Retained earnings, May 31.........................................................
$ 0
1,474
$1,474

(d)
(Continued)
Balance Sheet
May 31, 2004
Assets
Current assets
Cash..............................................................
Prepaid insurance.........................................
Supplies.........................................................
Land..............................................................
Lodge............................................................
Less: Accumulated amortizationlodge......
Furniture........................................................
Less: Accumulated amortizationfurniture..
Total property, plant, and equipment..........
Total assets...........................................................
$2,500
1,500
1,350
5,350
$15,000
$70,000
292
69,708
$16,800
280
16,520
101,228
$106,578

(d) (Continued)
Current liabilities
Accounts payable..........................................
$ 4,700
Unearned rent revenue.................................

Salaries payable............................................
3,000
500
Interest payable.............................................
Income taxes payable...................................
Mortgage payable.................................................
204
1,700
10,104
35,000
Total liabilities........................................
Shareholders equity
Common shares............................................
45,104
$60,000
1,474
61,474
$106,578
(e)
May 31
31
Rent Revenue....................................................
Income Summary........................................
10,500
Income Summary...............................................
Utilities Expense.........................................
Advertising Expense...................................
Insurance Expense.....................................
Supplies Expense.......................................
Amortization Expense - Lodge....................
Amortization Expense - Furniture...............
Income Tax Expense..................................
9,026
10,500
3,500
1,000
500
300
204
1,250
292
280
1,700
031
Income Summary...............................................
Retained Earnings......................................
1,474
1,474
PROBLEM 4-10B
(a) Sept. 30
30
30
30
30
30
30
30
Commission Revenue..............................
400
Rent Expense..................................................
Prepaid Rent............................................
1,100
Supplies Expense............................................
Supplies...................................................
200
Amortization Expense......................................
Accum. AmortizationEquipment...........
350
50
Unearned Rent Revenue.................................

Rent Revenue..........................................
300
600
Income Tax Expense.......................................

Income Taxes Payable.............................
1,000
400
1,100
200
350
50
300
600
1,000

(b)
OZAKI CORP.
Quarter Ended September 30, 2004
Revenues
Commission revenue.........................................
Rent revenue.....................................................
Total revenues...........................................
Expenses
Rent expense.....................................................
Total expenses...........................................
Net earnings..............................................................
$14,400
700
15,100
$9,400
2,000
510
350
200
50
12,510
2,590
1,000
$1,590
OZAKI CORP.
Quarter Ended September 30, 2004
Retained earnings, July 1..............................................................
Add: Net earnings........................................................................
Less: Dividends............................................................................
Retained earnings, September 30.................................................
$ 0
1,590
1,590
600
$ 990

(b)
(Continued)
OZAKI CORP.
Balance Sheet
September 30, 2004
Assets
Current assets
Cash.................................................................
Prepaid rent......................................................
Supplies............................................................
Equipment........................................................
Less: Accum. amortizationequipment..........
Total assets..............................................................
$6,700
800
900
1,000
9,400
$15,000
350
14,650
$24,050

Current liabilities
Note payable....................................................
$5,000
Accounts payable.............................................
1,710
Salaries payable...............................................
600
Interest payable................................................
Income tax payable..........................................
50
1,000
Unearned rent revenue....................................
700
Total current liabilities...............................

Shareholders equity
Common shares...............................................
Retained earnings............................................
9,060
$14,000
990
Total shareholders equity.........................

Total liabilities and shareholders equity..................
14,990
$24,050

(c) The following accounts would be closed: Commission Revenue, Rent
Revenue, Salaries Expense, Rent Expense, Utilities Expense, Amortization
Expense, Supplies Expense, Interest Expense, Income Tax Expense and
Dividends.
(d) Interest of 6% per year equals a monthly rate of 0.5%; monthly interest is
$25 ($5,000 X 0.5%). Since total interest expense is $50, the note has
been outstanding two months.
PROBLEM 4-11B
(a), (c) and (e)

Nov. 1 Bal.
Nov. 10
Nov. 12
Nov. 29
Cash
2,790 Nov. 8
1,200 Nov. 20
1,700 Nov. 22
550 Nov. 25
1,100
2,500
300
1,100
Nov. 20
Nov. 30 Bal. 1,240

Accounts Receivable
Nov. 1 Bal. 2,910 Nov. 10
Nov. 27
700
Nov. 30 Bal. 2,410
Supplies
Nov. 1 Bal. 1,000 Nov. 30
Nov. 17
1,300
Nov. 30 Bal. 1,600
Nov. 30
1,200
Nov. 8
700
Store Equipment
Nov. 1 Bal. 10,000
Nov. 15
3,000
Nov. 30 Bal. 13,000
Store Equipment
Nov. 1 Bal.
500
Nov. 30
250
Nov. 30 Bal. 750
Accounts Payable
2,500 Nov. 1 Bal.
Nov. 15
Nov. 17
Nov. 30 Bal.
2,300
3,000
1,300
4,100
Unearned
Service Revenue
300 Nov. 1 Bal.
400
Nov. 29
550
Nov. 30 Bal. 650
Salaries Payable
500 Nov. 1 Bal.
500
Nov. 30
500
Nov. 30 Bal. 500
Common Shares
Nov. 1 Bal. 10,000
Nov. 30 Bal. 10,000
Retained Earnings
Nov. 1 Bal. 3,000
Nov. 30 Bal. 3,000
(a), (c) and (e) (Continued)

Service Revenue
Nov. 12
Nov. 27
Nov. 30
Nov. 30 Bal.
Nov. 30
250
Nov. 30 Bal.
250
Supplies Expense
Nov. 30
700
Nov. 30 Bal.
700
1,700
700
300
2,700
Salaries Expense
Nov. 8
600
Nov. 25
1,100
Nov. 30
500
Nov. 30 Bal. 2,200
Nov. 22
Nov. 30 Bal.
Rent Expense
300
300

(b)
General Journal
Date
Nov. 8
10
Account Titles
Salaries Payable..............................................
Cash.........................................................
Cash.................................................................
Debit
Credit
500
600
1,100
1,200
1,200
Accounts Receivable................................
12
Cash.................................................................
1,700
1,700
Service Revenue......................................
15
17
20
22
25
27
29
Store Equipment...............................................
3,000
Supplies............................................................
1,300
Cash.........................................................
2,500
Rent Expense...................................................
Cash.........................................................
300
Cash.........................................................
1,100
Service Revenue......................................
700
Cash.................................................................
550
3,000
1,300
2,500
300
1,100
700
550
Unearned Service Revenue......................

(d) and (f)
ALOU EQUIPMENT REPAIR CORP.

Trial Balance
November 30, 2004
Before
Adjustment
Dr.
Cr.
Cash.............................................
Accounts Receivable....................
Supplies........................................
Store Equipment...........................
Accumulated Amortization............
Accounts Payable.........................
Unearned Service Revenue.........
Salaries Payable..........................
Common Shares..........................
Retained Earnings........................
Service Revenue..........................
Salaries Expense.........................
Rent Expense...............................
Supplies Expense.........................
Amortization Expense..................
Totals.........................................
$1,240
2,410
2,300
13,000
1,700
300
000 000
$20,950
$ 500
4,100
950
10,000
3,000
2,400
After
Adjustment
Dr.
Cr.
$1,240
2,410
1,600
13,000
$ 750
4,100
650
500
10,000
3,000
2,700
00
2,200
300
0000 00
700 00 0000
$20,950 0 00250 $21,700
$21,700

(e)
1. Nov. 30
2.
3.
4.
30
30
30
Supplies Expense.............................................
Supplies ($2,300 $1,600).......................
700
Salaries Payable.......................................
500
Amortization Expense.......................................
Accum. Amort.Store Equipment.............
250
Unearned Service Revenue..............................

Service Revenue.......................................
300
700
500
250
300

(g)
Month Ended November 30, 2004
Revenues
Service revenue.................................................
Expenses
Rent expense.....................................................
Total expenses...........................................
Net loss......................................................................
($2,700
$2,200
700
300
250
(3,450
$ (750)

Month Ended November 30, 2004
Retained earnings, November 1..................................................
Less: Net loss.............................................................................
Retained earnings, November 30................................................
$3,000
(750)
$2,250

(g)
(Continued)
Balance Sheet
November 30, 2004
Assets
Current assets
Cash.................................................................
Supplies............................................................
Total current assets..................................
Store equipment...............................................
$13,000
750
Total assets.................................................................................
$1,240
2,410
1,600
5,250
12,250
$17,500

Current liabilities
Accounts payable................................................................
Salaries payable..................................................................
Unearned service revenue..................................................
Total current liabilities..................................................
Shareholders equity
Common shares..................................................................
Retained earnings...............................................................
Total shareholders equity............................................
Total liabilities and shareholders equity......................................
$4,100
500
650
5,250
10,000
2,250
12,250
$17,500
PROBLEM 4-12B
(a)
Date
July 1
1
3
5
12
18
20
21
25
31
31
31
General Journal
Account Titles
Cash.................................................................
Common Shares.......................................
Debit
24,000
Credit
24,000
Equipment.........................................................
Cash..........................................................
Note Payable.............................................
36,000
Cleaning Supplies.............................................
800
Prepaid Insurance.............................................
Cash..........................................................
1,200
Service Revenue.......................................
4,500
Cash..........................................................
500
Cash..........................................................
1,600
Cash.................................................................
Accounts Receivable.................................
1,500
Service Revenue.......................................
2,000
Gas & Oil Expense............................................

Cash..........................................................
250
Income Tax Expense........................................

Cash..........................................................
1,200
Dividends..........................................................
Cash..........................................................
600
16,000
20,000
800
1,200
4,500
500
1,600
1,500
2,000
250
1,200
600

(b), (e) and (h)
Jul. 1
Jul. 21
Jul. 31 Bal.
Cash
24,000 Jul. 1
1,500 Jul. 5
Jul. 18
Jul. 20
Jul. 31
Jul. 31
Jul. 31
4,150
Accounts Receivable
Jul. 12
4,500 Jul. 21
Jul. 25
2,000
Jul. 31
1,500
Jul. 31 Bal.
6,500
16,000
1,200
500
1,600
250
1,200
600
200
Prepaid Insurance
Jul. 5
1,200 Jul. 31
Jul. 31 Bal.
1,100
100
Jul. 1
Jul. 31 Bal.
Jul. 31
Jul. 31
Jul. 31 Bal.
Equipment
36,000
36,000
Jul. 31
Jul. 31
Equipment
Jul. 31
300
Jul. 31 Bal.
300
Jul. 18
Accounts Payable
500 Jul. 3
Jul. 31 Bal.
800
300
400
400
Interest Payable
Jul. 31
Jul. 31 Bal.
133
133
Note Payable
Jul. 1
20,000
Jul. 31 Bal. 20,000
1,500
Cleaning Supplies
800 Jul. 31
600
Jul. 3
Jul. 31 Bal.
Salaries Payable
Jul. 31
Jul. 31 Bal.
Jul. 31
Common Shares
Jul. 1
Jul. 31 Bal.
24,000
24,000
Retained Earnings
600 Jul. 31
Jul. 31 Bal.
3,817
3,217
Dividends
600 Jul. 31
0
Income Summary
4,183 Jul. 31
3,817
Jul. 31 Bal.
Service Revenue
8,000 Jul. 12
Jul. 25
Jul. 31
Jul. 31 Bal.
600
8,000
0
4,500
2,000
1,500
0

(b), (e) and (h) (Continued)
Gas & Oil Expense
Jul. 31
250 Jul. 31
Jul. 31 Bal.
0
250
Cleaning Supplies Expense

Jul. 31
200 Jul. 31
Jul. 31 Bal.
0
200
Jul. 31
300 Jul. 31
Jul. 31 Bal.
0
300
Jul. 31
Jul. 31 Bal.
Insurance Expense
100 Jul. 31
0
Salaries Expense
Jul. 20
1,600 Jul. 31
Jul. 31
400
Jul. 31 Bal.
0
Income Tax Expense
Jul. 31
1,200 Jul. 31
Jul. 31 Bal.
0
Interest Expense
Jul. 31
133 Jul. 31
Jul. 31 Bal.
0
100
2,000
1,200
133

(c) and (f)
CORELLIAN WINDOW WASHING INC.
Trial Balance
July 31, 2004
Before
Adjustment
Debit
Credit
$4,150
5,000
800
1,200
36,000
Cash.....................................................
Accounts Receivable............................
Prepaid Insurance................................
Equipment............................................
Accumulated Amort.Equipment........
Accounts Payable................................
$ 300
Note Payable.......................................
20,000
Common Shares..................................
24,000
Dividends.............................................
600
Service Revenue..................................
6,500
Salaries Expense................................. 1,600
Gas & Oil Expense............................... 250
Amortization Expense..........................
Insurance Expense..............................
Income Tax Expense........................... 1,200
Cleaning Supplies Expense.................
000
Interest Expense.................................. 0000 00 0000 00
Totals............................................... $50,800 $50,800
After
Adjustment
Debit
Credit
$4,150
6,500
600
1,100
36,000
$300
300
400
133
20,000
24,000
600
8,000
2,000
250
300
100
1,200
200
133 000 000
$53,133 $53,133
Solutions Manual
4-102

(d)
1.
2.
3.
4.
5.
6.
General Journal
Date
Account Titles
July 31
Accounts Receivable...................................
Service Revenue.................................
1,500
Amortization Expense.................................
Accumulated Amort.Equipment........
300
Insurance Expense......................................
Prepaid Insurance...............................
100
Cleaning Supplies Expense........................

200
400
Interest Expense ($20,000 X 8% X 1/12)....

133
31
31
31
31
31
Debit
Credit
1,500
300
100
200
400
133
Solutions Manual
4-103

(g)
Revenues
Service revenue..................................................
Expenses
Salaries expense.................................................
Cleaning supplies expense..................................
Amortization expense..........................................
Gas & oil expense...............................................
Interest expense..................................................
Insurance expense..............................................
Total expenses............................................
Earnings before income taxes.....................................
Income tax expense....................................................
Net earnings................................................................
$8,000
$2,000
200
300
250
133
100
2,983
5,017
1,200
$3,817

Retained earnings, July 1.............................................................
Add: Net earnings......................................................................
Less: Dividends...........................................................................
Retained earnings, July 31...........................................................
$ 0
3,817
3,817
600
$3,217
Solutions Manual
4-104

(g) (Continued)
Balance Sheet
July 31, 2004
Assets
Current assets
Cash...................................................................
Accounts receivable...........................................
Cleaning supplies...............................................
Prepaid insurance..............................................
Equipment..........................................................
Less: Accumulated amortization.......................
Total assets...............................................................
$4,150
6,500
600
1,100
12,350
$36,000
300
35,700
$48,050

Current liabilities
Note payable......................................................
Accounts payable...............................................
$20,000
300
Interest payable.................................................
Salaries payable................................................
133
400
Total current liabilities................................

Shareholders equity
Common shares.................................................
Retained earnings..............................................
Total shareholders equity..........................
Total liabilities and shareholders equity....................
20,833
$24,000
3,217
27,217
$48,050
Solutions Manual
4-105

(h)
General Journal
Date
Account Titles
July 31
Service Revenue...............................................
Income Summary......................................
8,000
Income Summary..............................................
Amortization Expense...............................
Insurance Expense...................................
Cleaning Supplies Expense......................
Gas & Oil Expense....................................
4,183
Income Summary..............................................
Retained Earnings.....................................
3,817
Retained Earnings............................................
Dividends..................................................
600
31
31
31
Debit
Credit
8,000
2,000
300
100
200
250
1,200
133
3,817
600
Solutions Manual
4-106

(i)
Post-Closing Trial Balance
July 31, 2004
Cash......................................................................
Cleaning Supplies..................................................
Equipment.............................................................
Accumulated AmortizationEquipment................
Note Payable.........................................................
Common Shares....................................................
Retained Earnings.................................................
Totals.................................................................
Debit
$4,150
6,500
600
1,100
36,000
000 00
$48,350
Credit
$ 300
20,000
133
300
400
24,000
3,217
$48,350
Solutions Manual
4-107
BYP 4-1 FINANCIAL REPORTING PROBLEM
(a)
Items that may have resulted in adjusting entries for prepayments are:
a.
b.
Prepaid expenses and other assets

Fixed assets
(b)
Accrual adjusting entries are often made for interest expense and income taxes.
(c)
Income tax expense was $414 million in 2002 and $372 million in 2001. There are
income taxes payable of $179 at the end of 2002.
(d)
The cash paid for interest in 2002 was $185 million. The interest expense reported on
the statement of earnings was $161 million. The difference ($24 million) is presumably
included in accounts payable and accrued liabilities in the balance sheet.
Solutions Manual
4-108
BYP 4-2 COMPARATIVE ANALYSIS PROBLEM
Accounts that provide evidence of the use of accrual accounting are:

Balance Sheet
(a) Sobeys
1.
2.
3.
4.
Receivables
Prepaid expenses
Income taxes payable
Accounts payable and accrued liabilities
1.
2.
3.
4.
Sales
Income tax expense
Miscellaneous expense
1.
2.
3.
4.
Insurance (rent) expense

Amortization expense
Sales
(b) Loblaws
1.
2.
3.
4.
Prepaid expenses and other assets

Fixed assets
Accounts receivable
Accounts payable and accrued liabilities
Solutions Manual
4-109
BYP 4-3 RESEARCH CASE
(a)
Cisco closes its books quarterly. Currently, it takes Cisco 2 days to close its books.
(b)
The closing process at Cisco, prior to the current changes, took up to 10 days.
(c)
A virtual close is the ability of the company to close its books within a day on any
day in the quarter. A virtual close is advantageous to the company because it
would allow Cisco to know where it is financially at all times and, because the close
is performed so quickly, the amount of valuable time spent by employees
performing the close is greatly reduced. According to CEO Larry Carter, this would
allow Cisco to employ its human resources in more effective activities such as
mining data for business intelligence.
Solutions Manual
4-110
BYP 4-4 INTERPRETING FINANCIAL STATEMENTS

(a)
Unearned revenue is an example of a prepayment because the cash is received

before it is actually earned.
(b)
Cash would be debited and a liability account called unearned service revenue would
be credited.
(c)
The revenue from the subscriber deposits should be recognized when Rogers Cable
Inc. provides the related services to the customer. When the revenue is recognized,
the unearned revenue account should be debited to reduce the liability (since the
company is no longer owes any services relating to the deposit) and, since the
revenue has now been earned, the service revenue account should be credited. If the
journal entry were omitted, liabilities would be overstated and revenues (equity) would
be understated.
(d)
Rogers is following the revenue recognition principle and the matching principle. The
revenue recognition principle requires that revenue not be recognized until the
accounting period in which it is earned. Rogers follows the revenue recognition
principle in that the company does not recognize revenue from monthly fees until the
services relating to those fees are provided. The matching principle requires that
expenses must be matched with revenues. Rogers Cable Inc matches the direct
selling costs incurred to the revenue generated from installations.
In calculating its earnings for any period Rogers uses the revenue recognition principle
to determine the amount of revenue to record as earned. They then apply the
matching principle to determine the related expenses that should be recorded. Once
the company has identified all revenues and matched the related expenses the
statement of earnings can be prepared.
Solutions Manual
4-111
BYP 4-5 A GLOBAL FOCUS

(a)
IIJ reports income on an accrual basis. Under accrual accounting revenue is

recognized when earned, not when the cash is received. Expenses are matched to
revenue and may not coincide with the payment of cash. For example, the company
could have a positive cash flow and a net loss by having collected cash in advance
from customers and not recognized the revenue until the cash had actually been
earned or the company may have incurred expenses and not yet paid cash for these
expenses.
As well, the company could have raised cash through non-operating activities such as
selling assets, issuing debt or by issuing share capital.
(b)
The company could have generated positive cash from operating activities and have a
decline in cash overall if they used significant amounts of cash for financing and
investing activities. The company may have purchased assets, repaid debt or paid
dividends, which would have caused the overall cash balance to decrease.
(c)
Beginning accounts receivable.....................................

Add: Revenues.............................................................
Less: Ending accounts receivable................................
Cash collections during the year...................................
5,417
39,905
(8,982)
36,340 millions of yen
Solutions Manual
4-112
BYP 4-6 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>.
Solutions Manual
4-113
BYP 4-7 COLLABORATIVE LEARNING ACTIVITY
(a)
Option 1 Record revenue when the seat sale is advertised this will result in early
recognition of revenue. In order to properly match expenses with revenue the cost of
providing the flight would have to be estimated and accrued. Net earnings would be
reported early. The overall impact on the companys net earnings would depend on the
increase in volume from year to year. Assuming volume is increasing, net earnings
would increase. If expenses are not accrued to match with revenue net earnings will
be overstated.
Option 2 Record revenue when the passengers pick up their tickets and have paid for
their flights. In this case the revenue will be recognized before the service is provided
and to properly match expenses with revenue the cost of providing the flight would
have to be estimated and accrued. Net earnings would be reported early. The overall
impact on the companys net earnings would depend on the increase in volume from
year to year. Assuming volume is increasing, net earnings would increase. If expenses
are not accrued to match with revenue net earnings will be overstated.
Option 3 Record revenue when the boarding passes are collected. At this point the
expenses will have been identified and it will be easier to match them with the
revenue. Expenses will be recorded when they occur and net earnings appropriately
measured.
Option 4 Record revenue when the passengers get off the plane. In terms of the
accounting process this is essentially the same point as collection of the boarding
passes. At this point the expenses will have been incurred and it will be easier to
match them with the revenue. Expenses will be recorded when they occur and net
earnings appropriately measured.
(b)
Option 1 recognizes revenue at the earliest point. Both options 1 and 2 require
estimating and accruing expenses to match with revenue a process that may be
difficult. Option 3 and 4 are essentially the same in terms of timing.
I think the Air Canada should recognize revenue from ticket sales when the
passengers get off the plane. This is the earliest point at which all of the criteria for
revenue recognition are met. The service has been performed, and the expenses (fuel,
salaries, etc.) supporting the service have been incurred.
Solutions Manual
4-114
BYP 4-8 COMMUNICATION ACTIVITY

Memo
To:
From:
Accrual basis accounting records the events that change an entitys financial statements in
the periods in which the events occur, rather than in the periods in which the entity receives
or pays cash. Information presented on an accrual basis is useful because it reveals
relationships that are likely to be important in predicting future results. Conversely, under
cash basis accounting, revenue is recorded only when cash is received, and an expense is
recognized only when cash is paid. As a result, the cash basis of accounting often leads to
misleading financial statements.
It is possible for management to manipulate earnings. For example, management may decide
not to accrue wages that have been incurred but not yet paid. This would cause reported
earnings to be higher.
It is possible for management to manipulate cash flows. For example, management may
delay the payment of an accounts payable to increase its cash flow position as presented in
the financial statements.
Solutions Manual
4-115
BYP 4-9 ETHICS CASE
(a)
The stakeholders in this situation are:
(b)
(c)
Carole Denton, controller.

The president of Die Hard Corporation.
Die Hard Corporation shareholders.
1.
It is unethical for the president to place pressure on Carole to misstate net

earnings by requesting her to prepare incorrect adjusting entries.
2.
It is customary for adjusting entries to be dated as of the balance sheet date

although the entries are prepared at a later date. Carol did nothing unethical by
dating the adjusting entries December 31.
Carol can accrue revenues and defer expenses through the preparation of adjusting
entries and be ethical so long as the entries reflect economic reality. Intentionally
misrepresenting the companys financial condition and its results of operations is
unethical (it is also illegal).
Solutions Manual
4-116
Legal Notice
Copyright
Copyright 2004 by John Wiley & Sons Canada, Ltd. or related companies. All rights reserved.
The data contained in these files are protected by copyright. This manual is furnished under licence
and may be used only in accordance with the terms of such licence.
The material provided herein may not be downloaded, reproduced, stored in a retrieval system,
modified, made available on a network, used to create derivative works, or transmitted in any form or
by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the
prior written permission of John Wiley & Sons Canada, Ltd.
Solutions Manual
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Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Explain the revenue

Explain why adjusting

Prepare adjusting entries

4, 5, 6, 7,11 4, 5, 6, 7, 8, 2A, 3A, 4A,

Prepare adjusting entries

13, 14, 15,

4, 5, 6, 7, 8, 2A, 3A, 4A,

2B, 3B, 4B,

Describe the nature and

8A, 9A, 10A, 8B, 9B, 10B,

Explain the purposes of

Describe the required

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE

Identify accounting assumptions, principles, and

Convert earnings from cash to accrual basis.

Convert earnings from cash to accrual basis; prepare

Prepare original and adjusting entries.

Prepare adjusting entries.

Prepare original and adjusting entries.

Prepare adjusting entries and corrected statement of

Prepare adjusting entries, post, and prepare adjusted

Prepare adjusting entries, post, prepare adjusted trial

Prepare adjusting entries and financial statements;

Complete accounting cycle through to preparation of

Complete all steps in accounting cycle.

Identify accounting assumptions, principles, and

Convert earnings from cash to accrual basis.

Convert earnings from cash to accrual basis; prepare

Prepare original and adjusting entries.

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Prepare original and adjusting entries.

Prepare adjusting entries and corrected statement of

Prepare adjusting entries, post, and prepare adjusted

Prepare adjusting entries, post, prepare adjusted trial

Prepare adjusting entries and financial statements;

Complete accounting cycle through to preparation of

Complete all steps in accounting cycle.

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Under the time period assumption, an accountant is required to determine the

Information presented on an accrual basis is useful because it reveals important

The financial information in a trial balance may not be up-to-date because:

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Amortization expense is an expense account whose normal balance is a debit. This

1st Fiscal Year-end

2nd Fiscal Year-end

The entries are:

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

(Dr) Individual revenue accounts and (Cr.) Income Summary

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-3

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

BRIEF EXERCISE 4-4