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# 1

Chapter 2
and

Financial Statements
Accounting Transactions

QUESTIONS
EXERCISES
Exercise 2-1 (10 minutes)
a) \$80,000 \$65,000 = \$15,000 net income
b) \$92,000 \$149,000 = \$57,000 net loss
c) \$10,000 + 0 0 + x = \$86,000
x = \$86,000 \$10,000
x = \$76,000 net income

## d) \$25,000 + \$40,000 0 + x = \$52,000

x = 52,000 25,000 40,000
x = \$13,000 or a \$13,000 Net loss

(a)

(b)

(c)

(d)

(e)

## \$ (24,750) \$36,000 \$12,000 \$21,500 \$92,000

Proofs:
Owners equity, January 1.................
\$

0 \$

0 \$92,000

Owners investments
during the year ..................................60,000

Solutions Manual for Chapter 3

36,000

31,500

37,000 150,000

## Net income (loss) for the

15,750
year .................................................................

40,500

(4,500) 21,500

(8,000)

Owners withdrawals
during the year .................................
(24,750) (27,000) (15,000) (15,750) (63,000)
Owners equity, December
\$51,000 \$49,500 \$12,000 \$42,750 \$171,00
31 .....................................................................
0

Solutions Manual for Chapter 3

## Exercise 2-3 (15 minutes)

THE DOBBS GROUP
Income Statement
For Month Ended November 30, 2011
Revenues:
Consulting fees earned ..................................
Operating expenses:
Salaries expense ............................................
Rent expense ..................................................
Telephone expense ........................................
Utilities expenses ...........................................
Total operating expenses ...........................
Net income .............................................................

\$18,000
\$6,000
2,550
1,680
660

10,890
\$ 7,110

## Exercise 2-4 (15 minutes)

THE DOBBS GROUP
Statement of Owners Equity
For Month Ended November 30, 2011
Jean Dobbs, capital, November 1 ....................
Add: Investments by owner ..........................
Net income .............................................
Total ............................................................
Less: Withdrawals by owner ............................
Jean Dobbs, capital, November 30 ..................

\$
84,000
7,110

91,110
\$91,110
3,360
\$87,750

Analysis component:

The owner, Jean Dobbs, invested \$84,000 of assets during the month, which
caused equity to increase. Also, net income earned during the month was
\$7,110 also causing equity to increase during November. The total increases
in equity during the month were a total of \$91,110 (\$84,000 + \$7,110).
NOTE: Students might point out that equity decreased by a total of \$3,360 in
withdrawals which in combination with the total increase of \$91,110 caused a
net increase in equity of \$87,750.

Solutions Manual for Chapter 3

## Exercise 2-5 (15 minutes)

THE DOBBS GROUP
Balance Sheet
November 30, 2011
Assets
Cash ..............................................
Accounts receivable ....................
Office supplies .............................
Automobiles .................................
Office equipment ..........................
Total assets ..................................

\$12,000
17,000
2,250
36,000
28,000
\$95,250

Liabilities
Accounts payable ...................
Owners Equity
Jean Dobbs, capital ................
Total liabilities and
owners equity.....................

\$ 7,500
87,750
\$95,250

Analysis component:

## \$87,750 (or 92.13% calculated as \$87,750/\$95,250 100) of the total \$95,250

assets are owned by Jean Dobbs, the owner of The Dobbs Group.
Exercise 2-6 (15 minutes)
EXCEL LEARNING SERVICES
Income Statement
For Month Ended July 31, 2011
Revenues:
Tutoring fees earned ......................................
Textbook rental revenue ................................
Total revenues ............................................
Operating expenses:
Office rent expense ........................................
Tutors wages expense ...................................
Utilities expense .............................................
Total operating expenses ...........................
Net loss ..................................................................

Solutions Manual for Chapter 3

\$4,200
300
\$ 4,500
\$2,500
1,540
580

4,620
\$ 120

## Exercise 2-7 (15 minutes)

EXCEL LEARNING SERVICES
Statement of Owners Equity
For Month Ended July 31, 2011
George Pelzer, capital, July 1 ..........................
Add: Investments by owner ..........................
Total ............................................................
Less: Withdrawals by owner ............................
Net loss ....................................................
George Pelzer, capital, July 31 ........................

\$ 1,000
120

\$ 7,400
1,200
\$ 8,600
1,120
\$ 7,480

Analysis component:
Withdrawals of \$1,000 by the owner, George Pelzer, caused equity to
decrease during July, 2011. Also, the net loss of \$120 caused equity to
decrease in July. The total decrease in equity during the month of July
was \$1,120 (calculated as \$1,000 + \$120).
NOTE: Students might point out that equity increased by \$1,200 of owner
investments which, in combination with the total decrease of \$1,120, caused a
net increase in equity of \$80.
Exercise 2-8 (15 minutes)
EXCEL LEARNING SERVICES
Balance Sheet
July 31, 2011
Assets
Cash ..............................................
Accounts receivable ....................
Supplies ........................................
Furniture .......................................
Computer equipment ...................

\$ 1,600
2,680
600
1,800
2,200

## Total assets ...................................................

\$8,880

Liabilities
Accounts payable ...................

\$ 1,400

Owners Equity
George Pelzer, capital ............
Total liabilities and

7,480

owners equity................................

\$8,880

Analysis component:
\$1,400 or 15.77% (calculated as \$1,400/\$8,880 100) of the total
\$8,880 assets held by Excel Learning Services are financed by debt.
Solutions Manual for Chapter 3

Solutions Manual for Chapter 3

Description
B
D

## 1. Requires every business to be accounted for separately from its owner

or owners.
2. Requires financial statement information to be supported by evidence
other than someones opinion or imagination.

in transactions.

## 4. Requires financial statements to reflect the assumption that the

business will continue operating instead of being closed or sold.
5. Requires revenue to be recorded only when the earnings process is
complete.

a.

## Assets Liabilities = Owners Equity

Beginning of the year ...................... \$ 150,000
\$60,000 =
\$90,000
End of the year ................................. \$240,000
\$92,000 =
148,000
Net increase in owners equity ...............................................................
\$58,000
Net income ...............................................................................................
\$58,000
(Because there were no additional investments or withdrawals, the net
income for the year equals the net increase in owners equity.)

## b. Net increase in owners equity ...................................

Add: Withdrawals (12 months @ \$3,500) ...................
Net income ...................................................................

\$58,000
42,000
\$100,000

An alternative calculation:
\$90,000 + x - \$42,000 = \$148,000; x = \$100,000
c.

## Net increase in owners equity ...................................

Less: Additional investment .......................................
Net loss.........................................................................

\$58,000
65,000
\$ 7,000

An alternative calculation:
\$90,000 + \$65,000 + x = \$148,000; x = (\$7,000) where the negative
represents a loss.
d. Net increase in owners equity ...................................
Add: Withdrawals (12 months @ \$3,500) ...................
Gross increase in owners equity ...............................
Less: Additional investment .......................................
Net income ...................................................................
Solutions Manual for Chapter 3

\$58,000
42,000
\$100,000
50,000
\$50,000
7

An alternative calculation:
\$90,000 + \$50,000 - \$42,000 + x = \$148,000; x = \$50,000
Exercise 2-11 (10 minutes)
a.
If assets decreased by \$5,000 during August, then
\$20,000 + \$5,000 = \$25,000 Assets at August 1, 2011.
Therefore, Owners Equity at August 1, 2011 = \$25,000 - \$1,000 =
\$24,000

b.
If liabilities increased by \$3,000 during August, then
\$1,000 + \$3,000 = \$4,000 Liabilities at August 31, 2011.
Therefore, Owners Equity at August 31, 2011 = \$20,000 - \$4,000 =
\$16,000
Exercise 2-12 (15 minutes)
Assets
Cash
a)

Accounts
Payable

Noel Bridges,
+
Capital
+ \$2,500

2,500

2,500

b)
Totals

Totals

Accounts
Office
+ Receivable + Supplies =

+ \$2,500

Totals

c)

## Liabilities + Owners Equity

2,500
+

+ \$200

+ \$200

200

200

600
3,100

2,500
+

200

200

600
3,100

d)*

Solutions Manual for Chapter 3

Totals
e)
Totals

3,100

200

3,100

1,500

1,500

1,600

f)
Totals

200

200

200

1,600

+ \$1,250
\$1,600

\$1,250

+ 1,250
\$200

\$3,050

\$200
=

\$2,850
\$3,050

## *Note: For (d), since no exchange has occurred, no entry is required.

Solutions Manual for Chapter 3

10

Assets
Cash

## Liabilities + Owners Equity

Accounts
Parts
Equipmen
Accounts
Janine Commry,
+ Receivable + Supplies +
t
= Payable +
Capital

a)

+ \$7,000

+ \$ 7,000

b)

- 2,500

- 2,500

Totals

\$4,500

\$ 4,500

c)
Totals

e)
Totals

+ \$1,200

\$1,200

\$1,200

\$4,500

d)
Totals

+ \$1,200

+ \$3,400
\$4,500

\$3,400

\$ 4,500
+ \$ 3,400

\$1,200

\$ 950

\$1,200

\$7,900

+ \$950

\$3,550

\$3,400

\$1,200

\$950

\$1,200

\$7,900

\$3,550

\$3,400

\$1,200

\$950

\$1,200

\$ 7,900

f)*
Totals
g)
Totals
h)
Totals
i)
Totals

\$1,200
\$2,350

\$1,200
\$3,400

\$1,200

\$950

+ \$1,400
\$3,750

+ \$ 1,400
\$3,400

\$1,200

\$950

\$2,700
\$1,050

\$7,900

\$9,300
\$ 2,700

\$3,400

\$1,200

\$950

\$6,600

\$6,600

\$6,600

## *Note: For (f), since no exchange has occurred, no entry is required.

Exercise 2-14: (15 minutes)
b. Office Supplies were purchased paying cash of \$500.
c. Office Furniture was purchased paying cash of \$8,000.
Solutions Manual for Chapter 3

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d.
e.
f.
g.

## Completed work for a client on credit; \$1,000.

Purchased office supplies on credit; \$400.
Paid \$250 to a creditor.
Collected \$750 cash from a credit customer.

Solutions Manual for Chapter 3

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a)
b)
c)
d)
e)
f)
g)
h)

## The business purchased land paying \$3,000.

\$400 of office supplies were purchased on credit (or on account).
Paid \$700 for the purchase of office supplies
\$1,050 of revenue on account (or on credit) was earned.
Collected \$1,000 cash for revenue performed.
Paid \$400 to a creditor.
Collected \$1,050 from a credit customer.
The owner invested \$5,000 of land.

Cash

+ Accounts
Receivable

a. \$25,000
Investment

Equip- =
ment

## Accounts + Ellen Manson, Explanation

Payable
Capital
of Change

\$5,000

\$30,000

b.
1,300
Rent Expense

\$1,300

\$23,700

\$5,000

c.
\$23,700

\$28,700

+6,000

+6,000

\$11,000

\$6,000

d.
+ 500
Revenue

\$24,200
e.
Revenue

f.

\$11,000

\$6,000

+\$1,000

\$24,200

\$1,000

4,000
\$20,200

\$29,200

\$11,000

\$6,000

\$30,200

\$6,000

\$30,200

+ 4,000
\$1,000

\$15,000

1,200

\$19,000

\$1,000

250

250

500

+ 1,000

g.
1,200
Wages Expense

h.

\$28,700

\$15,000

Solutions Manual for Chapter 3

\$6,000

\$29,000

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\$19,250
i.

\$750

\$15,000

\$6,000

6,000
\$13,250

\$29,000

6,000
\$750

\$15,000

\$29,000

j. 250
Withdrawal
\$13,000

\$750

\$15,000

\$28,750
Revenue
(\$500 + \$1,000)

=
Expenses
(\$1,300 + \$1,200)

Solutions Manual for Chapter 3

=
=

250

\$28,750

\$28,750
Net loss
\$1,000

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## Exercise 2-17 (15 minutes) (Answers may vary.)

Possible examples include:
a.

The business purchases office supplies (or some other asset) for cash.

b. The owner withdraws cash (or some other asset) from the business; also,
the business incurs an expense paid with cash.
c.

## d. The business purchases equipment (or some other asset) on credit.

e.

The owner invests cash (or some other asset); or, the business earns a
revenue and accepts cash or an account receivable.

f.

The business pays an account payable (or some other liability) with cash.

Assets
Cash

Liabilitie +
s

## + Accounts + Supplies + Equipmen = Accounts + Annie Explanation

Receivable
t
Payable
Deweerd,
Capital

a)
b)
Totals

d)
Totals

Owner
+\$2,500 Investment

+ \$2,500
+ \$4,000
\$4,000

+\$4,000 Revenue
\$

c)
Totals

Owners Equity

\$ 0

\$2,500

+ \$150
\$4,000

\$150

\$ 0

\$6,500

+ \$150
\$2,500

\$150

\$ 450

\$6,500
\$ 450 Sal. Expense

\$3,550

\$150

\$2,500

\$150

\$6,050

\$3,550

\$150

\$2,500

\$150

\$6,050

e)*
Totals
f)
Totals
g)

\$ 1,400
\$2,150

\$ 1,400 Rent
Expense
\$

\$150

+ \$2,000

Solutions Manual for Chapter 3

\$2,500

\$150

\$4,650
+\$2,000 Revenue

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15

Totals

\$2,150

\$2,000

\$150

\$6,800

\$2,500

\$150
=

\$6,650

\$6,800

## *Note: For (e), since no exchange has occurred, no entry is required.

Solutions Manual for Chapter 3

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## Exercise 2-19 (25 minutes)

Annie Deweerd Freelance Writing
Income Statement
For Month Ended March 31, 2011

Revenues:
Freelance writing revenue

\$6,000

Operating expenses:
Salaries expense

\$ 450

Rent expense

1,400

1,850
\$4,15
0

Net income

## Annie Deweerd Freelance Writing

Statement of Owners Equity
For Month Ended March 31, 2011

## Annie Deweerd, capital, March 1

Add: Investment by owner
Net income
Annie Deweerd, capital, March 31

Solutions Manual for Chapter 3

\$2,500
4,15
0

6,650
\$6,65
0

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## Annie Deweerd Freelance Writing

Balance Sheet
March 31, 2011
Liabilities

Assets
Cash

\$2,15
0

Accounts receivable

2,000

Supplies
Equipment

Accounts payable

\$ 15
0

150
2,500
Owners Equity
Annie Deweerd, capital

Total assets

\$6,80
0

6,650

## Total liabilities and owners \$6,80

equity
0

Solutions Manual for Chapter 3

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## Exercise 2-19 (concluded)

Analysis component:
a. Supplies of \$150 were financed by accounts payable, a liability.
b. Equipment of \$2,500 was financed by owner investment, an
equity transaction.
c. Cash of \$2,150 and Accounts receivable of \$2,000 were financed
by net income of \$4,150. Net income includes the equity
transactions of revenues and expenses (revenues of \$6,000 less
expenses of \$1,850).
Exercise 2-20 (20 minutes)
Assets
Cash

a)

\$500
+\$400
\$500

Owner
+\$15,500 Investment

+\$15,000

c)
Totals

Owners Equity

## + Accounts + Supplies + Equipmen = Accounts + Pete Jong, Explanation

Receivable
t
Payable
Capital

b)
Totals

Liabilitie +
s

\$400

+\$400
\$15,000

+\$600

\$400

\$15,500

+\$600

\$500

\$1,000

\$15,000

\$1,000

\$15,500

\$500

\$1,000

\$15,000

\$1,000

\$15,500

d)*
Totals
e)
Totals

+\$550
\$500

f)

\$550

+\$550 Revenue
\$1,000

\$15,000

\$1,000

+\$600

Totals

\$500

g)

-\$200

Totals

\$300

h)

-\$250

\$1,150

\$16,050
+\$600 Revenue

\$1,000

\$15,000

\$1,000

\$16,650

-\$200
\$1,150

\$1,000

Solutions Manual for Chapter 3

\$15,000

\$800

\$16,650

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19

Totals

\$50

\$1,150

\$1,000

\$17,200

\$15,000

\$800
=

\$16,400

\$17,200

## *Note: For (d), since no exchange has occurred, no entry is required.

Solutions Manual for Chapter 3

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## Exercise 2-21 (25 minutes)

Petes Yard Care
Income Statement
For Month Ended March 31, 2011
Revenues:
Yard care revenue

\$1,150

Operating expenses:

250

Net income

\$ 900
Petes Yard Care
Statement of Owners Equity
For Month Ended March 31, 2011

\$15,500

Net income

900

16,400
\$16,40
0

## Petes Yard Care

Balance Sheet
March 31, 2011
Liabilities

Assets
Cash

\$ 50

Accounts receivable

1,150

Accounts payable

Solutions Manual for Chapter 3

\$ 800

20

21

Supplies
Equipment

1,000
15,000
Owners Equity
Pete Jong, capital

16,400

## Total liabilities and

Total assets

\$17,200

owners equity

\$17,20
0

Analysis component:
The \$900 of net income does not represent cash because all of the
revenues (\$550 + \$600 = \$1,150) were on account. The \$250 of
advertising expense was paid in cash. The net income or net loss on an
income statement represents accrual net income (loss) as opposed to a
cash basis net income (loss). Recall that accrual basis net income
represents revenues and expenses that occurred regardless of when
cash is actually received/paid.

Solutions Manual for Chapter 3

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Assets
Cash

Owners Equity

## + Accounts + Supplies + Equipmen = Accounts + Otto Ingles, Explanatio

Receivable
t
Payable
Capital
n

Bal.

\$4,000

\$1,200

a)

+\$1,000

-\$1,000

Totals

\$5,000

\$200

b)

-\$2,000

Totals

\$3,000

c)

+\$700

Totals

\$3,700

d)

-\$500

Totals

\$3,200

e)

-\$1,200

Totals

\$2,000

f)

-\$600

Totals

\$1,400

g)
Totals

Liabilitie +
s

\$900

\$7,500

\$4,000

\$9,600

\$900

\$7,500

\$4,000

\$9,600

-\$2,000
\$200

\$900

\$7,500

\$2,000

\$9,600
+\$700 Revenue

\$200

\$900

\$7,500

\$2,000

\$10,300
-\$500 Wage Exp.

\$200

\$900

\$7,500

\$2,000

\$9,800
-\$1,200 Rent Exp.

\$200

\$900

\$7,500

\$2,000

\$8,600
-\$600 Utilities
Exp.

\$200

\$900

\$7,500

\$2,000

+\$400

\$8,000
+\$400 Revenue

\$1,400

\$600

\$900

\$7,500

\$2,000

\$8,400

\$1,400

\$600

\$900

\$7,500

\$2,000

\$8,400

h)*
Totals

\$10,400

\$10,400

## *Note: For (h), since no exchange has occurred, no entry is required.

Solutions Manual for Chapter 3

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## Exercise 2-23 (25 minutes)

Ottos Wrecking Service
Income Statement
For Month Ended July 31, 2011
Revenues:
Wrecking revenue

\$1,100

Operating expenses:
Rent expense

\$ 1,200

Wages expense

500

Utilities expense

600

2,300
\$1,20
0

Net loss

## Ottos Wrecking Service

Statement of Owners Equity
For Month Ended July 31, 2011
Otto Ingles, capital, July 1

\$ 9,600

1,200
\$ 8,40
0

## Ottos Wrecking Service

Balance Sheet
July 31, 2011

Solutions Manual for Chapter 3

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Liabilities

Assets
Cash

\$1,400

Accounts receivable

600

Supplies

900

Equipment

Accounts payable

\$ 2,000

7,500
Owners Equity
Otto Ingles, capital

8,400

## Total liabilities and

Total assets

\$10,400

owners equity

\$10,40
0

Analysis component:
\$8,400 or 80.77% (calculated as \$8,400/\$10,400 100) of the assets are financed
by Otto Ingles, the owner. \$2,000 or 19.23% (calculated as \$2,000/\$10,400 100)
of the assets are financed by debt.

Chapter 2
and

Financial Statements
Accounting Transactions

QUESTIONS
EXERCISES
Exercise 2-1 (10 minutes)
e) \$80,000 \$65,000 = \$15,000 net income
f) \$92,000 \$149,000 = \$57,000 net loss
g) \$10,000 + 0 0 + x = \$86,000
x = \$86,000 \$10,000
Solutions Manual for Chapter 3

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## h) \$25,000 + \$40,000 0 + x = \$52,000

x = 52,000 25,000 40,000
x = \$13,000 or a \$13,000 Net loss

(a)

(b)

(c)

(d)

(e)

## \$ (24,750) \$36,000 \$12,000 \$21,500 \$92,000

Proofs:
Owners equity, January 1.................
\$

0 \$

0 \$92,000

Owners investments
during the year ..................................60,000

36,000

31,500

37,000 150,000

## Net income (loss) for the

15,750
year .................................................................

40,500

(4,500) 21,500

(8,000)

Owners withdrawals
during the year .................................
(24,750) (27,000) (15,000) (15,750) (63,000)
Owners equity, December
\$51,000 \$49,500 \$12,000 \$42,750 \$171,00
31 .....................................................................
0

Solutions Manual for Chapter 3

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## Exercise 2-3 (15 minutes)

THE DOBBS GROUP
Income Statement
For Month Ended November 30, 2011
Revenues:
Consulting fees earned ..................................
Operating expenses:
Salaries expense ............................................
Rent expense ..................................................
Telephone expense ........................................
Utilities expenses ...........................................
Total operating expenses ...........................
Net income .............................................................

\$18,000
\$6,000
2,550
1,680
660

10,890
\$ 7,110

## Exercise 2-4 (15 minutes)

THE DOBBS GROUP
Statement of Owners Equity
For Month Ended November 30, 2011
Jean Dobbs, capital, November 1 ....................
Add: Investments by owner ..........................
Net income .............................................
Total ............................................................
Less: Withdrawals by owner ............................
Jean Dobbs, capital, November 30 ..................

\$
84,000
7,110

91,110
\$91,110
3,360
\$87,750

Analysis component:

The owner, Jean Dobbs, invested \$84,000 of assets during the month, which
caused equity to increase. Also, net income earned during the month was
\$7,110 also causing equity to increase during November. The total increases
in equity during the month were a total of \$91,110 (\$84,000 + \$7,110).
NOTE: Students might point out that equity decreased by a total of \$3,360 in
withdrawals which in combination with the total increase of \$91,110 caused a
net increase in equity of \$87,750.

Solutions Manual for Chapter 3

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## Exercise 2-5 (15 minutes)

THE DOBBS GROUP
Balance Sheet
November 30, 2011
Assets
Cash ..............................................
Accounts receivable ....................
Office supplies .............................
Automobiles .................................
Office equipment ..........................
Total assets ..................................

\$12,000
17,000
2,250
36,000
28,000
\$95,250

Liabilities
Accounts payable ...................
Owners Equity
Jean Dobbs, capital ................
Total liabilities and
owners equity.....................

\$ 7,500
87,750
\$95,250

Analysis component:

## \$87,750 (or 92.13% calculated as \$87,750/\$95,250 100) of the total \$95,250

assets are owned by Jean Dobbs, the owner of The Dobbs Group.
Exercise 2-6 (15 minutes)
EXCEL LEARNING SERVICES
Income Statement
For Month Ended July 31, 2011
Revenues:
Tutoring fees earned ......................................
Textbook rental revenue ................................
Total revenues ............................................
Operating expenses:
Office rent expense ........................................
Tutors wages expense ...................................
Utilities expense .............................................
Total operating expenses ...........................
Net loss ..................................................................

Solutions Manual for Chapter 3

\$4,200
300
\$ 4,500
\$2,500
1,540
580

4,620
\$ 120

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## Exercise 2-7 (15 minutes)

EXCEL LEARNING SERVICES
Statement of Owners Equity
For Month Ended July 31, 2011
George Pelzer, capital, July 1 ..........................
Add: Investments by owner ..........................
Total ............................................................
Less: Withdrawals by owner ............................
Net loss ....................................................
George Pelzer, capital, July 31 ........................

\$ 1,000
120

\$ 7,400
1,200
\$ 8,600
1,120
\$ 7,480

Analysis component:
Withdrawals of \$1,000 by the owner, George Pelzer, caused equity to
decrease during July, 2011. Also, the net loss of \$120 caused equity to
decrease in July. The total decrease in equity during the month of July
was \$1,120 (calculated as \$1,000 + \$120).
NOTE: Students might point out that equity increased by \$1,200 of owner
investments which, in combination with the total decrease of \$1,120, caused a
net increase in equity of \$80.
Exercise 2-8 (15 minutes)
EXCEL LEARNING SERVICES
Balance Sheet
July 31, 2011
Assets
Cash ..............................................
Accounts receivable ....................
Supplies ........................................
Furniture .......................................
Computer equipment ...................

\$ 1,600
2,680
600
1,800
2,200

## Total assets ...................................................

\$8,880

Liabilities
Accounts payable ...................

\$ 1,400

Owners Equity
George Pelzer, capital ............
Total liabilities and

7,480

owners equity................................

\$8,880

Analysis component:
\$1,400 or 15.77% (calculated as \$1,400/\$8,880 100) of the total
\$8,880 assets held by Excel Learning Services are financed by debt.
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30

Description
B
D

## 1. Requires every business to be accounted for separately from its owner

or owners.
2. Requires financial statement information to be supported by evidence
other than someones opinion or imagination.

in transactions.

## 4. Requires financial statements to reflect the assumption that the

business will continue operating instead of being closed or sold.
5. Requires revenue to be recorded only when the earnings process is
complete.

a.

## Assets Liabilities = Owners Equity

Beginning of the year ...................... \$ 150,000
\$60,000 =
\$90,000
End of the year ................................. \$240,000
\$92,000 =
148,000
Net increase in owners equity ...............................................................
\$58,000
Net income ...............................................................................................
\$58,000
(Because there were no additional investments or withdrawals, the net
income for the year equals the net increase in owners equity.)

## b. Net increase in owners equity ...................................

Add: Withdrawals (12 months @ \$3,500) ...................
Net income ...................................................................

\$58,000
42,000
\$100,000

An alternative calculation:
\$90,000 + x - \$42,000 = \$148,000; x = \$100,000
c.

## Net increase in owners equity ...................................

Less: Additional investment .......................................
Net loss.........................................................................

\$58,000
65,000
\$ 7,000

An alternative calculation:
\$90,000 + \$65,000 + x = \$148,000; x = (\$7,000) where the negative
represents a loss.
d. Net increase in owners equity ...................................
Add: Withdrawals (12 months @ \$3,500) ...................
Gross increase in owners equity ...............................
Less: Additional investment .......................................
Net income ...................................................................
Solutions Manual for Chapter 3

\$58,000
42,000
\$100,000
50,000
\$50,000
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31

An alternative calculation:
\$90,000 + \$50,000 - \$42,000 + x = \$148,000; x = \$50,000
Exercise 2-11 (10 minutes)
a.
If assets decreased by \$5,000 during August, then
\$20,000 + \$5,000 = \$25,000 Assets at August 1, 2011.
Therefore, Owners Equity at August 1, 2011 = \$25,000 - \$1,000 =
\$24,000

b.
If liabilities increased by \$3,000 during August, then
\$1,000 + \$3,000 = \$4,000 Liabilities at August 31, 2011.
Therefore, Owners Equity at August 31, 2011 = \$20,000 - \$4,000 =
\$16,000
Exercise 2-12 (15 minutes)
Assets
Cash
a)

Accounts
Payable

Noel Bridges,
+
Capital
+ \$2,500

2,500

2,500

b)
Totals

Totals

Accounts
Office
+ Receivable + Supplies =

+ \$2,500

Totals

c)

## Liabilities + Owners Equity

2,500
+

+ \$200

+ \$200

200

200

600
3,100

2,500
+

200

200

600
3,100

d)*

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32

Totals
e)
Totals

3,100

200

3,100

1,500

1,500

1,600

f)
Totals

200

200

200

1,600

+ \$1,250
\$1,600

\$1,250

+ 1,250
\$200

\$3,050

\$200
=

\$2,850
\$3,050

## *Note: For (d), since no exchange has occurred, no entry is required.

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33

Assets
Cash

## Liabilities + Owners Equity

Accounts
Parts
Equipmen
Accounts
Janine Commry,
+ Receivable + Supplies +
t
= Payable +
Capital

a)

+ \$7,000

+ \$ 7,000

b)

- 2,500

- 2,500

Totals

\$4,500

\$ 4,500

c)
Totals

e)
Totals

+ \$1,200

\$1,200

\$1,200

\$4,500

d)
Totals

+ \$1,200

+ \$3,400
\$4,500

\$3,400

\$ 4,500
+ \$ 3,400

\$1,200

\$ 950

\$1,200

\$7,900

+ \$950

\$3,550

\$3,400

\$1,200

\$950

\$1,200

\$7,900

\$3,550

\$3,400

\$1,200

\$950

\$1,200

\$ 7,900

f)*
Totals
g)
Totals
h)
Totals
i)
Totals

\$1,200
\$2,350

\$1,200
\$3,400

\$1,200

\$950

+ \$1,400
\$3,750

+ \$ 1,400
\$3,400

\$1,200

\$950

\$2,700
\$1,050

\$7,900

\$9,300
\$ 2,700

\$3,400

\$1,200

\$950

\$6,600

\$6,600

\$6,600

## *Note: For (f), since no exchange has occurred, no entry is required.

Exercise 2-14: (15 minutes)
b. Office Supplies were purchased paying cash of \$500.
c. Office Furniture was purchased paying cash of \$8,000.
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34

d.
e.
f.
g.

## Completed work for a client on credit; \$1,000.

Purchased office supplies on credit; \$400.
Paid \$250 to a creditor.
Collected \$750 cash from a credit customer.

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## Exercise 2-15 (10 minutes)

i) The business purchased land paying \$3,000.
j) \$400 of office supplies were purchased on credit (or on account).
k) Paid \$700 for the purchase of office supplies
l) \$1,050 of revenue on account (or on credit) was earned.
m) Collected \$1,000 cash for revenue performed.
n) Paid \$400 to a creditor.
o) Collected \$1,050 from a credit customer.
p) The owner invested \$5,000 of land.
Exercise 2-16 (30 minutes)
Cash

+ Accounts
Receivable

a. \$25,000
Investment

Equip- =
ment

## Accounts + Ellen Manson, Explanation

Payable
Capital
of Change

\$5,000

\$30,000

b.
1,300
Rent Expense

\$1,300

\$23,700

\$5,000

c.
\$23,700

\$28,700

+6,000

+6,000

\$11,000

\$6,000

d.
+ 500
Revenue

\$24,200
e.
Revenue

f.

\$11,000

\$6,000

+\$1,000

\$24,200

\$1,000

4,000
\$20,200

\$29,200

\$11,000

\$6,000

\$30,200

\$6,000

\$30,200

+ 4,000
\$1,000

\$15,000

1,200

\$19,000

\$1,000

250

250

500

+ 1,000

g.
1,200
Wages Expense

h.

\$28,700

\$15,000

Solutions Manual for Chapter 3

\$6,000

\$29,000

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36

\$19,250
i.

\$750

\$15,000

\$6,000

6,000
\$13,250

\$29,000

6,000
\$750

\$15,000

\$29,000

j. 250
Withdrawal
\$13,000

\$750

\$15,000

\$28,750
Revenue
(\$500 + \$1,000)

=
Expenses
(\$1,300 + \$1,200)

Solutions Manual for Chapter 3

=
=

250

\$28,750

\$28,750
Net loss
\$1,000

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37

## Exercise 2-17 (15 minutes) (Answers may vary.)

Possible examples include:
a.

The business purchases office supplies (or some other asset) for cash.

b. The owner withdraws cash (or some other asset) from the business; also,
the business incurs an expense paid with cash.
c.

## d. The business purchases equipment (or some other asset) on credit.

e.

The owner invests cash (or some other asset); or, the business earns a
revenue and accepts cash or an account receivable.

f.

The business pays an account payable (or some other liability) with cash.

Assets
Cash

Liabilitie +
s

## + Accounts + Supplies + Equipmen = Accounts + Annie Explanation

Receivable
t
Payable
Deweerd,
Capital

a)
b)
Totals

d)
Totals

Owner
+\$2,500 Investment

+ \$2,500
+ \$4,000
\$4,000

+\$4,000 Revenue
\$

c)
Totals

Owners Equity

\$ 0

\$2,500

+ \$150
\$4,000

\$150

\$ 0

\$6,500

+ \$150
\$2,500

\$150

\$ 450

\$6,500
\$ 450 Sal. Expense

\$3,550

\$150

\$2,500

\$150

\$6,050

\$3,550

\$150

\$2,500

\$150

\$6,050

e)*
Totals
f)
Totals
g)

\$ 1,400
\$2,150

\$ 1,400 Rent
Expense
\$

\$150

+ \$2,000

Solutions Manual for Chapter 3

\$2,500

\$150

\$4,650
+\$2,000 Revenue

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38

Totals

\$2,150

\$2,000

\$150

\$6,800

\$2,500

\$150
=

\$6,650

\$6,800

## *Note: For (e), since no exchange has occurred, no entry is required.

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## Exercise 2-19 (25 minutes)

Annie Deweerd Freelance Writing
Income Statement
For Month Ended March 31, 2011

Revenues:
Freelance writing revenue

\$6,000

Operating expenses:
Salaries expense

\$ 450

Rent expense

1,400

1,850
\$4,15
0

Net income

## Annie Deweerd Freelance Writing

Statement of Owners Equity
For Month Ended March 31, 2011

## Annie Deweerd, capital, March 1

Add: Investment by owner
Net income
Annie Deweerd, capital, March 31

Solutions Manual for Chapter 3

\$2,500
4,15
0

6,650
\$6,65
0

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40

## Annie Deweerd Freelance Writing

Balance Sheet
March 31, 2011
Liabilities

Assets
Cash

\$2,15
0

Accounts receivable

2,000

Supplies
Equipment

Accounts payable

\$ 15
0

150
2,500
Owners Equity
Annie Deweerd, capital

Total assets

\$6,80
0

6,650

## Total liabilities and owners \$6,80

equity
0

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41

## Exercise 2-19 (concluded)

Analysis component:
d. Supplies of \$150 were financed by accounts payable, a liability.
e. Equipment of \$2,500 was financed by owner investment, an
equity transaction.
f. Cash of \$2,150 and Accounts receivable of \$2,000 were financed
by net income of \$4,150. Net income includes the equity
transactions of revenues and expenses (revenues of \$6,000 less
expenses of \$1,850).
Exercise 2-20 (20 minutes)
Assets
Cash

a)

\$500
+\$400
\$500

Owner
+\$15,500 Investment

+\$15,000

c)
Totals

Owners Equity

## + Accounts + Supplies + Equipmen = Accounts + Pete Jong, Explanation

Receivable
t
Payable
Capital

b)
Totals

Liabilitie +
s

\$400

+\$400
\$15,000

+\$600

\$400

\$15,500

+\$600

\$500

\$1,000

\$15,000

\$1,000

\$15,500

\$500

\$1,000

\$15,000

\$1,000

\$15,500

d)*
Totals
e)
Totals

+\$550
\$500

f)

\$550

+\$550 Revenue
\$1,000

\$15,000

\$1,000

+\$600

Totals

\$500

g)

-\$200

Totals

\$300

h)

-\$250

\$1,150

\$16,050
+\$600 Revenue

\$1,000

\$15,000

\$1,000

\$16,650

-\$200
\$1,150

\$1,000

Solutions Manual for Chapter 3

\$15,000

\$800

\$16,650

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42

Totals

\$50

\$1,150

\$1,000

\$17,200

\$15,000

\$800
=

\$16,400

\$17,200

## *Note: For (d), since no exchange has occurred, no entry is required.

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## Exercise 2-21 (25 minutes)

Petes Yard Care
Income Statement
For Month Ended March 31, 2011
Revenues:
Yard care revenue

\$1,150

Operating expenses:

250

Net income

\$ 900
Petes Yard Care
Statement of Owners Equity
For Month Ended March 31, 2011

\$15,500

Net income

900

16,400
\$16,40
0

## Petes Yard Care

Balance Sheet
March 31, 2011
Liabilities

Assets
Cash

\$ 50

Accounts receivable

1,150

Accounts payable

Solutions Manual for Chapter 3

\$ 800

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44

Supplies
Equipment

1,000
15,000
Owners Equity
Pete Jong, capital

16,400

## Total liabilities and

Total assets

\$17,200

owners equity

\$17,20
0

Analysis component:
The \$900 of net income does not represent cash because all of the
revenues (\$550 + \$600 = \$1,150) were on account. The \$250 of
advertising expense was paid in cash. The net income or net loss on an
income statement represents accrual net income (loss) as opposed to a
cash basis net income (loss). Recall that accrual basis net income
represents revenues and expenses that occurred regardless of when
cash is actually received/paid.

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45

Assets
Cash

Owners Equity

## + Accounts + Supplies + Equipmen = Accounts + Otto Ingles, Explanatio

Receivable
t
Payable
Capital
n

Bal.

\$4,000

\$1,200

a)

+\$1,000

-\$1,000

Totals

\$5,000

\$200

b)

-\$2,000

Totals

\$3,000

c)

+\$700

Totals

\$3,700

d)

-\$500

Totals

\$3,200

e)

-\$1,200

Totals

\$2,000

f)

-\$600

Totals

\$1,400

g)
Totals

Liabilitie +
s

\$900

\$7,500

\$4,000

\$9,600

\$900

\$7,500

\$4,000

\$9,600

-\$2,000
\$200

\$900

\$7,500

\$2,000

\$9,600
+\$700 Revenue

\$200

\$900

\$7,500

\$2,000

\$10,300
-\$500 Wage Exp.

\$200

\$900

\$7,500

\$2,000

\$9,800
-\$1,200 Rent Exp.

\$200

\$900

\$7,500

\$2,000

\$8,600
-\$600 Utilities
Exp.

\$200

\$900

\$7,500

\$2,000

+\$400

\$8,000
+\$400 Revenue

\$1,400

\$600

\$900

\$7,500

\$2,000

\$8,400

\$1,400

\$600

\$900

\$7,500

\$2,000

\$8,400

h)*
Totals

\$10,400

\$10,400

## *Note: For (h), since no exchange has occurred, no entry is required.

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46

## Exercise 2-23 (25 minutes)

Ottos Wrecking Service
Income Statement
For Month Ended July 31, 2011
Revenues:
Wrecking revenue

\$1,100

Operating expenses:
Rent expense

\$ 1,200

Wages expense

500

Utilities expense

600

2,300
\$1,20
0

Net loss

## Ottos Wrecking Service

Statement of Owners Equity
For Month Ended July 31, 2011
Otto Ingles, capital, July 1

\$ 9,600

1,200
\$ 8,40
0

## Ottos Wrecking Service

Balance Sheet
July 31, 2011

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47

Liabilities

Assets
Cash

\$1,400

Accounts receivable

600

Supplies

900

Equipment

Accounts payable

\$ 2,000

7,500
Owners Equity
Otto Ingles, capital

8,400

## Total liabilities and

Total assets

\$10,400

owners equity

\$10,40
0

Analysis component:
\$8,400 or 80.77% (calculated as \$8,400/\$10,400 100) of the assets are financed
by Otto Ingles, the owner. \$2,000 or 19.23% (calculated as \$2,000/\$10,400 100)
of the assets are financed by debt.

Chapter 2
and

Financial Statements
Accounting Transactions

QUESTIONS
EXERCISES
Exercise 2-1 (10 minutes)
i) \$80,000 \$65,000 = \$15,000 net income
j) \$92,000 \$149,000 = \$57,000 net loss
k) \$10,000 + 0 0 + x = \$86,000
x = \$86,000 \$10,000
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48

## l) \$25,000 + \$40,000 0 + x = \$52,000

x = 52,000 25,000 40,000
x = \$13,000 or a \$13,000 Net loss

(a)

(b)

(c)

(d)

(e)

## \$ (24,750) \$36,000 \$12,000 \$21,500 \$92,000

Proofs:
Owners equity, January 1.................
\$

0 \$

0 \$92,000

Owners investments
during the year ..................................60,000

36,000

31,500

37,000 150,000

## Net income (loss) for the

15,750
year .................................................................

40,500

(4,500) 21,500

(8,000)

Owners withdrawals
during the year .................................
(24,750) (27,000) (15,000) (15,750) (63,000)
Owners equity, December
\$51,000 \$49,500 \$12,000 \$42,750 \$171,00
31 .....................................................................
0

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## Exercise 2-3 (15 minutes)

THE DOBBS GROUP
Income Statement
For Month Ended November 30, 2011
Revenues:
Consulting fees earned ..................................
Operating expenses:
Salaries expense ............................................
Rent expense ..................................................
Telephone expense ........................................
Utilities expenses ...........................................
Total operating expenses ...........................
Net income .............................................................

\$18,000
\$6,000
2,550
1,680
660

10,890
\$ 7,110

## Exercise 2-4 (15 minutes)

THE DOBBS GROUP
Statement of Owners Equity
For Month Ended November 30, 2011
Jean Dobbs, capital, November 1 ....................
Add: Investments by owner ..........................
Net income .............................................
Total ............................................................
Less: Withdrawals by owner ............................
Jean Dobbs, capital, November 30 ..................

\$
84,000
7,110

91,110
\$91,110
3,360
\$87,750

Analysis component:

The owner, Jean Dobbs, invested \$84,000 of assets during the month, which
caused equity to increase. Also, net income earned during the month was
\$7,110 also causing equity to increase during November. The total increases
in equity during the month were a total of \$91,110 (\$84,000 + \$7,110).
NOTE: Students might point out that equity decreased by a total of \$3,360 in
withdrawals which in combination with the total increase of \$91,110 caused a
net increase in equity of \$87,750.

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50

## Exercise 2-5 (15 minutes)

THE DOBBS GROUP
Balance Sheet
November 30, 2011
Assets
Cash ..............................................
Accounts receivable ....................
Office supplies .............................
Automobiles .................................
Office equipment ..........................
Total assets ..................................

\$12,000
17,000
2,250
36,000
28,000
\$95,250

Liabilities
Accounts payable ...................
Owners Equity
Jean Dobbs, capital ................
Total liabilities and
owners equity.....................

\$ 7,500
87,750
\$95,250

Analysis component:

## \$87,750 (or 92.13% calculated as \$87,750/\$95,250 100) of the total \$95,250

assets are owned by Jean Dobbs, the owner of The Dobbs Group.
Exercise 2-6 (15 minutes)
EXCEL LEARNING SERVICES
Income Statement
For Month Ended July 31, 2011
Revenues:
Tutoring fees earned ......................................
Textbook rental revenue ................................
Total revenues ............................................
Operating expenses:
Office rent expense ........................................
Tutors wages expense ...................................
Utilities expense .............................................
Total operating expenses ...........................
Net loss ..................................................................

Solutions Manual for Chapter 3

\$4,200
300
\$ 4,500
\$2,500
1,540
580

4,620
\$ 120

50

51

## Exercise 2-7 (15 minutes)

EXCEL LEARNING SERVICES
Statement of Owners Equity
For Month Ended July 31, 2011
George Pelzer, capital, July 1 ..........................
Add: Investments by owner ..........................
Total ............................................................
Less: Withdrawals by owner ............................
Net loss ....................................................
George Pelzer, capital, July 31 ........................

\$ 1,000
120

\$ 7,400
1,200
\$ 8,600
1,120
\$ 7,480

Analysis component:
Withdrawals of \$1,000 by the owner, George Pelzer, caused equity to
decrease during July, 2011. Also, the net loss of \$120 caused equity to
decrease in July. The total decrease in equity during the month of July
was \$1,120 (calculated as \$1,000 + \$120).
NOTE: Students might point out that equity increased by \$1,200 of owner
investments which, in combination with the total decrease of \$1,120, caused a
net increase in equity of \$80.
Exercise 2-8 (15 minutes)
EXCEL LEARNING SERVICES
Balance Sheet
July 31, 2011
Assets
Cash ..............................................
Accounts receivable ....................
Supplies ........................................
Furniture .......................................
Computer equipment ...................

\$ 1,600
2,680
600
1,800
2,200

## Total assets ...................................................

\$8,880

Liabilities
Accounts payable ...................

\$ 1,400

Owners Equity
George Pelzer, capital ............
Total liabilities and

7,480

owners equity................................

\$8,880

Analysis component:
\$1,400 or 15.77% (calculated as \$1,400/\$8,880 100) of the total
\$8,880 assets held by Excel Learning Services are financed by debt.
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53

Description
B
D

## 1. Requires every business to be accounted for separately from its owner

or owners.
2. Requires financial statement information to be supported by evidence
other than someones opinion or imagination.

in transactions.

## 4. Requires financial statements to reflect the assumption that the

business will continue operating instead of being closed or sold.
5. Requires revenue to be recorded only when the earnings process is
complete.

a.

## Assets Liabilities = Owners Equity

Beginning of the year ...................... \$ 150,000
\$60,000 =
\$90,000
End of the year ................................. \$240,000
\$92,000 =
148,000
Net increase in owners equity ...............................................................
\$58,000
Net income ...............................................................................................
\$58,000
(Because there were no additional investments or withdrawals, the net
income for the year equals the net increase in owners equity.)

## b. Net increase in owners equity ...................................

Add: Withdrawals (12 months @ \$3,500) ...................
Net income ...................................................................

\$58,000
42,000
\$100,000

An alternative calculation:
\$90,000 + x - \$42,000 = \$148,000; x = \$100,000
c.

## Net increase in owners equity ...................................

Less: Additional investment .......................................
Net loss.........................................................................

\$58,000
65,000
\$ 7,000

An alternative calculation:
\$90,000 + \$65,000 + x = \$148,000; x = (\$7,000) where the negative
represents a loss.
d. Net increase in owners equity ...................................
Add: Withdrawals (12 months @ \$3,500) ...................
Gross increase in owners equity ...............................
Less: Additional investment .......................................
Net income ...................................................................
Solutions Manual for Chapter 3

\$58,000
42,000
\$100,000
50,000
\$50,000
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54

An alternative calculation:
\$90,000 + \$50,000 - \$42,000 + x = \$148,000; x = \$50,000
Exercise 2-11 (10 minutes)
a.
If assets decreased by \$5,000 during August, then
\$20,000 + \$5,000 = \$25,000 Assets at August 1, 2011.
Therefore, Owners Equity at August 1, 2011 = \$25,000 - \$1,000 =
\$24,000

b.
If liabilities increased by \$3,000 during August, then
\$1,000 + \$3,000 = \$4,000 Liabilities at August 31, 2011.
Therefore, Owners Equity at August 31, 2011 = \$20,000 - \$4,000 =
\$16,000
Exercise 2-12 (15 minutes)
Assets
Cash
a)

Accounts
Payable

Noel Bridges,
+
Capital
+ \$2,500

2,500

2,500

b)
Totals

Totals

Accounts
Office
+ Receivable + Supplies =

+ \$2,500

Totals

c)

## Liabilities + Owners Equity

2,500
+

+ \$200

+ \$200

200

200

600
3,100

2,500
+

200

200

600
3,100

d)*

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55

Totals
e)
Totals

3,100

200

3,100

1,500

1,500

1,600

f)
Totals

200

200

200

1,600

+ \$1,250
\$1,600

\$1,250

+ 1,250
\$200

\$3,050

\$200
=

\$2,850
\$3,050

## *Note: For (d), since no exchange has occurred, no entry is required.

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56

Assets
Cash

## Liabilities + Owners Equity

Accounts
Parts
Equipmen
Accounts
Janine Commry,
+ Receivable + Supplies +
t
= Payable +
Capital

a)

+ \$7,000

+ \$ 7,000

b)

- 2,500

- 2,500

Totals

\$4,500

\$ 4,500

c)
Totals

e)
Totals

+ \$1,200

\$1,200

\$1,200

\$4,500

d)
Totals

+ \$1,200

+ \$3,400
\$4,500

\$3,400

\$ 4,500
+ \$ 3,400

\$1,200

\$ 950

\$1,200

\$7,900

+ \$950

\$3,550

\$3,400

\$1,200

\$950

\$1,200

\$7,900

\$3,550

\$3,400

\$1,200

\$950

\$1,200

\$ 7,900

f)*
Totals
g)
Totals
h)
Totals
i)
Totals

\$1,200
\$2,350

\$1,200
\$3,400

\$1,200

\$950

+ \$1,400
\$3,750

+ \$ 1,400
\$3,400

\$1,200

\$950

\$2,700
\$1,050

\$7,900

\$9,300
\$ 2,700

\$3,400

\$1,200

\$950

\$6,600

\$6,600

\$6,600

## *Note: For (f), since no exchange has occurred, no entry is required.

Exercise 2-14: (15 minutes)
b. Office Supplies were purchased paying cash of \$500.
c. Office Furniture was purchased paying cash of \$8,000.
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57

d.
e.
f.
g.

## Completed work for a client on credit; \$1,000.

Purchased office supplies on credit; \$400.
Paid \$250 to a creditor.
Collected \$750 cash from a credit customer.

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58

## Exercise 2-15 (10 minutes)

q) The business purchased land paying \$3,000.
r) \$400 of office supplies were purchased on credit (or on account).
s) Paid \$700 for the purchase of office supplies
t) \$1,050 of revenue on account (or on credit) was earned.
u) Collected \$1,000 cash for revenue performed.
v) Paid \$400 to a creditor.
w) Collected \$1,050 from a credit customer.
x) The owner invested \$5,000 of land.
Exercise 2-16 (30 minutes)
Cash

+ Accounts
Receivable

a. \$25,000
Investment

Equip- =
ment

## Accounts + Ellen Manson, Explanation

Payable
Capital
of Change

\$5,000

\$30,000

b.
1,300
Rent Expense

\$1,300

\$23,700

\$5,000

c.
\$23,700

\$28,700

+6,000

+6,000

\$11,000

\$6,000

d.
+ 500
Revenue

\$24,200
e.
Revenue

f.

\$11,000

\$6,000

+\$1,000

\$24,200

\$1,000

4,000
\$20,200

\$29,200

\$11,000

\$6,000

\$30,200

\$6,000

\$30,200

+ 4,000
\$1,000

\$15,000

1,200

\$19,000

\$1,000

250

250

500

+ 1,000

g.
1,200
Wages Expense

h.

\$28,700

\$15,000

Solutions Manual for Chapter 3

\$6,000

\$29,000

58

59

\$19,250
i.

\$750

\$15,000

\$6,000

6,000
\$13,250

\$29,000

6,000
\$750

\$15,000

\$29,000

j. 250
Withdrawal
\$13,000

\$750

\$15,000

\$28,750
Revenue
(\$500 + \$1,000)

=
Expenses
(\$1,300 + \$1,200)

Solutions Manual for Chapter 3

=
=

250

\$28,750

\$28,750
Net loss
\$1,000

59

60

## Exercise 2-17 (15 minutes) (Answers may vary.)

Possible examples include:
a.

The business purchases office supplies (or some other asset) for cash.

b. The owner withdraws cash (or some other asset) from the business; also,
the business incurs an expense paid with cash.
c.

## d. The business purchases equipment (or some other asset) on credit.

e.

The owner invests cash (or some other asset); or, the business earns a
revenue and accepts cash or an account receivable.

f.

The business pays an account payable (or some other liability) with cash.

Assets
Cash

Liabilitie +
s

## + Accounts + Supplies + Equipmen = Accounts + Annie Explanation

Receivable
t
Payable
Deweerd,
Capital

a)
b)
Totals

d)
Totals

Owner
+\$2,500 Investment

+ \$2,500
+ \$4,000
\$4,000

+\$4,000 Revenue
\$

c)
Totals

Owners Equity

\$ 0

\$2,500

+ \$150
\$4,000

\$150

\$ 0

\$6,500

+ \$150
\$2,500

\$150

\$ 450

\$6,500
\$ 450 Sal. Expense

\$3,550

\$150

\$2,500

\$150

\$6,050

\$3,550

\$150

\$2,500

\$150

\$6,050

e)*
Totals
f)
Totals
g)

\$ 1,400
\$2,150

\$ 1,400 Rent
Expense
\$

\$150

+ \$2,000

Solutions Manual for Chapter 3

\$2,500

\$150

\$4,650
+\$2,000 Revenue

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61

Totals

\$2,150

\$2,000

\$150

\$6,800

\$2,500

\$150
=

\$6,650

\$6,800

## *Note: For (e), since no exchange has occurred, no entry is required.

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## Exercise 2-19 (25 minutes)

Annie Deweerd Freelance Writing
Income Statement
For Month Ended March 31, 2011

Revenues:
Freelance writing revenue

\$6,000

Operating expenses:
Salaries expense

\$ 450

Rent expense

1,400

1,850
\$4,15
0

Net income

## Annie Deweerd Freelance Writing

Statement of Owners Equity
For Month Ended March 31, 2011

## Annie Deweerd, capital, March 1

Add: Investment by owner
Net income
Annie Deweerd, capital, March 31

Solutions Manual for Chapter 3

\$2,500
4,15
0

6,650
\$6,65
0

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63

## Annie Deweerd Freelance Writing

Balance Sheet
March 31, 2011
Liabilities

Assets
Cash

\$2,15
0

Accounts receivable

2,000

Supplies
Equipment

Accounts payable

\$ 15
0

150
2,500
Owners Equity
Annie Deweerd, capital

Total assets

\$6,80
0

6,650

## Total liabilities and owners \$6,80

equity
0

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64

## Exercise 2-19 (concluded)

Analysis component:
g. Supplies of \$150 were financed by accounts payable, a liability.
h. Equipment of \$2,500 was financed by owner investment, an
equity transaction.
i. Cash of \$2,150 and Accounts receivable of \$2,000 were financed
by net income of \$4,150. Net income includes the equity
transactions of revenues and expenses (revenues of \$6,000 less
expenses of \$1,850).
Exercise 2-20 (20 minutes)
Assets
Cash

a)

\$500
+\$400
\$500

Owner
+\$15,500 Investment

+\$15,000

c)
Totals

Owners Equity

## + Accounts + Supplies + Equipmen = Accounts + Pete Jong, Explanation

Receivable
t
Payable
Capital

b)
Totals

Liabilitie +
s

\$400

+\$400
\$15,000

+\$600

\$400

\$15,500

+\$600

\$500

\$1,000

\$15,000

\$1,000

\$15,500

\$500

\$1,000

\$15,000

\$1,000

\$15,500

d)*
Totals
e)
Totals

+\$550
\$500

f)

\$550

+\$550 Revenue
\$1,000

\$15,000

\$1,000

+\$600

Totals

\$500

g)

-\$200

Totals

\$300

h)

-\$250

\$1,150

\$16,050
+\$600 Revenue

\$1,000

\$15,000

\$1,000

\$16,650

-\$200
\$1,150

\$1,000

Solutions Manual for Chapter 3

\$15,000

\$800

\$16,650

64

65

Totals

\$50

\$1,150

\$1,000

\$17,200

\$15,000

\$800
=

\$16,400

\$17,200

## *Note: For (d), since no exchange has occurred, no entry is required.

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## Exercise 2-21 (25 minutes)

Petes Yard Care
Income Statement
For Month Ended March 31, 2011
Revenues:
Yard care revenue

\$1,150

Operating expenses:

250

Net income

\$ 900
Petes Yard Care
Statement of Owners Equity
For Month Ended March 31, 2011

\$15,500

Net income

900

16,400
\$16,40
0

## Petes Yard Care

Balance Sheet
March 31, 2011
Liabilities

Assets
Cash

\$ 50

Accounts receivable

1,150

Accounts payable

Solutions Manual for Chapter 3

\$ 800

66

67

Supplies
Equipment

1,000
15,000
Owners Equity
Pete Jong, capital

16,400

## Total liabilities and

Total assets

\$17,200

owners equity

\$17,20
0

Analysis component:
The \$900 of net income does not represent cash because all of the
revenues (\$550 + \$600 = \$1,150) were on account. The \$250 of
advertising expense was paid in cash. The net income or net loss on an
income statement represents accrual net income (loss) as opposed to a
cash basis net income (loss). Recall that accrual basis net income
represents revenues and expenses that occurred regardless of when
cash is actually received/paid.

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68

Assets
Cash

Owners Equity

## + Accounts + Supplies + Equipmen = Accounts + Otto Ingles, Explanatio

Receivable
t
Payable
Capital
n

Bal.

\$4,000

\$1,200

a)

+\$1,000

-\$1,000

Totals

\$5,000

\$200

b)

-\$2,000

Totals

\$3,000

c)

+\$700

Totals

\$3,700

d)

-\$500

Totals

\$3,200

e)

-\$1,200

Totals

\$2,000

f)

-\$600

Totals

\$1,400

g)
Totals

Liabilitie +
s

\$900

\$7,500

\$4,000

\$9,600

\$900

\$7,500

\$4,000

\$9,600

-\$2,000
\$200

\$900

\$7,500

\$2,000

\$9,600
+\$700 Revenue

\$200

\$900

\$7,500

\$2,000

\$10,300
-\$500 Wage Exp.

\$200

\$900

\$7,500

\$2,000

\$9,800
-\$1,200 Rent Exp.

\$200

\$900

\$7,500

\$2,000

\$8,600
-\$600 Utilities
Exp.

\$200

\$900

\$7,500

\$2,000

+\$400

\$8,000
+\$400 Revenue

\$1,400

\$600

\$900

\$7,500

\$2,000

\$8,400

\$1,400

\$600

\$900

\$7,500

\$2,000

\$8,400

h)*
Totals

\$10,400

\$10,400

## *Note: For (h), since no exchange has occurred, no entry is required.

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## Exercise 2-23 (25 minutes)

Ottos Wrecking Service
Income Statement
For Month Ended July 31, 2011
Revenues:
Wrecking revenue

\$1,100

Operating expenses:
Rent expense

\$ 1,200

Wages expense

500

Utilities expense

600

2,300
\$1,20
0

Net loss

## Ottos Wrecking Service

Statement of Owners Equity
For Month Ended July 31, 2011
Otto Ingles, capital, July 1

\$ 9,600

1,200
\$ 8,40
0

## Ottos Wrecking Service

Balance Sheet
July 31, 2011

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70

Liabilities

Assets
Cash

\$1,400

Accounts receivable

600

Supplies

900

Equipment

Accounts payable

\$ 2,000

7,500
Owners Equity
Otto Ingles, capital

8,400

## Total liabilities and

Total assets

\$10,400

\$10,40
0

owners equity

Analysis component:
\$8,400 or 80.77% (calculated as \$8,400/\$10,400 100) of the assets are financed
by Otto Ingles, the owner. \$2,000 or 19.23% (calculated as \$2,000/\$10,400 100)
of the assets are financed by debt.

Chapter 3

Transactions

EXERCISES

Cash
(a)

25,500

Accounts Payable
750 (b)

(d)

(h)

2,250

Balance

1,050 (g)

2,000 (i)

12,850

(e)

14,100

14,100 (c)
0 Balance

## Ella Tims, Capital

25,500 (a)
25,500 Balance

Accounts Receivable

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71

(f)

5,400

Balance

3,150

2,250 (h)
(i)

2,000

Balance

2,000

Office Supplies

(b)

750

Balance

750

Fees Earned

3,000 (d)
5,400 (f)

Office Equipment

(c)

14,100

Balance

14,100

8,400 Balance

Rent Expense

(g)

1,050

Balance

1,050

## Exercise 3-2 (10 minutes)

Cash

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72

Jan. 31
Feb.

700

4,000

Feb. 14

2,800

60

23

20

2,400

1,000

25

800

26

Bal.

800 Jan. 31
800 Bal.

## Neil Simon, Withdrawals

40

Accounts Receivable

Jan. 31

1,200

Feb. 12

15,000

18

1,900

Bal.

2,400

Feb. 20

Jan. 31

-0-

Feb. 25

1,000

Bal.

1,000

Service Revenue

2,600 Jan. 31

15,700

2,800 Feb.
Prepaid Insurance

Jan. 31

-0-

Feb. 14

4,000

Bal.

4,000

15,000

12

1,900

18

22,300 Bal.

Wages Expense
Computer Equipment

Jan. 31

480

Feb. 10

7,600

Bal.

8,080

Jan. 31

1,080

Feb. 26

800

Bal.

1,880

Accounts Payable

Feb. 23

60

60 Jan. 31
-0- Bal.

Solutions Manual for Chapter 3

## NOTE: There is no entry to be recorded

for February 21.

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73

Notes Payable

-0- Jan. 31
7,600 Feb. 10
7,600 Bal.

Analysis component:
Revenue recognition requires that when a transaction has occurred, it must be
recorded whether cash has been received or not. A transaction has occurred when
there has been an economic exchange when something has been given up or
received. On February 12, services were performed and, although cash will not be
received until a future date, a revenue must be recorded because an economic
exchange has occurred.

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74

## Exercise 3-3 (10 minutes)

Nels Sigurdsen, Withdrawals

Cash

Mar. 31

1,800

Apr. 2

780

19

2,000

Bal.

400 Apr. 10

Mar. 31

500

300

15

Apr. 29

1,000

1,000

29

Bal.

1,500

2,880
Repair Revenue

14,000 Mar. 31

Accounts Receivable

Mar. 31

4,800

Apr. 18

1,200

Bal.

4,000

2,000 Apr. 19

780 Apr.
1,200

18

15,980 Bal.

Repair Supplies

Rent Expense

Mar. 31

1,400

Mar. 31

950

Apr. 9

890

Apr. 25

250

Bal.

Bal.

2,290

1,200

Equipment

Mar. 31

7,400

Apr. 15

300

Bal.

7,700

Accounts Payable

Apr. 10

400

500 Mar. 31
890 Apr.
250

9
25

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75

1,240 Bal.

2,350 Mar. 31
2,350 Bal.

## NOTE: There is no entry to be recorded for April 5.

Solutions Manual for Chapter 3

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76

## Exercise 3-4 (45 minutes)

2.

GENERAL JOURNAL
Account Titles and Explanations
PR

Date
2011
July 1 Cash ....................................................
Sue Ware, Capital........................
To record investment by owner.

Page 1
Credit

Debit

101
301

5,000

10 Equipment ..........................................
Accounts Payable .......................
Purchased equipment on credit.

150
201

2,500

12 Cash ....................................................
Revenue .......................................
Performed services for cash.

101
401

10,000

14 Expenses ............................................
Cash .............................................
Paid expenses.

501
101

3,500

## 15 Accounts Receivable ........................

Revenue .......................................
Completed services on account.

106
401

1,500

## 31 Sue Ware, Withdrawals......................

Cash .............................................
Owner withdrew cash.

302
101

250

Solutions Manual for Chapter 3

5,000

2,500

10,000

3,500

1,500

250

76

77

## Exercise 3-4 (continued)

*Note: The student could use T-accounts or balance column format accounts as their
general ledger. Both are shown in this solution.
1 and 3.

Cash
July 1

5,000

12

10,000

Balance

11,250

101
3,500 July 14
250

Accts. Receivable
July 15

150

2,500

Accounts Payable
2,500

Sue Ware,
Capital

5,000

Sue Ware,
Withdrawals

July 31

106

1,500

Equipment
July 10

31

201
July 10

301

July 1

302

250

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78

Revenue

401
10,000

1,500

15

11,500

Balance

Expenses
July 14

July 12

501

3,500

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79

1 and 3.

Cash

Date

Explanation

PR

Debit

Credit

Balance

2011
July

G1

5,000

5,000

12

G1

10,000

15,000

14

G1

3,500

11,500

31

G1

250

11,250

## Account No. 106

Accounts Receivable

Date

Explanation

PR

Debit

Credit

Balance

2011
July 15

G1

1,500

1,500

Equipment

Date

Explanation

PR

Debit

Credit

Balance

2011
July 10

G1

2,500

2,500

Accounts Payable

Date

Explanation

PR

Debit

Credit

Balance

2011
July 10

G1

2,500

## Sue Ware, Capital

Date

Explanation

Solutions Manual for Chapter 3

2,500

PR

Debit

Credit

Balance

79

80

2011
July

G1

5,000

Date

Explanation

5,000

PR

Debit

Credit

Balance

2011
July 31

G1

250

250

Revenue

Date

Explanation

PR

Debit

Credit

Balance

2011
July 12

G1

10,000

10,000

15

G1

1,500

11,500

Expenses

Date

Explanation

PR

Debit

Credit

Balance

2011
July 14

G1

3,500

3,500

## Exercise 3-4 (continued)

4.

Acct.
No.
101
106
150
201
301
302

DelaWare
Trial Balance
July 31, 2011
Account Title
Cash .................................................
Accounts receivable .......................
Equipment ........................................
Accounts payable ............................
Sue Ware, capital .............................
Sue Ware, withdrawals ....................

Solutions Manual for Chapter 3

Debit
\$11,250
1,500
2,500
250

Credit

\$ 2,500
5,000

80

81

401
501

Revenue ...........................................
Expenses..........................................
Totals................................................

5.

3,5
00

11,500

\$19,000 \$19,000

DelaWare
Income Statement
For Month Ended July 31, 2011

Revenue ..........................................................
Expenses.........................................................
Net income ......................................................

\$11,500
3,500
\$8,000

DelaWare
Statement of Owners Equity
For Month Ended July 31, 2011
Sue Ware, capital, July 1 ................................
\$
0
Add: Investments by owner ..........................
\$5,000
Net income.............................................
8,000 13,000
Total .............................................................
13,000
Less: Withdrawals by owner .........................
250
Sue Ware, capital, July 31 ..............................
\$12,750

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82

## Exercise 3-4 (concluded)

5. (concluded)

DelaWare
Balance Sheet
July 31, 2011

Assets
Cash ......................................................

\$11,250

## Accounts receivable .......................

1,500

Equipment .........................................

2,500

Liabilities

\$ 2,500

Owners Equity

12,750

## Total liabilities and

Total assets ........................................

\$15,250

## owners equity ......................................

\$15,250

Analysis component:
Accounts receivable result from credit sales to customers (debit accounts
receivable and credit a revenue). Sales, or revenue, is part of equity. As
revenues on account are recorded, assets on the one side of the accounting
equation increase and equity on the opposite side of the accounting equation
also increases. Therefore, accounts receivable are financed by, or created by,
an equity transaction.
Exercise 3-5 (10 minutes)
Note: Students could choose any account number within the specified range.

Account
Number

Account Name

110

Cash

115

Accounts Receivable

160

Office Equipment

210

Accounts Payable

215

Unearned Revenue

Solutions Manual for Chapter 3

82

83

310

320

## Wes Bosse, Withdrawals

410

Consulting Revenues

510

Salaries Expense

520

Rent Expense

530

Utilities Expense

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84

Solutions Manual for Chapter 3

## Exercise 3-6 (30 Minutes)

2.
Bal
Feb 1
10
Bal

Cash
110
Accounts Receivable
11,500 2,000 Feb 5 Bal
6,000
8,500
500
17
2,500 10,000
28
10,000

Unearned Revenue
500
2,500
3,000
Salaries Expense
Bal
10,000
Feb 28 10,000
Bal
20,000

215
Bal
Feb 10
Bal
510

115

## Wes Bosse, Capital

310
9,500 Bal

Rent Expense
Bal
7,500

160

Accounts Payable
210
Feb 5 2,000 3,000 Bal
1,000 Bal

## Wes Bosse, Withdrawals 320

Bal
2,000
Feb 17
500
Bal
2,500

Consulting Revenues
410
37,500 Bal
8,500 Feb 1
46,000 Bal

Bal

520

Office Equipment
12,500

Utilities Expense
Bal
1,000

530

91

85

## Exercise 3-6 (continued)

1.
Date
2011
Feb. 1

General Journal
Account Titles and Explanations

PR

Page G1
Credit

Debit

Cash ..................................................
Consulting Revenues ...............
Performed work for cash.

101
410

8,500

## Accounts Payable ............................

Cash ...........................................
Paid account.

210
101

2,000

10

Cash ..................................................
Unearned Revenue....................

101
215

2,500

12

No entry.

17

## Wes Bosse, Withdrawals .................

Cash ...........................................
Owner withdrew cash.

320
101

500

28

Salaries Expense..............................
Cash ...........................................
Paid salaries.

510
101

10,000

8,500

2,000

2,500

500

10,000

3.

Acct.
No.
101
115
160
210
215
310
320
410
510
520
530

Trial Balance
February 28, 2011
Account Title
Cash...............................................................
Accounts receivable ....................................
Office equipment ..........................................
Accounts payable .........................................
Unearned revenue ........................................
Wes Bosse, capital .......................................
Wes Bosse, withdrawals ..............................
Consulting revenues ....................................
Salaries expense...........................................
Rent expense ................................................
Utilities expense ...........................................

Solutions Manual for Chapter 3

Debit
\$ 10,000
6,000
12,500

2,500
20,000
7,500
1,000

Credit

\$ 1,000
3,000
9,500
46,000

85

86

Totals .............................................................

Solutions Manual for Chapter 3

\$59,500

\$59,500

86

87

## Exercise 3-6 (concluded)

4.

Assets
Cash ....................................
Accounts receivable ...........
Office equipment ................

Total assets.........................
1 Capital

= 9,500
+ 46,000
28,500
2,500
= 24,500

Balance Sheet
February 28, 2011
\$10,000
6,000
12,500

Liabilities
Accounts payable ...................
Unearned revenue...................
Total liabilities .........................

\$28,500

Owners Equity
Wes Bosse, capital .................
Total liabilities and
owners equity .....................

\$ 1,000
3,000
\$ 4,000
24,5001
\$28,500

Opening Balance
Revenues
Salaries, Rent and Utilities expenses
Withdrawals
Closing Balance

Analysis component:
Unearned revenue occurs when cash is received from a customer in advance of the work being
done. The collection is not recorded as a revenue because it has not been earned until the work
is done. Unearned revenue is therefore a liability because the business owes the customer a
service (or work). For example, WestJet receives cash from customers in advance of the
customer actually flying. These cash collections are recorded as unearned revenue, a liability,
because the cash doesnt belong to WestJet until they have earned it which occurs when the
customer takes their flight.

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88

## Exercise 3-7 (30 minutes)

a.

Cash ............................................................................................................

7,000

Equipment ...............................................................................................

5,600

Automobiles ............................................................................................

11,000

## Jerry Steiner, Capital ................................................

23,600
Owner invested cash, an automobile and equipment in the business.
b. Prepaid Insurance ............................................................

Cash...................................................................................................

3,600

3,600

c.

## Office Supplies .................................................................

Cash...................................................................................................

600

600

## d. Office Supplies .................................................................

Equipment ...............................................................................................

200

9,400

Accounts Payable.........................................................................

9,600

## Purchased supplies and equipment on credit.

e.

Cash...................................................................................

2,500

2,500

f.

## Accounts Payable .............................................................

Cash...................................................................................................

2,400

2,400

## g. Gas and Oil Expense ........................................................

Cash...................................................................................................

700

700

## Paid for gas and oil.

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89

## Exercise 3-8 (20 minutes)

2011
April 5 Cash ......................................................................................................

1,500

1,500

## Performed surgery and collected cash.

8 Supplies .......................................................................

3,000

3,000

## 15 Salaries Expense .............................................................................

57,000

Cash ............................................................................................

57,000

Paid salaries.

## 20 Accounts Payable ............................................................................

3,000

Cash ............................................................................................

3,000

21 No entry.

9,000

9,000

## Performed six surgeries on credit;

\$1,500 x 6 = \$9,000

29 Cash ......................................................................................................
Accounts Receivable .............................................................

Solutions Manual for Chapter 3

3,000
3,000

89

90

## 30 Utilities Expense .............................................................................

Cash ............................................................................................

1,800
1,800

## Paid the April utilities.

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90

91

## Exercise 3-9 (20 minutes)

b. Accounts Receivable..........................................................
Services Revenue .......................................................
Provided services on credit.

2,700

c.

3,150

Cash.....................................................................................
Services Revenue .......................................................
Provided services for cash.

2,700
3,150

Revenues are inflows of assets (or decreases in liabilities) received in exchange for
goods or services provided to customers. The other transactions did not create revenues
for the following reasons:
a.

## This transaction brought in cash, but it was an investment in the company.

d. This transaction brought in cash, but it also created a liability because the services
have not yet been provided to the client.
e.

This transaction changed the form of the asset from accounts receivable to cash.
Total assets were not increased. Revenue was not generated.

f.

This transaction brought cash into the company and increased assets, but it also
increased a liability by the same amount.

## Exercise 3-10 (20 minutes)

b. Salaries Expense ..............................................................
Cash ...........................................................................
Paid the salary of the receptionist.

1,125

## d. Utilities Expense ...............................................................

Cash ...........................................................................
Paid the utilities for the office.

930

1,125
930

Expenses are outflows or using up of assets (or the creation of liabilities) that occur in
the process of providing goods or services to customers. The transactions labelled a, c,
and e were not expenses for the following reasons:
a.

## This transaction decreased assets in settlement of a previously existing liability.

Thus, the using up of assets did not reduce owners equity.

c.

This transaction was the purchase of an asset. The form of the companys assets
changed, but total assets did not change, and the equity did not decrease.

e.

This transaction was a distribution of cash to the owner. Even though owners equity
decreased, the decrease did not occur in the process of providing goods or services
to customers.

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92

## Exercise 3-11 (25 minutes)

Parts a and b:
Account No. 101

Cash

Date

Explanation

PR

Debit

Credit

Balance

2010
Dec.

3
1 Beginning balance

850

2011
Jan.

G1

3,500

4,350

2
0

G1

3
1

G1

3
1

G1

3,000

4,350

3
1

G1

750

3,600

2,000
5,000

7,350

## Account No. 106

Accounts Receivable

Date

Explanation

2,350

PR

Debit

Credit

Balance

2010
Dec.

3
1 Beginning balance

300

2011
Jan.

1
2

G1

3
1

G1

Solutions Manual for Chapter 3

9,000

9,300
5,000

4,300

92

93

## Account No. 167

Equipment

Date

Explanation

PR

Debit

Credit

Balance

2010
Dec.

3
1 Beginning balance

1,500

2011
Jan.

2
0

G1

12,000

## Account No. 201

Accounts Payable

Date

Explanation

13,500

PR

Debit

Credit

Balance

2010
Dec.

3
1 Beginning balance

325

2011
Jan.

2
0

G1

10,000

## Jay Walker, Capital

Date

Explanation

10,325

PR

Debit

Credit

Balance

2010
Dec.

3
1 Beginning balance

2,325

2011
Jan.

Solutions Manual for Chapter 3

G1

3,500

5,825

93

94

Account No. 302

## Jay Walker, Withdrawals

Date

Explanation

PR

Debit

Credit

Balance

2010
Dec.

3
1 Beginning balance

300

2011
Jan.

3
1

G1

750

Fees Earned
Date

Explanation

1,050

## Account No. 401

PR

Debit

Credit

Balance

2010
Dec.

3
1 Beginning balance

1,800

2011
Jan.

1
2

G1

9,000

Salaries Expense
Date

Explanation

10,800

## Account No. 622

PR

Debit

Credit

Balance

2010
Dec.

3
1 Beginning balance

1,500

2011
Jan.

3
1

Solutions Manual for Chapter 3

G1

3,000

4,500

94

95

## Exercise 3-11 (Parts a and b continued)

Note: After posting the journal entries, the PR column in the General Journal would appear as
follows:
General Journal

Date

## Account Titles and Explanations

Page 1

PR

Debit

Credit

2011
Jan. 1 Cash ........................................................................................................ 10
1

3,500

1

3,500

## Additional owner investment.

12 Accounts Receivable ........................................................................ 10
6

9,000

1

9,000

## Performed work for a customer on account.

20 Equipment ........................................................................................... 16
7

12,000

Cash .............................................................................................. 10
1

2,000

1

10,000

## Purchased equipment paying cash and the

balance on credit.
31 Cash ........................................................................................................ 10
1

5,000

6

5,000

## Collected cash from credit customer.

31 Salaries Expense ............................................................................... 62

Solutions Manual for Chapter 3

3,000

95

96

2
Cash .............................................................................................. 10
1

3,000

## Paid month end salaries.

31 Jay Walker, Withdrawals ............................................................... 30
2

750

Cash .............................................................................................. 10
1

750

## Exercise 3-11 (concluded)

Analysis component:
All of the details regarding a transaction, such as serial numbers or invoice numbers,
form part of the journal entry recorded in the journal. The general ledger does not
accommodate these kind of very necessary details. Therefore, we need to journalize to
ensure important details are readily available.
The general ledger summarizes by account all of the transactions recorded in the journal.
For example, without the ledger, we would not be able to determine the balance in cash
without going through the journal and adding/subtracting all of the individual
transactions. The ledger allows us to have account balance information.
In summary, although it appears that journalizing and posting are recording the same
information twice, the journal and ledger each serve different and important functions in the
accounting system.

General Journal

## Account Titles and Explanations

Date

Page G1
PR

Debit

10
1

15,000

Credit

2011
Aug.

Cash............................................................

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96

97

16
7

30
1

17,000
32,000

## Owner invested in the business.

1

Prepaid Rent.............................................................

13
1

Cash ....................................................................

10
1

6,500
6,500

5

## Office Supplies .........................................................

12
4

Cash ....................................................................

10
1

1,800
1,800

## Purchased office supplies.

20

Cash..............................................................................

10
1

40
1

9,200
9,200

## Collected photography fees.

31

Utilities Expense..........................................

69
0

Cash ....................................................

10
1

1,100
1,100

## Paid for August utilities.

Note: The account numbers in the PR column above would be included only during the
posting of these journal entries into the ledger accounts in Exercise 3-13.

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98

Cash
Date

Explanation

PR

Debit

Credit

Balance

G1

15,000

G1

6,500

8,500

G1

1,800

6,700

2
0

G1

3
1

G1

2011

Aug.

9,200

Explanation

15,900
1,100

14,800

Office Supplies

Date

15,000

PR

Debit

Credit

Balance

2011
Aug.

G1

1,800

Prepaid Rent

Date

Explanation

1,800

PR

Debit

Credit

Balance

2011
Aug.

G1

6,500

## Account No. 167

Photography Equipment

Date

Explanation

6,500

PR

Debit

G1

17,000

Credit

Balance

2011
Aug.

Solutions Manual for Chapter 3

17,000

98

99

Date

Explanation

PR

Debit

Credit

Balance

2011
Aug.

G1

32,000

## Photography Fees Earned

Date

Explanation

32,000

PR

Debit

Credit

Balance

2011
Aug.

2
0

G1

9,200

Utilities Expense
Date

Explanation

9,200

## Account No. 690

PR

Debit

Credit

Balance

2011
Aug.

3
1

Solutions Manual for Chapter 3

G1

1,100

1,100

99

100

Trial Balance
August 31, 2011

Acct
No.

Account Title

Debit

\$ 14,800

1,800

6,500

17,000

Credit

\$32,000

9,200

## 690 Utilities expense ..............................

1,100

Totals ...................................................

\$41,200

\$41,200

Analysis component:
The trial balance is an internal working paper used to verify that debits and
credits in the general ledger are equal and to review account balances. The trial
balance format does not readily communicate information such as financial
performance and financial position, information that is desired by external
decision makers. Financial statements are used for external reporting because the
formats of these communicate information desired by external users. For example,
the income statement reports financial performance while the balance sheet
reports financial position.

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100

101

## Exercise 3-14 (20 minutes)

Aug. 1
20
Bal

Cash
101
15,000 6,500 Aug. 1
9,200 1,800
5
1,100
31
14,800

Aug. 1
17,000

9,200 Aug. 20

Aug. 5

Office Supplies
1,800

124
Aug. 1

Prepaid Rent
6,500

131

## Tara Harper, Capital 301

32,000 Aug. 1

Utilities Expense
Aug. 31 1,100

690

Trial Balance
August 31, 2011

Acct.
No.

## Account Title Debit

Credit

101

Cash .........................................................................

\$ 14,800

124

Office supplies.....................................................

1,800

131

6,500

167

17,000

301

\$32,000

401

9,200

690

## Utilities expense .................................................

1,100

Totals ......................................................................

\$41,200

\$41,200

Analysis component:
The trial balance is an internal working paper used to verify that debits and credits in the general
ledger are equal and to review account balances. The trial balance format does not readily
communicate information such as financial performance and financial position, information that is
desired by external decision makers. Financial statements are used for external reporting
because the formats of these communicate information desired by external users. For example,

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101

102

the income statement reports financial performance while the balance sheet reports financial
position.

Solutions Manual for Chapter 3

102

103

## Exercise 3-15 (20 minutes)

Hogans Consulting
Income Statement
For Year Ended December 31, 2011
Consulting fees earned ..................................
Operating expenses:
Wages expense..........................................
Rent expense .............................................
Total operating expenses ....................
Net loss ...........................................................

\$46,000
\$37,000
14,000

51,000
\$ 5,000

Hogans Consulting
Statement of Owners Equity

## Lisa Hogan, capital, January 1 ......................

Add: Investments by owner ..........................
Total .............................................................
Less: Withdrawals by owner .........................
Net loss .................................................
Lisa Hogan, capital, December 31 .................

Assets

\$2,000
5,000

Hogans Consulting
Balance Sheet
December 31, 2011

\$
0
50,000
\$50,000
7,000
\$43,000

Liabilities

Cash ......................................................

\$12,000

\$ 800

8,300

53,500

5,000

## Total liabilities ..........................................

\$54,300

Equipment .........................................

72,000

Owners Equity

43,000

## Total liabilities and

Total assets ........................................

\$97,300

## owners equity ......................................

\$97,300

Analysis component:
Losses cause equity to decrease. If equity decreases, either assets have to decrease and/or liabilities
must increase to keep the balance sheet in balance. Therefore, if Hogans Consulting continues to
experience losses, there are two short-term alternatives available to prevent a decrease in assets.
First, the business could borrow which would increase liabilities and temporarily increase assets until
payments had to be made. Longer term, the cash to make the payments cannot be borrowed. Second,
2007 by
McGraw-Hill
rights reserved.
Lisa Hogan,
the
owner,Ryerson
could Limited.
assets into the business which would increase equity
Solutions Manual for Chapter 5
and assets. However, for the long-term, the owner does not want to support the business through 103
continual investments; the business must be able to support itself through positive performance (net
income).

104

## Exercise 3-16 (20 minutes)

JenCo

Income Statement
For Month Ended March 31, 2011

Revenues:
Service revenue .................................................................................................

\$1,900

Operating expenses:
Salaries expense ................................................................................................

\$ 800

Interest expense................................................................................................

10

## Total operating expenses ..........................................................................

810

Net income................................................................................................................

\$1,090

JenCo
Statement of Owners Equity
For Month Ended March 31, 2011

\$2,050

## Net income .....................................................................................................

1,090

\$3,140

Total .......................................................................................................................

\$3,140

1,500

## Marie Jensen, capital, March 31 .......................................................................

\$1,640

JenCo
Balance Sheet
March 31, 2011

Liabilities

Assets
Cash ................................................... \$1,000

## Unearned service revenues ......................

950

Solutions Manual for Chapter 5

250

104

105

Prepaid insurance........................

300

Equipment ......................................

700

800

## Total liabilities .......................................... \$1,310

Owners Equity
Marie Jensen, capital....................................
Total assets..................................... \$2,950

1,640

## Total liabilities and owners equity ....... \$2,950

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106

## Exercise 3-17 (20 minutes)

Bentley Marketing Services
Income Statement
For Month Ended March 31, 2011

Revenues:
Fees earned ...........................................................................................

\$170,000

Operating expenses:
Wages expense .....................................................................................

\$166,000

7,000

## Total operating expenses ..............................................................

173,000

Net loss...........................................................................................................

\$ 3,000

## Bentley Marketing Services

Statement of Owners Equity
For Month Ended March 31, 2011

\$112,000
*

## Add: Investment by owner ....................................................................

10,000

Total ..........................................................................................................

\$122,000

\$ 18,000

3,000

21,000
\$101,000

Balance Sheet

## March 31, 2011

Liabilities

Assets

Cash ...........................

\$ 30,000

\$ 46,000

14,000

## Notes payable ..............................................

146,000

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106

107

3,000

## Total liabilities .......................................... \$ 192,000

Building..............................

80,000

Land ....................................

116,000

Owners Equity

Machinery .........................

50,000

## Dee Bentley, capital ......................................

101,000

Total assets.......................

\$293,000

## Total liabilities and owners equity .......

\$293,000

*\$122,000 March 31/11 Balance - \$10,000 invested in March = \$112,000 March 1/11
Balance

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108

## Exercise 3-18 (20 minutes)

Description
a. A \$2,400 debit to Rent Expense
was posted as a \$1,590 debit.
b. A \$42,000 debit to Machinery
was posted as a debit to
Accounts Payable.

(1)
(2)
Difference
Column
between Debit with the
and Credit
Larger
Columns
Total
\$810

\$0

(3)
Identify
account(s)
incorrectly
stated

(4)
Amount that
account(s) is
overstated or
understated

Credit

Rent
Expense

Rent Expense is
understated by
\$810

Machinery

Machinery is
understated by
\$42,000 and
Accounts Payable
is understated by
\$42,000

Accounts
Payable
c. A \$4,950 credit to Services
Revenue was posted as a \$495
credit.

\$4,455

Debit

Services
Revenue

Services Revenue
is understated by
\$4,455

## d. A \$1,440 debit to Store

Supplies was not posted at all.

\$1,440

Credit

Store
Supplies

Store Supplies is
understated by
\$1,440

Prepaid
Insurance

Prepaid Insurance
is understated by
\$2,250 and
Insurance Expense
is overstated by
\$2,250

## e. A \$2,250 debit to Prepaid

Insurance was posted as a
debit to Insurance Expense.

\$0

Insurance
Expense
f.

## A \$4,050 credit to Cash was

posted twice as two credits to
the Cash account.

\$4,050

## g. A \$9,900 debit to the owners

withdrawals account was
debited to the owners capital
account.

\$0

Solutions Manual for Chapter 5

Credit

Cash

Cash is
understated by
\$4,050

Owners
Capital

Owners Capital
account is
understated by
\$9,900

Owners
Withdrawals

Owners
Withdrawals is
understated by
\$9,900

108

109

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109

110

## Exercise 3-19 (15 minutes)

a. 1. Dr = Cr
2. Accounts Receivable is understated (too low) by \$3,500 and Revenue is
understated by \$3,500.
b. 1. Dr = Cr
2. Accounts Payable is overstated (too high) by \$600 and Cash is
overstated by \$600.
c. 1. Dr Cr
2. Cash is overstated by \$180.
d. 1. Dr Cr
2. Accounts Receivable is overstated.
e. 1. Dr = Cr
2. Accounts Payable is understated by \$2,000 and Equipment is
understated by \$2,000.
Exercise 3-20 (15 minutes)
Case A:
1. Subtract total debits in the trial balance from total credits
5,010 4,290 = 720
2. Divide the difference by 9
720 9 = 80
3. The quotient equals the difference between the two transposed numbers.
The difference between the correct number and the incorrect number
is 80.
4. The number of digits in the quotient tells us the location of the transposition.
Look for a difference of 8 between the second number from the right
and the third number from the right.

## Through a process of elimination, the incorrect value is Accounts Payable of \$190.

The correct value must be \$910.

Proof: Recalculate the trial balance replacing \$910 for the incorrect \$190 and the trial
balance now balances at \$5,010.

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111

## Exercise 3-20 (concluded)

Case B:
1. Subtract total debits in the trial balance from total credits
34,400 28,100 = 6,300
2. Divide the difference by 9 to reveal a slide error
6,300 9 = 700
3. The quotient identifies a slide error and equals the correct value.
Through a process of elimination, the incorrect value is Withdrawals for \$7,000. The
correct value must be \$700.

Proof: Recalculate the trial balance replacing \$700 for the incorrect \$7,000 and the trial
balance now balances at \$28,100.
Case C:
1. Subtract total debits in the trial balance from total credits
942 906 = 36
2. Divide the difference by 9
36 9 = 4
3. The quotient equals the difference between the two transposed numbers.
The difference between the correct number and the incorrect number
is 4.
4. The number of digits in the quotient tells us the location of the transposition.
Look for a difference of 4 between the first number from the right and
the second number from the right.

Through a process of elimination, the incorrect value is Cash for \$59. The correct
value must be \$95.

Proof: Recalculate the trial balance replacing \$95 for the incorrect \$59 and the trial
balance now balances at \$942.

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112

Chapter 4

## Adjusting Accounts for

Financial Statements

EXERCISES
Exercise 4-1 (10 minutes)
1.

7.

2.

8.

3.

9.

4.

10.

5.

11.

6.

12.

## Exercise 4-2 (25 minutes)

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112

113

2011
a) Dec.

## 31 Amortization Expense, Equipment ..........................

Accumulated Amortization, Equipment ............
To record amortization expense for the year.

32,000

b)

## 31 Insurance Expense .................................................

Prepaid Insurance ............................................
To record insurance coverage that expired
during the year; \$14,000 \$2,080.

11,920

c)

## 31 Office Supplies Expense .........................................

Office Supplies .................................................
To record office supplies consumed during
the year; \$600 + \$5,360 \$708.

5,252

d)

## 31 Unearned Fee Revenue ..........................................

Fee Revenue ...................................................
To record earned portion of fee received in
advance; \$30,000 2/3 = \$20,000.

20,000

e)

## 31 Insurance Expense .................................................

Prepaid Insurance ............................................
To record insurance coverage that expired
during the year.

9,200

f)

## 31 Wages Expense ......................................................

Wages Payable ................................................
To record wages accrued but not yet paid.

8,000

## 6 Wages Payable .......................................................

Wages Expense ......................................................
Cash ...............................................................
To record the payment of wages.

8,000
12,000

2012
g) Jan.

Solutions Manual for Chapter 5

32,000

11,920

5,252

20,000

9,200

8,000

20,000

113

114

2011
a)

Dec.

## 31 Unearned Revenue ......................................................

16,00
0

Revenue ...........................................................................

16,000

## To record earned revenue;

\$18,500 - \$2,500 = \$16,000.

b)

10,50
0

10,500

c)

350

350

## To record the use of spare parts inventory;

\$450 - \$100 = \$350.

d)

## 31 Accounts Receivable ............................................................

3,550

Revenue ...........................................................................

3,550

e)

## 31 Utilities Expense ....................................................................

Utilities Payable (or Accounts Payable) ...............

1,300
1,300

## To record accrued utilities.

2012

Solutions Manual for Chapter 5

114

115

f)

Jan.

4 Cash ............................................................................................

3,550

3,550

g)

## 14 Utilities Payable (or Accounts Payable) ........................

1,300

Cash ....................................................................................

1,300

2011
a)

Sept.

## 30 Unearned Revenue .............................................................

12,00
0

Revenue .........................................................................

12,000

b)

150

150

## To record amortization for one month;

7,200/4 yrs = 1,800/yr; 1,800/12 months =
150/month.

c)

Sept.

5,000

5,000

d)

## 30 Accounts Receivable ........................................................

Revenue .......................................................................

Solutions Manual for Chapter 5

28,00
0
28,000

115

116

e)

7,000

7,000

## To record accrued rent.

f)

Oct.

3 Cash ...................................................................................

28,00
0

Accounts Receivable............................................

28,000

g)

## 4 Rent Payable (or Accounts Payable) .....................

7,000

Cash ...........................................................................

7,000

2011

a)

Mar.

## 31 Unearned Rent .......................................................................................................... 7,500

Rent Earned ..........................................................................

7,500

## Earned five months rent previously paid in

\$1,500 x 5 = \$7,500.
b)

## 31 Rent Receivable ........................................................................... 2,700

Rent Earned ..........................................................................

2,700

## Earned two months rent that has not yet

been collected; \$1,350 x 2 = \$2,700.

Solutions Manual for Chapter 5

116

117

c)

Apr.

## 22 Cash .................................................................................................. 4,050

Rent Receivable ...................................................................

2,700

1,350

## Collected rent for February, March, and April.

Solutions Manual for Chapter 5

117

118

2011
a)

Dec.

2,000

2,000

b)

8,000

8,000

c)

400

400

d)

2,800

2,800

e)

## 31 Salaries Expense ......................................................................

Salaries Payable ..............................................................

5,000
5,000

## Exercise 4-7 (15 minutes)

a. \$1,650 (300 + 2,100 750 = 1,650)
b. \$5,700 (1,600 + 5,400 1,300 = 5,700)
c. \$10,080 (9,600 + 1,840 1,360 = 10,080)
d. \$1,375 (6,575 + 800 6,000 = 1,375)
Proof:
Solutions Manual for Chapter 5

118

119

(a)

(b)

\$ 300

\$1,600

\$ 1,360

\$1,375

2,100

5,400

10,080

6,000

\$2,400

\$7,000

\$11,440

\$7,375

## Supplies on handDecember 31 .....................

Supplies expense for the year ...........................

Solutions Manual for Chapter 5

(750)
\$1,650

(5,700)
\$1,300

(c)

(1,840)
\$ 9,600

(d)

(800)
\$6,575

119

120

2012
Dec. 31

## Wages Expense ..................................................................

Wages Payable ...........................................................
Adjusting entry to record accrued wages for one
day; 5 \$200.

1,000

## Wages Expense ..................................................................

Wages Payable ...................................................................
Cash ............................................................................
Paid employees' accrued and current wages;
5 employees x \$200/day x 4 days = \$4,000.

3,000
1,000

1,000

Payday entry:
2013
Jan.

4,000

201
1
a)

Apr.

2,080

2,080

## To record accrued interest expense;

0.8% \$780,000 10/30.

May

20 Interest Payable...................................................................

2,080

## Interest Expense ..................................................................

4,160

Cash .................................................................................

6,240

## To record payment of accrued and current

expense; 0.8% \$780,000 20/30.

201
1
b)

Apr.

## 30 Salaries Expense ..................................................................

Solutions Manual for Chapter 5

3,600

120

121

3,600

## To record accrued salaries;

\$9,000/5 days = \$1,800/day;
2 days x \$1,800 = \$3,600.

May

3 Salaries Payable...................................................................

3,600

## Salaries Expense ..................................................................

5,400

Cash .................................................................................

9,000

## To record payment of accrued and current

salaries; 3 days x \$1,800 = \$5,400.

201
1
c)

Apr.

2,500

2,500

May

## 12 Legal Fees Payable ..............................................................

2,500

Cash .................................................................................

2,500

2011

Dec. 31

## Accounts Receivable ..........................................................

Fees Earned ................................................................
To record unbilled fees; 30% \$12,000.

3,600

31

## Unearned Fees ...................................................................

Fees Earned ................................................................

8,400

Solutions Manual for Chapter 5

3,600

8,400

121

122

## To record earned fees that had been

collected in advance; 70% \$12,000.
31

## Amortization Expense, Computers ......................................

Accumulated Amortization, Computers ........................
To record amortization on computers.

3,000

31

## Amortization Expense, Office Furniture...............................

Accumulated Amortization,
Office Furniture ........................................................
To record amortization on office furniture.

3,500

31

## Salaries Expense ................................................................

Salaries Payable..........................................................
To record accrued salaries.

4,900

31

## Insurance Expense .............................................................

Prepaid Insurance .......................................................
To record expired prepaid insurance.

2,600

31

## Office Supplies Expense .....................................................

Office Supplies ............................................................
To record use of office supplies.

960

31

## Utilities Expense ...................................................................

Utilities Payable .............................................................
To record unpaid utility costs.

3,000

3,500

140

4,900

2,600

960

140

## Exercise 4-10 (concluded)

Analysis component:
The GAAP of matching and revenue recognition requires that adjusting entries
be recorded at the end of each accounting period to ensure revenues and
expenses are allocated to the period in which they were incurred. If the
December 31, 2011 adjustments for Javelin Company were not recorded,
revenues would be understated by \$12,000; expenses would be understated
by \$15,100; and net income would be overstated by the difference of \$3,100
(\$15,100 - \$12,000 = \$3,100).

## Exercise 4-11 (25 minutes)

Solutions Manual for Chapter 5

122

123

Ayotte Music
Partial Work Sheet
February 28, 2011
Trial Balance

Account

Debit
Cash...........................................................

5,000

4,500

## Prepaid insurance ...............................

700

Credit

Debit

Credit

c) 1,400

Credit

5,900

b) 250

450
12,000

6,000

equipment ........

Debit
5,000

## Equipment .............................................. 12,000

Accumulated amortization,

Balance

a)2,400

8,400

1,200

1,200

9,000

9,000

## Jane Adams, withdrawals..................

3,000

Revenues .................................................

3,000
45,000

c) 1,400
a)2,400

2,400

## Salaries expense ................................... 29,000

Insurance expense...............................

7,000

## Totals ....................................................... 61,200 61,200

Solutions Manual for Chapter 5

46,400

29,000
b) 250
4,050

7,250
4,050

65,000 65,000

123

124

## Exercise 4-12 (25 minutes)

Ayotte Music
Income Statement
For Year Ended February 28, 2011
Revenue........................................................................................................

\$46,400

Operating expenses:
Salaries expense ...................................................................................

\$29,000

7,250

2,400

38,650

## Net income ..................................................................................................

\$ 7,750

Ayotte Music
Statement of Owners Equity
For Year Ended February 28, 2011

## Jane Adams, capital, March 1 ................................................................

Add: Net income ........................................................................................

\$ 9,000
7,750

Total..........................................................................................................

\$16,750

3,000

## Jane Adams, capital, February 28 .......................................................

\$13,750

Ayotte Music
Balance Sheet
February 28, 2011

Assets
Solutions Manual for Chapter 5

124

125

Cash................................................................................................................

\$ 5,000

5,900

## Prepaid insurance ....................................................................................

450

Office equipment.......................................................................................

\$12,000

8,400

## Total assets .................................................................................................

3,600
\$14,950

Liabilities
Accounts payable ......................................................................................

\$ 1,200

Owners Equity
Jane Adams, capital ..................................................................................

13,750

## Total liabilities and owners equity ...................................................

\$14,950

Solutions Manual for Chapter 5

125

126

## Exercise 4-12 (concluded)

Analysis component:

The GAAP which requires the preparation of financial statements is the time period
principle. The time period principle assumes that an organizations activities can be
divided into specific time periods. Since information must reach decision makers
frequently and promptly, the accounting system needs to prepare reports regularly.
The standard reporting period is one year although many companies report
quarterly.
*Exercise 4-13
a)

Cash ............................................................................
Accounts Payable ........................................................

Solutions Manual for Chapter 5

1,800
1,800

126

127

## To correct the original entry.

OR
1,800

Cash ...........................................................................
1,800

1,800

## Office Supplies ..........................................................

Solutions Manual for Chapter 5

127

128

1,800

## To journalize the correct entry.

b)

Revenue ......................................................................
Accounts Receivable ..................................................

Solutions Manual for Chapter 5

4,500
4,500

128

129

## To correct the original entry.

OR
4,500

Revenue .....................................................................
4,500

Cash ....................................................................

## To reverse the incorrect entry.

4,500

Cash ...........................................................................

Solutions Manual for Chapter 5

129

130

4,500

## To journalize the correct entry.

c)

Withdrawals .................................................................
Salaries Expense..........................................................

Solutions Manual for Chapter 5

1,500
1,500

130

131

## To correct the original entry.

OR

Cash ............................................................................

1,500

Salaries Expense........................................................

1,500

## To reverse the incorrect entry.

Withdrawals ..........................................................................

Solutions Manual for Chapter 5

1,500

131

132

Cash ....................................................................

1,500

## To journalize the correct entry.

Solutions Manual for Chapter 5

132

133

d)

## Accounts Receivable ....................................................................

750

Revenue .............................................................................

750

## To correct the original entry.

OR
Accounts Receivable ..............................................................................

750

Cash ....................................................................................................

750

## To reverse the incorrect entry.

Cash.............................................................................................

750

Revenue ............................................................................................

750

## To journalize the correct entry.

Analysis component:
If the error in (b) is not corrected, revenue and net income on the income
statement will be overstated each by \$4,500. On the balance sheet, assets
(accounts receivable) and equity will be overstated each by \$4,500.

2011
a) Dec.

## Supplies Expense ........................................................

Cash .....................................................................
Purchased supplies.
b)
2 Insurance Expense ......................................................
Cash .....................................................................
c)
15 Cash ............................................................................
Remodelling Fees Earned ....................................
Received fees for work to be done.
2011
d) Dec.31 Supplies ..............................................................................
Supplies Expense .................................................
Adjusted expense for unused supplies on hand.
e)
31 Prepaid Insurance .......................................................
Solutions Manual for Chapter 5

6,000
2,880
24,000

3,840

6,000
2,880
24,000

3,840

2,400
133

134

f)

## Insurance Expense ...............................................

Adjusted expense for unexpired coverage;
\$2,880 \$480.
31 Remodelling Fees Earned ...........................................
Unearned Remodelling Fees ................................
Adjusted revenues for unfinished projects;
\$24,000 \$7,200.

Solutions Manual for Chapter 5

2,400
16,800

16,800

134

135

## *Exercise 4-15 (25 minutes)

a) Initial credit recorded in Unearned Fees account:
July
1
Cash ....................................................................
Unearned Fees .............................................
Received fees for work to be done.

2,000

Cash ....................................................................
Unearned Fees .............................................
Received fees for work to be done.

8,400

12

## Unearned Fees ....................................................

Fees Earned .................................................
Completed work for customer.

2,000

18

Cash ....................................................................
Unearned Fees .............................................
Received fees for work to be done.

7,500

27

## Unearned Fees ....................................................

Fees Earned .................................................
Completed work for customer.

8,400

31

No entry.

## b) Initial credit recorded in Fees Earned account:

July
1
Cash ....................................................................
Fees Earned .................................................
Received fees for work to be done.
6

Cash ....................................................................
Fees Earned .................................................
Received fees for work to be done.

12

No entry.

18

Cash ....................................................................
Fees Earned .................................................
Received fees for work to be done.

27

No entry.

31

## Fees Earned ........................................................

Unearned Fees .............................................

Solutions Manual for Chapter 5

2,000

8,400

7,500

7,500

2,000

8,400

2,000

7,500

8,400

2,000

8,400

7,500

7,500
135

136

## Adjusting entry to reflect unearned fees for unfinished job.

*Exercise 4-15 (concluded)
c)

## Under the first method:

Unearned fees = \$2,000 + \$8,400 \$2,000 + \$7,500 \$8,400 = \$7,500
Fees earned = \$2,000 + \$8,400 = \$10,400
Under the second method:
Unearned fees = \$7,500
Fees earned = \$2,000 + \$8,400 + \$7,500 \$7,500 = \$10,400

Chapter 4

## Adjusting Accounts for

Financial Statements

EXERCISES
Exercise 4-1 (10 minutes)
1.

7.

2.

8.

3.

9.

4.

10.

5.

11.

6.

12.

Solutions Manual for Chapter 5

136

137

2011
a) Dec.

## 31 Amortization Expense, Equipment ..........................

Accumulated Amortization, Equipment ............
To record amortization expense for the year.

32,000

b)

## 31 Insurance Expense .................................................

Prepaid Insurance ............................................
To record insurance coverage that expired
during the year; \$14,000 \$2,080.

11,920

c)

## 31 Office Supplies Expense .........................................

Office Supplies .................................................
To record office supplies consumed during
the year; \$600 + \$5,360 \$708.

5,252

d)

## 31 Unearned Fee Revenue ..........................................

Fee Revenue ...................................................
To record earned portion of fee received in
advance; \$30,000 2/3 = \$20,000.

20,000

e)

## 31 Insurance Expense .................................................

Prepaid Insurance ............................................
To record insurance coverage that expired
during the year.

9,200

f)

## 31 Wages Expense ......................................................

Wages Payable ................................................
To record wages accrued but not yet paid.

8,000

## 6 Wages Payable .......................................................

Wages Expense ......................................................
Cash ...............................................................
To record the payment of wages.

8,000
12,000

2012
g) Jan.

Solutions Manual for Chapter 5

32,000

11,920

5,252

20,000

9,200

8,000

20,000

137

138

2011
a)

Dec.

## 31 Unearned Revenue ......................................................

16,00
0

Revenue ...........................................................................

16,000

## To record earned revenue;

\$18,500 - \$2,500 = \$16,000.

b)

10,50
0

10,500

c)

350

350

## To record the use of spare parts inventory;

\$450 - \$100 = \$350.

d)

## 31 Accounts Receivable ............................................................

3,550

Revenue ...........................................................................

3,550

e)

## 31 Utilities Expense ....................................................................

Utilities Payable (or Accounts Payable) ...............

1,300
1,300

## To record accrued utilities.

2012

Solutions Manual for Chapter 5

138

139

f)

Jan.

4 Cash ............................................................................................

3,550

3,550

g)

## 14 Utilities Payable (or Accounts Payable) ........................

1,300

Cash ....................................................................................

1,300

2011
a)

Sept.

## 30 Unearned Revenue .............................................................

12,00
0

Revenue .........................................................................

12,000

b)

150

150

## To record amortization for one month;

7,200/4 yrs = 1,800/yr; 1,800/12 months =
150/month.

c)

Sept.

5,000

5,000

d)

## 30 Accounts Receivable ........................................................

Revenue .......................................................................

Solutions Manual for Chapter 5

28,00
0
28,000

139

140

e)

7,000

7,000

## To record accrued rent.

f)

Oct.

3 Cash ...................................................................................

28,00
0

Accounts Receivable............................................

28,000

g)

## 4 Rent Payable (or Accounts Payable) .....................

7,000

Cash ...........................................................................

7,000

2011

a)

Mar.

## 31 Unearned Rent .......................................................................................................... 7,500

Rent Earned ..........................................................................

7,500

## Earned five months rent previously paid in

\$1,500 x 5 = \$7,500.
b)

## 31 Rent Receivable ........................................................................... 2,700

Rent Earned ..........................................................................

2,700

## Earned two months rent that has not yet

been collected; \$1,350 x 2 = \$2,700.

Solutions Manual for Chapter 5

140

141

c)

Apr.

## 22 Cash .................................................................................................. 4,050

Rent Receivable ...................................................................

2,700

1,350

## Collected rent for February, March, and April.

Solutions Manual for Chapter 5

141

142

2011
a)

Dec.

2,000

2,000

b)

8,000

8,000

c)

400

400

d)

2,800

2,800

e)

## 31 Salaries Expense ......................................................................

Salaries Payable ..............................................................

5,000
5,000

## Exercise 4-7 (15 minutes)

a. \$1,650 (300 + 2,100 750 = 1,650)
b. \$5,700 (1,600 + 5,400 1,300 = 5,700)
c. \$10,080 (9,600 + 1,840 1,360 = 10,080)
d. \$1,375 (6,575 + 800 6,000 = 1,375)
Proof:
Solutions Manual for Chapter 5

142

143

(a)

(b)

\$ 300

\$1,600

\$ 1,360

\$1,375

2,100

5,400

10,080

6,000

\$2,400

\$7,000

\$11,440

\$7,375

## Supplies on handDecember 31 .....................

Supplies expense for the year ...........................

Solutions Manual for Chapter 5

(750)
\$1,650

(5,700)
\$1,300

(c)

(1,840)
\$ 9,600

(d)

(800)
\$6,575

143

144

2012
Dec. 31

## Wages Expense ..................................................................

Wages Payable ...........................................................
Adjusting entry to record accrued wages for one
day; 5 \$200.

1,000

## Wages Expense ..................................................................

Wages Payable ...................................................................
Cash ............................................................................
Paid employees' accrued and current wages;
5 employees x \$200/day x 4 days = \$4,000.

3,000
1,000

1,000

Payday entry:
2013
Jan.

4,000

201
1
a)

Apr.

2,080

2,080

## To record accrued interest expense;

0.8% \$780,000 10/30.

May

20 Interest Payable...................................................................

2,080

## Interest Expense ..................................................................

4,160

Cash .................................................................................

6,240

## To record payment of accrued and current

expense; 0.8% \$780,000 20/30.

201
1
b)

Apr.

## 30 Salaries Expense ..................................................................

Solutions Manual for Chapter 5

3,600

144

145

3,600

## To record accrued salaries;

\$9,000/5 days = \$1,800/day;
2 days x \$1,800 = \$3,600.

May

3 Salaries Payable...................................................................

3,600

## Salaries Expense ..................................................................

5,400

Cash .................................................................................

9,000

## To record payment of accrued and current

salaries; 3 days x \$1,800 = \$5,400.

201
1
c)

Apr.

2,500

2,500

May

## 12 Legal Fees Payable ..............................................................

2,500

Cash .................................................................................

2,500

2011

Dec. 31

## Accounts Receivable ..........................................................

Fees Earned ................................................................
To record unbilled fees; 30% \$12,000.

3,600

31

## Unearned Fees ...................................................................

Fees Earned ................................................................

8,400

Solutions Manual for Chapter 5

3,600

8,400

145

146

## To record earned fees that had been

collected in advance; 70% \$12,000.
31

## Amortization Expense, Computers ......................................

Accumulated Amortization, Computers ........................
To record amortization on computers.

3,000

31

## Amortization Expense, Office Furniture...............................

Accumulated Amortization,
Office Furniture ........................................................
To record amortization on office furniture.

3,500

31

## Salaries Expense ................................................................

Salaries Payable..........................................................
To record accrued salaries.

4,900

31

## Insurance Expense .............................................................

Prepaid Insurance .......................................................
To record expired prepaid insurance.

2,600

31

## Office Supplies Expense .....................................................

Office Supplies ............................................................
To record use of office supplies.

960

31

## Utilities Expense ...................................................................

Utilities Payable .............................................................
To record unpaid utility costs.

3,000

3,500

140

4,900

2,600

960

140

## Exercise 4-10 (concluded)

Analysis component:
The GAAP of matching and revenue recognition requires that adjusting entries
be recorded at the end of each accounting period to ensure revenues and
expenses are allocated to the period in which they were incurred. If the
December 31, 2011 adjustments for Javelin Company were not recorded,
revenues would be understated by \$12,000; expenses would be understated
by \$15,100; and net income would be overstated by the difference of \$3,100
(\$15,100 - \$12,000 = \$3,100).

## Exercise 4-11 (25 minutes)

Solutions Manual for Chapter 5

146

147

Ayotte Music
Partial Work Sheet
February 28, 2011
Trial Balance

Account

Debit
Cash...........................................................

5,000

4,500

## Prepaid insurance ...............................

700

Credit

Debit

Credit

c) 1,400

Credit

5,900

b) 250

450
12,000

6,000

equipment ........

Debit
5,000

## Equipment .............................................. 12,000

Accumulated amortization,

Balance

a)2,400

8,400

1,200

1,200

9,000

9,000

## Jane Adams, withdrawals..................

3,000

Revenues .................................................

3,000
45,000

c) 1,400
a)2,400

2,400

## Salaries expense ................................... 29,000

Insurance expense...............................

7,000

## Totals ....................................................... 61,200 61,200

Solutions Manual for Chapter 5

46,400

29,000
b) 250
4,050

7,250
4,050

65,000 65,000

147

148

## Exercise 4-12 (25 minutes)

Ayotte Music
Income Statement
For Year Ended February 28, 2011
Revenue........................................................................................................

\$46,400

Operating expenses:
Salaries expense ...................................................................................

\$29,000

7,250

2,400

38,650

## Net income ..................................................................................................

\$ 7,750

Ayotte Music
Statement of Owners Equity
For Year Ended February 28, 2011

## Jane Adams, capital, March 1 ................................................................

Add: Net income ........................................................................................

\$ 9,000
7,750

Total..........................................................................................................

\$16,750

3,000

## Jane Adams, capital, February 28 .......................................................

\$13,750

Ayotte Music
Balance Sheet
February 28, 2011

Assets
Solutions Manual for Chapter 5

148

149

Cash................................................................................................................

\$ 5,000

5,900

## Prepaid insurance ....................................................................................

450

Office equipment.......................................................................................

\$12,000

8,400

## Total assets .................................................................................................

3,600
\$14,950

Liabilities
Accounts payable ......................................................................................

\$ 1,200

Owners Equity
Jane Adams, capital ..................................................................................

13,750

## Total liabilities and owners equity ...................................................

\$14,950

Solutions Manual for Chapter 5

149

150

## Exercise 4-12 (concluded)

Analysis component:

The GAAP which requires the preparation of financial statements is the time period
principle. The time period principle assumes that an organizations activities can be
divided into specific time periods. Since information must reach decision makers
frequently and promptly, the accounting system needs to prepare reports regularly.
The standard reporting period is one year although many companies report
quarterly.
*Exercise 4-13
a)

Cash ............................................................................
Accounts Payable ........................................................

Solutions Manual for Chapter 5

1,800
1,800

150

151

## To correct the original entry.

OR
1,800

Cash ...........................................................................
1,800

1,800

## Office Supplies ..........................................................

Solutions Manual for Chapter 5

151

152

1,800

## To journalize the correct entry.

b)

Revenue ......................................................................
Accounts Receivable ..................................................

Solutions Manual for Chapter 5

4,500
4,500

152

153

## To correct the original entry.

OR
4,500

Revenue .....................................................................
4,500

Cash ....................................................................

## To reverse the incorrect entry.

4,500

Cash ...........................................................................

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153

154

4,500

## To journalize the correct entry.

c)

Withdrawals .................................................................
Salaries Expense..........................................................

Solutions Manual for Chapter 5

1,500
1,500

154

155

## To correct the original entry.

OR

Cash ............................................................................

1,500

Salaries Expense........................................................

1,500

## To reverse the incorrect entry.

Withdrawals ..........................................................................

Solutions Manual for Chapter 5

1,500

155

156

Cash ....................................................................

1,500

## To journalize the correct entry.

Solutions Manual for Chapter 5

156

157

d)

## Accounts Receivable ....................................................................

750

Revenue .............................................................................

750

## To correct the original entry.

OR
Accounts Receivable ..............................................................................

750

Cash ....................................................................................................

750

## To reverse the incorrect entry.

Cash.............................................................................................

750

Revenue ............................................................................................

750

## To journalize the correct entry.

Analysis component:
If the error in (b) is not corrected, revenue and net income on the income
statement will be overstated each by \$4,500. On the balance sheet, assets
(accounts receivable) and equity will be overstated each by \$4,500.

2011
a) Dec.

## Supplies Expense ........................................................

Cash .....................................................................
Purchased supplies.
b)
2 Insurance Expense ......................................................
Cash .....................................................................
c)
15 Cash ............................................................................
Remodelling Fees Earned ....................................
Received fees for work to be done.
2011
d) Dec.31 Supplies ..............................................................................
Supplies Expense .................................................
Adjusted expense for unused supplies on hand.
e)
31 Prepaid Insurance .......................................................
Solutions Manual for Chapter 5

6,000
2,880
24,000

3,840

6,000
2,880
24,000

3,840

2,400
157

158

f)

## Insurance Expense ...............................................

Adjusted expense for unexpired coverage;
\$2,880 \$480.
31 Remodelling Fees Earned ...........................................
Unearned Remodelling Fees ................................
Adjusted revenues for unfinished projects;
\$24,000 \$7,200.

Solutions Manual for Chapter 5

2,400
16,800

16,800

158

159

## *Exercise 4-15 (25 minutes)

a) Initial credit recorded in Unearned Fees account:
July
1
Cash ....................................................................
Unearned Fees .............................................
Received fees for work to be done.

2,000

Cash ....................................................................
Unearned Fees .............................................
Received fees for work to be done.

8,400

12

## Unearned Fees ....................................................

Fees Earned .................................................
Completed work for customer.

2,000

18

Cash ....................................................................
Unearned Fees .............................................
Received fees for work to be done.

7,500

27

## Unearned Fees ....................................................

Fees Earned .................................................
Completed work for customer.

8,400

31

No entry.

## b) Initial credit recorded in Fees Earned account:

July
1
Cash ....................................................................
Fees Earned .................................................
Received fees for work to be done.
6

Cash ....................................................................
Fees Earned .................................................
Received fees for work to be done.

12

No entry.

18

Cash ....................................................................
Fees Earned .................................................
Received fees for work to be done.

27

No entry.

31

## Fees Earned ........................................................

Unearned Fees .............................................

Solutions Manual for Chapter 5

2,000

8,400

7,500

7,500

2,000

8,400

2,000

7,500

8,400

2,000

8,400

7,500

7,500
159

160

## Adjusting entry to reflect unearned fees for unfinished job.

*Exercise 4-15 (concluded)
c)

## Under the first method:

Unearned fees = \$2,000 + \$8,400 \$2,000 + \$7,500 \$8,400 = \$7,500
Fees earned = \$2,000 + \$8,400 = \$10,400
Under the second method:
Unearned fees = \$7,500
Fees earned = \$2,000 + \$8,400 + \$7,500 \$7,500 = \$10,400

Chapter 5
Accounting

Completing the
Cycle and Classifying
Accounts

EXERCISES
Exercise 5-1 (15 minutes)
1.

5.

9. C

13.

2.

6.

10. C

14.

3.

7.

11. D

15.

4.

8.

12. D

16.

## Exercise 5-2 (20 minutes)

Trial
Balance
No.
Title Debit
101 Cash ........................ 3,000
106 Accounts receivable ..............
153 Trucks ...................... 41,000

Balance Sheet
and
Income
Statement of
Statement Owners Equity
Credit Debit Credit
Debit
3,000
13,100
13,100
41,000

Solutions Manual for Chapter 5

Credit

160

161

154
193
201
209
233
301
302
401
611
622
640
677

## Accum. amortization, trucks .. 16,500

16,500
Franchise .............................. 15,000
15,000
Accounts payable..................
7,000
7,000
Salaries payable ...................
1,600
1,600
Unearned fees ......................
1,300
1,300
Bo Webber, capital................
37,750
37,750
Bo Webber, withdrawals.. 7,200
7,200
Plumbing fees earned ...........
49,000 49,000
Amortization expense, trucks5,500
5,500
Salaries expense .................. 18,500
18,500
Rent expense........................
6,000
6,000
Misc. expenses .....................
3,850
3,850
Totals ................................ 113,150 113,150 33,85049,00079,300 64,150
Net income............................
15,150
15,150
Totals ................................
49,00049,00079,300
79,300

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162

326

## Exercise 5-3 (25 minutes) Parts 1, 2, and 3

Musical Sensations
Work Sheet
For Year Ended December 31, 2011
Trial Balance
Account

Debit

Credit

Balance

Debit

Credit

Debit

Credit

Income
Statement
Debit

Credit

Statement of
Owners Equity
Debit

14,000

14,000

26,000

26,000

520

520

212,00
0

212,00
0

950

d)
430

0

## Fundamental Accounting Principles, Twelfth Canadian Edition

Accum. amort.
musical equip. ......

16,200

## Accounts payable .........

3,350

Unearned
performance
revenue ...........................

12,400

## Jim Daley, capital .........

b)
16,200

a)
10,600

272,00
0

Jim Daley,
52,000
withdrawals...................
Performance revenue

32,400

32,400

3,350

3,350

1,800

1,800

272,00
0

272,00
0

52,000
119,00

Solutions Manual for Chapter 5

a)

Credit

52,000
129,60

129,60

162

163

0
Salaries expense .......... 76,000

10,600
c)
13,800

89,800

89,800

42,000

42,000

16,200

16,200

## Totals ........................... 422,95 422,95

0
0
Amortization
expense,
musical equip. ...............

b)
16,200

## Salaries payable ...........

c)
13,800

Office supplies
expense ...........................

d)
430

Totals ...........................

41,030

13,800
430

13,800
430

0
0
0
0
0
0

## Net loss ............................

Totals ...........................

Solutions Manual for Chapter 5

18,830 18,830
148,43 148,43 323,35 323,35
0
0
0
0

163

## Exercise 5-3 (concluded)

Part 4
\$272,000 \$52,000 \$18,830 = \$201,170

or

(With.)

52,000

(Net Loss)

18,830

272,000

(Beg. bal.)

201,170

(End. bal.)

## Exercise 5-4 (20 minutes)

1. (a) Income = \$36,800
2. (a)
Mar. 31 Income Summary...................................................................

36,800

Capital ...................................................................................

36,800

3. (a)

Capital
63,000

## (With. 17,000 36,800

)
82,800

Solutions Manual for Chapter 5

(Beg. bal.)
(Net income)
(End. bal.)

164

165

## 1. (b) Net Loss = \$60,000

2. (b)
June 30

Capital .......................................................................................
Income Summary ..............................................................

60,000
60,000

## To close the income summary account to capital.

3. (b)

Capital
114,000 (Beg. bal.)

## (Net loss) 60,000

54,000 (End. bal.)

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166

## Exercise 5-5 (30 minutes)

Debit
Rent earned .....................................................................................

99,000

35,300

4,400

12,000

6,220

## Amortization expense, boats .....................................................

21,500

Totals...................................................................................

79,420

Net income...............................................................................

19,580

Totals .................................................................................................

99,000

2011

Credit

99,000

99,000

Closing entries:

## Dec. 31 Rent Earned .................................................................................... 99,000

Income Summary..................................................................

99,000

## 31 Income Summary .......................................................................... 79,420

Salaries Expense ...................................................................

35,300

4,400

12,000

6,220

21,500

## Carl Winston, Capital ....................................................

Solutions Manual for Chapter 5

19,580

166

167

## To close Income Summary.

31 Carl Winston, Capital ........................................................... 18,000

18,000

## To close the withdrawals account.

Solutions Manual for Chapter 5

167

168

## Exercise 5-6 (20 minutes)

2011
Apr.

3
0

Closing entries:
Plumbing Fees Earned ............................................

39,500

Income Summary.................................................

39,500

3
0

31,100

5,500

## Salaries Expense ..................................................

15,750

Rent Expense.........................................................

6,000

3,850

summary.

3
0

8,400

8,400

3
0

## Frank Block, Capital ................................................

Frank Block, Withdrawals ................................

7,200
7,200

## To close withdrawals to capital.

Block Plumbing Co.
Post-Closing Trial Balance
April 30, 2011
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169

Acct.
No.

Debit

Account

Credit

101

Cash

106

## Accounts receivable .......................................................

12,000

153

Trucks .................................................................................

20,500

154

## Accumulated amortization, trucks ...........................

193

Franchise ...........................................................................

201

7,000

209

1,600

233

1,300

301

## Frank Block, capital .......................................................

33,450*

Totals ..................................................................................

4,100

8,250

15,000

\$51,600

\$51,600

*Calculated as:

(Withdrawals)

7,200

(Post-closing

## 33,450 Bal., Apr. 30)

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170

2011

Closing entries:

62,000

450

62,450

65,400

2,000

7,400

56,000

summary.

2,950

2,950

## 31 Kate Goldberg, Capital...............................................

Kate Goldberg, Withdrawals ..............................

4,000
4,000

## To close withdrawals to capital.

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170

171

## Exercise 5-8 (20 minutes)

2011
Dec. 31

Closing entries:
Services Revenue .............................................
Income Summary ......................................
To close the revenue account to the
income summary.

31

## Income Summary ..............................................

Amortization Expense, Equipment ...........
Salaries Expense .......................................
Insurance Expense ....................................
Rent Expense .............................................
Supplies Expense ......................................
To close the expense accounts to the
income summary.

73,400

31

## Jo Weller, Capital ...............................................

Income Summary ......................................
To close the income summary to capital.

1,400

31

## Jo Weller, Capital ..............................................

Jo Weller, Withdrawals .............................
To close withdrawals to capital.

12,000

72,000

72,000

4,000
42,000
3,000
22,000
2,400

1,400

12,000

2011

Closing entries:

68,000

68,000

18,750

3,500

1,750

13,500

## To close expense accounts to income

summary.
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172

49,250

49,250

19,000

19,000

Closing entries:

2011
(1)

Dec.

31

73,000

73,000

Income Summary.

(2)

31

## Income Summary .................................................................. 48,100

Rent Expense .................................................................

8,600

20,000

3,500

16,000

income summary.

(3)

31

## Income Summary .................................................................. 24,900

Marcy Jones, Capital ...................................................

24,900

## To close the income summary to capital.

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173

(4)

31

## Marcy Jones, Capital ............................................................ 24,000

Marcy Jones, Withdrawals.........................................

24,000

## To close withdrawals to capital.

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174

Posted accounts:
Assets
Dec. 31

Rent Expense

80,000

Dec. 31
Balance

8,600

8,600 (2)

Liabilities
38,10
0

Dec. 31

Salaries Expense
Dec. 31

## Marcy Jones, Capital

(4)

24,000 41,00
0

Balance

20,000

20,000 (2)

Dec. 31

24,90
0

(3)

41,90
0

Balance

Insurance Expense
Dec. 31
Balance

3,500

3,500 (2)

## Marcy Jones, Withdrawals

Dec. 31
Balance

24,000 24,00
0

(4)

Amortization Expense
Dec. 31
Balance

16,000

16,000 (2)

Income Summary
(2)

48,100

73,00 (1)
0

(3)

24,900

24,90 Balance
0
0 Balance

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175

Services Revenue
(1)

73,000

73,00 Dec. 31
0
0 Balance

## Exercise 5-11 (10 minutes)

Jones Consulting
Post-Closing Trial Balance
December 31, 2011

Account
Assets ......................................................................

Debit

Credit

\$ 80,000

Liabilities ...........................................................................

\$ 38,100

## Marcy Jones, Capital .......................................................

41,900

Totals...................................................................................

Solutions Manual for Chapter 5

\$80,000

\$80,000

175

176

## Exercise 5-12 (12 minutes)

1.

Bill Duggan, Withdrawals; Interest Revenue, and Other Expenses have not been closed.

2.
2011
June 30

71,000

1,150

72,000

150

## To close interest earned, withdrawals and

other expenses directly to capital.
Bill Duggan,
Capital
216,20
0

3.

## \$216,200 \$71,000 = \$145,200 OR

71,000
145,20 (Balance)
0

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176

177

## Accounts payable ...........................................................

Accounts receivable .......................................................
Accumulated amortization, equipment..........................
Accumulated amortization, truck ...................................
Amortization expense .....................................................
Cash .................................................................................
Equipment .......................................................................
Franchise .........................................................................
Gas and oil expense .......................................................
Interest expense ..............................................................
Interest payable ...............................................................
Land not currently used in business operations ..........
Long-term notes payableNote 1.........................................
Notes payable, due February 1, 2012 ............................
Notes receivableNote 2.......................................................
Patent ...............................................................................
Prepaid rent .....................................................................
Rent expense...................................................................
Repair revenue ................................................................
Repair supplies ...............................................................
Repair supplies expense ................................................
Sid Whimsly, capital .......................................................
Sid Whimsly, withdrawals ..............................................
Truck ...................................................................................
Unearned repair revenue ................................................

Balance
Credit
Debit
\$ 11,000
\$ 59,000
9,000
21,000
3,800
29,000
13,000
17,800
7,500
4,500
750
52,000
35,000
7,000
6,000
7,000
14,000
39,000
247,000
17,000
14,000
24,050
49,000
26,000
3,800

Totals ...............................................................................

\$358,600 \$358,600

Account Title

X
X

X
X
X
X
X

b.

## \$24,050 -\$3,800 - \$7,500 - \$4,500 - \$39,000 + \$247,000 - \$14,000 - \$49,000 =

\$153,250.

Analysis component:
Amortization expense, gas and oil expense, interest expense, rent expense, repair
revenue, repair supplies expense, and withdrawals are all temporary accounts and do
not appear on the post-closing trial balance because their balances were transferred to
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178

capital during the closing process leaving each with a zero post-closing balance. The
adjusted balance of \$24,050 in capital is the balance prior to closing all temporary
accounts into it. A capital account balance does appear on the post-closing trial balance
but it is the post-closing balance of \$153,250 as determined in part (b) above. Therefore,
the adjusted capital balance of \$24,050 will not appear on the post-closing trial balance
Note to instructor: Reinforce to the student that the question asks which account balances
from the adjusted trial balance will not appear on the post-closing trial balance.

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179

a.
b.
c.
d.
e.
f.
g.
h.
i.

## Current assets = \$59,000 + \$29,000 + \$2,000 + \$14,000 + \$17,000 = \$121,000.

Property, plant and equipment = -\$9,000 - \$21,000 + \$13,000 + \$26,000 = \$9,000.
Intangible assets = \$17,800 + 7,000 = \$24,800.
Long-term investments = \$4,000 + \$52,000 = \$56,000.
Total assets = \$121,000 + \$9,000 + \$24,800 + \$56,000 = \$210,800.
Current liabilities = \$11,000 + \$750 + \$5,000 + \$7,000 + \$3,800 = \$27,550
Long-term liabilities = \$30,000.
Total liabilities = \$27,550 + \$30,000 = \$57,550.
Total liabilities and owners equity = \$210,800.

Solutions Manual for Chapter 5

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180

## Exercise 5-15 (30 minutes)

DOVER PACIFIC TOURS
Balance Sheet
November 30, 2011

Assets
Current assets:
Cash .........................................................................................................................

\$ 5,000

13,000

700

## Prepaid rent ..............................................................................................................

9,000

Supplies ....................................................................................................................

2,250

7,500

\$ 37,45
0

## Total current assets ..................................................................................................

Long-term investments:

13,000

## Property, plant and equipment:

Vehicles ....................................................................................................................

\$64,000

17,000

\$ 6,500

3,600

## Total property, plant and equipment .........................................................................

\$47,000

2,900

49,900

Intangible assets:

1,000

## Total assets .....................................................................................................................

\$101,35

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181

Liabilities
Current liabilities:
Accounts payable ............................................................................................

\$ 11,000

900

23,000

4,000

10,000

## Total current liabilities ...........................................................................................

\$ 48,900

Long-term liabilities:
Long-term notes payable, less \$10,000 current
portion ...................................................................................................................
Total liabilities ...........................................................................................................

10,500

\$59,400

Owners Equity
Pat Dover, capital* ....................................................................................................

41,950

\$101,35
0

## *Calculated as Total assets of \$101,350 less Total liabilities of \$59,400 = \$41,950.

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182

## HANSON TRUCKING COMPANY

Balance Sheet
December 31, 2011

Assets
Current assets:
Cash .................................................................................

\$ 7,000

16,500

2,000

\$ 25,500

## Property, plant and equipment:

Land ................................................................................

\$ 75,000

Trucks ............................................................................

\$170,000

35,000

135,000

\$210,000

## Total assets ...........................................................................

\$235,500

Liabilities
Current liabilities:
Accounts payable .......................................................

\$ 11,000

3,000

\$ 14,000

52,000

## Total liabilities ................................................................

\$ 66,000

Owners Equity
Stanley Hanson, capital ...............................................

169,500

## Total liabilities and owners equity ..............................

\$235,500

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183

Solutions Manual for Chapter 5

183

184

## Exercise 5-17 (60 minutes)

a. Withdrawals, tutoring fees earned, rent expense, amortization expense, and
advertising expense have zero balances because each account was closed at
December 31, 2011 resulting in each balance being transferred to capital leaving a
zero balance behind.
b.
2012
Jan. 15 Accounts Receivable .........................................

8,000

8,000

account.

## Feb. 20 Advertising Expense .........................................

2,000

Cash .................................................................

2,000

## To record payment for advertising.

July 7 Cash.........................................................................

9,000

9,000

## Dec. 10 Leda Svenson, Withdrawals ...........................

Cash .................................................................

3,000
3,000

## To record cash withdrawals by owner.

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184

185

340

## Exercise 5-17 (continued)

b.
Cash
Dec
31/11

2,000
9,000

2,000
3,000

Jul
07/12
Bal

Accounts Receivable
Feb
20/12

5,000

Jan. 15/12

8,000

4,000

9,00
0

Jul
07/12

Dec
31/11

3,00
0

Dec
10/12
6,000

Office Equip.
Dec
31/11

Dec 31/11

Prepaid Rent

20,0
00

10,0
00

Dec
31/11

17,10
0

Rent Expense

Dec
31/11

Unearned Fees
2,90
0

## Tutoring Fees Earned

Dec 31/11

-0-

Dec 10/12

3,000

8,00
0

3,000

8,00
0

Amortization Expense

Dec
31/11

-0-

Dec
31/11
Jan.
15/12

Bal

186

Dec 31/11

-0-

Dec 31/11

-0-

Dec
31/11
Feb
20/12
Bal

-02,00
0
2,00
0

c.

## Svensons Tutoring Clinic

December 31, 2012
Account
Cash .................................................................................
Accounts receivable........................................................
Prepaid rent .....................................................................
Office equipment .............................................................
Accumulated amortization, office equipment .................
Unearned fees..................................................................
Leda Svenson, capital .....................................................
Leda Svenson, withdrawals ............................................
Tutoring fees earned .......................................................
Totals................................................................................

Debit
\$ 6,000
4,000
3,000
20,000

3,000
2,000
\$38,000

Credit

\$10,000
2,900
17,100
8,000
\$38,000

2012

Dec. 31

Amortization Expense........................................

2,000

2,000

31

2,400

2,400

31

## Rent Expense .........................................................

Prepaid Rent ..................................................

3,000
3,000

## To record expired prepaid rent.

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188

342

## Exercise 5-17 (continued)

Cash
Dec
31/11

2,000
9,000

2,000
3,000

Jul 07/12

Accounts Receivable
Feb
20/12

Dec
31/11

3,000

-0-

Dec
10/12

Office Equip.
Dec
31/11

Prepaid Rent

4,000

20,000

2,000 Dec 31/12

12,000

Leda Svenson,

Capital
17,100

Dec
31/11

Unearned Fees
Dec
31/12

2,400

500

-0- Dec 31/11

8,000

3,000

## 2,400 Dec 31/12

10,400

189

Rent Expense
Dec 31/11
Dec 31/12

Amortization Expense

-0-

3,000

3,000

2,000

Dec
31/11
Feb
20/12

-02,000

## Exercise 517 (continued)

e.
Svensons Tutoring Clinic
December 31, 2012
Account
Cash ........................................................................
Accounts receivable ..............................................
Office equipment....................................................
Accumulated amortization, office equipment .......
Unearned fees ........................................................
Leda Svenson, capital ...........................................
Leda Svenson, withdrawals ..................................
Tutoring fees earned..............................................
Rent expense..........................................................
Amortization expense ............................................
Totals ......................................................................

Solutions Manual for Chapter 5

Debit
\$ 6,000
4,000
20,000

3,000
3,000
2,000
2,000
\$40,000

Credit

\$12,000
500
17,100
10,400

\$40,000

190

191

## Exercise 517 (continued)

f.
Svensons Tutoring Clinic
Income Statement
For Year Ended December 31, 2012
Revenue ........................................................................................................

\$10,400

Operating expenses:
Rent expense..........................................................................................

\$3,000

2,000

2,000

## Total operating expenses ..............................................................

7,000

Net income...................................................................................................

\$ 3,400

## Svensons Tutoring Clinic

Statement of Owners Equity
For Year Ended December 31, 2012
Leda Svenson, capital, January 1 .........................................................
Add: Investments by owner..................................................................
Net income .........................................................................................

\$17,100
\$

3,400

3,400

Total ..........................................................................................................

\$20,500

3,000

\$17,500

## Svensons Tutoring Clinic

Balance Sheet
December 31, 2012

Solutions Manual for Chapter 5

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192

Assets
Current assets:
Cash ...................................................................................................................................

\$ 6,000

4,000

\$ 10,000

## Property, plant and equipment:

Office equipment ................................................................................................................

\$20,000

12,000

8,000
\$18,000

## Total assets ...............................................................................................................................

Liabilities
Current liabilities:

\$ 500

## Unearned fees ....................................................................................................................

Owners Equity
Leda Svenson, capital ............................................................................................................

17,500

\$18,000

## Exercise 517 (continued)

g. Journalize the closing entries:
2012
(1)

## Dec. 31 Tutoring Fees Earned ......................................

10,400
Income Summary .......................................

10,400

## To close the revenue account to

the income summary.

(2)

## 31 Income Summary ..............................................7,000

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193

3,000

2,000

2,000

## To close the expense accounts

to the income summary.

(3)

## 31 Income Summary ..............................................3,400

Leda Svenson, Capital ...............................

3,400

capital.

(4)

## 31 Leda Svenson, Capital ......................................3,000

Leda Svenson, Withdrawals ...................

3,000

## To close withdrawals to capital.

Solutions Manual for Chapter 5

193

346

## Exercise 517 (continued)

g. Post the closing entries:
Cash
Dec 31/11
Jul 07/12

2,000
9,000

Accounts Receivable
2,000 Feb 20/12

6,000

Office Equip.
Dec 31/11

9,000

Prepaid Rent
Jul
07/12

4,000

Dec
31/11

20,000

10,00 Dec
0 31/11

3,000 3,000

Dec
31/12

-0-

Unearned Fees
Dec
31/12

31/11

2,000 Dec
31/12
0

(4) 3,000

17,100 Dec 31/11
3,400 (3)

17,500

Dec 31/11

-0-

3,000

-0- Dec
31/11
8,000
Jan
15/12

Postclosing

## 500 Adj Bal

3,000 (4)

Bal

195

balance

2,400 Dec
31/12
(1) 10,400 10,40 Adj Bal
0

-0-

-0-

Rent Expense
Dec 31/11
Dec 31/12

-0-

Dec 31/11

3,000

3,000

Amortization Expense
-0-

Dec
31/11

## Dec 31/12 2,000

3,000 (2)

-0-

2,000

Feb
20/12
2,000 (2)

Bal

7,000

(3)

3,400

10,400 (1)
3,400 Bal.
-0-

Solutions Manual for Chapter 5

2,000
-0-

-0-

Income Summary
(2)

-02,000

195

2,000 (2)

196

## Exercise 517 (concluded)

h.
Svensons Tutoring Clinic
Post-Closing Trial Balance
December 31, 2012
Account
Cash .......................................................................
Accounts receivable .............................................
Office equipment ...................................................
Accumulated amortization, office equipment.......
Unearned fees .......................................................
Leda Svenson, capital...........................................
Totals .....................................................................

Solutions Manual for Chapter 6

Debit
\$ 6,000
4,000
20,000

\$30,000

Credit

\$12,000
500
17,500
\$30,000

196

197

## *Exercise 5-18 (10 minutes)

Reversing entries are appropriate for adjustments (a) and (e):
2011

Sept. 1

## Service Fees Earned ...........................................

5,000
Accounts Receivable .................................
To reverse accrued revenues.
1
Salaries Payable ..................................................
2,400
Salaries Expense ........................................
To reverse accrued
salaries.
*Exercise 5-19 (30 minutes)
2011
Oct. 31
Rent Expense .....................................................
3,200
Rent Payable ...............................................
To record accrued rent expense.
31
Rent Receivable...................................................
750
.................................................................. Rent Earned
To record accrued rent
revenue.
2. Subsequent entries without reversing:
Nov. 5Rent Payable ........................................................ 3,200
Rent Expense .....................................................
3,200
Cash .........................................................
To record payment of two
months rent.
8Cash ...................................................................... 1,500
Rent Receivable ......................................
.................................................................. Rent Earned
To record collection of two
months rent.
3. Reversing entries and subsequent entries:
Nov. 1Rent Payable ........................................................ 3,200
Rent Expense ..........................................
To reverse the accrual of rent
expense.
1Rent Earned.......................................................... 750
Rent Receivable ......................................
To reverse the accrual of rent
revenue.
Solutions Manual for Chapter 6

5,000
2,400

3,200
750

6,400

750

750

3,200

750

197

198

## 5Rent Expense ....................................................... 6,400

Cash .........................................................
To record payment of two
months rent.
8Cash ...................................................................... 1,500
.................................................................. Rent Earned
To record collection of two
months rent.

Chapter 6

6,400

1,500

Accounting for
Merchandising Activities

EXERCISES

## Exercise 6-1 (15 minutes)

a

Sales .................................................
\$ 240,000

\$ 140,000

\$ 75,000

\$462,000

\$85,000

126,000

86,000

42,000

268,000

46,000

\$ 114,000

\$ 54,000

\$33,000

\$194,000

\$ 39,000

95,000

82,000

41,000

146,000

53,000

## Net Income (Loss) .................................

\$ 19,000 \$

(28,00 (\$ 8,000) \$
0)

48,000 (\$ 14,000)

Feb.

7,000

7,000

## 5 Merchandise Inventory ..................................................

2,400

Cash .................................................................................

2,400

## 6 Merchandise Inventory ..................................................

Solutions Manual for Chapter 6

10,000

198

199

10,000

900

900

1 No entry.
0

## 1 Accounts Payable ..............................................................

1

7,000

Cash .................................................................................

6,930

Merchandise Inventory............................................

70

## To record payment within discount period;

\$7,000 x 1% = \$70 discount.

## 2 Accounts Payable ..............................................................

4

900

Cash .................................................................................

900

To record payment.

Mar.

## 2 Accounts Payable ..............................................................

3
Cash .................................................................................

10,000
10,000

To record payment.

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199

200

2011
Mar.

## Merchandise Inventory .....................................

Accounts Payable Blanton Company ...
Purchased merchandise on credit.

3,600

## Merchandise Inventory .....................................

Cash ............................................................
Paid shipping charges on purchased
merchandise.

200

## Accounts Payable Blanton Company .........

Merchandise Inventory ..............................
Returned unacceptable merchandise.

600

17

## Accounts Payable Blanton Company ..........

Merchandise Inventory...............................
Cash ............................................................
Paid balance within the discount period;
3,600 600 = 3,000; 3,000 x 2% = 60.

3,000

18

## Merchandise Inventory .....................................

Accounts Payable Fleming Corp. .........
Purchased merchandise on credit.

7,500

21

## Accounts Payable Fleming Corp. .................

Merchandise Inventory ..............................
Received an allowance on purchase.

2,100

28

## Accounts Payable Fleming Corp. .................

Merchandise Inventory...............................
Cash ............................................................
Paid balance within the discount period;
7,500 2,100 = 5,400; 5,400 x 2% = 108.

5,400

Solutions Manual for Chapter 6

3,600

200

600

60
2,940

7,500

2,100

108
5,292

200

201

Jan.

## 5 Accounts Receivable ........................................................

4,000

Sales ................................................................................

4,000

## 5 Cost of Goods Sold.............................................................

3,200

Merchandise Inventory............................................

3,200

## To record cost of sales.

7 Cash .......................................................................................

3,600

Sales ................................................................................

3,600

## 7 Cost of Goods Sold.............................................................

3,000

Merchandise Inventory............................................

3,000

## 8 Accounts Receivable ........................................................

9,600

Sales ................................................................................

9,600

## 8 Cost of Goods Sold.............................................................

8,200

Merchandise Inventory............................................

8,200

## To record cost of sales.

1 Cash .......................................................................................
5
Solutions Manual for Chapter 6

3,960

201

202

40

4,000

## To record collection within discount period;

\$4,000 x 1% = \$40 discount.

Feb.

4 Cash .......................................................................................
Accounts Receivable .................................................

9,600
9,600

To record collection.

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203

Feb.

## 1 Accounts Receivable ........................................................

2,400

Sales ................................................................................

2,400

## 1 Cost of Goods Sold.............................................................

2,000

Merchandise Inventory............................................

2,000

## 2 Delivery Expense or Freight-Out .................................

150

Cash .................................................................................

150

1,200

1,200

1,000

1,000

## 4 Accounts Receivable ........................................................

3,800

Sales ................................................................................

3,800

## 4 Cost of Goods Sold.............................................................

Merchandise Inventory............................................
Solutions Manual for Chapter 6

3,100
3,100

203

204

## To record cost of sales.

1 Cash .......................................................................................
1

1,176

24

1,200

## To record collection, less return and discount;

\$2,400 - \$1,200 = \$1,200 x 2% = \$24 discount.

2 Cash .......................................................................................
3

1,200

Sales ................................................................................

1,200

## 2 Cost of Goods Sold.............................................................

3

950

Merchandise Inventory............................................

950

## To record cost of sales.

2 Cash .......................................................................................
8
Accounts Receivable .................................................

3,800
3,800

To record collection.

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205

a.
Mar. 1

## Merchandise Inventory .................................................

Accounts Payable - Raintree....................................
Purchased merchandise on credit.

11,000

## Accounts Payable - Raintree .........................................

Merchandise Inventory .............................................
Cash ........................................................................
Paid account payable within the discount period;
11,000 x 3% = 330.

11,000

## Accounts Receivable Sundown Company ..................

Sales ........................................................................
Sold merchandise on account.

11,000

## Cost of Goods Sold ......................................................

Merchandise Inventory ............................................
To record cost of sale.

7,500

11

Cash ..............................................................................
Sales Discounts .............................................................
Accounts Receivable Sundown Company.............
Collected account receivable.

10,670
330

11

b.
Mar. 1

11,000

330
10,670

11,000

7,500

11,000

Analysis component:
Amount borrowed to pay the balance owing ...........................
Annual rate of interest ............................................................
Interest per year......................................................................

\$10,670.00
8%
\$ 853.60

2.34

## Discount taken ........................................................................

Interest paid on the 50-day* loan (50 \$2.34)........................
Net savings from borrowing to pay within
the discount period ..............................................................

330.00
(117.00)

213.00

## *60 days in credit period 10 days in discount period = 50 days.

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206

a.
2011

May 11

## Merchandise Inventory .....................................

Accounts Payable Hostel Sales..............
Purchased merchandise on credit.

30,000

11

## Merchandise Inventory .....................................

Cash ............................................................
Paid shipping charges on purchased
merchandise.

335

12

## Accounts Payable Hostel Sales .........................

Merchandise Inventory ..................................
Returned unacceptable merchandise.

1,200

20

## Accounts Payable Hostel Sales .........................

Merchandise Inventory...................................
Cash ................................................................
Paid balance within the discount period;
30,000 1,200 = 28,800; 28,800 x 3% = 864.

28,800

May 11

## Accounts Receivable Wilson Purchasing .........

Sales ................................................................
Sold merchandise on account.

30,000

11

## Cost of Goods Sold ...............................................

Merchandise Inventory...................................
To record cost of sale.

20,000

12

## Sales Returns and Allowances .............................

Accounts Receivable Wilson Purchasing..
Accepted a return from a customer.

1,200

12

## Merchandise Inventory .........................................

Cost of Goods Sold ........................................
Returned goods to inventory.

800

21

Cash ........................................................................
Sales Discounts .....................................................

27,936
864

30,000

335

1,200

864
27,936

b.
2011

Solutions Manual for Chapter 6

30,000

20,000

1,200

800

206

207

## Accounts Receivable Wilson Purchasing..

Collected account receivable;
30,000 12,000 = 28,800; 28,800 x 3% = 864.

Solutions Manual for Chapter 6

28,800

207

208

## Exercise 6-7 (concluded)

Analysis Component

## Amount borrowed to pay the amount owing ..........................

Annual rate of interest ..........................................................
Interest per year ....................................................................

\$27,936.00
5%
\$ 1,396.80

## Interest per day (\$1,396.80/365) ...........................................

3.83

Discount taken.......................................................................
Interest paid on the 80-day* loan (80 \$3.83) ......................
Net savings from borrowing to pay within
the discount period ..........................................................

864.00
(306.40)

557.60

## *90 days in credit period 10 days in discount period = 80 days.

Exercise 6-8 (10 minutes)
1.

d.

6.

e.

2.

c.

7.

j.

3.

f.

8.

i.

4.

a.

9.

b.

5.

h.

10.

g.

Solutions Manual for Chapter 6

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209

## Exercise 6-9 (30 minutes)

Merchandise Inventory

37,000

190,500

2,200

## allowances received .................

4,100

Transportation-in .....................

1,900

## Cost of sales transactions ............

186,000

Shrinkage ..........................................

32,000

1,600

7,900

## Cost of Goods Sold

Represents all entries to record the cost
component of sales transactions ..................

## Represents all entries to record merchandise returned

by customers and restored to inventory during 2011

186,000

2,200

Inventory shrinkage
recorded in December 31,
2011, adjusting entry ...............
32,000
Balance .........................................

215,800

Analysis component:
The shrinkage was \$32,000. The cost of merchandise actually sold to
customers was \$186,000. The cost of goods sold was \$215,800. Shrinkage
therefore was 17% of the actual cost of merchandise sold (\$32,000/\$186,000
100) or 15% of the total cost of goods sold (\$32,000/\$215,800 100). As
the inventory manager, I would want to know the cause of this significant
shrinkage. Is it breakage or spoilage that can be controlled? Is it theft caused
by weak internal controls? Reviewing the numbers allows the inventory
manager to ask appropriate questions for the purpose of making good
decisions.

## Exercise 6-10 (10 minutes)

a) 500,000 17,000 3,000 = 480,000 net sales
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210

## b) 28,000 + 124,000 = 152,000 total operating expenses

c) 480,000 124,000 = 356,000 cost of goods sold

## d) (124,000/480,000) 100 = 25.83%

Analysis component:

The change in the gross profit ratio for the year ended May 31, 2010 was 2.83%
(from 23% to 25.83%). This is a favourable change because Westlawn is generating
more gross profit per sales dollar that will contribute towards the covering of
operating expenses.

Solutions Manual for Chapter 6

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211

## Exercise 6-11 (30 minutes)

Company A
2011

Company B

2010

2011

2010

Sales ............................................................
256,000

160,000

110,000

50,000

1,600

1,100

500

51,200

16,000

5,500

2,500

202,240

142,400

103,400

47,000

153,600

88,000

55,000

25,000

48,640

54,400

48,400

22,000

17,920

16,000

24,200

9,000

25,600

24,000

29,700

11,000

43,520

40,000

53,900

20,000

14,400

(5,500)

2,000

## Gross profit ratio ....................................

24.05%1 38.20%2 46.81%3 46.81%4

Calculations:
1.
2.
3.
4.

## (48,640/202,240) 100 = 24.05%

(54,400/142,400) 100 = 38.20%
(48,400/103,400) 100 = 46.81%
(22,000/47,000) 100 = 46.81%

Analysis component:
Company B has more favourable gross profit ratios for both 2010 and 2011.
Company A is showing a lower gross profit ratio than Company B and
decreasing gross profit as a percentage of net sales.

Note to instructor:
You may wish to engage students in a discussion of other interesting
comparisons in this information. For example:
COGS as a percentage of sales is lower for Company B than Company A.
Solutions Manual for Chapter 6

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212

## Sales discounts as a percentage of sales is constant for both companies.

Sales returns and allowances are higher as a percentage of sales for
Company A than Company B (which is particularly interesting
considering that Company A has a higher COGS than Company B you
might assume higher quality but then why the higher
returns/allowances?).
Company B has higher operating expenses as a percentage of sales than
Company A.

Company B has more than doubled its sales from 2010 to 2011 in comparison to
the growth for Company A.

Solutions Manual for Chapter 6

212

213

## Exercise 6-12 (20 minutes)

Purchases ................................................

(a)
\$ 90,000

(4,000)

## Purchases returns and allowances .........

(3,000)

Transportation-in..........................................

(b)
\$ 160,000

(10,000)

(c)
\$ 122,000

(2,600)

(6,000)

(4,400)

6,400

14,000

16,000

\$ 89,400

\$ 158,000

\$ 131,000

7,000

\$38,400

\$ 36,000

89,400

158,000

131,000

(4,400)

(30,000)

(30,480)

\$92,000

\$ 166,400

\$ 136,520

a.

## Transportation-in is calculated as the amount needed to make cost of

goods purchased equal the given amount. Cost of goods sold is
calculated the usual way.

b.

## Purchases discounts is calculated as the amount needed to make cost of

goods purchased equal the given amount. The beginning inventory is
calculated as the amount needed to make cost of goods sold equal the
given amount.

c.

Cost of goods purchased is calculated the usual way. Then, that amount
is transferred to the lower section and the ending inventory is
calculated as the amount needed to make cost of goods sold equal the
given amount.

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214

## Exercise 6-13 (30 minutes)

Company A
2011

2011

2010

180,000

90,000

45,000

Merchandise inventory
(beginning) .........................................18,700

22,300

9,875

9,000

## Net cost of merchandise

purchases ............................................72,000

104,400

49,500

26,100

Merchandise inventory
(ending) ....................................................
(16,400) (18,700)

(8,920)

(9,875)

Sales............................................................
120,000

2010

Company B

108,000

50,455

25,225

72,000

39,545

19,775

54,000

27,000

13,500

18,000

12,545

6,275

## Gross profit ratio ...................................

38.08%1 40.00%2 43.94%3 43.94%4

Calculations:
1.
2.
3.
4.

## (45,700/120,000) 100 = 38.08%

(72,000/180,000) 100 = 40.00%
(39,545/90,000) 100 = 43.94%
(25,225/45,000) 100 = 43.94%

Analysis component:
Company B has a stable and more favourable gross profit ratio than Company
A. Company As gross profit ratio decreased from 2010 to 2011 which is
unfavourable.

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215

## Exercise 6-14 (20 minutes)

Invoice cost of merchandise purchases .....

(a)

(b)

(c)

\$ 45,000

\$ 20,000

\$ 15,250

(2,000)

(1,500)

3,200

1,750

2,000

\$ 44,700

\$ 19,750

\$ 16,375

3,500

\$ 4,800

\$ 4,500

44,700

19,750

16,375

(2,200)

(3,750)

(3,810)

\$46,000

(1,250)
(750)

\$ 20,800

(325)
(550)

\$ 17,065

a.

## Transportation-in is calculated as the amount needed to make cost of

merchandise purchased equal the given amount. Cost of goods sold is
calculated the usual way.

b.

## Purchase discounts is calculated as the amount needed to make cost of

merchandise purchases equal the given amount. The merchandise inventory
(beginning) is calculated as the amount needed to make cost of goods sold equal
the given amount.

c.

Total cost of merchandise purchases is calculated the usual way. Then, that
amount is transferred to the lower section and the merchandise inventory
(ending) is calculated as the amount needed to make cost of goods sold equal
the given amount.

Solutions Manual for Chapter 6

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216

## Exercise 6-15 (30 minutes)

a) Multiple-step income statement:
COMPU-SOFT
Income
For Month Ended November 30, 2011

Statement

\$26,935*

14,800

## Gross profit from sales....................................................

\$12,135

Operating expenses:
Wages expense ..........................................................

\$4,200

2,100

120

6,420

\$ 5,715

## Other revenues and expenses:

Rent revenue .............................................................

850

\$ 6,565

## *Calculated as: 27,700 45 720 = 26,935

b)
2011
Nov.

Closing entries:
3
0

Rent Revenue..................................................................

850

Sales ...................................................................................

27,700

Income Summary..................................................

28,550

## To close temporary credit balance accounts.

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216

217

3
0

21,985

720

45

14,800

120

4,200

2,100

3
0

6,565

6,565

3
0

3,500

3,500

## Exercise 6-15 (concluded)

c)
Peter Delta, Capital
\$1,635 \$3,500 + \$6,565 = \$4,700 OR

(With.
)

Solutions Manual for Chapter 6

3,50
0

1,635

(Beg. bal.)

6,565

(Net income)

4,700

(End. bal.)

217

218

Analysis component:
The gross profit ratio for October is 40% (\$32,000 - \$19,200 = \$12,800 gross
profit; \$12,800/\$32,000 100 = 40%). The gross profit ratio for November is
45% (\$12,135/\$26,935 100 = 45.05%). Compu-Soft generated a higher
gross profit per sales dollar in November than in October which is favourable
because this represents a greater contribution towards the coverage of
operating expenses.

Solutions Manual for Chapter 6

218

219

464

## Exercise 6-16 (60 minutes)

a)

Perdu Sales
Work Sheet
For Year Ended December 31, 2011

Account
Cash

Trial Balance
Debit

Credit

Debit

Credit

Income
Statement
Debit

Credit

Balance Sheet
and Statement
of Owners
Equity
Debit

## Fundamental Accounting Principles, Twelfth Canadian Edition

26,000

26,00
0

Merchandise inventory

2,000

2,000

8,000

Store equipment

40,000

2,500

11,500

14,840

Salaries payable

Sales

6,500
40,00
0

9,000

Accounts payable

1,500

Credit

14,840
3,200

3,200

45,600

45,600

3,600

3,600
858,00
0

858,00
0

220

33,000

33,000

8,000

8,000

424,84
0

424,84
0

94,000

28,000

Sales discounts

3,200

97,200
28,000

2,500

2,500

70,000

1,500

71,500

190,00
0

Totals

927,44
0

190,00
0
927,44
0

7,200

7,200

855,04
0

Net Income

2,960

Totals

858,00
0

858,00
0

78,10
0

75,140
2,960

858,00
0

75,60
0

75,600

221

## Exercise 6-16 (continued)

b) Classified multiple-step income statement:
PERDU SALES
Income Statement
For Year Ended December 31, 2011
Sales .....................................................................................................................

\$858,000

\$33,000

8,000

41,000

\$817,000

424,840

## Gross profit from sales .........................................................................................

\$392,160

Operating expenses:
Selling expenses:
Sales salaries expense ..................................................
Other selling expenses .................................................

\$97,20
0
71,500

28,000

2,500

\$199,200

190,000

## Total operating expenses ................................................

389,200

Net income.................................................................................

\$ 2,960

c) 2011
Dec.

31

Closing entries:
Sales ...................................................................................................................

Income Summary..................................................

Solutions Manual for Chapter 6

858,000
858,000

221

222

To close sales.

31

855,040

33,000

8,000

424,840

97,200

28,000

71,500

2,500

190,000

3
1

2,960

2,960

3
1

## Eldon Perdu, Capital....................................................

Eldon Perdu, Withdrawals ........................................

3,600
3,600

## To close withdrawals to capital.

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222

223

## Exercise 6-16 (concluded)

Analysis component:
The gross profit ratio for 2011 is \$392,160/\$817,000 100 = 48%. The gross profit ratio
for 2010 was \$330,000*/\$600,000 100 = 55%. The gross profit ratio decreased from
2010 to 2011 which is unfavourable since the gross profit generated per net sales dollar
has decreased thereby contributing less towards the coverage of operating expenses in
2011 than in 2010.

## *Sales COGS = GP Operating Expenses = Net Loss, therefore, \$600,000 - ? =

? - \$344,000 = -\$14,000; GP - \$344,000 = -\$14,000 so GP = \$330,000.

## a) 531,000 14,000 7,000 = 510,000

b) Single-step income statement:

SABBA CO.
Income Statement
For Year Ended January 31, 2011

Revenues:
Net sales .......................................................................

\$510,000

Expenses:

\$301,000

117,000

109,000

750

## Total expenses ...........................................................

Solutions Manual for Chapter 6

527,750

223

224

## Net loss .............................................................................

Solutions Manual for Chapter 6

\$ 17,750

224

225

## *Exercise 6-18 (20 minutes)

1)
Nov 1
.

Periodic
Purchases ...............................

Perpetual
2,80
0

2,800

## Accounts Payable .............

To record purchases on

2,800

## Accounts Payable .........

2,800

To record purchases on

account.

account.

2)
Nov 5
.

2,80
0

## Accounts Payable ..............

Purchases Discount .

56

Cash ...............................

2,744

## To record cash payment

within
discount period;

2,800

Merchandise Inventory

56

Cash...............................

2,744

## To record cash payment

within
discount period;

2,800 x 2% = 56.

2,800 x 2% = 56.

3)
Nov 7
.

Cash ........................................

196

## Purchases Returns and

Allowances ............

Cash ...........................................

196

## To record cheque received

for return of purchases
previously paid for with
200 2% = 196.

196

Merchandise Inventory

196

## To record cheque received

for
return of merchandise
previously paid for with
200 2% = 196.

4)
Nov. 1

Transportation-In ....................

160

Solutions Manual for Chapter 6

## Merchandise Inventory ......

160

225

226

0
160

Cash .................................
To record payment of
freight
charges.

160

Cash .....................................
To record payment of
freight
charges.

5)
Nov 1
.
3

## Accounts Receivable .............

Sales ..............................

1
3

3,00
0

## Accounts Receivable ............

3,000

3,000

Sales ..................................

To record sale of
merchandise
on credit.

To record sale of
merchandise
on credit.

No entry.

## Cost of Goods Sold ................

Merchandise Inventory

3,000

1,500
1,500

To record cost of
merchandise
sold.

Solutions Manual for Chapter 6

226

227

6)
Nov 1
.
6

## Sales Returns and

Allowances ..........................
Accounts Receivable

400

## Sales Returns and

Allowances ..........................
400

To record return of
merchandise bought on
account.

1
6

No entry.

400

Accounts Receivable

400

To record return of
merchandise bought on
account.

## Merchandise Inventory ......

Cost of Goods Sold ........

200
200

To record return of
merchandise by customer.

*Exercise 6-19
Feb.

1 Purchases.............................................................................

7,000

7,000

## To record purchase; terms 1/10, n30.

5 Purchases.............................................................................

2,400

Cash .................................................................................

2,400

## To record purchase for cash.

6 Purchases.............................................................................

10,000

10,000

## 9 Office Supplies ...................................................................

Accounts Payable .......................................................

Solutions Manual for Chapter 6

900
900

227

228

1 No entry.
0

## 1 Accounts Payable ..............................................................

1

7,000

Cash .................................................................................

6,930

70

## To record payment within discount period;

\$3,500 x 1% = \$35 discount.

## 2 Accounts Payable ..............................................................

4

900

Cash .................................................................................

900

To record payment.

Mar.

## 2 Accounts Payable ..............................................................

3

10,000

Cash .................................................................................

10,000

To record payment.

## *Exercise 6-20 (25 minutes)

2011
Mar

2 Purchases ...............................................................................................................

3,600

3,600

## Purchased merchandise on credit.

3 Transportation-in .....................................................................
Solutions Manual for Chapter 6

200

228

229

Cash ..................................................................................

200

600

600

3,000

## Purchase Discounts ................................................................................................

60

Cash ................................................................................................

2,940

## Paid balance within the discount period;

3,600 600 = 3,000; 3,000 x 2% = 60.

18 Purchases .....................................................................................

7,500

7,500

2,100

2,100

5,400

## Purchase Discounts ..................................................................

108

Cash ................................................................................................

5,292

## Paid balance within the discount period;

7,500 2,100 = 5,400; 5,400 x 2% = 108.

Solutions Manual for Chapter 6

229

230

Jan.

## 5 Accounts Receivable ........................................................

4,000

Sales ................................................................................

4,000

## To record sale; terms 1/10, n30.

7 Cash........................................................................................

3,600

Sales ................................................................................

3,600

## 8 Accounts Receivable ........................................................

9,600

Sales ................................................................................

9,600

## To record sale; terms 1/10, n30.

1 Cash........................................................................................
5

3,960

40

4,000

## To record collection within discount period;

\$2,000 x 1% = \$20 discount.

Feb.

4 Cash........................................................................................
Accounts Receivable .................................................

9,600
9,600

To record collection.

Solutions Manual for Chapter 6

230

231

Feb.

## 1 Accounts Receivable ........................................................

2,400

Sales ................................................................................

2,400

## 2 Delivery Expense or Freight-Out .................................

150

Cash .................................................................................

150

1,200

1,200

## 4 Accounts Receivable ........................................................

3,800

Sales ................................................................................

3,800

## To record sale; terms 2/10, n30, FOB destination.

1 Cash........................................................................................
1

1,176

24

1,200

## To record collection, less return and discount;

\$2,400 - \$1,200 = \$1,200 x 2% = \$24 discount.

2 Cash........................................................................................
3
Sales ................................................................................

Solutions Manual for Chapter 6

1,200
1,200

231

232

## To record cash sale.

2 Cash........................................................................................
8
Accounts Receivable .................................................

3,800
3,800

To record collection.

Solutions Manual for Chapter 6

232

233

## *Exercise 6-23 (15 minutes)

a)
2011
Mar. 1 Purchases ...............................................................................................................

11,000

11,000

11,000

## Purchase Discounts .............................................................................

330

Cash .................................................................................

10,670

## Paid account payable within the discount period;

11,000 x 3% = 330.

b)
2011
Mar. 1 Accounts Receivable Sundown Company ......................

11,000

Sales ................................................................................

11,000

## Sold merchandise on account.

11 Cash ................................................................................................

10,670

330

11,000

## Collected account receivable.

Solutions Manual for Chapter 6

233

234

## *Exercise 6-24 (20 minutes)

a)

2011
May 11 Purchases ...............................................................................................................

30,000

30,000

## Purchased merchandise on credit.

11 Transportation-In ....................................................................................................

335

Cash .....................................................................................................

335

1,200

1,200

28,800

## Purchase Discounts ..............................................................................

864

Cash .................................................................................

27,936

## Paid balance within the discount period;

30,000 1,200 = 28,800; 28,800 x 3% = 864.
b)

2011
May 11 Accounts Receivable Wilson Purchasing ............................................................
Sales .....................................................................................................

Solutions Manual for Chapter 6

30,000
30,000

234

235

1,200

1,200

## Accepted a return from a customer.

21 Cash .......................................................................................................................

27,936

864

28,800

## Collected account receivable;

30,000 1,200 = 28,800; 28,800 x 3% = 864.

Solutions Manual for Chapter 6

235

236

a.

b.

c.

## Gross profit from sales ........................................

Less: Operating expenses ...................................
?
Net income ............................................................
Therefore:
Total operating expenses.....................................

\$145,000

Sales ......................................................................
Less: Sales discounts ..........................................
Sales returns...............................................
Net sales ................................................................
Less: Cost of goods sold .....................................
?
Gross profit from sales ........................................
Therefore:
Cost of goods sold ...............................................

\$340,000

## Merchandise inventory (beginning) ....................

Invoice cost of merchandise purchases ............
Less: Purchase discounts ...................................
Purchase returns ........................................
Net purchases ......................................................
Total cost of merchandise purchased ................
Goods available for sale ......................................
Less: Merchandise inventory (ending) ...............
?
Cost of goods sold (from b) .................................
Therefore:
Merchandise inventory (ending) ..........................

\$ 65,000
\$ 80,000
\$ 5,500
14,000

19,500
\$320,500
\$145,000
\$175,500

\$175,000
3,600
6,000
\$165,400
11,000

\$ 30,000

176,400
\$206,400
\$175,500
\$ 30,900

d. (145,000/320,500) x 100 = 45.24% Gross Profit Ratio (rounded to two decimal places)
Analysis component:
The gross profit ratio for 2011 is 45.24%. In comparison with the 2010 gross profit ratio
of 47%, this represents an unfavourable change. This is unfavourable because the gross
profit generated per net sales dollar decreased in 2011 from 2010 thereby contributing
less towards the coverage of operating expenses in 2011 than in 2010.

Solutions Manual for Chapter 6

236

237

## *Exercise 6-26 (40 minutes)

DEWERS STOPN SHOP
Work Sheet
For Year Ended December 31, 2011

No.
101
106
119
125
201
209
301
302
413
414

Trial
Balance
Debit
Credit
7,400
3,600
2,400
1,200
280

505
506
507
622

Account
Cash ...................................
Accounts receivable .........
Merchandise inventory .....
Store supplies ...................
Accounts payable .............
Salaries payable ................
Mi Dewer, capital ...............
Mi Dewer, withdrawals ......
Sales ..................................
Sales returns and
allowances.........................
Purchases..........................
Purchase discounts ..........
Transportation-in ..............
Salaries expense ...............

640
651

## Rent expense ....................

Store supplies expense ....

500

Totals..............................
Net income ........................

24,100

750
290
6,400
160
1,400

Debit
Credit

(a) 300

2,400

2,720

(b) 120

11,570
12,000

290
6,400

250
(b)
120
(a) 300
24,100

Income Statem
ent
Debit
Credit

420

160
1,520
500
30
0
420 11,570
3,400

12,000

Balance Sheet
and
Statement of
Owners Equity
Debit
Credit
7,400
3,600
2,720
900
280
120
11,570
750

250

14,970 15,370

11,970
3,400

475

238

Totals

14,970

14,970 15,370

15,370

239

## *Exercise 6-27 (30 minutes)

a)

Net Sales:
Sales ........................................................................................
Sales returns and allowances ....................................................
Sales discounts ......................................................................
Net sales ......................................................................................

\$445,000
(25,000)
(16,000)
\$404,000

b)

## Cost of goods purchased:

Purchases.........................................................................................
Purchases returns and allowances ............................................
Purchase discounts.........................................................................
Transportation-in .........................................................................
Cost of goods purchased ...............................................................

\$286,000
(22,000)
(11,400)
8,800
\$261,400

c)

## Cost of goods sold:

Beginning inventory ....................................................................
Cost of goods purchased ...............................................................
Goods available for sale..................................................................
Ending inventory .........................................................................
Cost of goods sold ..........................................................................

\$ 15,000
261,400
\$276,400
(11,000)
\$265,400

## d) Multiple-step income statement:

FOX
Income
For Year Ended March 31, 2011

FIXTURES

Net sales
..............................................................
Cost of goods sold ......................................................
265,400
Gross profit from sales ................................................
\$138,600
Operating expenses:
Selling expenses ......................................................
General and administrative expenses ......................
Total operating expenses .....................................
102,500
Income from operations...............................................
36,100
Other revenues and expenses:

CO.
Statement

\$404,000

\$69,000
33,500
\$

240

Interest revenue.......................................................
1,200
Net income ..............................................................

\$ 37,300

241

## *Exercise 6-28 (40 minutes)

a)
\$33,700 \$1,740 = \$31,960 Net sales

b)
\$6,200 + \$16,676 \$110 \$28 + \$380 \$2,460 = \$20,658 Cost of goods sold

## c) Classified multiple-step income statement:

JOHNS ELECTRONICS
Income Statement
For Month Ended April 30, 2011

Sales ..............................................................................

\$33,700

1,740

\$31,960

## Cost of goods sold:

Merchandise inventory, March 31, 2011 .....................

\$ 6,200

## Purchases ................................................................. \$16,676

Less: Purchase discounts................................................

28

## Purchase returns and allowances .....................

110

Net purchases...........................................................

\$16,538

380

16,918

\$23,118

2,460

20,658

\$ 11,302

242

## Operating expenses:. ............................................................

Selling expenses:

\$8,000

640

340

\$8,980

2,800

150

2,950

11,930

\$ 628

## Other revenues and expenses:

Interest expense ................................................................

130

\$ 758

243

## *Exercise 6-28 (concluded)

d)
2011
Apr. 3
0

Closing entries:
Merchandise Inventory ................................................

2,460

110

## Purchases Discounts .....................................................

28

Sales ....................................................................................

33,700

36,298

## To close temporary credit balance accounts.

3
0

Income Summary............................................................

37,056

6,200

## Sales Returns and Allowances ..............................

1,740

Purchases ....................................................................

16,676

Transportation-In.....................................................

380

640

2,800

8,000

150

340

130

3
0

## John Yu, Capital ....................................................

Income Summary ..............................................

758
758

244

3
0

9,200

9,200

Part e:

(Net loss)

758

(With.)

9,200

245

June

## Merchandise Inventory .....................................

GST Receivable .................................................
Accounts Payable ......................................
To record credit purchase;
\$2,000 x 6% = 120 GST.

2,000
120

## Accounts Receivable ........................................

PST Payable ...............................................
GST Payable ..............................................
Sales ...........................................................
To record credit sale; \$1,400 x 8% = 112 PST;
\$1,400 x 6% = \$84 GST.

1,596

## Cost of Goods Sold ...........................................

Merchandise Inventory ..............................
To record cost of sale.

1,000

2,120

112
84
1,400

1,000

## *Exercise 6-30 (15 minutes)

June

Chapter 7

Purchases ..........................................................
GST Receivable .................................................
Accounts Payable ......................................
To record credit purchase;
\$2,000 x 6% = \$120 GST.

2,000
120

## Accounts Receivable ........................................

PST Payable ...............................................
GST Payable ..............................................
Sales ...........................................................
To record credit sale; \$1,400 x 8% = 112 PST;
\$1,400 x 6% = \$84 GST.

1,596

## Merchandise Inventory and Cost of Sales

EXERCISES
Exercise 7-1 (45 minutes)

2,120

112
84
1,400

246

Date

Purchases

Units
Jan.

Unit
Cost

Inventory
Balance

## Sales (at cost)

Total
Cost

Unit
s

Unit
Cost

Cost of
Goods
Sold
Units

Total
Cost

1 Beginning inventory
100 @ \$10. = \$ 1,000
00
1
0

Mar
.

Unit
Cost

1
4

00
90 @ \$10. = \$
00

900

00

100

10 @ \$10. = \$
00

100

250 @ 15.0 =
0
10 @ \$10. =
00

1
5

10 @ \$10. = \$
00

130 @ 15.0 =
0

3,750

10
0

1,950

## 120 @ \$15. = \$ 1,800

00
120 @ \$15. = \$ 1,800
00

Jul.

3
0

00

400 @ 20.0 =
0

8,000

00
Oct.
Total

180 @ 20.0 =
0
750

\$12,750 530

sale

3,600
\$8,350

00
220

\$4,400
Ending inventory

247

\$21,200

8,350

\$12,850

248

## Exercise 7-1 (continued)

(b) Moving weighted-average perpetual
Inventory Balance
Date

Purchases

Units

## Sales (at cost)

Unit
Cost

Total
Cost

Units

(a)

Cost of
Goods
Sold

Unit
Cost

(b)

(b) (a)

Total Average
Units Cost/Unit

Total
Cost
Inventory Balance Calculations

Beginning inventory
Jan.

100 @ \$10 = \$

1000

100

\$10.00 \$

1,000.0
0
100

10

90 @ \$10.00 = \$

900.00

90 @ \$10.00 =
10

Mar.

14

250 @ \$15 = \$

400 @ \$20 = \$

\$14.81 \$

1,776.6
0

8,000

\$18.80 \$

9,776.6
0

30 @ \$18.80 = \$ 5,640.00
0

750

\$12,750

100.0
0

10

100.0
0

\$ 3,850.0
0

260

\$ 3,850.0
0

53
0

\$8,613.40

220

4,136.6
0

\$ 4,136.60

2,073.40

120

\$ 1,776.6
0

120

\$ 1,776.6
0
8,000.00

520

\$ 9,776.6
0

520

\$ 9,776.6
0

300 @ \$18.80 =
\$18.80 \$

3,750.00

260

400 @ \$20.00 =

220
Total

3,850.0
0

900.00

10

140 @ \$14.81 =

520

Oct.

\$14.81 \$

14 @ \$14.81 = \$ 2,073.40
0
120

30

100.0
0

250 @ \$15.00 =
260

July

\$10.00 \$

3,750

15

\$ 1,000.0
0

220

5,640.00
\$ 4,136.6
0

249

sale

\$21,200.00

8,613.40

\$12,586.60

Ending inventory

250

## Exercise 7-1 (concluded)

(c) LIFO perpetual
Date

Purchases
Unit
s

Jan.

Unit
Cost

Inventory
Balance

## Sales (at cost)

Total
Cost

Unit
s

Cost of
Goods
Sold
Units

Unit
Cost

Total
Cost

1 Beginning inventory
100 @ \$10. = \$ 1,00
00
0
1
0

Mar
.

Unit
Cost

1
4

00
90 @ \$10. =
00

900

00
0

10 @ \$10. = \$
00

100

10 @ \$10. = \$
00

100

250 @ 15.0 =
0
10 @ \$10. = \$
00

1
5

140 @ \$15.
00

\$ 2,100

110 @ 15.0 =
0
10 @ \$10. = \$
00
110 @ 15.0 =
0

Jul.

3
0

00
0

400 @ 20.0 =
0
10 @ \$10. = \$
00
110 @ 15.0 =
0

Oct.

00

100 @ 20.0 =
0

3,750
100

1,650
100
1,650

8,000
100
1,650

2,000

251

Total

750

\$12,750 530

=

\$21,200

9,000

\$12,200

\$9,000
+

220

\$3,750
Ending inventory

252

## Exercise 7-2 (20 minutes)

Specific identification

Date

Purchases
Unit
s

Jan.

Unit
Cost

Total
Cost

Unit
s

Unit
Cost

Cost of
Goods
Sold
Units

Unit
Cost

Total
Cost

1 Beginning inventory
100 @ \$10. = \$
00

1,00
0

1
0

Mar
.

Inventory
Balance

1
4

00
90 @ \$10. =
00

250 @ \$15. = \$
00

900

3,75
0

100

10 @ \$10. = \$
00

100

250 @ 15.0 =
0
10 @ \$10. =
00

1
5

10 @ \$10. = \$
00

130 @ 15.0 =
0

3,750

10
0

1,950

## 120 @ \$15. = \$ 1,800

00
120 @ \$15. = \$ 1,800
00

Jul.

3
0

400 @ \$20. = \$
00

8,00
0

400 @ 20.0 =
0
60 @ \$15. =
00

Oct.
Total

240 @ 20.0 =
0
750

\$12,750 530

## Cost of goods available for sale

Cost of goods sold
=
+

900
4,800

\$8,650

60 @ \$15.
00

= \$

160 @ 20.0 =
0
220

8,000
900

3,200
\$4,100

Ending inventory

253

\$21,200

8,650

\$12,550

254

1.
Jan. 1
Mar. 7
July 28
Oct. 3
Totals

120 units
250 units
500 units
450 units
1,320 units

@
@
@
@

\$6.00
5.60
5.00
4.60

available for

=
=
=
=

\$720
1,400
2,500
2,070
\$6,690

cost of goods

sale

2.
Units sold:
Jan.
10
Mar.
15
Oct. 5
Totals

70 units

125 units

600 units
795 units

## 3.(a) Moving weighted-average perpetual

Inventory Balance
Date

Purchases

Unit
s

Unit
Cost

## Sales (at cost)

Total
Cost

Units

Unit
Cost

(a)

(b)
(a)

Tota
l
Averag
Cost of
Unit e Cost/
Goods Sold s
Unit

(b)

Total
Cost

Inventory Balance
Calculations

Beginning inventory
Jan.

120 @ \$6.0 = \$
0

720.0
0

120

\$6.00 \$

720.0
0
120

10

70 @ \$6.0 = \$
0

420.0
0

70 @ \$6.0 =
0
50

\$6.00 \$

300.0
0

\$ 720.0
0

420.00

50

\$ 300.0
0

50

\$ 300.0

255

0
Mar.

0
0

250 @ 5.60 =
1,400.00
300

125 @ \$5.6 = \$
7

15

708.7
5

28

991.2
5

175

\$ 991.2
5

175

\$ 991.2
5

\$5.17 \$ 3,491.
25

675

\$3,491.2
5

675

\$3,491.2
5
2,070.00

\$6,690.00 795

=

\$1,700.0
0

450 @ 4.60 =

600 @ \$4.9 = \$
4

1,320

300

2,500.00

0
0

\$1,700.0
0

500 @ 5.00 =

1,12
5

Total

\$5.66* \$

0
0
675

Oct.

300

@ 5.67 = 708.75
125
175

July

\$5.67 \$ 1,700.
00

2,964.
00

\$4,092.75

\$4.94 \$ 5,561.
25

1,12
5

\$5,561.2
5

1,12
5

\$5,561.2
5

@ 4.96 =

600
2,964.00
525

\$4.95* \$ 2,597.
25

525

\$2,597.2
5

Ending inventory

525

\$2,597.2
5

256

## Exercise 7-3 (continued)

3.(b) FIFO perpetual
Date

Purchases
Unit
s

Jan.

Unit
Cost

## Sales (at cost)

Total
Cost

Units

Unit
Cost

Inventory Balance

Cost of
Goods
Sold Units

Total
Cost

1 Beginning inventory
120 @ \$6.0 =
0

720

1
0

Mar. 7

70 @ \$6.0 =
0
\$

1
5

2
8

120 @ \$6.00 = \$

72
0

50 @ \$6.00 = \$

30
0

50 @ \$6.00 = \$

30
0

42
0

0

250 @ 5.60 =
1,400
50 @ \$6.0 = \$
0

Jul.

Unit
Cost

75 @ 5.60 =

30
0
420

0

175 @ \$5.60 = \$

98
0

175 @ \$5.60 = \$

98
0

500 @ 5.00 =

2,500

175 @ \$5.60 = \$

Oct.

0
175 @ \$5.6 = \$
0

98
0

@ 5.00 =
425

98
0

500 @ 5.00 =

2,500

450 @ 4.60 =

2,07
0

75 @ \$5.00 = \$

37
5

450 @ 4.60 =
2,125

2,070

257

Total

1,320

\$6,690 795

## Cost of goods available for sale

=

\$4,245
Cost of goods sold
+

525

\$2,445
Ending inventory

258

## Exercise 7-3 (concluded)

3.(c) LIFO perpetual
Date

Purchases
Unit
s

Jan.

Unit
Cost

Total
Cost

Unit
s

Unit
Cost

Cost of
Goods
Sold
Units

Unit
Cost

Total
Cost

1 Beginning inventory
120 @ \$6.0 =
0

720

1
0

Mar
.

Inventory
Balance

70 @ \$6.0 =
0

420

0

120 @ \$6.0 = \$
0

720

50 @ \$6.0 = \$
0

300

50 @ \$6.0 = \$
0

300

250 @ 5.60 =
50 @ \$6.0 = \$
0

1
5

125 @ \$5.6 =
0

700

125 @ 5.60 =
50 @ \$6.0 = \$
0

Jul.

2
8

0

0

300
700
300

125 @ 5.60 =

700

500 @ 5.00 =

2,500

50 @ \$6.0 = \$
0

Oct.

1,400

300

125 @ 5.60 =

700

500 @ 5.00 =

2,500

450 @ 4.60 =

2,070

50 @ \$6.0 = \$

300

259

5
Total

1,32
0

0

125 @ 5.60 =

700

150 @ 5.00 =

350 @ 5.00 =

1,750

\$6,690 795

=

750
\$3,940

525

\$2,750
Ending inventory

260

## Exercise 7-4 (20 minutes)

Specific identification perpetual
Date

Purchases
Unit
s

Jan.

Unit
Cost

Total
Cost

Unit
s

Unit
Cost

Cost of
Goods
Sold
Units

Unit
Cost

Total
Cost

1 Beginning inventory
120 @

\$6.0 = \$
0

72
0

1
0

Mar
.

Inventory
Balance

70 @ \$6.0 =
0

250 @

\$ 420

\$5.6 = \$ 1,40
0
0

1
5

120 @ \$6.0 = \$
0

720

50 @ \$6.0 = \$
0

300

50 @ \$6.0 = \$
0

300

250 @ 5.60 =
25 @ \$6.0 =
0

\$ 150

100 @ 5.60 =

560

25 @ \$6.0 = \$
0
150 @ 5.60 =
25 @ \$6.0 = \$
0

Jul.

2
8

500 @

\$5.0 = \$ 2,50
0
0

450 @

\$4.6 = \$ 2,07
0
0

150
840
150

150 @ 5.60 =

840

500 @ 5.00 =

2,500

25 @ \$6.0 = \$
0

Oct.

1,400

150

150 @ 5.60 =

840

500 @ 5.00 =

2,500

450 @ 4.60 =

2,070

25 @ \$6.0 = \$

150

261

5
Total

1,32
0

150 @ 5.60 =

840

0

180 @ 5.00 =

900

280 @ 4.60 =

170 @ 4.60 =

782

\$6,690 795

1,288
\$4,018

525

\$2,672
Ending inventory

262

## Exercise 7-5 (30 minutes)

TROUT COMPANY
Income Statement
For year ended December 31, 2011

Specific
Identification
Sales ....................................
(795 units \$15 selling price)
Cost of goods sold ...................
Gross profit ..............................
Operating expenses .................
Net income................................

Moving
Weighted
Average
\$11,925
4,018
\$ 7,907
1,250
\$ 6,657

FIFOLIFO
\$11,925.00

\$11,925

\$11,925

4,092.75
\$ 7,832.25
1,250.00
\$ 6,582.25

4,245
\$ 7,680
1,250
\$ 6,430

3,940
\$ 7,985
1,250
\$ 6,735

1) The LIFO method results in the highest net income with \$6,735.
2) The weighted average net income of \$6,582.25 does fall between FIFO net
income (\$6,430) and LIFO net income (\$6,735).
3) If costs were rising instead of falling then the FIFO method would probably
result in the highest net income.
Exercise 7-6
Purchases/Transportatio
Cost of Goods Sold/
n-In/ (Purchase
Returns/Discounts)
(Returns to Inventory)
Cost/Un
Units it
Total \$

Date

Cost/Un
Unit Avg
Units it
Total \$ s Cost/Unit

Brought
Forwar
d

Mar. 1
25

Balance in Inventory

\$97.00 \$2,425.00

Total \$

50

\$4,750.0
\$95.00
0

75

95.67 7,175.00
95.67 6,026.96

12

1,148.0
95.67
4 63

(2)

95.67

(191.3
4) 65

95.67 6,218.30

48

95.67

4,592.1
6 17

95.66 1,626.14

32

93.94 3,006.14

15

92.00

1,380.00

263

7
2
8

25

93.94

2,348.5
0

93.95

Analysis component:
The gross profit ratio for Product W506 for March 2011 is 35.71% calculated
as net March sales of \$12,284 (83 units \$148) less March cost of goods sold
of \$7,897.36 = \$4,386.64 gross profit \$12,284 = .3571 100.

657.64

264

## Exercise 7-7 (15 minutes)

a. LCM applies to inventory as a whole: \$14,260
b. LCM applied separately to each product: \$13,792
Calculations:
Per Unit
Inven
tory
Items

BB
FM
MB
SL

c.

Unit
s
on
Han
d
22
15
36
40

C
o
s
t
\$100
156
190
72

N
R
V
\$108
144
182
87

Tota
l
Cost

Tota
l
NRV

\$2,200
2,340
6,840
2,880
\$14,260

\$2,376
2,160
6,552
3,480
\$14,568

## LCM applied to:

a.
b.
Invent
Eac
ory
h
as a
Prod
Whole
uct

\$14,260

\$2,200
2,160
6,552
2,880

\$13,792

2011
Dec. 31 Cost of Goods Sold ............................................................

468

468

## To write inventory down to market;

14,260 13,792 = 468

## Exercise 7-8 (20 minutes)

1. \$900,000 \$500,000 = \$400,000

2.

2013

## actually reported for

years ended December 31,

## income statement information

should have been reported as:

2011

2012

2013

265

Sales

\$900,000

\$900,00
0

\$900,0
00

\$900,0
00

## Cost of goods sold:

Beginning
inventory
Less: Ending
inventory
Cost of goods sold

Gross profit

\$200,000

\$200,00
0

\$180,00
0

\$200,0
00

500,000

500,000

500,000

500,00
0

180,000

200,000

200,00
0

200,000

500,000

\$400,000

520,000

480,00
0

500,00
0

\$380,00
0

\$420,0
00

\$400,0
00

266

## Exercise 7-9 (20 minutes)

Goods available for sale:
Inventory, January 1
Purchases
Purchase returns
Transportation-in
Goods available for sale
Less: Estimated cost of goods sold:
Sales
Estimated cost of goods sold
[\$2,000,000 (1 30%)]

.....
\$ 450,000
\$1,590,000
(23,100)
37,600 1,604,500
.....
\$2,054,500
\$2,000,000
.....

(1,400,000)

654,500

## Exercise 7-10 (20 minutes)

At Cost
Goods available for sale:
Beginning inventory
\$ 128,400.00
Net purchases
196,800.00
Goods available for sale
\$325,200.00
Deduct net sales at retail
260,000.00
Ending inventory at retail
65,200.00
Cost ratio: (\$179,420/\$325,200) 100 = 55.17%
Ending inventory at cost (\$65,200 55.17%)

At Retail
\$63,800.00
115,620.00
\$179,420.00

\$
\$35,970.84

a.

## \$54,600 55.17% = \$30,122.82

b.
At Cost
Estimated inventory that should have
been on hand .......................................
\$65,200.00

At Retail
\$35,970.84

267

## Physical inventory .......................................................

Inventory shrinkage .....................................................
10,600.00

30,122.82 54,600.00
\$ 5,848.02
\$

268

## *Exercise 7-12 (20 minutes)

Ending Cost of
Inventory Goods Sold
a.

b.

c.

## Weighted-average cost (\$6,600/1,320 = \$5.00):

\$5.00 50 .................................................................
\$6,600 \$250 ...........................................................

250

FIFO:
50 \$4.40 .................................................................
\$6,600 \$220 ...........................................................

220

LIFO:
50 \$6.00 .................................................................
\$6,600 \$300 ...........................................................

300

6,350

6,380

6,300

FIFO provides the lowest net income because it has the highest cost of goods sold
due to decreasing unit costs.
*Exercise 7-13 (20 minutes)
Ending Cost of
Inventory Goods Sold
a.

b.

c.

FIFO:
(50 \$2.86) + (100 \$2.50) .....................................
(120 \$2.00) + (250 \$2.30) + (400 \$2.50) ...........

393

LIFO:
(120 \$2.00) + (30 \$2.30) .....................................
(50 \$2.86) + (500 \$2.50) + (220 \$2.30) ............

309

## Weighted-average cost (\$2,208/920 = \$2.40):

\$2.40 150 ...............................................................
\$2.40 770 ...............................................................

360

LIFO provides the lowest net income because it has the highest cost of goods sold
due to rising unit costs.

1,815

1,899

1,848

269

## *Exercise 7-14 (15 minutes)

Ending inventory:
Units

Cost/Unit

Total Cost

Beginning inventory

80 @

\$2.00 =

\$160.00

March 7 purchase

22 @

2.30 =

50.60

July 28 purchase

48 @

2.50 =

120.00

150

\$330.60

## Cost of goods sold:

Cost of goods available for sale less Ending inventory = Cost of goods sold

## *Exercise 7-15 (10 minutes)

Merchandise turnover
2012:
\$ 643,825
(\$96,400 + \$86,750)/2
2011:

\$ 426,650

= 7.0 times

= 4.8 times

(\$86,750 + \$91,500)/2
Days sales in inventory
2012:

2011:

\$ 96,400 365
\$643,825

= 54.7 days

\$ 86,750 365
\$426,650

= 74.2 days

270

## It appears that Russo has lower levels of merchandise inventory on hand

which is generally favourable provided customers are not being turned away
because of out-of-stock items.
Chapter 8

Accounting Information
Systems

Solutions Manual for Chapter 8

EXERCISES

## Exercise 8-1 (15 minutes)

Sales Journal
Date

Invoice
Number

Account Debited

Accounts Receivable
Dr. Sales Cr.

PR

## Cost of Goods Sold

Merchandise Inven
Cr.

2011
Feb. 7

J. Eason

5704

1,150

700

12

P. Lathan

5705

320

170

25

S. Summers

5706

550

300

SALES JOURNAL

Page 2
Invoice

Date

Account Debited

Numbe
r

A/R Dr.
PR

Sales Cr.

2011
Feb
.

7 J. Eason

5704

1,150

12 P. Lathan

5705

320

25 S. Summers

5706

550

641

Date

Account
Credited

PR

Explanation

Cash
Dr.

Sales
Discou
nt Dr.

Accounts
Receivabl
e Cr.

Sales
Cr.

O
Ac

271

2011
Sept. 9

Notes payable

Note to bank

5,500

13

Dale Trent,
capital

Owner
investment

7,000

18

Sales

Cash sale

27

J. Namal

Invoice, Sept. 7

460
1,764

460
36

1,800

272

642

## *Exercise 8-4 (20 minutes)

CASH RECEIPTS JOURNAL
Account
Date

Credited

Explanation

PR

Page 2

Sales

Accts.

Other

Cash

Disc.

Rec.

Sales

Accts.

Debit

Debit

Credit

Credit

Credit

2011
Sept
.

9 Notes payable

Note to bank

5,500

5,500

1 Dale Trent,
3 capital

Owner
investment

7,000

7,000

1 Sales
8

Cash sale

2 J. Namal
7

Invoice, Sept. 7

## Exercise 8-5 (20 minutes)

460
1,764

460
36

1,800

273

Purchases Journal

Date

Account Credited

Date of
Invoice

Terms

PR

Page 1

Accounts
Payable Cr.

Merchandi
se
Inventory
Dr.

8,100

Office
Supplies
Dr.

Other
Accounts
Dr.

2011
July

Angler, Inc.

Ju
l

n/30

8,100

Company

Ju
l

14

2/10,
n/30

240

17

Ju
l

17

n/30

2,600

Marten Company

240
2,600

## Exercise 8-6 (20 minutes)

PURCHASES JOURNAL

Page 2
Accounts

Date
of
Date

Account Credited

Invoic
e

Terms

PR

Office

Other

Payable

Purchases

Supplie
s

Accounts

Credit

Debit

Debit

Debit

2011
July

1 Angler, Inc.

July
1

## 14 Store Supplies/Steck Company July

n/30
2/10,n/30

8,100
240

8,100
240

274

14
17 Marten Company

July
17

n/30

2,600

2,600

275

Solutions Manual for Chapter 8

## Exercise 8-7 (20 minutes)

Cash Disbursements Journal
Ch.
No.

Date

Payee

Account Debited

PR

Cash Cr.

Page 1

Merchandise
Inventory Cr.

Other
Accounts Dr.

Accounts
Payable Dr.

2011
Mar. 9

210

Narlin Corp.

Store Supplies

900

900

17

211

City Bank

Notes Payable

3,000

3,000

29

212

LeBaron

LeBaron

6,860

31

213

E. Brandon

Salaries
Expense

3,400

31

214

Pace, Inc.

Pace, Inc.

5,500

140

7,000
3,400
5,500

## *Exercise 8-8 (20 minutes)

CASH DISBURSEMENTS JOURNAL
Ch.
Date

No.

Payee

Account Debited

PR

Other

Cash

Discoun
t

Accts.

Payable

Credit

Credit

Debit

Debit

2011
Mar.

Page 2

Purchas
e

9 21
0

Narlin Corp.

Store Supplies

900

900

1 21

City Bank

Notes Payable

3,000

3,000

Accts.

643

276

7 1
2 21
9 2

LeBaron

LeBaron

6,860

3 21
1 3

E. Brandon

Salaries Expense

3,400

3 21
1 4

Pace, Inc.

Pace, Inc.

5,500

140

7,000
3,400
5,500

277

644

## Exercise 8-9 (30 minutes)

Part 1 Wilson Purchasing

Purchases Journal

Date

Account Credited

Date of
Invoice

Terms

PR

Page 1

Accounts
Payable Cr.

Merchandi
se
Inventory
Dr.

30,000

30,000

Office
Supplies
Dr.

Other
Accounts
Dr.

2011
May
11

Hostel Sales

May 11

3/10,
n/90

## Cash Disbursements Journal

Ch.
No.

Date

Payee

Account Debited

PR

Cash Cr.

Page 1

Merchandise
Inventory Cr.

Other
Accounts Dr.

Accounts
Payable Dr.

2011
Fundamental Accounting Principles, Twelfth Canadian Edition

May
11

84

Express
Shipping

Merchandise
Inv.

20

85

Hostel Sales

Hostel Sales

335
27,9361

General Journal
Date

864

Page: 1

PR

Debit

2011
May

335

1,200

Credit

28,800

278

## Merchandise Inventory ..........................................

To record return of merchandise.

Calculations:
1. 30,000 1,200 = 28,800; 28,800 x 3% = 864; 28,800 864 = 27,936.

1,200

279

Solutions Manual for Chapter 8

## Exercise 8-9 (concluded)

Part 2 Hostel Sales
Sales Journal
Date

Invoice
Number

Account Debited

PR

Page 1

Accounts Receivable
Dr. Sales Cr.

## Cost of Goods Sold Dr.

Merchandise Inventory
Cr.

30,000

20,000

2011
May
11

Wilson

1601

Date

Account
Credited

PR

Explanation

Cash
Dr.

Page 1

Sales
Discou
nt Dr.

Accounts
Receivabl
e Cr.

864

28,800

2011
May
21

Wilson

Wilson

27,93
61

General Journal
Date

Page: 1

PR

Debit

2011
May

1,200

Credit

Sales
Cr.

Other
Account
s Cr.

Cost of Goods
Sold Dr.
Merchandise
Inventory Cr.

645

280

1,200

## 12 Merchandise Inventory .............................................

Cost of Goods Sold ...................................................
To record cost of merchandise returned to
inventory.

Calculations:
1. 30,000 1,200 = 28,800; 28,800 x 3% = 864; 28,800 864 = 27,936.

800
800

281

646

## *Exercise 8-10 (30 minutes)

Part 1 Wilson Purchasing
PURCHASES JOURNAL

Page 2
Accounts
Date

Date

Account Credited

Invoic

o
f
Terms

PR

Office

Other

Payable

Purchases

Supplie
s

Account
s

Credit

Debit

Debit

Debit

30,000

30,000

2011
Ma

11 Hostel Sales
y

May

3/10,n/90
1
1

## CASH DISBURSEMENTS JOURNAL

Fundamental Accounting Principles, Twelfth Canadian Edition

Ch.
Date

No.

Payee

Account Debited

PR

Page 2

Purchas
e

Other

Accts.

Cash

Discoun
t

Accts.

Payable

Credit

Credit

Debit

Debit

2011
May

1 84 Express
Transportation-In
1
Shipping
2 85 Hostel Sales
0

335
27,936

335
864

28,800

282

General Journal
Date

Page: 1

PR

Debit

Credit

2011
May

## 12 Accounts Payable Hostel Sales .......................

Purchase Returns and Allowances ....................
To record return of merchandise purchased.

1,200
1,200

283

Solutions Manual for Chapter 8

## *Exercise 8-10 (concluded)

Part 2 Hostel Sales
SALES JOURNAL

Page 2
Invoice

Date

Account Debited

Numbe
r

A/R Dr.
PR

Sales Cr.

2011
Ma
y

30,000

1601

Account
Date

Credited

Explanation

PR

Accts.

Cash

Disc.

Rec.

Sales

Accts.

Debit

Debit

Credit

Credit

Credit

27,936

864

28,800

2011
May

2 Wilson

Sale of May 11

General Journal
Date

Page: 1

PR

Debit

2011
May

Page 2

Sales

1,200

Credit

Other

647

284

## Accounts Receivable Wilson Purchasing ......

To record sales return.

1,200

285

## Exercise 8-11 (10 minutes)

The June 5 purchase would have been recorded in the Purchases Journal and the June 14
payment would have been recorded in the Cash Disbursements Journal. The error in journalizing
the June 14 transaction should be discovered in the process of crossfooting the Cash
Disbursements Journal at the end of the month.
Exercise 8-12 (10 minutes)
a.

b.

c.

d.

e.

## When the schedule of accounts payable is prepared.

Solutions Manual for Chapter 8

285

286

## Exercise 8-13 (30 minutes)

Part 1
ACCOUNTS RECEIVABLE SUBLEDGER
Sanders Farrell
May 17

1,700 May 20

Bal.

1,200

Don Holland
500 May 10 3,880
25 680

May 6 5,760

Bal.
4,560

Part 2
GENERAL LEDGER
Accounts Receivable
May 31

12,020 May 20

Bal.

11,520

Sales Returns
and Allowances

Sales
500

May 3112,020

ay 20

M
500

Part 3
VALUE-MART GOODS
Schedule of Accounts Receivable
May 31, 2011
Sanders Farrell ...................................................

\$ 1,200

4,560

5,760

\$11,520

## Total debit ............................................................

Credit for return .................................................
Solutions Manual for Chapter 8

\$12,020
(500)

286

287

## Balance as of May 31, 2011 ............................

Solutions Manual for Chapter 8

\$11,520

287

288

## *Exercise 8-14 (35 minutes)

GENERAL LEDGER
Cash
38,878

Accounts Payable
23,044

1,500

23,200

Sales Discounts
472

18,300

Accounts Receivable
26,200

Notes Payable

600

Purchases
9,000

23,200

23,600

Prepaid Insurance

Purchase Returns
and Allowance

Sales

1,700

26,200

1,500

5,750

Sales Returns
and Allowances

Store Equipment
3,500

1,000

Purchase Discounts

600

456

Jack Hertz
7,400

Trudy Stone
600

16,800

Dave Waylon
16,800

2,000

6,800

## ACCOUNTS PAYABLE SUBLEDGER

Grass Corp.
1,500

McGrew Company
10,800

Solutions Manual for Chapter 8

3,400

Sulter, Inc.
9,000

9,000

288

289

9,300

Solutions Manual for Chapter 8

289

290

## *Exercise 8-15 (30 minutes)

Part 1
ACCOUNTS RECEIVABLE SUBLEDGER
Jan. 8

Lisa Mack

7,076

Jan. 14

Jay Newton

23,780

Kathy Olivias

Jan. 2

4,176

Jan. 10

15,544

29

8,468

20

12,992

Part 2
Jan. 31

## Accounts Receivable ...........................................

Sales ............................................................
GST Payable ................................................
PST Payable ................................................

72,036

62,100
3,726
6,210

Part 3

GENERAL LEDGER
Accounts Receivable
Jan. 31

Sales

72,036

62,100 Jan. 31

Part 4
SKILLERN COMPANY
Schedule of Accounts Receivable
January 31, 2011

\$ 7,076

12,644

28,536

## Lisa Mack .....................................................

Solutions Manual for Chapter 8

23,780

290

291

## Total accounts receivable ......................

Solutions Manual for Chapter 8

\$72,036

291

292

652

Page X

Sales Journal

Date

Account Debited

Invoice
No.

PR

A/R Dr

PST
Payable CR

GST
Payable CR

COGS DR
Merchandise
Inventory CR

Sales Cr

2011

Aug. 5
11

Jay Smith

50

50,160

3,520

2,640

44,000

21,000

Dee Oliver

51

38,760

2,720

2,040

34,000

16,200

## Cash Receipts Journal

Date

Account
Credited

Explanatio
n

PR

Other
Account
s CR

A/R
CR

PST
Payabl
e CR

Page X

GST
Payabl
e CR

Sale
s CR

Cash DR

Sales
Disc
Dr

2011
Fundamental Accounting Principles, Twelfth Canadian Edition

## Aug. Jay Smith

20
21 Dee Oliver

Inv. 50

50,16
0

50,160

Inv. 51

38,76
0

38,420

Purchases Journal
Date

Account Credited

Terms

PR

A/P CR

340*

Page X
Merchandise
Inventory
DR

Other
Accounts DR

GST Recble
DR

COGS/DR
Merchandise
Inventory/
CR

293

2011

Aug. 1

2/10,
n/30

10,600

JayCee Equipment

n/
30

6,360

Date

Ch #

Account Debited

10,000

Other
Accounts
GST Recble
PR
DR
DR

600
6,000

360

Page X
A/P DR

Merchandis
e Inventory
CR

Cash CR

2011

Aug. 10

28

## *Discount on sales amount only

10,600

200

10,400

294

Solutions Manual for Chapter 8

## *Exercise 8-17 (20 minutes)

SALES JOURNAL

Date
2011
Aug.

Invoice
Number

Account Debited
5 Jay Smith
11 Dee Oliver

PR

50
51

Date
Account Credited
Explanation
2011
Aug.20 A/R Jay Smith
Inv. 50
21 A/R Dee Oliver
Inv. 51

PR

Accts.
Rec.
Debit

PST
Payable
Credit

50,160
38,760

3,520
2,720

## CASH RECEIPTS JOURNAL

Accts.
PST
GST
Rec.
Payable
Payable
Credit
Credit
Credit

Other
Accts.
Credit

Date
2011

Date of
Invoice

Account Credited
1 Arden Sheet Metal
7 JayCee Equipment

Ch.
No.

Aug.10 28

Payee
A/P Arden

2,6
2,0

Page X
Sales
Credit

50,160
38,760
PURCHASES JOURNAL

Date
2011
Aug.

GST
Payable
Credit

Terms

Aug. 1
Aug. 7

Account Debited

2/10,n/30
n/30

PR

Page X
Accts.
Payable
Credit
10,600
6,360

Other
GST
Accts.
Recble
PR
Debit
Debit

Purchases
Debit
10,000

Page X
Accts.
Payable
Debit
10,600

653

Current
edition

CAMOSUN COLLEGE

73050199

BAYE

W/DD

70877386

BUCKWO
LD

## CDN INCOME TAX/8CE

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295

Chapter 9
EXERCISES

## Exercise 9-1 (10 minutes)

Lombard Companys internal control system failed to require a separation of asset
custody and recordkeeping. The bookkeeper should not have been allowed to sign
the companys cheques. In addition, since a loss was incurred, the company
apparently had not bonded its employee. Otherwise, the loss would have been
insured by the bonding company. Finally, if regular, independent reviews of the
accounting records had been done, the payments of salary cheques to a
nonemployee may have been discovered sooner.
Exercise 9-2 (15 minutes)
You have several concerns. First, there is no mechanism in the parking meters to
track the input of coins (a meter reading that could be documented and subsequently
verified against the collection); this means there is no verifiable means by which to
reconcile the contents of each meter. Second, because of the first shortcoming, the
employee emptying the contents of the meters could withhold some of the coins
since the dollar value cannot be verified. Third, the canvas bag is not secure; it can
be opened at any time by an unauthorized individual. Fourth, after emptying several
parking meters, the contents of each canvas bag can easily exceed a thousand
dollars; there is a safety risk to a lone employee carrying a canvas bag of money.
To correct the situation, optimally, the parking meters should be mechanized such
that the contents can be reconciled. However, a major investment in new parking
meters seems unlikely, therefore, civic employees collecting coins from parking
meters should operate in pairs; there is less risk of fraud if two employees are
responsible for emptying the parking meters (unless there is collusion). The canvas
bag used to collect the coins is also problematic. It should be redesigned so that
coins can go in but cannot be removed unless done so by an authorized individual.
Finally, for safety of the individuals involved and for security over the coins, full
moneybags should not be stored in an unattended vehicle. Full moneybags should
be transferred to a secure location immediately; arrangements could be made with
an armored vehicle to rendezvous with the pair of employees regularly at specified
points along the route.

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296

## Exercise 9-3 (15 minutes)

a. If a cash register cannot be used, the total sales value of the shirts and
sunglasses given to the employee each day should be calculated. Then, the
employee should sign a receipt for the merchandise and the amount of cash
that he or she has been given. At the end of each day, the employee should be
required to return cash plus remaining shirts and sunglasses equal to the
amount taken to the stand.
b.

The employee should sign a receipt for the total amount of cash he or she is
given each weekend. Then, each time the employee makes a purchase, he or
she should obtain a signed sales receipt for the payment. The sales receipt
should list the items purchased and the prices paid. When the employee returns
to the business office, the total value of the signed sales receipts plus any
remaining cash should equal the amount of cash originally given to the
employee. Also, the merchandise brought back by the employee should be the
same as the items listed on the signed sales receipts.

## Exercise 9-4 (15 minutes)

The internal control problem is that the bookkeeper has physical control over the
cash receipts and also has control over the accounting records. Nothing in the
system prevents the bookkeeper from taking cash from the mail and using it
personally. The bookkeeper might delay recording the cash receipt from a customer
until more cash comes in at a later date from a second customer. Then, the new
cash receipt would be deposited and recorded as a payment made by the first
customer. No entry would be made in the second customers account until cash was
received from a third customer. (This type of fraud is called lapping.) Also, the
bookkeeper may pocket cash and claim that a payment was never received and
apparently lost in the mail.
If only one person is present when the mail is opened, that person may steal cash
and claim it was never received. If possible, two people should be present.
Otherwise, the honesty and integrity of the person chosen to open the mail is critical.
Most importantly, the bookkeeper should not have physical control over cash.

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297

Part 1
a.
Jan. 1
b.

## Petty Cash .................................................................

Cash ...................................................................
To establish the fund.

200.00

200.00

Eanes Co.
Petty Cash Payments Report
January 1 8, 2011

Receipts:
Postage expense ..........................................................

\$64.00

19.00

36.50

53.00

## Total receipts ..........................................................................................................

Fund total....................................................................

\$200.0
0

27.50

\$172.50

172.50

Jan.

Part 2
Jan. 8

## Postage Expense .......................................................

Merchandise Inventory ...............................................
Store Supplies Expense* ...........................................
Jim Eanes, Withdrawals .............................................
Cash ...................................................................
To reimburse the fund.

64.00
19.00
36.50
53.00

## Postage Expense .......................................................

Merchandise Inventory ...............................................
Store Supplies Expense* ...........................................
Jim Eanes, Withdrawals .............................................
Petty Cash .................................................................
Cash ...................................................................

64.00
19.00
36.50
53.00
300.00

Solutions Manual for Chapter 8

-0-

172.50

472.50
297

298

## To reimburse the fund and increase it by \$300.

Analysis Component
If the January 8 entry to reimburse the fund was not recorded, net income would be
overstated.
* Either Store Supplies Expense (an expense) or Store Supplies (an asset) could be
debited. However, if supplies are being purchased through Petty Cash it is likely
that they are for immediate use which justifies using an expense account over an
asset.

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299

a.
Sept.

b.

## Petty Cash .................................................................

Cash ...................................................................
To establish the fund.

400.00

400.00

Petty Cash Payments Report
September 9 30, 2011

Receipts:

\$ 32.4
5

## Office supplies .............................................................

113.55

Repairs expense..........................................................

87.60

## Total receipts ..............................................................

\$233.60)

Fund total...................................................................

\$400.0
0

146.40

253.60)

(\$ 20.00
)

Sept. 30

## Merchandise Inventory ...............................................

Office Supplies Expense*...........................................
Repairs Expense........................................................
Cash Over and Short .................................................
Petty Cash ..........................................................
Cash ...................................................................
To reimburse the fund and decrease it by \$100.

32.45
113.55
87.60
20.00

100.00
153.60

Analysis component:
There are several things that could be done. The Marketing Manager should
review the prior months petty cash journal entries to determine if the
shortage is an anomaly or a recurring event. Hopefully it is an anomaly but,
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300

regardless, the manager will need to question the Petty Cash Custodian about
the \$20 cash shortage recorded in September. It is important to recognize
that honest errors do occur. It is also possible that the Petty Cash Custodian
requires training to help him manage the petty cash fund. If it is determined
that the error was based on dishonesty, appropriate action will have to be
taken (which normally results in the dismissal of the employee as a minimum).

* Either Office Supplies Expense (an expense) or Office Supplies (an asset) could
be debited. However, if supplies are being purchased through Petty Cash it is
likely that they are for immediate use which justifies using an expense account
over an asset.

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301

## Exercise 9-7 (20 minutes)

a.
Oct. 31 Cleaning Expense .......................................................
Postage Expense ........................................................
Delivery Expense ........................................................
Cash Over and Short .........................................
Cash ..................................................................
To reimburse the fund.

120.00
79.00
60.00

b.
Nov. 30 Computer Repair Expense ..........................................
Entertainment Expense ...............................................
Cash Over and Short...................................................
Cash ...................................................................
To reimburse the fund.

75.00
156.00
2.00

c.
Dec. 31 Gas Expense...............................................................
Office Supplies Expense* ............................................
Entertainment Expense ...............................................
Petty Cash...................................................................
Cash ...................................................................
To reimburse and increase the fund.

80.00
140.00
62.00
100.00

4.00
255.00

233.00

382.00

* Either Office Supplies Expense (an expense) or Office Supplies (an asset) could
be debited. However, if supplies are being purchased through Petty Cash it is
likely that they are for immediate use which justifies using an expense account
over an asset.

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302

## Exercise 9-8 (20 minutes)

Oct.

Cash ..........................................................................
Debit Card Expense ...................................................
Service Revenue ................................................
To record sale of services less debit card
expense; 0.5% x 105,000 = 525.

104,475
525

Cash ..........................................................................
Service Revenue ................................................
To record sale of services provided for cash.

37,000

Cash ..........................................................................
Credit Card Expense..................................................
Service Revenue ................................................
To record sale of services less credit card
expense; 2% x 61,000 = 1,220.

59,780
1,220

10

## Accounts Receivable Edson CHC ...........................

Service Revenue ................................................
To record sale of services.

84,000

25

Cash ..........................................................................
Sales Discounts .........................................................
Accounts Receivable Edson CHC ...................
To record collection of Oct. 10 credit sale;
2% x 84,000 = 3,680.

80,320
3,680

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302

105,000

37,000

61,000

84,000

84,000

303

## Exercise 9-9 (30 minutes)

Jan. 15

Cash ..........................................................................
Sales ..................................................................
To record sale of merchandise to cash customers.

56,000

15

## Cost of Goods Sold ....................................................

Merchandise Inventory .......................................
To record cost of sales.

36,400

17

## Accounts Receivable .................................................

Sales ..................................................................
To record sale of merchandise on terms 2/10, n30.

15,800

17

## Cost of Goods Sold ....................................................

Merchandise Inventory .......................................
To record cost of sales.

12,000

20

Cash ..........................................................................
Credit Card Expense..................................................
Sales ..................................................................
To record sale of merchandise less credit card
expense; 114,000 x 2% = 2,280.

111,720
2,280

20

## Cost of Goods Sold ....................................................

Merchandise Inventory .......................................
To record cost of sales.

74,100

25

Cash ..........................................................................
Debit Card Expense ...................................................
Sales ..................................................................
To record sale of merchandise less debit card
expense; 0.5% x 72,000 = 360.

71,640
360

## Cost of Goods Sold ....................................................

Merchandise Inventory .......................................
To record cost of sales.

46,800

25

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303

56,000

36,400

15,800

12,000

114,000

74,100

72,000

46,800

304

## Exercise 9-9 (concluded)

Analysis component
Cash sales would be preferable, however, often it is not convenient for
customers. The inconvenience of cash might prevent customers from
making purchases if that was the only means of payment accepted by
LenCon. Credit sales allow customers to purchase on impulse. However,
two disadvantages: receipt of cash by LenCon is delayed and credit sales
require administrative time to monitor the timely collection from credit
customers. Debit cards have the advantage of allowing customers to
make impulse purchases but only if the cash balance is available in their
bank account. Debit cards are also comparable to cash (no subsequent
collection required) but the bank does charge a fee for this service
although it is normally significantly less than the fee charged by banks
for credit card transactions. Bank credit cards have the advantages of
cash being collected by LenCon immediately (positive effect on cash flow)
and customers are limited only to their credit card limit (not their bank
account balance); customers are buying on credit but the risk of
collection is transferred to the credit card company. The disadvantage of
credit cards is the fee charged by the administering bank. LenCon will
likely accept all forms of payment to enhance sales and in so doing
recognize the costs and risks of each.

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305

## Exercise 9-10 (25 minutes)

1.
PELZER HOLDINGS
Bank Reconciliation
July 31, 2011

## Bank statement balance ...................

\$9,848

Book balance........................

\$9,740

Outstanding deposit........................

572

## Bank error (Peltza cheque) ..........

560
\$10,98
0

Deduct:

Deduct:

Outstanding cheques:

## NSF Jim Anderson ..........

240

#14: \$ 600
#54:

140 ....................................

1,480

\$9,500

2.
July 31

## Accounts Receivable Jim Anderson ..................

240

Cash ............................................................................

240

## To reinstate customer account.

Analysis component
If the journal entry in (2) is not recorded, net income, liabilities, and owners
equity would not be affected. Assets would be increased and decreased by the
same amount causing a net change of zero.

## Exercise 9-11 (25 minutes)

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306

## MEDLINE SERVICE CO.

Bank Reconciliation
July 31, 2011
Bank statement balance ...................................

\$10,332

Deposit of July 31 ..................

\$11,352

2,724

## Error on Ch. No. 919 ........

\$13,056
Deduct:...............................................
Outstanding cheques ...........

\$11,361
Deduct:

1,713

18

\$11,343

## Exercise 9-11 (concluded)

b.
July

31

Cash ..........................................................................
Utilities Expense .................................................
To correct error.

31

## Bank Service Charges Expense ................................

Cash ...................................................................
To record bank service charges.

18

Analysis component
If the journal entries in part (a) were not recorded, net income, assets, and
owners equity would each be overstated by a net amount of \$9 (\$18 - \$9 = \$9);
liabilities are not affected by the entries in (a).

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18

307

## Exercise 9-12 (20 minutes)

Bank Balance
1. Interest earned on the account.
2. Deposit made on September 30
after the bank was closed.
3. Cheques outstanding on August
31 that cleared the bank in
September.
4. NSF cheque from customer
returned on September 15 but
not recorded by the company.
5. Cheques written and mailed to
payees on September 30.
6. Deposit made on September 5
that was processed on
September 8.
7. Bank service charge.
8. Cheques written and mailed to
payees on October 5.
9. Cheque written by another
depositor but charged against
the company's account.
10. Principal and interest
collected by the bank but not
recorded by the company.
11. Special charge for collection
of note in No. 10 on company's
behalf.
12. Cheque written against the
account and cleared by the
bank; erroneously omitted by
the bookkeeper.

Book Balance
Must
x
Dr.

Solutions Manual for Chapter 8

Not Shown
on the
Reconciliation

x
x
x

Cr.

Cr.

x
x
x
x
x

Dr.
x

Cr.

Cr.

307

308

## *Exercise 9-13 (15 minutes)

Case X

Case Y

Case Z

Cash ...........................................................

\$ 800

\$ 910

\$1,100

Short-term investments.....................

-0-

-0-

500

-0-

990

800

\$ 800

\$1,900

\$2,400

\$2,200

\$1,100

\$3,650

## Acid-test ratio ........................................

0.36

1.73

0.66

Case Y exhibits the superior ability to meet short-term obligations as they come due.
The acid-test ratio of 1.73 exceeds the common benchmark of 1.0. Cases X and Z
fall short of the 1.0 benchmark.

Chapter 9
EXERCISES

## Exercise 9-1 (10 minutes)

Lombard Companys internal control system failed to require a separation of asset
custody and recordkeeping. The bookkeeper should not have been allowed to sign
the companys cheques. In addition, since a loss was incurred, the company
apparently had not bonded its employee. Otherwise, the loss would have been
insured by the bonding company. Finally, if regular, independent reviews of the
accounting records had been done, the payments of salary cheques to a
nonemployee may have been discovered sooner.
Exercise 9-2 (15 minutes)
You have several concerns. First, there is no mechanism in the parking meters to
track the input of coins (a meter reading that could be documented and subsequently
verified against the collection); this means there is no verifiable means by which to
reconcile the contents of each meter. Second, because of the first shortcoming, the
employee emptying the contents of the meters could withhold some of the coins
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309

since the dollar value cannot be verified. Third, the canvas bag is not secure; it can
be opened at any time by an unauthorized individual. Fourth, after emptying several
parking meters, the contents of each canvas bag can easily exceed a thousand
dollars; there is a safety risk to a lone employee carrying a canvas bag of money.
To correct the situation, optimally, the parking meters should be mechanized such
that the contents can be reconciled. However, a major investment in new parking
meters seems unlikely, therefore, civic employees collecting coins from parking
meters should operate in pairs; there is less risk of fraud if two employees are
responsible for emptying the parking meters (unless there is collusion). The canvas
bag used to collect the coins is also problematic. It should be redesigned so that
coins can go in but cannot be removed unless done so by an authorized individual.
Finally, for safety of the individuals involved and for security over the coins, full
moneybags should not be stored in an unattended vehicle. Full moneybags should
be transferred to a secure location immediately; arrangements could be made with
an armored vehicle to rendezvous with the pair of employees regularly at specified
points along the route.

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310

## Exercise 9-3 (15 minutes)

a. If a cash register cannot be used, the total sales value of the shirts and
sunglasses given to the employee each day should be calculated. Then, the
employee should sign a receipt for the merchandise and the amount of cash
that he or she has been given. At the end of each day, the employee should be
required to return cash plus remaining shirts and sunglasses equal to the
amount taken to the stand.
b.

The employee should sign a receipt for the total amount of cash he or she is
given each weekend. Then, each time the employee makes a purchase, he or
she should obtain a signed sales receipt for the payment. The sales receipt
should list the items purchased and the prices paid. When the employee returns
to the business office, the total value of the signed sales receipts plus any
remaining cash should equal the amount of cash originally given to the
employee. Also, the merchandise brought back by the employee should be the
same as the items listed on the signed sales receipts.

## Exercise 9-4 (15 minutes)

The internal control problem is that the bookkeeper has physical control over the
cash receipts and also has control over the accounting records. Nothing in the
system prevents the bookkeeper from taking cash from the mail and using it
personally. The bookkeeper might delay recording the cash receipt from a customer
until more cash comes in at a later date from a second customer. Then, the new
cash receipt would be deposited and recorded as a payment made by the first
customer. No entry would be made in the second customers account until cash was
received from a third customer. (This type of fraud is called lapping.) Also, the
bookkeeper may pocket cash and claim that a payment was never received and
apparently lost in the mail.
If only one person is present when the mail is opened, that person may steal cash
and claim it was never received. If possible, two people should be present.
Otherwise, the honesty and integrity of the person chosen to open the mail is critical.
Most importantly, the bookkeeper should not have physical control over cash.

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311

Part 1
a.
Jan. 1
b.

## Petty Cash .................................................................

Cash ...................................................................
To establish the fund.

200.00

200.00

Eanes Co.
Petty Cash Payments Report
January 1 8, 2011

Receipts:
Postage expense ..........................................................

\$64.00

19.00

36.50

53.00

## Total receipts ..........................................................................................................

Fund total....................................................................

\$200.0
0

27.50

\$172.50

172.50

Jan.

Part 2
Jan. 8

## Postage Expense .......................................................

Merchandise Inventory ...............................................
Store Supplies Expense* ...........................................
Jim Eanes, Withdrawals .............................................
Cash ...................................................................
To reimburse the fund.

64.00
19.00
36.50
53.00

## Postage Expense .......................................................

Merchandise Inventory ...............................................
Store Supplies Expense* ...........................................
Jim Eanes, Withdrawals .............................................
Petty Cash .................................................................
Cash ...................................................................

64.00
19.00
36.50
53.00
300.00

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-0-

172.50

472.50
311

312

## To reimburse the fund and increase it by \$300.

Analysis Component
If the January 8 entry to reimburse the fund was not recorded, net income would be
overstated.
* Either Store Supplies Expense (an expense) or Store Supplies (an asset) could be
debited. However, if supplies are being purchased through Petty Cash it is likely
that they are for immediate use which justifies using an expense account over an
asset.

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313

a.
Sept.

b.

## Petty Cash .................................................................

Cash ...................................................................
To establish the fund.

400.00

400.00

Petty Cash Payments Report
September 9 30, 2011

Receipts:

\$ 32.4
5

## Office supplies .............................................................

113.55

Repairs expense..........................................................

87.60

## Total receipts ..............................................................

\$233.60)

Fund total...................................................................

\$400.0
0

146.40

253.60)

(\$ 20.00
)

Sept. 30

## Merchandise Inventory ...............................................

Office Supplies Expense*...........................................
Repairs Expense........................................................
Cash Over and Short .................................................
Petty Cash ..........................................................
Cash ...................................................................
To reimburse the fund and decrease it by \$100.

32.45
113.55
87.60
20.00

100.00
153.60

Analysis component:
There are several things that could be done. The Marketing Manager should
review the prior months petty cash journal entries to determine if the
shortage is an anomaly or a recurring event. Hopefully it is an anomaly but,
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313

314

regardless, the manager will need to question the Petty Cash Custodian about
the \$20 cash shortage recorded in September. It is important to recognize
that honest errors do occur. It is also possible that the Petty Cash Custodian
requires training to help him manage the petty cash fund. If it is determined
that the error was based on dishonesty, appropriate action will have to be
taken (which normally results in the dismissal of the employee as a minimum).

* Either Office Supplies Expense (an expense) or Office Supplies (an asset) could
be debited. However, if supplies are being purchased through Petty Cash it is
likely that they are for immediate use which justifies using an expense account
over an asset.

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315

## Exercise 9-7 (20 minutes)

a.
Oct. 31 Cleaning Expense .......................................................
Postage Expense ........................................................
Delivery Expense ........................................................
Cash Over and Short .........................................
Cash ..................................................................
To reimburse the fund.

120.00
79.00
60.00

b.
Nov. 30 Computer Repair Expense ..........................................
Entertainment Expense ...............................................
Cash Over and Short...................................................
Cash ...................................................................
To reimburse the fund.

75.00
156.00
2.00

c.
Dec. 31 Gas Expense...............................................................
Office Supplies Expense* ............................................
Entertainment Expense ...............................................
Petty Cash...................................................................
Cash ...................................................................
To reimburse and increase the fund.

80.00
140.00
62.00
100.00

4.00
255.00

233.00

382.00

* Either Office Supplies Expense (an expense) or Office Supplies (an asset) could
be debited. However, if supplies are being purchased through Petty Cash it is
likely that they are for immediate use which justifies using an expense account
over an asset.

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316

## Exercise 9-8 (20 minutes)

Oct.

Cash ..........................................................................
Debit Card Expense ...................................................
Service Revenue ................................................
To record sale of services less debit card
expense; 0.5% x 105,000 = 525.

104,475
525

Cash ..........................................................................
Service Revenue ................................................
To record sale of services provided for cash.

37,000

Cash ..........................................................................
Credit Card Expense..................................................
Service Revenue ................................................
To record sale of services less credit card
expense; 2% x 61,000 = 1,220.

59,780
1,220

10

## Accounts Receivable Edson CHC ...........................

Service Revenue ................................................
To record sale of services.

84,000

25

Cash ..........................................................................
Sales Discounts .........................................................
Accounts Receivable Edson CHC ...................
To record collection of Oct. 10 credit sale;
2% x 84,000 = 3,680.

80,320
3,680

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316

105,000

37,000

61,000

84,000

84,000

317

## Exercise 9-9 (30 minutes)

Jan. 15

Cash ..........................................................................
Sales ..................................................................
To record sale of merchandise to cash customers.

56,000

15

## Cost of Goods Sold ....................................................

Merchandise Inventory .......................................
To record cost of sales.

36,400

17

## Accounts Receivable .................................................

Sales ..................................................................
To record sale of merchandise on terms 2/10, n30.

15,800

17

## Cost of Goods Sold ....................................................

Merchandise Inventory .......................................
To record cost of sales.

12,000

20

Cash ..........................................................................
Credit Card Expense..................................................
Sales ..................................................................
To record sale of merchandise less credit card
expense; 114,000 x 2% = 2,280.

111,720
2,280

20

## Cost of Goods Sold ....................................................

Merchandise Inventory .......................................
To record cost of sales.

74,100

25

Cash ..........................................................................
Debit Card Expense ...................................................
Sales ..................................................................
To record sale of merchandise less debit card
expense; 0.5% x 72,000 = 360.

71,640
360

## Cost of Goods Sold ....................................................

Merchandise Inventory .......................................
To record cost of sales.

46,800

25

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317

56,000

36,400

15,800

12,000

114,000

74,100

72,000

46,800

318

## Exercise 9-9 (concluded)

Analysis component
Cash sales would be preferable, however, often it is not convenient for
customers. The inconvenience of cash might prevent customers from
making purchases if that was the only means of payment accepted by
LenCon. Credit sales allow customers to purchase on impulse. However,
two disadvantages: receipt of cash by LenCon is delayed and credit sales
require administrative time to monitor the timely collection from credit
customers. Debit cards have the advantage of allowing customers to
make impulse purchases but only if the cash balance is available in their
bank account. Debit cards are also comparable to cash (no subsequent
collection required) but the bank does charge a fee for this service
although it is normally significantly less than the fee charged by banks
for credit card transactions. Bank credit cards have the advantages of
cash being collected by LenCon immediately (positive effect on cash flow)
and customers are limited only to their credit card limit (not their bank
account balance); customers are buying on credit but the risk of
collection is transferred to the credit card company. The disadvantage of
credit cards is the fee charged by the administering bank. LenCon will
likely accept all forms of payment to enhance sales and in so doing
recognize the costs and risks of each.

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318

319

## Exercise 9-10 (25 minutes)

1.
PELZER HOLDINGS
Bank Reconciliation
July 31, 2011

## Bank statement balance ...................

\$9,848

Book balance........................

\$9,740

Outstanding deposit........................

572

## Bank error (Peltza cheque) ..........

560
\$10,98
0

Deduct:

Deduct:

Outstanding cheques:

## NSF Jim Anderson ..........

240

#14: \$ 600
#54:

140 ....................................

1,480

\$9,500

2.
July 31

## Accounts Receivable Jim Anderson ..................

240

Cash ............................................................................

240

## To reinstate customer account.

Analysis component
If the journal entry in (2) is not recorded, net income, liabilities, and owners
equity would not be affected. Assets would be increased and decreased by the
same amount causing a net change of zero.

## Exercise 9-11 (25 minutes)

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319

320

## MEDLINE SERVICE CO.

Bank Reconciliation
July 31, 2011
Bank statement balance ...................................

\$10,332

Deposit of July 31 ..................

\$11,352

2,724

## Error on Ch. No. 919 ........

\$13,056
Deduct:...............................................
Outstanding cheques ...........

\$11,361
Deduct:

1,713

18

\$11,343

## Exercise 9-11 (concluded)

b.
July

31

Cash ..........................................................................
Utilities Expense .................................................
To correct error.

31

## Bank Service Charges Expense ................................

Cash ...................................................................
To record bank service charges.

18

Analysis component
If the journal entries in part (a) were not recorded, net income, assets, and
owners equity would each be overstated by a net amount of \$9 (\$18 - \$9 = \$9);
liabilities are not affected by the entries in (a).

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320

18

321

## Exercise 9-12 (20 minutes)

Bank Balance
1. Interest earned on the account.
2. Deposit made on September 30
after the bank was closed.
3. Cheques outstanding on August
31 that cleared the bank in
September.
4. NSF cheque from customer
returned on September 15 but
not recorded by the company.
5. Cheques written and mailed to
payees on September 30.
6. Deposit made on September 5
that was processed on
September 8.
7. Bank service charge.
8. Cheques written and mailed to
payees on October 5.
9. Cheque written by another
depositor but charged against
the company's account.
10. Principal and interest
collected by the bank but not
recorded by the company.
11. Special charge for collection
of note in No. 10 on company's
behalf.
12. Cheque written against the
account and cleared by the
bank; erroneously omitted by
the bookkeeper.

Book Balance
Must
x
Dr.

Solutions Manual for Chapter 8

Not Shown
on the
Reconciliation

x
x
x

Cr.

Cr.

x
x
x
x
x

Dr.
x

Cr.

Cr.

321

322

## *Exercise 9-13 (15 minutes)

Case X

Case Y

Case Z

Cash ...........................................................

\$ 800

\$ 910

\$1,100

Short-term investments.....................

-0-

-0-

500

-0-

990

800

\$ 800

\$1,900

\$2,400

\$2,200

\$1,100

\$3,650

## Acid-test ratio ........................................

0.36

1.73

0.66

Case Y exhibits the superior ability to meet short-term obligations as they come due.
The acid-test ratio of 1.73 exceeds the common benchmark of 1.0. Cases X and Z
fall short of the 1.0 benchmark.

Chapter 10
aaExercises

Receivables

## Exercise 10-1 (20 minutes)

Apr. 6

Cash ....................................................................
Credit Card Expense (\$9,200 .04) ..................
Sales ............................................................

8,832.00
368.00

COGS ..................................................................
Merchandise Inventory...............................

5,300.00

10

## Accounts ReceivableColonial .......................

Sales ............................................................

310.00

10

COGS ..................................................................
Merchandise Inventory...............................

160.00

17

No entry required.

28

Cash ....................................................................

Solutions Manual for Chapter 8

9,200.00
5,300.00
310.00
160.00

5,370.40
322

323

## Credit Card Expense (\$5,480 .02)...................

Accounts ReceivableColonial ................

Solutions Manual for Chapter 8

109.60

5,480.00

323

324

## Exercise 10-2 (25 minutes)

1.
GENERAL LEDGER

Accounts Receivable
Nov. 3 8,834 Nov. 19

Bal.

Sales Returns
and Allowances

Sales
378

Nov. 3 8,834

8 2,500

8 2,500

11 1,466

11 1,466

28 5,212

28 5,212

17,634

18,012

Nov. 19

378

## ACCOUNTS RECEIVABLE SUBLEDGER

ABC Shop
Nov. 3 8,834

Colt Enterprises
Nov. 8

2,500

28 5,212
Bal.

Red McKenzie
Nov. 11 1,466
Bal.

Nov.
19

1,088

14,046

2. Subledger proof:
ABC Shop ...................................................................
Colt Enterprises .........................................................
Red McKenzie ............................................................
Balance of the Accounts Receivable account .........

\$14,046
2,500
1,088
\$17,634

a.Oct. 31

## Allowance for Doubtful Accounts.....................

Accounts ReceivableGwen Rowe ..........

1,000

b. Dec. 9

## Accounts ReceivableGwen Rowe .................

Allowance for Doubtful Accounts .............

200

Solutions Manual for Chapter 8

1,000
200

324

378

325

Cash ....................................................................
Accounts ReceivableGwen Rowe ..........

Solutions Manual for Chapter 8

200

200

325

326

Dec. 31

## Bad Debt Expense .............................................

Allowance for Doubtful Accounts .............
Expense = .005 \$1,750,000 = \$8,750.

8,750

Feb. 1

## Allowance for Doubtful Accounts.....................

Accounts ReceivableCatherine Hicks ...

1,800

June 5

## Accounts ReceivableCatherine Hicks ..........

Allowance for Doubtful Accounts .............

1,800

Cash ....................................................................
Accounts ReceivableCatherine Hicks ...

1,800

8,750

1,800
1,800
1,800

a.Dec. 31

## Bad Debt Expense .............................................

Allowance for Doubtful Accounts .........
Accounts Receivable

3,615

Allowance for
Doubtful Accounts
2,745
?

Bal. 159,000
4%
\$ 6,360

b.Dec. 31

6,360

## Bad Debt Expense .............................................

Allowance for Doubtful Accounts .........
Accounts Receivable

Required
Balance

10,356

10,356

3,996
?

Solutions Manual for Chapter 8

balance

Allowance for
Doubtful Accounts
balance

Bal. 159,000
4%
\$ 6,360

3,615

6,360

Required
Balance

326

327

a) \$345,000
b)
c)
d)
e)

\$356,000
\$2,900
\$170
\$2,550

## Exercise 10-7 (15 minutes)

LISTEL
Partial Balance Sheet

## March 31, 2011

Assets
Current assets:
Cash..........................................................................................

\$ 29,000

Accounts receivable...........................................................

\$102,000

2,100

99,900

17,000

## Merchandise inventory ....................................................

65,000

Supplies ..................................................................................

4,500

## Total current assets ...........................................................

\$215,400

Note: Bad Debt Expense is an income statement account and is therefore not listed on
the balance sheet. Notes Receivable due May 1, 2013, Building and Accumulated
Amortization, Building are asset accounts shown on the balance sheet but they
are not current assets.

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328

## Exercise 10-8 (30 minutes)

a.
2011
Dec. 31 Bad Debt Expense .......................................................

7,314

7,314

## To record estimate for uncollectible accounts;

492,500 4,900 = 487,600 x 1.5% = 7,314.

b.
2012

## Accounts Receivable ...................................................

620,000

Sales ..............................................................................................

620,000

406,500

406,500

## To record cost of sales during 2012.

Cash ......................................................................................................

491,300

6,200

497,500

12,450

12,450

## To record the write-off of uncollectible accounts.

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329

c.
2012

9,207

9,207

## To record estimate for uncollectible accounts;

620,000 6,200 = 613,800 x 1.5% = 9,207.

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329

330

## Exercise 10-8 (concluded)

d.

Assets
Current assets:
Accounts receivable1 ...................................................................................

\$180,050

4,971

\$175,079

OR
\$175,079

## Accounts receivable (net) .................................................................................................

Calculations:
1.

2.
Accounts Receivable

Bal. Dec
31/11

70,000

620,000

497,50
0

2012 sales

2012
collections

900

2012
write-offs

31/11

7,314

Dec 31/11

12,450
Bal. Dec
31/12

180,050
2012
writeoffs 12,45
0

## 8,214 Adj. Bal. Dec

31/11

9,207 Dec 31/12
4,971 Adj. Bal. Dec
31/12

Analysis component:

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331

## The main advantage of the income statement approach is its simplicity.

Like the balance sheet approach, it satisfies the generally accepted
accounting principles of matching and conservatism. The main
disadvantage is that it does not compensate for over or under estimations
from year to year because it is not focused on the element that is
uncollectible, namely, the accounts receivable.

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331

332

## Exercise 10-9 (30 minutes)

a.
2011
Dec. 31 Bad Debt Expense .....................................................

500

500

## To record estimate for uncollectible accounts;

70,000 x 2% = 1,400; 1,400 900 = 500.

b.
2012

## Accounts Receivable ...............................................

620,000

Sales .........................................................................................

620,000

406,500

406,500

## To record cost of sales during 2012.

Cash ..........................................................................

491,300

6,200

497,500

12,450

12,450

## To record the write-off of uncollectible

accounts.

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332

333

c.
2012
Dec. 31 Bad Debt Expense ...................................................

14,651

14,651

## To record estimate for uncollectible accounts;

180,050 x 2% = 3,601;
3,601 1,400 + 12,450 = 14,651.

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334

d.
Assets
Current assets:

\$180,050

3,601

\$176,449

OR
\$176,449

## Accounts receivable (net) ............................................................................................

Calculations:
Accounts Receivable
Bal. Dec
31/11

70,000

620,000

2012
collection
497,50 s
0

900

2012 sales

500

2012
write-offs

Dec 31/11

12,450
Bal. Dec
31/12

Dec 31/11

180,050

1,400
2012
writeoffs 12,45
0

31/11

14,651
Dec 31/12
3,601

## Adj. Bal. Dec

31/12

Analysis component
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334

335

The main advantage of the balance sheet approach is that it adjusts the
allowance for doubtful accounts to the estimated amount of
uncollectibles. Like the income statement approach, it satisfies the
generally accepted accounting principles of matching and conservatism.
The main disadvantage is that it does require more effort in terms of
calculations.

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335

336

## Exercise 10-10 (30 minutes)

a.

2011
Dec. 31 Bad Debt Expense ...........................................................

2,250

2,250

## To record estimate for uncollectible accounts;

(95,000 x 1% = 950) + (35,000 x 4% = 1,400) +
(8,000 x 10% = 800) + (2,000 x 60% = 1,200) =
4,350; 4,350 2,100 = 2,250.

b.
2012
Dec. 31 Bad Debt Expense ...........................................................

39,010

39,010

## To record estimate for uncollectible accounts;

(215,000 x 1% = 2,150) + (95,000 x 4% = 3,800) +
(35,100 x 10% = 3,510) + (15,000 x 60% = 9,000) =

c.
Assets
Current assets:

## Accounts receivable .................................................................. \$360,100

Less: Allowance for doubtful accounts ....................................................

18,460

\$341,640

OR

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337

\$341,640

## Accounts receivable (net) ......................................................................................................

Calculations:
Accounts Receivable
Bal. Dec
31/11

2012 sales

140,000

1,240,0
00

995,0
00

2012
collections

2,100

2012
write-offs

2,250

31/11

Dec 31/11

24,90
0
Bal. Dec
31/12

360,100

## 4,350 Adj. Bal. Dec

31/11
2012
write- 24,90
offs
0

39,010
Dec 31/12
18,460 Adj. Bal. Dec
31/12

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338

## Exercise 10-10 (concluded)

Analysis component
One of the ways to apply the balance sheet approach is to use an aging
analysis of outstanding receivables. The main advantage of the aging
analysis is that it adjusts the allowance for doubtful accounts to the
estimated amount of uncollectible receivables based on a detailed
analysis that considers the risk associated with the age of a receivable.
Like the income statement approach, it satisfies the generally accepted
accounting principles of matching and conservatism. The main
disadvantage is that it does require more effort in terms of calculations.
However, computerization of the accounting information system has
Exercise 10-11 (15 minutes)
May 3

## Bad Debt Expense .............................................

Accounts Receivable Wilma Benz..........
To write-off an uncollectible receivable using the
direct write-off method.

1,100

1,100

Analysis component:
Using 2% of credit sales, bad debt expense would be \$5,600 (280,000 2% =
5,600) for 2011 thereby decreasing net income by \$4,500 more than the direct
write-off method. Using 4% of outstanding accounts receivable would result
in a bad debt expense of \$2,940 (46,000 4% = 1,840 + 1,100 = 2,940) thereby
decreasing net income by \$1,840 more than the direct write-off method.

Mar. 21

## Notes Receivable ...............................................

Accounts ReceivableBradley Brooks ....
To record 6-month, 10% note to replace
past-due account.

6,200.00

Sept. 21

## Accounts ReceivableBradley Brooks ...........

Interest Revenue.........................................
Notes Receivable ........................................
To record dishonoured note;
\$6,200 0 .10 6/12 = \$310.00.

6,510.00

Dec. 31

## Allowance for Doubtful Accounts.....................

Accounts ReceivableBradley Brooks ....
To record write-off of Brooks account.

6,510.00

Solutions Manual for Chapter 8

6,200.00

310.00
6,200.00

6,510.00

338

339

Oct. 31

## Notes ReceivableLeann Grimes ....................

Accounts ReceivableLeann Grimes ......
To record 6-month, 8% note to replace
past-due account.

5,000.00

Dec. 31

## Interest Receivable ............................................

Interest Revenue.........................................
To record accrued interest;
\$5,000 .08 2/12 = \$66.67.

66.67

Apr. 30
Cash ....................................................................
Receivable
66.67
To record collection of note and interest;
\$5,000 .08 4/12 = \$133.33.

5,200.00

Solutions Manual for Chapter 8

5,000.00

66.67

339

340

2011
Dec. 16

## Notes Receivable ...............................................

Accounts ReceivableCarmel Karuthers ......
To record 60-day, 7% note to replace
past-due account.

17,200.00

31

## Interest Receivable ............................................

Interest Revenue.........................................
To record accrued interest;
\$17,200 0.07 15/365 = \$49.48.

49.48

31

## Interest Revenue ................................................

Income Summary........................................
To record the closing of the Interest
Revenue account.

49.48

Cash ....................................................................
Interest Revenue.........................................
Interest Receivable .....................................
Notes Receivable ........................................
To record collection of note plus interest;
\$17,200 x 0 .07 x 60/365 = 197.92;
197.92 49.48 = 148.44.

17,397.92

2012
Feb. 14

Mar. 2

## Notes Receivable ......................................................

Accounts ReceivableATW Company ........
To record 90-day, 8% note to replace
past-due account.

49.48

49.48

148.44
49.48
17,200.00

8,000.00

17

## Notes Receivable ...............................................

Accounts ReceivableLeroy Johnson .........
To record 30-day, 9% note to replace
past-due account.

3,200.00

May 31

Cash ....................................................................
Interest Revenue.........................................
Notes Receivable ........................................
To record collection of note plus interest;
\$8,000 0.08 90/365 = \$157.81.

8,157.81

Solutions Manual for Chapter 8

17,200.00

8,000.00

3,200.00

157.81
8,000.00

340

341

Aug. 2

## Accounts Receivable .........................................

Sales ............................................................
To record sales on credit.

6,295.00

## Cost of Goods Sold ...........................................

Merchandise Inventory .................................
To record cost of sales.

3,150.00

Cash ....................................................................
Factoring Fee Expense ......................................
Accounts Receivable ....................................
To record sale of accounts receivable;
\$18,770 .015.

18,488.45
281.55

15

Cash ....................................................................
Accounts Receivable ....................................
To record collection from credit customers.

3,436.00

25

Cash ....................................................................
Notes Payable .............................................
To record note; pledged \$14,000 of accounts
receivable as security for the loan.

10,000.00

6,295.00

3,150.00

18,770.00

3,436.00

10,000.00

Note:
Accounts receivable in the amount of \$14,000 are pledged as security for a
\$10,000 note payable to Fidelity Bank.

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342

Jan. 20

## Note Receivable .................................................

Accounts Receivable Steve Soetart .......
Received note in settlement of account.

170,000.00

Feb. 19

Cash ....................................................................
Interest Revenue.........................................
Notes Receivable ........................................
Discounted a note receivable.

170,487.58

## Principal of Note ................................................ \$170,000.00

Add: Interest from Note (\$170,000 9% 90/365)
Maturity Value .................................................... \$173,772.60
Less: Bank Discount (\$173,772.60 11.5% 60/365)
Proceeds............................................................. \$170,487.58

170,000.00

487.58
170,000.00

3,772.60
3,285.02

Part 1

\$7,280

= 13.43 times

(\$598 + \$486)/2

## \$598 x 365 = 29.98 days

\$7,280

Part 2
WestCon is not collecting its receivables as quickly as the industry average
which is generally unfavourable. WestCon has more days of uncollected sales
(or receivables) than the industry average, also unfavourable.

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343

Chapter 11
EXERCISES

Payroll Liabilities

## Exercise 11-1 (15 minutes)

Regular pay (172 hours @ \$12.50) ...........................
Overtime premium pay (12 hours @ \$6.25) .............
Gross pay ..................................................................
EI deduction .............................................................
CPP deduction...........................................................
Income tax deduction (\$151.00 + \$201.30) ..............
Total deductions .......................................................
Net pay .......................................................................

\$ 41.61
95.70
352.30

\$2,150.00
75.00
\$2,225.00

489.61
\$1,735.39

## Exercise 11-2 (30 minutes)

Deductions

Employee

Gross

EI

Pay

Income
Taxes

Health

CPP*

Total
Insurance Deductions

Net Pay

Hellena Chea

720.00

13.461

133.55

32.315

24.00

203.32

516.68

Joseph Lim

610.00

11.412

104.65

26.866

24.00

166.92

443.08

Dino Patelli

830.00

15.523

169.70

37.757

36.00

258.97

571.03

Sharl Qulnata

1,700.00

31.794

486.90

80.828

24.00

623.51

1,076.49

Totals

3,860.00

72.18

894.80

177.74

108.00

1,252.72

2,607.28

\$32.31

\$26.86

\$37.75

## 8. (\$1,700 \$67.31) 4.95% = \$80.82

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344

May

## Office Salaries Expense............................................

Employees Income Taxes Payable ...........
CPP Payable ...............................................
Employees Health Insurance Payable .....
EI Payable ...................................................
Salaries Payable .........................................

Solutions Manual for Chapter 8

3,860.00

894.80
177.74
108.00
72.18
2,607.28

344

345

Deductions
Employee

Gross
Pay

EI

Pay

Income United

Total

Way

CPP

Distribution

Net Pay

Deductions

Office
Salaries

Sales
Salaries

Akerley, D.

1,900.00

35.53

421.65

80.00

87.39

Nesbitt, M.

1,260.00

23.56

218.60

50.00

55.71

347.87

912.13

1,260.00

Trent, F.

1,680.00

31.42

348.35

40.00

76.50

496.27 1,183.73

1,680.00

Vacon, M.

3,000.00

56.10

## 815.00 300.00 141.84

1,312.94 1,687.06

3,000.00

Totals

7,840.00

## Exercise 11-4 (25 minutes)

Deductions
Gross

EI

Distribution

Income
United
Total
Pay
Premiu
Savings
Office
Sales
m
Taxes Bonds CPP Way Deductions Net Pay Salaries Salaries

Employee

Pay

Crimson, L.

1,995.0
0

Long, M.

2,040.0
0

38.15 306.95

102.0
-0- 86.54
0

1,506.3
533.64
6

2,040.00

Morris, P.

2,000.0
0

37.40 295.70

100.0
-0- 84.56
0

1,482.3
517.66
4

2,000.00

Peterson,
B.

2,280.0
0

## 42.64 305.75 200.00 98.42

1,519.1
9

2,280.00

Totals

8,315.0
1,184.7
353.8 415.7
0 155.50
0 350.00
4
5

114.0
0

647.68

760.81

1,347.3
2 1,995.00

5,855.2
2,459.79
1 1,995.00 6,320.00

## Exercise 11-5 (25 minutes)

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346

Deductions

Employee

Gross
Pay

EI
Premiu Income
m
Taxes

Payment

Distribution

United
Total
Office
CPP* Way Deductions Net Pay Salaries

Salaries

Crimson, L. 1,995.00

37.31

295.70 84.32

Long, M.

2,040.00

38.15

533.64 1,506.36

2,040.00

Morris, P.

2,000.00

37.40

## 295.70 84.56 100.00

517.66 1,482.34

2,000.00

Peterson, B. 2,350.00

43.95

843.84 1,506.16

2,350.00

Totals

99.75

Sales

## 8,385.00 156.81 1,278.85 357.31 419.25

Solutions Manual for Chapter 8

346

6,390.00

347

## Exercise 11-6 (15 minutes)

Monthly salary ...........................................
CPP deducted ...........................................
EI deducted ...............................................
Income tax withheld ..................................
Salary, net of deductions .........................
....................................................................
Monthly contribution ................................
Feb. 28

\$2,050.00

\$ 87.04
38.34
308.80

0.02

434.18
\$1,615.82
32.32

## Salaries Expense ................................................................................................

2,050.00
EI Payable .......................................................................................................

38.34

CPP Payable....................................................................................................

87.04

308.80

32.32

Mar. 24

## Salaries Expense ................................................................................................

65,950.00
EI Payable ........................................................................................................

1,233.27

3,097.93

28,439.95

1,150.00

1,319.00

30,709.85

Mar. 24

## EI Expense (1,233.27 1.4) ..........................................................................

1,726.58
CPP Expense ........................................................................................................
3,097.93
EI Payable ........................................................................................................

1,726.58

## CPP Payable ....................................................................................................

3,097.93

Solutions Manual for Chapter 8

347

348

Apr. 15

## EI Payable (1,233.27 + 1,726.58) ................................................................

2,959.85
CPP Payable (3,097.93 x 2) ............................................................................
6,195.86
Employees Income Taxes Payable .............................................................
28,439.95
Cash ...................................................................................................................

Solutions Manual for Chapter 8

37,595.66

348

349

## Exercise 11-10 (15 minutes)

1. May 5

2.

EI Expense............................................................
CPP Expense ........................................................
EI Payable (\$81.06 1.4) ..............................
CPP Payable .................................................

101.05
177.74

101.05
177.74

## 5Benefits Expense....................................................... 494.00

Employees Health Insurance Payable .......
Employees Retirement Program Payable ..

108.00
386.00

## Exercise 11-11 (20 minutes)

Retirement Fund
Health
CPP Contribution
Doherty

EI Contribution

Contributions Insurance

Fane ......

1,910.70

729.30

6,100.00

1,440.00

Kahan...

1,910.70

729.30

5,900.00

1,440.00

## Martin .. (\$37,000 3,500) 4.95% = 1,658.25\$37,000 1.87% =

Poon......

1,910.70

Totals ...

\$8,999.10

691.90

729.30

4,800.00

3,700.00 1,44
1,440.00

\$3,553.00\$24,100.00 \$7,200.00

## Payroll taxes and fringe benefits as a percentage of salaries:

\$8,999.10 + (\$3,553.00 1.4) + \$24,100 + \$7,200
= 18.79%
\$241,000
Exercise 11-12 (20 minutes)
Apr. 30 Salaries Expense (\$2,080 12)...................................................

24,960.00

466.80

1,062.24

3,788.40

## Salaries Payable ...........................................................................

19,642.56

Solutions Manual for Chapter 8

349

350

30

653.52

1,062.24

1,996.80

## Benefits Expense Medical Insurance (\$50 12) ..............

600.00

EI Payable .......................................................................................

653.52

1,062.24

1,996.80

## Medical Insurance Payable ......................................................

600.00

Solutions Manual for Chapter 8

350

351

Jan. 31

## Benefits Expense .......................................................

Estimated Vacation Payable ..............................

22,507

22,507

## \$ 96,000 (2/50) = \$ 3,840

224,0001 (4/48) = 18,667
\$320,000
\$22,507
1. 320,000 x 70% = 224,00

Chapter 8

Accounting Information
Systems

Questions
1. As a purchasing agent, Greg Timko will make daily use of the purchases
journal and the inventory and accounts payable subledgers. He might
discuss with personnel from other areas of the store the other journals and
subledgers as his area impacts them or vice versa: sales journal, cash
disbursements journal, and cash receipts journal along with the accounts
receivable subledger.
2. Four types of transactions recorded in separate special journals are: (a) sales
on credit, (b) purchases on credit, (c) cash receipts, and (d) cash
disbursements.
3. Daily recording and posting of credit sales and cash receipts from customers
provides up-to-date information used in decisions about granting credit to
customers. Also, up-to-date account balances are needed if customers
inquire about the amount of their balances.
4. Both kinds of credits should not be placed in the same column because the
sum of the credits to the customer accounts must be posted to the Accounts
Receivable controlling account. Placing these credits in a separate column
makes it possible to post the column total to the controlling account.
5. The double posting does not cause the trial balance to be out of balance
because only one credit is posted to the General Ledger.
6. The initial and page number of the journal from which the amount was posted
is entered in the Posting Reference column of the ledger account.

QUICK STUDY

Solutions Manual for Chapter 8

351

352

1.
2.
3.
4.

P
AR
AR
AP

Input (I) or
Output (O)
1.

2.

3.

4.

5.

6.

7.

8.

## Quick Study 8-3

a.

Sales Journal

b.

Purchases Journal

c.

d.

## Cash Disbursements Journal

e.

Purchases Journal

f.

g.

## Cash Receipts Journal

Solutions Manual for Chapter 8

352

353

## Quick Study 8-4

Nov. 12

Automobiles ...............................................
Capital, Jesse Cooke ..........................
The owner contributed an automobile

15,000

19

## Sales Returns and Allowances ...................

Accounts ReceivableR. Wyder ........
Customer returned merchandise.

150

19

## Merchandise Inventory ................................

Cost of goods sold ...............................
Merchandise returned to inventory.

95

28

## Accounts PayableThe Ringdol Company 170

Merchandise Inventory .......................
Returned defective merchandise.

15,000

150

95

170

Debit (DR),
Credit (CR), or
No Effect (NE)
1.
2.
3.
4.
5.
6.
7.

DR
NE
NE
CR
NE
CR
NE

## Quick Study 8-6

Debit (DR),

Credit (CR), or
No Effect (NE)
1.
2.
3.
4.
5.
6.
7.

CR
NE
CR
NE
DR
DR
NE

Solutions Manual for Chapter 8

353

354

Solutions Manual for Chapter 8

## Quick Study 8-7

Sales Journal

Page 1

Accounts Receivable
Dr. Sales Cr.

## Cost of Goods Sold Dr.

Merchandise Inventory
Cr.

1103

3,000

2,040

10 Willis Company

1104

10,800

7,344

25 Ellton Kingston

1105

7,400

5,032

Date

Account Debited

Invoice
Number

PR

2011
Mar. 3 T. Edson

Date

Account
Credited

PR

Explanation

Sales
Discount
Cash Dr.
Dr.

Page 1

Accounts
Receivable
Cr.

2011
Mar. 18

T. Edson

Invoice #1103

2,940

60

3,000

Sales
Cr.

Other
Accounts
Cr.

Cost of Goods
Sold Dr.
Merchandise
Inventory Cr.

639

355

30

Willis
Company

Invoice #1104

31

ABC Company

Cash sale

10,800
6,200

10,800
6,200

4,216

356

640

## Quick Study 8-9

Purchases Journal

Date

Account Credited

Date of
Invoice

Terms

PR

Page 1

Accounts
Payable Cr.

Merchandise
Inventory Dr.

Office
Supplies
Dr.

Other
Accounts
Dr.

2011
Mar. 2 Tex Company

Mar

3/10,
n20

4,800

4,800

12 Littleton

12

2/15,
n30

14,000

14,000

13 Worsley

13

2/15,
n45

9,400

9,400

## Quick Study 8-10

Fundamental Accounting Principles, Twelfth Canadian Edition

Date

Ch.
No.

Payee

Account Debited

PR

Cash Cr.

Page 1

Merchandise
Inventory Cr.

Other
Accounts Dr.

Accounts
Payable Dr.

2011
Mar. 14

101

Tex Company

Tex Company

27

102

Littleton

Littleton

4,800
13,720

4,800
280

14,000

357

31

103

## Thorn Real Estate

Rent Expense

6,500

6,500

358

Solutions Manual for Chapter 8

EXERCISES
Exercise 8-1 (15 minutes)

Sales Journal
Date

Account Debited

Invoice
Number

PR

Page 1

Accounts Receivable
Dr. Sales Cr.

## Cost of Goods Sold Dr.

Merchandise Inventory
Cr.

2011
Feb. 7

J. Eason

5704

1,150

700

12

P. Lathan

5705

320

170

25

S. Summers

5706

550

300

SALES JOURNAL

Page 2
Invoice

Date

Account Debited

Numbe
r

A/R Dr.
PR

Sales Cr.

2011
Feb
.

7 J. Eason

5704

1,150

12 P. Lathan

5705

320

25 S. Summers

5706

550

641

359

Date

Account
Credited

PR

Explanation

Cash
Dr.

Sales
Discou
nt Dr.

Page 1

Accounts
Receivabl
e Cr.

Sales
Cr.

Other
Account
s Cr.

Cost of Goods
Sold Dr.
Merchandise
Inventory Cr.

2011
Sept. 9

Notes payable

Note to bank

5,500

5,500

13

Dale Trent,
capital

Owner
investment

7,000

7,000

18

Sales

Cash sale

27

J. Namal

Invoice, Sept. 7

460
1,764

460
36

1,800

280

360

642

## *Exercise 8-4 (20 minutes)

CASH RECEIPTS JOURNAL
Account
Date

Credited

Explanation

PR

Page 2

Sales

Accts.

Other

Cash

Disc.

Rec.

Sales

Accts.

Debit

Debit

Credit

Credit

Credit

2011
Sept
.

9 Notes payable

Note to bank

5,500

5,500

1 Dale Trent,
3 capital

Owner
investment

7,000

7,000

1 Sales
8

Cash sale

2 J. Namal
7

Invoice, Sept. 7

## Exercise 8-5 (20 minutes)

460
1,764

460
36

1,800

361

Purchases Journal

Date

Account Credited

Date of
Invoice

Terms

PR

Page 1

Accounts
Payable Cr.

Merchandi
se
Inventory
Dr.

8,100

Office
Supplies
Dr.

Other
Accounts
Dr.

2011
July

Angler, Inc.

Ju
l

n/30

8,100

Company

Ju
l

14

2/10,
n/30

240

17

Ju
l

17

n/30

2,600

Marten Company

240
2,600

## Exercise 8-6 (20 minutes)

PURCHASES JOURNAL

Page 2
Accounts

Date
of
Date

Account Credited

Invoic
e

Terms

PR

Office

Other

Payable

Purchases

Supplie
s

Accounts

Credit

Debit

Debit

Debit

2011
July

1 Angler, Inc.

July
1

## 14 Store Supplies/Steck Company July

n/30
2/10,n/30

8,100
240

8,100
240

362

14
17 Marten Company

July
17

n/30

2,600

2,600

363

Solutions Manual for Chapter 8

## Exercise 8-7 (20 minutes)

Cash Disbursements Journal
Ch.
No.

Date

Payee

Account Debited

PR

Cash Cr.

Page 1

Merchandise
Inventory Cr.

Other
Accounts Dr.

Accounts
Payable Dr.

2011
Mar. 9

210

Narlin Corp.

Store Supplies

900

900

17

211

City Bank

Notes Payable

3,000

3,000

29

212

LeBaron

LeBaron

6,860

31

213

E. Brandon

Salaries
Expense

3,400

31

214

Pace, Inc.

Pace, Inc.

5,500

140

7,000
3,400
5,500

## *Exercise 8-8 (20 minutes)

CASH DISBURSEMENTS JOURNAL
Ch.
Date

No.

Payee

Account Debited

PR

Other

Cash

Discoun
t

Accts.

Payable

Credit

Credit

Debit

Debit

2011
Mar.

Page 2

Purchas
e

9 21
0

Narlin Corp.

Store Supplies

900

900

1 21

City Bank

Notes Payable

3,000

3,000

Accts.

643

364

7 1
2 21
9 2

LeBaron

LeBaron

6,860

3 21
1 3

E. Brandon

Salaries Expense

3,400

3 21
1 4

Pace, Inc.

Pace, Inc.

5,500

140

7,000
3,400
5,500

365

644

## Exercise 8-9 (30 minutes)

Part 1 Wilson Purchasing

Purchases Journal

Date

Account Credited

Date of
Invoice

Terms

PR

Page 1

Accounts
Payable Cr.

Merchandi
se
Inventory
Dr.

30,000

30,000

Office
Supplies
Dr.

Other
Accounts
Dr.

2011
May
11

Hostel Sales

May 11

3/10,
n/90

## Cash Disbursements Journal

Ch.
No.

Date

Payee

Account Debited

PR

Cash Cr.

Page 1

Merchandise
Inventory Cr.

Other
Accounts Dr.

Accounts
Payable Dr.

2011
Fundamental Accounting Principles, Twelfth Canadian Edition

May
11

84

Express
Shipping

Merchandise
Inv.

20

85

Hostel Sales

Hostel Sales

335
27,9361

General Journal
Date

864

Page: 1

PR

Debit

2011
May

335

1,200

Credit

28,800

366

## Merchandise Inventory ..........................................

To record return of merchandise.

Calculations:
1. 30,000 1,200 = 28,800; 28,800 x 3% = 864; 28,800 864 = 27,936.

1,200

367

Solutions Manual for Chapter 8

## Exercise 8-9 (concluded)

Part 2 Hostel Sales
Sales Journal
Date

Invoice
Number

Account Debited

PR

Page 1

Accounts Receivable
Dr. Sales Cr.

## Cost of Goods Sold Dr.

Merchandise Inventory
Cr.

30,000

20,000

2011
May
11

Wilson

1601

Date

Account
Credited

PR

Explanation

Cash
Dr.

Page 1

Sales
Discou
nt Dr.

Accounts
Receivabl
e Cr.

864

28,800

2011
May
21

Wilson

Wilson

27,93
61

General Journal
Date

Page: 1

PR

Debit

2011
May

1,200

Credit

Sales
Cr.

Other
Account
s Cr.

Cost of Goods
Sold Dr.
Merchandise
Inventory Cr.

645

368

1,200

## 12 Merchandise Inventory .............................................

Cost of Goods Sold ...................................................
To record cost of merchandise returned to
inventory.

Calculations:
1. 30,000 1,200 = 28,800; 28,800 x 3% = 864; 28,800 864 = 27,936.

800
800

369

646

## *Exercise 8-10 (30 minutes)

Part 1 Wilson Purchasing
PURCHASES JOURNAL

Page 2
Accounts
Date

Date

Account Credited

Invoic

o
f
Terms

PR

Office

Other

Payable

Purchases

Supplie
s

Account
s

Credit

Debit

Debit

Debit

30,000

30,000

2011
Ma

11 Hostel Sales
y

May

3/10,n/90
1
1

## CASH DISBURSEMENTS JOURNAL

Fundamental Accounting Principles, Twelfth Canadian Edition

Ch.
Date

No.

Payee

Account Debited

PR

Page 2

Purchas
e

Other

Accts.

Cash

Discoun
t

Accts.

Payable

Credit

Credit

Debit

Debit

2011
May

1 84 Express
Transportation-In
1
Shipping
2 85 Hostel Sales
0

335
27,936

335
864

28,800

370

General Journal
Date

Page: 1

PR

Debit

Credit

2011
May

## 12 Accounts Payable Hostel Sales .......................

Purchase Returns and Allowances ....................
To record return of merchandise purchased.

1,200
1,200

371

Solutions Manual for Chapter 8

## *Exercise 8-10 (concluded)

Part 2 Hostel Sales
SALES JOURNAL

Page 2
Invoice

Date

Account Debited

Numbe
r

A/R Dr.
PR

Sales Cr.

2011
Ma
y

30,000

1601

Account
Date

Credited

Explanation

PR

Accts.

Cash

Disc.

Rec.

Sales

Accts.

Debit

Debit

Credit

Credit

Credit

27,936

864

28,800

2011
May

2 Wilson

Sale of May 11

General Journal
Date

Page: 1

PR

Debit

2011
May

Page 2

Sales

1,200

Credit

Other

647

372

## Accounts Receivable Wilson Purchasing ......

To record sales return.

1,200

373

## Exercise 8-11 (10 minutes)

The June 5 purchase would have been recorded in the Purchases Journal and the June 14
payment would have been recorded in the Cash Disbursements Journal. The error in journalizing
the June 14 transaction should be discovered in the process of crossfooting the Cash
Disbursements Journal at the end of the month.
Exercise 8-12 (10 minutes)
a.

b.

c.

d.

e.

## When the schedule of accounts payable is prepared.

Solutions Manual for Chapter 8

373

374

## Exercise 8-13 (30 minutes)

Part 1
ACCOUNTS RECEIVABLE SUBLEDGER
Sanders Farrell
May 17

1,700 May 20

Bal.

1,200

Don Holland
500 May 10 3,880
25 680

May 6 5,760

Bal.
4,560

Part 2
GENERAL LEDGER
Accounts Receivable
May 31

12,020 May 20

Bal.

11,520

Sales Returns
and Allowances

Sales
500

May 3112,020

ay 20

M
500

Part 3
VALUE-MART GOODS
Schedule of Accounts Receivable
May 31, 2011
Sanders Farrell ...................................................

\$ 1,200

4,560

5,760

\$11,520

## Total debit ............................................................

Credit for return .................................................
Solutions Manual for Chapter 8

\$12,020
(500)

374

375

## Balance as of May 31, 2011 ............................

Solutions Manual for Chapter 8

\$11,520

375

376

## *Exercise 8-14 (35 minutes)

GENERAL LEDGER
Cash
38,878

Accounts Payable
23,044

1,500

23,200

Sales Discounts
472

18,300

Accounts Receivable
26,200

Notes Payable

600

Purchases
9,000

23,200

23,600

Prepaid Insurance

Purchase Returns
and Allowance

Sales

1,700

26,200

1,500

5,750

Sales Returns
and Allowances

Store Equipment
3,500

1,000

Purchase Discounts

600

456

Jack Hertz
7,400

Trudy Stone
600

16,800

Dave Waylon
16,800

2,000

6,800

## ACCOUNTS PAYABLE SUBLEDGER

Grass Corp.
1,500

McGrew Company
10,800

Solutions Manual for Chapter 8

3,400

Sulter, Inc.
9,000

9,000

376

377

9,300

Solutions Manual for Chapter 8

377

378

## *Exercise 8-15 (30 minutes)

Part 1
ACCOUNTS RECEIVABLE SUBLEDGER
Jan. 8

Lisa Mack

7,076

Jan. 14

Jay Newton

23,780

Kathy Olivias

Jan. 2

4,176

Jan. 10

15,544

29

8,468

20

12,992

Part 2
Jan. 31

## Accounts Receivable ...........................................

Sales ............................................................
GST Payable ................................................
PST Payable ................................................

72,036

62,100
3,726
6,210

Part 3

GENERAL LEDGER
Accounts Receivable
Jan. 31

Sales

72,036

62,100 Jan. 31

Part 4
SKILLERN COMPANY
Schedule of Accounts Receivable
January 31, 2011

\$ 7,076

12,644

28,536

## Lisa Mack .....................................................

Solutions Manual for Chapter 8

23,780

378

379

## Total accounts receivable ......................

Solutions Manual for Chapter 8

\$72,036

379

380

652

Page X

Sales Journal

Date

Account Debited

Invoice
No.

PR

A/R Dr

PST
Payable CR

GST
Payable CR

COGS DR
Merchandise
Inventory CR

Sales Cr

2011

Aug. 5
11

Jay Smith

50

50,160

3,520

2,640

44,000

21,000

Dee Oliver

51

38,760

2,720

2,040

34,000

16,200

## Cash Receipts Journal

Date

Account
Credited

Explanatio
n

PR

Other
Account
s CR

A/R
CR

PST
Payabl
e CR

Page X

GST
Payabl
e CR

Sale
s CR

Cash DR

Sales
Disc
Dr

2011
Fundamental Accounting Principles, Twelfth Canadian Edition

## Aug. Jay Smith

20
21 Dee Oliver

Inv. 50

50,16
0

50,160

Inv. 51

38,76
0

38,420

Purchases Journal
Date

Account Credited

Terms

PR

A/P CR

340*

Page X
Merchandise
Inventory
DR

Other
Accounts DR

GST Recble
DR

COGS/DR
Merchandise
Inventory/
CR

381

2011

Aug. 1

2/10,
n/30

10,600

JayCee Equipment

n/
30

6,360

Date

Ch #

Account Debited

10,000

Other
Accounts
GST Recble
PR
DR
DR

600
6,000

360

Page X
A/P DR

Merchandis
e Inventory
CR

Cash CR

2011

Aug. 10

28

## *Discount on sales amount only

10,600

200

10,400

382

Solutions Manual for Chapter 8

## *Exercise 8-17 (20 minutes)

SALES JOURNAL

Date
2011
Aug.

Invoice
Number

Account Debited
5 Jay Smith
11 Dee Oliver

PR

50
51

Date
Account Credited
Explanation
2011
Aug.20 A/R Jay Smith
Inv. 50
21 A/R Dee Oliver
Inv. 51

PR

Other
Accts.
Credit

Page X
Accts.
Rec.
Debit

PST
Payable
Credit

50,160
38,760

3,520
2,720

## CASH RECEIPTS JOURNAL

Accts.
PST
GST
Rec.
Payable
Payable
Credit
Credit
Credit

Date
2011

Account Credited
1 Arden Sheet Metal
7 JayCee Equipment

Ch.
No.

Aug.10 28

Payee
A/P Arden

Date of
Invoice
Aug. 1
Aug. 7

Account Debited
Arden Sheet Metal

Terms
2/10,n/30
n/30

Sales
Credit

2,640
2,040

44,000
34,000

Page X
Sales
Credit

50,160
38,760

Cash
Debit

Sales
Discount
Debit

50,160
38,420

PURCHASES JOURNAL

Date
2011
Aug.

GST
Payable
Credit

PR

340

Page X
Accts.
Payable
Credit
10,600
6,360

## CASH DISBURSEMENTS JOURNAL

Other
GST
Accts.
Recble
PR
Debit
Debit

Purchases
Debit

Other
Accounts
Debit

GST
Recble
Debit

10,000

600
360

6,000
Page X
Accts.
Payable
Debit
10,600

Pur.
Disc.
Credit
200

Cash
Credit
10,400

653

383

PROBLEMS
Problem 8-1A (20 minutes)
Date

Special
Journal

Subledger

AR/MI

## 2 Defective merchandise sold on March 1 was returned

by the customer. It was scrapped.

AR

AP

CR

AR

## 10 Received a credit memorandum from the supplier

regarding defective equipment purchased on March 3.

AP

CR

MI

AP/MI

transaction.

CD

AP

CD

MI

CD

AP/MI

CR

NE

CD

NE

A/P

capital.

NE

Transaction

## 16 Purchased merchandise inventory on credit; terms

1/5, n/30.

Solutions Manual for Chapter 8

383

384

Solutions Manual for Chapter 8

## Problem 8-2A (40 minutes)

Sales Journal

Date

Account Debited

Invoice
No.

Page 1

COGS Dr.
PR

A/R Dr.
Sales Cr.

Merchandise
Inventory Cr.

2011
Apr. 2 Tim Bennett

306

35,000

22,750

311

42,000

27,300

16 Wynne Walsh

312

14,000

9,100

24 Brian Kennedy

313

18,000

11,700

5 Brian Kennedy

Explanatio
n

Cash
Dr.

Inv. 307310

15,000

Inv. 306

34,300

20 A/R

Kennedy

Brian

Inv. 311

42,000

42,000

## 27 A/R Wynne Walsh

Inv. 312

11,000

11,000

Date

Account Credited

PR

Sales
Disc Dr.

Page: 1

2011
Apr. 3 Sales (cash sales)

A/R Cr.

Sales Cr.

15,000
700

35,000

Other
Accounts
Cr.

COGS/Dr.
Merchandi
se
Inventory/
Cr.

9,750

655

385

Purchases Journal
Date

Account Credited

Date of
Invoice

Terms

PR

Page 1

A/P Cr.

Merchandise
Inventory
Dr.

Office
Supplies Dr.

Other
Accounts Dr.

2011
Apr. 4

Wallace Brothers

Apr. 4

1/10,
n/30

48,000

48,000

11

Apr. 11

n/30

56,000

56,000

Zardon Co.

Apr. 23

1/15,
n/30

3,800

23

Equip.

3,800

386

656

## Problem 8-2A (concluded)

Cash Disbursements Journal

Date

Ch #

Account Debited

PR

Cash Cr.

Page 1

Merchandi
se
Inventory
Cr.

Other
Accounts
Dr.

A/P Dr.

2011
Apr. 9

620

Office Supplies

230

13

621

Wallace Brothers

43,3621

26

622

## McKinley & Sons

56,000

30

623

Salaries

36,000

230
438

43,800
56,000
36,000

Calculation:
1. 48,000 4,200 = 43,800 Dr to A/P; 43,800 x 1% = 438; 43,800 438 = 43,362 Cr to Cash
Fundamental Accounting Principles, Twelfth Canadian Edition

General Journal
Date

Page: 1

PR

Debit

Credit

2011
Apr.

## 6 Accounts Payable Wallace Brothers ...............

Merchandise Inventory ..........................................

4,200
4,200

387

## 19 Sales Returns and Allowances .................................

Accounts Receivable Wynne Walsh ...............
To record allowance granted regarding
defective merchandise.

3,000
3,000

388

Solutions Manual for Chapter 8

## Problem 8-3A (40 minutes)

Note: Since posting to the General Ledger was not a requirement in this problem, posting references are shown for
values posted to the subledgers only.

Part 3
Sales Journal

Date

Account Debited

Page 3

## Cost of Goods Sold Dr.

Invoice
No.

PR

A/R Dr.
Sales Cr.

Merchandise
Inventory Cr.

2011
Apr. 3 Linda Hobart

760

5 Paul Abrams

761

11 Kelly Schaefer

762

13 Linda Hobart

763

3,000

1,800

8,000

4,500

9,500

5,000

4,100

2,400

## Cash Receipts Journal

Date

Account Credited

PR

Sales
Disc
Dr.

Explanation

Cash Dr.

Sale of Apr. 3

2,940

60

3,000

Sale of Apr. 5

7,840

160

8,000

2011
Apr. 13 Linda Hobart
14 Paul Abrams

Page: 3

A/R Cr.

Sales Cr.

Other
Account
s Cr.

COGS Dr.
Merchandi
se
Inventory
Cr.

657

16 Sales

Cash sales

389

50,840

50,840

28,000

390

658

## Problem 8-3A (continued)

PURCHASES JOURNAL
Date
2011
Apr.
2
3
9

Account Credited

Date of
Invoice

Terms

Eau Claire Inc.
Store Equip./Franks Supply

Apr 2
Apr 2
Apr 9

2/10,n/60
n/10 EOM
n/10 EOM

Page 3

Accts.
Payable
Credit

PR

Merchandise
Inventory
Debit

13,300
1,380
11,125

Office
Supplies
Debit

13,300

1,380

Ch.
No.

Date
2011
Apr.
4 587
12 588
16 589

The Record
Payroll

Account Debited

## Fundamental Accounting Principles, Twelfth Canadian Edition

PR

Sales Salaries Expense

GENERAL JOURNAL
Account Titles and Explanations

Date
2011
Apr.

Payee

## Accounts PayableEau Claire Inc. ...........................

Office Supplies...................................................
Returned office supplies.

999
13,034
9,750

PR

Debit

85

266

Page 3
Credit

85

11,125
Page 3

Merchandise
Inventory
Credit

Cash
Credit

Other
Accts.
Debit

Other
Accts.
Debit
999
9,750

Accts.
Payable
Debit
13,300

391

## Problem 8-3A (concluded) Parts 1, 3

ACCOUNTS RECEIVABLE SUBLEDGER
Paul Abrams
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

S3

1
4

CR3

8,000

8,000
8,000

Linda Hobart
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

S3

1
3

CR3

1
3

S3

3,000

3,000
3,000

4,100

0
4,100

Kelly Schaefer
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

1
1

S3

9,500

9,500

Parts 2, 3
ACCOUNTS PAYABLE SUBLEDGER
Franks Supply
Date

Explanation

PR

Debit

Credit

Balance

2011
Solutions Manual for Chapter 8

391

392

Apr.

P3

11,125

11,125

Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

P3

1
2

CD3

13,300
13,300

13,300
0

Sprocket Company
Explanation

Date

PR

Debit

Credit

Balance

Debit

Credit

Balance

2011

## Eau Claire Inc.

Explanation

Date

PR

2011
Apr.

P3

G3

Solutions Manual for Chapter 8

1,380
85

1,380
1,295

392

393

660

Parts 2, 3, 4
Sales Journal

Page 3

Invoice
No.

PR

## Apr. 3 Linda Hobart

760

3,000

1,800

5 Paul Abrams

761

8,000

4,500

11 Kelly Schaefer

762

9,500

5,000

13 Linda Hobart

763

4,100

2,400

27 Paul Abrams

764

3,070

1,600

27 Kelly Schaefer

765

5,700

3,000

33,370

18,300

(106/413)

(502/119)

Date

Account Debited

A/R Dr.
Sales Cr.

Merchandise
Inventory Cr.

2011

30 Totals

Date
2011

Account Credited

PR

Explanation

Cash Dr.

Sales
Disc
Dr.

Page: 3

A/R Cr.

Sales Cr.

Other
Account
s Cr.

COGS Dr.
Merchandi
se
Inventory
Cr.

394

Sale of Apr. 3

2,940

60

3,000

14 Paul Abrams

Sale of Apr. 5

7,840

160

8,000

16 Sales
18

## L.T. Notes Payable

20 Kelly Schaefer
23 Linda Hobart
30 Sales
30 Totals

25
1

Cash sales

50,840

Note to bank

50,000

50,840
50,000

Sale of Apr.
11

9,310

190

9,500

Sale of Apr.
13

4,018

82

4,100

Cash sales

70,975
195,923
(101)

28,000

70,975
492
(415)

24,600
(106)

121,815
(413)

37,000
50,000
(X)

65,000
(502/119)

395

Solutions Manual for Chapter 8

## Problem 8-4A (continued)

PURCHASES JOURNAL
Date
2011
Apr.
2
3
9
17
20
25

Account Credited

Date of
Invoice

Terms

Eau Claire Inc.
Store Equip./Franks Supply
Sprocket Company
Store Supplies/Franks Supply

Apr 2
Apr 2
Apr 9
Apr 16
Apr 19
Apr 24

2/10,n/60
n/10 EOM
n/10 EOM
2/10,n/30
n/10 EOM
2/10,n/60

Page 3

Accts.
Payable
Credit

PR

165/

125/

30 Totals

Merchandise
Inventory
Debit

13,300
1,380
11,125
12,750
730
10,375

13,300

49,660
(201)

36,425
(119)

Office
Supplies
Debit
1,380

12,750

Date
2011
Apr.
4
12
16
26
30
30

587
588
589
590
591

Payee
The Record
Payroll
Sprocket Company
Payroll
Totals

Account Debited
Sales Salaries Expense
Sprocket Company
Sales Salaries Expense

PR
655

621

621

Cash
Credit
999
13,034
9,750
12,1031
9,750
45,636
(101)

11,125
730

10,375
1,380
(124)

## CASH DISBURSEMENTS JOURNAL

Ch.
No.

Other
Accts.
Debit

11,855
(X)
Page 3

Merchandise
Inventory
Credit
266
247
513
(119)

Other
Accts.
Debit
999
9,750
9,750
20,499
(X)

Calculation:
1. \$12,750 \$400 credit memorandum = \$12,350; \$12,350 x 2% = \$247; \$12,350 - \$247 = \$12,103

Accts.
Payable
Debit
13,300
12,350*
25,650
(201)

661

396

## Problem 8-4A (continued)

GENERAL JOURNAL
Account Titles and Explanations

Date
2011
Apr.

PR

Page 3
Credit

Debit

## Accounts PayableEau Claire Inc. ...........................

Office Supplies ...................................................
Returned office supplies.

201/
124

85

23

## Accounts PayableSprocket Company......................

Merchandise Inventory .......................................
Returned merchandise.

201/
119

400

85

400

Parts 1, 2, 3, 4
GENERAL LEDGER
Cash

Date

Explanation

## Acct. No. 101

PR

Debit

Credit

Balance

2011
Mar.

3 Balance Forward
1

167,000

Apr.

3
0

CR3

3
0

CD3

195,923
45,636

Accounts Receivable

Date

Explanation

362,923
317,287

## Acct. No. 106

PR

Debit

3
0

S3

33,370

3
0

CR3

Credit

Balance

2011
Apr.

24,600

Merchandise Inventory

Date

Explanation

Solutions Manual for Chapter 8

33,370
8,770

## Acct. No. 119

PR

Debit

Credit

Balance

396

397

2011
Mar.

3 Balance Forward
1

95,000

Apr.

2
3

G3

400

94,600

3
0

S3

18,300

76,300

3
0

CR3

65,000

11,300

3
0

P3

3
0

CD3

36,425

47,725
513

Office Supplies
Date

Explanation

47,212

PR

Debit

Credit

Balance

2011
Apr.

P3

G3

1,380

1,380
85

1,295

Store Supplies
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

2
0

P3

730

730

## Acct. No. 165

Store Equipment
Date

Explanation

PR

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

397

398

Apr.

P3

11,125

11,125

Accounts Payable
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

G3

85

(85)

2
3

G3

400

(485)

3
0

P3

3
0

CD3

49,660
25,650

Explanation

Date

49,175
23,525

PR

Debit

Credit

Balance

2011
Mar.

31

Apr.

18

Balance Forward

167,000
CR3

50,000

Date

Explanation

217,000

## Acct. No. 301

PR

Debit

Credit

Balance

2011
Mar.

3 Balance forward
1

95,000

## Acct. No. 413

Sales
Date

Explanation

PR

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

398

399

Apr.

3
0

S3

3
0

CR3

Sales Discounts
Explanation

Date

33,370

33,370

121,815

155,185

## Acct. No. 415

PR

Debit

Credit

Balance

2011
Apr.

3
0

Solutions Manual for Chapter 8

CR3

492

492

399

400

Acct. No. 502

Explanation

Date

PR

Debit

Credit

Balance

3
0

S3

18,300

18,300

3
0

CR3

65,000

83,300

2011
Apr.

Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

1
6

CD3

9,750

9,750

3
0

CD3

9,750

19,500

Date

Explanation

PR

Debit

Credit

Balance

2011
Apr.

CD3

999

999

## ACCOUNTS RECEIVABLE SUBLEDGER

Paul Abrams
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

S3

CR3

Solutions Manual for Chapter 8

8,000

8,000
8,000

400

401

4
2
7

S3

3,070

3,070

Linda Hobart
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

S3

1
3

CR3

1
3

S3

2
3

CR3

3,000

3,000
3,000

4,100

0
4,100

4,100

Kelly Schaefer
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

1
1

S3

2
0

CR3

2
7

S3

9,500

9,500
9,500

5,700

0
5,700

## Problem 8-4A (continued)

ACCOUNTS PAYABLE SUBLEDGER
Franks Supply
Date

Explanation

PR

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

401

402

Apr.

P3

11,125

11,125

20

P3

730

11,855

Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

P3

1
2

CD3

2
5

P3

13,300
13,300

13,300
0

10,375

10,375

Sprocket Company
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

1
7

P3

2
3

G3

2
6

CD3

12,750

12,750

400

12,350

12,350

## Eau Claire Inc.

Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

P3
G3

Solutions Manual for Chapter 8

1,380
85

1,380
1,295

402

403

## Problem 8-4A (continued) Part 5

NEWTON COMPANY
Schedule of Accounts Receivable
April 30, 2011

## Paul Abrams .............................................

\$3,070

Kelly Schaefer...........................................

5,700

## Total accounts receivable ...................

\$8,770

NEWTON COMPANY
Schedule of Accounts Payable
April 30, 2011

## Franks Supply ...........................................

Eau Claire Inc. ...........................................
Total accounts payable ..............................

\$11,855
10,375
1,295
\$23,525

NEWTON COMPANY
Trial Balance
April 30, 2011

## Account .................. Debit

Credit
Cash .......................................................... \$317,287
Accounts receivable ....................................
8,770
Merchandise inventory ................................
47,212
Office supplies ...........................................
1,295
Store supplies ............................................
730
Store equipment ........................................
11,125
Accounts payable ......................................
Long-term notes payable ...........................
Jeff Newton, capital ....................................
Sales...........................................................
Sales discounts...........................................
492
Cost of goods sold ......................................
83,300
Sales salaries expense ..............................
19,500
999
Totals ......................................................... \$490,710

Solutions Manual for Chapter 8

\$ 23,525
217,000
95,000
155,185

\$490,710

403

404

## Problem 8-4A (concluded)

Analysis component:
To find the error(s),
first re-add the account balances on the schedule of accounts receivable to confirm that
the addition was correct.
trace the balances listed on the schedule of accounts receivable back to the subsidiary
accounts to confirm that they were listed correctly on the schedule.
recalculate the balance of each subsidiary account to confirm that the additions and
subtractions were correct.
trace the postings from each subsidiary account and from the controlling account back to
the appropriate journals.
Since the sales and cash receipts journals were footed and crossfooted before posting, the
previous steps should disclose the error.

Solutions Manual for Chapter 8

404

405

668

Parts 1, 2, 3
SALES JOURNAL

Date

Invoice
Number

Account Debited

Page 3

PR

A/R. Dr.
Sales Cr.

Merchandise
Inventory Cr.

2011
Oct.

Marge Craig

913

3,300

1,600

12

Vickie Foresman

914

3,650

1,900

15

Amy Ihrig

915

3,100

1,700

16

Vickie Foresman

916

7,700

3,900

24

Bill Grigsby

917

1,200

700

31

Totals

18,950

9,800

(106/413
)

(502/119)

## CASH RECEIPTS JOURNAL

Date
2011
Oct.
2

Account
Credited
Bill Grigsby

Explanation
Invoice Nov
23

PR

Cash
Debit
4,116

Sales
Discoun
t
Debit

Acct.
Rec.
Credit

84

4,200

Sales
Credit

Page 3
Other Cost of Goods Sold Dr.
Accts Merchandise Inventory
.
Cr.
Credit

406

15 Sales
15 Marge Craig
22 Vickie
Foresman
25 Amy Ihrig

Cash sales
Invoice Dec 6
Invoice Dec
12
Invoice Dec
15
29 Office Supplies Sold supplies
31 Sales
Cash sales
31 Totals

38,830
2,401
3,577

49
73

2,548

52

124

50
29,600
81,122
)

(101

2,450*
3,650
2,600**

258 12,900
(415)

38,830

(106)

## * \$3,300 \$850 return = \$2,450

** \$3,100 \$500 allowance = \$2,600

29,600
68,430
(413)

21,400

50
50

16,300
37,700

(X)

(502/119)

407

Solutions Manual for Chapter 8

## Problem 8-5A (continued)

PURCHASES JOURNAL
Date

Account Credited

2011
Oct.
2 Shore Company
5 Brown Supply Co.

Date of
Invoice
Oct 2
Oct 3

15 Shore Company

Oct 15

15 Sunshine Company

Oct 15

Oct 16

## 21 Store Equip./Brown Supply

Co.
26 Sunshine Company

Oct 21

31 Totals

Oct 25

Terms
2/10,
n/60
n/10
EOM
2/10,
n/60
2/10,
n/60
n/10
EOM
n/10
EOM
2/10,
n/60

PR

Merchandis
Accounts
e
Payable
Inventory
Credit
Debit

3,200

3,200

1,300

1,300

3,990

3,990

2,650

2,650

615

165/

6,700

8,100

8,100

26,555

19,240
(119
)

(201)

Page 2
Office
Supplies
Debit

Other
Accts.
Debit

615
6,700

4)

615
(12

6,700
(X)

669

408

670

## Problem 8-5A (continued)

CASH DISBURSEMENTS JOURNAL
Date

Ch. Payee
No.

2011
Oct.
2 619 Omni Realty Co.
6 620 Fireside
Company
12 621 Shore Company
15 622 Jamie Green
23 623 Sunshine
Company
24 624 Shore Company
30 625 Ken Shaw
31 626 Jamie Green

## Fundamental Accounting Principles, Twelfth Canadian Edition

31 627 Countrywide
Elec.
31
Totals

Merchandis
e
Inventory.
Credit

Other
Accts.
Debit

Page 4
Accts.
Payable
Debit.

Account Debited

PR

Cash
Credit

Rent Expense
Fireside Company

640

2,250
3,724

Shore Company
Sales Salaries
Expense
Sunshine Company

621

3,136
2,020

64

2,597

53

2,650

Shore Company
Ken Shaw,
Withdrawals
Sales Salaries
Expense
Utilities Expense

302

2,891
2,500

59

2,950*

621

2,020

2,020

690

710

710

21,848
(101)
* \$3,990 \$1,040 return = \$2,950

76

252
(119)

2,250

2,020

2,500

9,500
(X)

3,800
3,200

12,600
(201
)

409

## Problem 8-5A (continued)

Date
201
1
Oct. 4

GENERAL JOURNAL
Account Titles and Explanations

PR

Debit

## Accounts PayableFireside Company ..................

Merchandise Inventory ...................................
Returned merchandise to supplier.

201/
119

460

## Sales Returns and Allowances ..............................

Accounts ReceivableMarge Craig ...............
Merchandise Inventory...........................................
Cost of Goods Sold.........................................
Customer Marge Craig returned
merchandise that was returned to
merchandise inventory.

414
106/
119
502

850

## 17 Accounts PayableShore Company .....................

Merchandise Inventory ...................................
Returned merchandise.

201/
119

1,040

## 18 Accounts PayableBrown Supply Co. .................

Office Supplies ...............................................
Returned office supplies.

201/
124

40

## 20 Sales Returns and Allowances ..............................

Accounts ReceivableAmy Ihrig ....................
Customer Amy Ihrig returned defective
merchandise.

414
106/

500

Solutions Manual for Chapter 8

430

Page 2
Credit

460

850
430

1,040

40

500

409

410

## Problem 8-5A (continued)

ACCOUNTS RECEIVABLE SUBLEDGER
Date
2011
Oct.
6
9
15

Explanation

Date
2011
Oct. 12
16
22

Explanation

Date
2011
Sept 23
Oct.
2
24
Date
2011
Oct. 15
20
25

Marge Craig
PR
S3
G2
CR3
Vickie Foresman
PR
S3
S3
CR3

Explanation

Bill Grigsby
PR
S2
CR3
S3

Explanation

Amy Ihrig
PR

Debit
3,300

Debit
3,650
7,700

Debit
4,200
1,200
Debit

S3
G2
CR3

3,100

Credit
850
2,450

Balance
3,300
2,450
0

Credit

Balance

3,650

3,650
11,350
7,700

Credit

Balance

4,200

Credit
500
2,600

4,200
0
1,200
Balance
3,100
2,600
0

Part 2
ACCOUNTS PAYABLE SUBLEDGER

Date
2011
Sept 28
Oct.
4
6

Fireside Company
Explanation
PR

Solutions Manual for Chapter 8

P1
G2
CD4

Debit
460
3, 800

Credit
4,260

Balance
4,260
3,800
0

410

411

Date
2011
Oct.
5
17
18
21
Date
2011
Oct. 15
23
26

Date
2011
Oct.
2
12
15
17
24

## Brown Supply Company

Explanation
PR
Debit
P2
P2
G2
P2

Date
2011
Sept 30 Balance
Oct.
9
20
31
31

40

Sunshine Company
Explanation
PR
Debit
P2
CD4
P2

Explanation

Shore Company
PR
P2
CD4
P2
G2
CD4

Parts 2, 3

Date
2011
Sept 30 Balance
Oct.
31
31

Credit

2,650

Debit
3,200
1,040
2,950

1,300
615
6,700
Credit
2,650
8,100

Credit
3,200
3,990

Balance
1,300
1,915
1,875
8,575
Balance
2,650
0
8,100

Balance
3,200
0
3,990
2,950
0

GENERAL LEDGER

Explanation

Cash

PR
CR3
CD4

Accounts Receivable
Explanation
PR

Solutions Manual for Chapter 8

G2
G2
S3
CR3

Debit
81,122

Debit

18,950

Credit
Balance

21,848

5,361
86,483
64,635

## Acct. No. 106

Credit
Balance
850
500
12,900

4,200
3,350
2,850
21,800
8,900

411

412

Solutions Manual for Chapter 8

412

413

## Problem 8-5A (continued) Parts 2, 3

Date
2011
Sept 30 Balance
Oct.
4
9
17
31
31
31
31
Date
2011
Sept 30 Balance
Oct.
18
29
31
Date
2011
Oct. 30 Balance
Date
2011
Sept 30 Balance
Oct.
21

Merchandise Inventory
Explanation
PR
G2
G2
G2
S3
P2
CR3
CD4
Office Supplies
Explanation
PR
G2
CR3
P2
Store Supplies
Explanation
PR

Debit

430
19,240

Debit

615
Debit

Credit
Balance
460
1,040
9,800
37,700
252

66,970
66,510
66,940
65,900
56,100
75,340
37,640
37,388

Credit
Balance
40
50

607
567
517
1,132

Credit
Balance
346

Store Equipment
Explanation
PR
P2

Debit
6,700

## Accumulated Amortization, Store Equipment

Explanation
PR
Debit

Date
2011
Oct. 30 Balance

Solutions Manual for Chapter 8

Credit
Balance
42,129
48,829
Acct. No. 166
Credit
Balance
9,153

413

414

## Problem 8-5A (continued) Parts 2, 3

Date
2011
Sept 30 Balance
Oct.
4
17
18
31
31
Date
2011
Oct. 30 Balance
Date
2011
Oct. 30
Date
2011
Oct. 31
31
Date
2011
Oct.
9
20
Date
2011
Oct. 31

Accounts Payable
Explanation
PR
G2
G2
G2
P2
CD4
Ken Shaw, Capital
Explanation
PR

Debit
460
1,040
40
12,600
Debit

Credit
Balance

26,555

4,260
3,800
2,760
2,720
29,275
16,675

Credit
Balance
106,200

## Ken Shaw, Withdrawals

Explanation
PR
CD4
Explanation

Sales

PR

Debit
2,500
Debit

S3
CR3

Sales Discounts
Explanation
PR

Solutions Manual for Chapter 8

CR3

2,500
Acct. No. 413
Credit
Balance
18,950
68,430

Explanation
PR
Debit
G2
G2

Credit
Balance

850
500
Debit
258

18,950
87,380

Credit
Balance
850
1,350
Acct. No. 415
Credit
Balance
258

414

415

Date
2011
Oct.
9
31
31
Date
2011
Oct. 15
31
Date
2011
Oct.
2
Date
2011
Oct. 31

## Cost of Goods Sold

Explanation
PR
G2
S3
CR3
Sales Salaries Expense
Explanation
PR
CD4
CD4
Rent Expense
Explanation
PR
CD4
Utilities Expense
Explanation
PR

Solutions Manual for Chapter 8

CD4

Debit
9,800
37,700
Debit
2,020
2,020
Debit
2,250
Debit
710

Credit
Balance
430

(430)
9,370
47,070

Credit
Balance
2,020
4,040
Acct. No. 640
Credit
Balance
2,250
Acct. No. 690
Credit
Balance
710

415

416

## Problem 8-5A (concluded)

Part 4
Trial Balance
October 31, 2011
Account
Cash ...................................................................................
Accounts receivable ............................................................
Merchandise inventory ........................................................
Office supplies ....................................................................
Store supplies .....................................................................
Store equipment..................................................................
Accumulated amortization, store
equipment........................................................................
Accounts payable................................................................
Ken Shaw, capital ...............................................................
Ken Shaw, withdrawals .......................................................
Sales ...................................................................................
Sales returns and allowances .............................................
Sales discounts ...................................................................
Cost of goods sold ..............................................................
Sales salaries expense .......................................................
Rent expense ......................................................................
Utilities expense ..................................................................
Totals ..................................................................................

Debit
\$ 64,635
8,900
37,388
1,132
346
48,829

2,500

Credit

\$ 9,153
16,675
106,200
87,380

1,350
258
47,070
4,040
2,250
710
\$219,408 \$219,408

Schedule of Accounts Receivable
October 31, 2011
Vickie Foresman .............................................
Bill Grigsby .....................................................
Total accounts receivable ...............................

\$7,700
1,200
\$8,900

Schedule of Accounts Payable
October 31, 2011
Brown Supply Company .................................
Sunshine Company ........................................
Total accounts payable ...................................
Solutions Manual for Chapter 8

\$ 8,575
8,100
\$16,675

416

417

678

## Problem 8-6A (30 minutes)

Page 1

Sales Journal

Date

Account Debited

Invoice
No.

A/R Dr.

COGS Dr.

Sales Cr.

PR

PR

Merchandise Inventory
Cr.

2011
Jan. 7 G. Little

103

500

160

19 B. Moore

104

375

130

24 C. Woudstra

105

375

135

29 D. Isla

106

800

302

## Fundamental Accounting Principles, Twelfth Canadian Edition

Purchases Journal

Date

Page 1
Merchandise
Inventory

Account Credited

Date of
Invoice

Terms

## Curtis & Sons

Jan. 3

n/30

450

450

Jan. 20

n/30

330

330

PR

A/P Cr.

PR

Dr.

Office
Supplies Dr.

2011
Jan. 3
20
NOTE:

Norton
Industries

An additional PR column has been added to facilitate the referencing of inventory entries into the

Other
Accounts
Dr.

418

inventory subledger.

419

Solutions Manual for Chapter 8

## Problem 8-6A (concluded)

Inventory Subledger Record FIFO perpetual

Date

PR

Purchases

Units
Jan. 1

Unit
Cost

## Sales (at cost)

Total Unit
Cost
s

Unit
Cost

Inventory Balance

Total
Cost

Units

Unit
Cost

Total
Cost

Beginning inventory
25 @ \$8.0 = \$200
0

25 @ \$ 8.0 = \$ 20
0
0
25 @ \$ 8.0 = \$ 20
0
0

3 P1
7 S1

50 @ \$9.0 = \$450
0

50 @
20 @ \$ 8.00 =

\$ 160

9.00 =

450

5 @ \$ 8.0 = \$ 4
0
0
50 @

9.00 =
450

19 S1

5 @ \$ 8.00 =
10 @

9.00 =

\$ 40
90

40 @ \$ 9.0 = \$ 36
0
0
40 @ \$ 9.0 = \$ 36
0
0

679

420

20 P1

30 @ \$11. = \$330
00

24 S1

30 @ 11.00 =
15 @ \$ 9.00 =

\$ 135

25 @ \$ 9.0 = \$ 22
0
5
30 @ 11.00 =

29 S1

25 @

\$ 225

7 @ 11.00 =

77

330

330

\$ 9.00

Total

105

\$980

## Cost of goods available for sale

=

82
Cost of goods sold

\$727
+

23 @ \$11.0 = \$ 25
0
3
23

\$253
Ending inventory

Note: An additional PR column has been added to the Inventory Subledger Record to facilitate referencing of
inventory entries.

421

680

## *Problem 8-7A (40 minutes)

Note: Since posting to the General Ledger was not a requirement in this problem, posting references are shown for
values posted to the subledgers only.

SALES JOURNAL

Page 3
Invoice

Date

Account Debited

A/R Dr.

## Fundamental Accounting Principles, Twelfth Canadian Edition

Numbe
r

PR

Sales Cr.

3 Linda Hobart

760

3,000

5 Paul Abrams

761

8,000

11 Kelly Schaefer

762

9,500

13 Linda Hobart

763

4,100

2011
Apr
.

## CASH RECEIPTS JOURNAL

Account
Date

Credited

Accts.

Cash

Disc.

Rec.

Sales

Accts.

Credit

Credit

Explanation

PR

Debit

Debit

Credit

Sale of Apr. 3

2,940

60

3,000

2011
Apr.

1 Linda Hobart

Page 3

Sales

Other

422

3
1 Paul Abrams
4

Sale of Apr. 5

1 Sales
6

Cash sales

7,840

160

8,000

50,840

50,840

PURCHASES JOURNAL

Page 3
Accounts

Date
of
Date

Account Credited

Invoic
e

Terms

Office

Other

Payable

Purchases

Supplie
s

Accounts

PR

Credit

Debit

Debit

Debit

13,300

2011
Apr.

Apr.
2

2/10,n/60

13,300

Apr.
2

n/10
EOM

1,380

## 9 Store Equip./Franks Supply

Apr.
9

n/10
EOM

11,125

1,380
11,125

423
Solutions Manual for Chapter 8

Ch.
Date

No.

Payee

Account Debited

PR

Page 3

Purchas
e

Other

Accts.

Cash

Discoun
t

Accts.

Payable

Credit

Credit

Debit

Debit

2011
Apr.

4 587

The Record

1 588
2

Company

1 589
6

Payroll

999

13,034
9,750

999
266

13,300
9,750

681

424

## *Problem 8-7A (continued)

Date
2011
Apr.

GENERAL JOURNAL
Account Titles and Explanations
6

PR

## Accounts Payable Eau Claire Inc. ..................

Office Supplies ............................................
Returned office supplies.

Debit
85

Page 3
Credit
85

## ACCOUNTS RECEIVABLE SUBLEDGER

Paul Abrams
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

S3

1
4

CR3

8,000

8,000
8,000

Linda Hobart
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

S3

1
3

CR3

1
3

S3

3,000

3,000
3,000

4,100

0
4,100

Kelly Schaefer
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

1
1

Solutions Manual for Chapter 8

S3

9,500

9,500

424

425

Solutions Manual for Chapter 8

425

426

## *Problem 8-7A (concluded) Parts 2, 3

ACCOUNTS PAYABLE SUBLEDGER
Franks Supply
Date

Explanation

PR

Debit

Credit

Balance

2011
Apr.

P3

11,125

11,125

Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

P3

1
2

CD3

13,300
13,300

13,300
0

Sprocket Company
Explanation

Date

PR

Debit

Credit

Balance

Debit

Credit

Balance

2011

## Eau Claire Inc.

Explanation

Date

PR

2011
Apr.

P3

G3

Solutions Manual for Chapter 8

1,380
85

1,380
1,295

426

427

684

## *Problem 8-8A (70 minutes)

SALES JOURNAL

Page 3
Invoice

Date

Account Debited

A/R Dr.

Numbe
r

PR

Sales Cr.

3 Linda Hobart

760

3,000

5 Paul Abrams

761

8,000

11 Kelly Schaefer

762

9,500

13 Linda Hobart

763

4,100

27 Paul Abrams

764

3,070

27 Kelly Schaefer

765

5,700

2011
Apr
.

33,370

30 Totals

(106/413)

## CASH RECEIPTS JOURNAL

Account
Date
2011

Credited

Explanation

PR

Page 3

Sales

Accts.

Other

Cash

Disc.

Rec.

Sales

Accts.

Debit

Debit

Credit

Credit

Credit

428

Apr.

1 Linda Hobart
3

Sale of Apr. 3

2,940

60

3,000

1 Paul Abrams
4

Sale of Apr. 5

7,840

160

8,000

1 Sales
6

Cash sales

1 L.T. Notes
8 Payable

Note to bank

2 Kelly Schaefer
0

50,840

50,840

25
1

50,000

Sale of Apr. 11

9,310

190

9,500

2 Linda Hobart
3

Sale of Apr. 13

4,018

82

4,100

3 Sales
0

Cash sales

3 Totals
0

50,000

70,975

70,975

195,92
3

492

24,600

121,81
5

50,000

(101)

(415)

(106)

(413)

(X)

429

Solutions Manual for Chapter 8

## *Problem 8-8A (continued)

PURCHASES JOURNAL

Page 3
Accounts

Date
of
Date

Account Credited

Invoic
e

Terms

Office

Other

Payable

Purchases

Supplie
s

Accounts

PR

Credit

Debit

Debit

Debit

13,300

2011
Apr.

Apr.
2

2/10,n/60

13,300

Apr.
2

n/10
EOM

1,380

## 9 Store Equip./Franks Supply

Apr.
9

n/10
EOM

165/

11,125

17 Sprocket Company

Apr.
16

2/10,n30

12,750

## 20 Store Supplies/Franks Supply

Apr.
19

n/10
EOM

Apr.
24

2/10,n/6
0

30 Totals

125/

1,380
11,125
12,750

730

730

10,375

10,375

49,660

36,425

1,380

11,855

(201)

(505)

(124)

(X)

685

CASH DISBURSEMENTS

430

JOURNAL

Ch.
Date

No.

Payee

Account Debited

Purchas
e

Page 3

Other

Accts.

Cash

Discoun
t

Accts.

Payable

PR

Credit

Credit

Debit

Debit

655

999

2011
Apr.

4 587

The Record

1 588
2

Company

1 589
6

Payroll

2 590
6

Sprocket
Company

Sprocket Company

3 591
0

Payroll

3
0

Totals

13,034

621

9,750

12,103

621

9,750
45,636
(101)

999
266

13,300
9,750

247

12,350*
9,750

513
(506)

20,499

25,650

(X)

(201)

431

## *Problem 8-8A (continued)

GENERAL JOURNAL
Account Titles and Explanations

Date
2011
Apr.

PR

Page 3
Credit

Debit

## Accounts PayableEau Claire Inc. ...........................

Office Supplies ...................................................
Returned office supplies.

201/
124

85

23

## Accounts PayableSprocket Company .....................

Purchase Returns and Allowances .....................
Returned merchandise.

201/
507

400

85

400

Parts 1, 2, 3, 4
GENERAL LEDGER
Cash

Date

Explanation

## Acct. No. 101

PR

Debit

Credit

Balance

2011
Mar.

3 Balance Forward
1

167,000

Apr.

3
0

CR3

3
0

CD3

195,923
45,636

Accounts Receivable

Date

Explanation

362,923
317,287

## Acct. No. 106

PR

Debit

3
0

S3

33,370

3
0

CR3

Credit

Balance

2011
Apr.

24,600

Merchandise Inventory

Date

Explanation

Solutions Manual for Chapter 8

33,370
8,770

## Acct. No. 119

PR

Debit

Credit

Balance

431

432

2011
Mar.

3 Balance Forward
1

95,000

Office Supplies
Date

Explanation

## Acct. No. 124

PR

Debit

Credit

Balance

2011
Apr.

P3

G3

Solutions Manual for Chapter 8

1,380

1,380
85

1,295

432

433

Store Supplies
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

2
0

P3

730

730

Store Equipment
Explanation

Date

PR

Debit

P3

11,125

Credit

Balance

2011
9

Apr.

11,125

Accounts Payable
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

G3

85

(85)

2
3

G3

400

(485)

3
0

P3

3
0

CD3

49,660
25,650

Explanation

Date

49,175
23,525

## Acct. No. 251

PR

Debit

Credit

Balance

2011
Mar.

31

Apr.

18

Balance Forward

Solutions Manual for Chapter 8

167,000
CR3

50,000

217,000

433

434

Explanation

Date

## Acct. No. 301

PR

Debit

Credit

Balance

2011
Mar.

3 Balance forward
1

95,000

Sales
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

3
0

S3

3
0

CR3

Sales Discounts
Explanation

Date

33,370

33,370

121,815

155,185

## Acct. No. 415

PR

Debit

Credit

Balance

2011
Apr.

3
0

Solutions Manual for Chapter 8

CR3

492

492

434

435

Acct. No. 505

Purchases
Explanation

Date

PR

Debit

P3

36,425

Credit

Balance

2011
Apr.

3
0

## Acct. No. 506

Purchase Discounts
Explanation

Date

36,425

PR

Debit

Credit

Balance

2011
Apr.

3
0

CD3

513

Explanation

Date

PR

513

Debit

Credit

Balance

2011
Apr.

3
0

G3

Explanation

Date

400

400

## Acct. No. 621

PR

Debit

Credit

Balance

2011
Apr.

1
6

CD3

9,750

9,750

3
0

CD3

9,750

19,500

Date

Explanation

Solutions Manual for Chapter 8

## Acct. No. 655

PR

Debit

Credit

Balance

435

436

2011
Apr.

Solutions Manual for Chapter 8

CD3

999

999

436

437

## *Problem 8-8A (continued)

ACCOUNTS RECEIVABLE SUBLEDGER
Paul Abrams
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

S3

1
4

CR3

2
7

S3

8,000

8,000
8,000

3,070

0
3,070

Linda Hobart
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

S3

1
3

CR3

1
3

S3

2
3

CR3

3,000

3,000
3,000

4,100

0
4,100

4,100

Kelly Schaefer
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

1
1

S3

2
0

CR3

Solutions Manual for Chapter 8

9,500

9,500
9,500

437

438

2
7

Solutions Manual for Chapter 8

S3

5,700

5,700

438

439

## *Problem 8-8A (continued)

ACCOUNTS PAYABLE SUBLEDGER
Franks Supply
Date

Explanation

PR

Debit

Credit

Balance

2011
Apr.

P3

11,125

11,125

20

P3

730

11,855

Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

P3

1
2

CD3

2
5

P3

13,300
13,300

13,300
0

10,375

10,375

Sprocket Company
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

1
7

P3

2
3

G3

2
6

CD3

12,750

12,750

400

12,350

12,350

## Eau Claire Inc.

Date

Explanation

Solutions Manual for Chapter 8

PR

Debit

Credit

Balance

439

440

2011
Apr.

P3
G3

Solutions Manual for Chapter 8

1,380
85

1,380
1,295

440

441

NEWTON COMPANY

April 30, 2011

\$3,070

5,700

## Total accounts receivable ........................................................

\$8,770

NEWTON COMPANY
Schedule of Accounts Payable
April 30, 2011

## Franks Supply ...........................................

Eau Claire Inc. ...........................................
Total accounts payable ..............................

\$11,855
10,375
1,295
\$23,525

NEWTON COMPANY
Trial Balance
April 30, 2011

## Account .................. Debit

Credit
Cash .......................................................... \$317,287
Accounts receivable....................................
8,770
Merchandise inventory ................................
95,000
Office supplies ...........................................
1,295
Store supplies ............................................
730
Store equipment ........................................
11,125
Accounts payable ......................................
Long-term notes payable ...........................
Jeff Newton, capital ....................................
Sales ..........................................................
Sales discounts ..........................................
492
Purchases...................................................
36,425
Purchase discounts ....................................
Purchase returns and allowances ...............
Sales salaries expense ..............................
19,500
999
Totals ......................................................... \$491,623
Solutions Manual for Chapter 8

\$ 23,525
217,000
95,000
155,185
513
400
\$491,623
441

442

Solutions Manual for Chapter 8

442

443

692

SALES JOURNAL

Date
201
1
Mar.

Account Debited
2
3
10
27
28
31

Leroy Hackett
Sam Snickers
Marjorie Coble
Marjorie Coble
Sam Snickers
Totals

Invoice
Number

PR

854
855
856
857
858

Accts.
Rec.
Debit

PST
Payable
Credit

18,328.00
10,672.00
5,336.00
16,135.60
6,165.40
56,637.00
(106)

Page 2

GST
Payable
Credit

1,580.00
920.00
460.00
1,391.00
531.50
4,882.50
(224)

948.00
552.00
276.00
834.60
318.90
2,929.50
(225)

Sales
Credit

15,800.00
1,027
9,200.00
5,980
4,600.00
2,990
13,910.00
9,040
5,315.00
3,455
48,825.00
22,492
(413)
(502/119)

## CASH RECEIPTS JOURNAL

Fundamental Accounting Principles, Twelfth Canadian Edition

Date
2011
Mar 6
12
13
15
20
31
31

Account Credited
L.T. Notes Pay.
Leroy Hackett
Sam Snickers
Sales
Marjorie Coble
Sales
Totals

Explanation
Note to bank
Invoice, Mar 2
Invoice, Mar 3
Cash sales
Invoice, Mar 10
Cash sales

PR

Cash
Debit

251 72,000.00
18,012.00
10,488.00
191,028.80

5,244.00
202,524.40
499,297.20
(101)

Sales
Discount
Debit

Accts.
Rec.
Credit

COGS
Dr./
MI Cr.

Page 2
Sales
Credit

Other
Accts.
Credit

PST
Payable
Credit

GST
Payable
Credit

COGS
Dr./
MI Cr.

72,000.00
316.00 18,328.00
184.00 10,672.00
164,680.00
92.00

16,468.00

9,880.80

107,042

5,336.00

174,590.00
17,459.00 10,475.40
113,480
592.00 34,336.00 339,270.00 72,000.00 33,927.00 20,356.20
220,522
(415)
(106)
(413)
()
(224)
(225) (502/119)

444

Solutions Manual for Chapter 8

## *Problem 8-9A - Perpetual (continued)

PURCHASES JOURNAL
Date
2011
Mar.

Date of
Invoice

Account Credited
3
5
9
14
16
31

## Office Supplies/Arndt Company

Defore Industries
Office Equip./Jett Supply
The Welch Company
Store Supplies/Arndt Company
Totals

Mar 3
Mar 3
Mar 9
Mar 13
Mar 16

Terms

PR

Accts.
Payable
Credit

## n/10 EOM 124/ 1,187.20

2/10, n/30
45,156.00
n/10 EOM 163/ 22,101.00
2/10, n/30
33,522.50
n/10 EOM 125/ 1,770.20
103,736.90
(201)

Merch.
Inventory
Debit
42,600.00
31,625.00
74,225.00
(119)

Page 2
Other
GST
Accounts Recble
Debit
Debit
1,120.00
20,850.00
1,670.00
23,640.00
(X)

## CASH DISBURSEMENTS JOURNAL

Date
2011

Ch.
No.

Cash
Credit

Account Debited

PR

Defore
Industries1

Defore Industries

44,304.0
0

15 41
7

Payroll

Sales Salaries
Expense

621

15,900.0
0

23 41
8

30,368.0
0

31 41
9

Payroll

Sales Salaries
Expense

Mar. 41
13 6

Payee

621

15,900.0
0

67.20
2,556.00
1,251.00
1,897.50
100.20
5,871.90
(108)
Page 2

Merch.
Inv.
Credit

Other
Accts.
Debit

852.00

GST
Recble
Debit

Accts.
Payable
Debit
45,156.0
0

15,900.0
0
584.00

30,952.0
0
15,900.0
0

693

445

31

Totals

106,472.
00
(101)

## 1. 42,600 x 2% = 852 discount

2. 31,625 2,425 = 29,200; 29,200 x 2% = 584 discount

1,436.00 31,800.0
0
(119)

(X)

76,108.0
0
(201)

446

## *Problem 8-9A - Perpetual (continued)

GENERAL JOURNAL
Account Title and Explanations

Date

PR

Debit

## Mar. 17 Accounts PayableThe Welch Company .......

GST Payable .............................................
Merchandise Inventory ..............................
Returned merchandise.

201/
225
119

2,570.50

## 19 Accounts PayableJett Supply ........................

GST Payable .............................................
Office Equipment .......................................
Returned office equipment.

201/
225
163

667.80

2011

Page 2
Credit
145.50
2,425.00

37.80
630.00

Parts 2 and 4
ACCOUNTS RECEIVABLE SUBLEDGER

Marjorie Coble
Date

Explanation

PR

Debit

10

S2

5,336.00

20

CR2

27

S2

Credit

Balance

2011
Mar.

5,336.00
5,336.00

16,135.60

0.00
16,135.6
0

Leroy Hackett
Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

S2

12

CR2

18,328.00

18,328.0
0
18,328.00

0.00

Sam Snickers

Solutions Manual for Chapter 8

446

447

Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

S2

13

CR2

28

S2

10,672.00

10,672.0
0
10,672.00

6,165.40

0.00
6,165.40

Parts 3 and 4
ACCOUNTS PAYABLE SUBLEDGER

Arndt Company
Date

Explanation

PR

Debit

Credit

Balance

2011

Mar.

P2

1,187.20

1,187.20

16

P2

1,770.20

2,957.40

## *Problem 8-9A - Perpetual (continued)

Defore Industries
Date

Explanation

PR

Debit

Credit

Balance

45,156.00

45,156.00

2011
Mar.

P2

13

CD3

45,156.00

0.00

Jett Supply
Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

P2

19

G2

Solutions Manual for Chapter 8

22,101.00
667.80

22,101.00
21,433.20

447

448

Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

14

P2

17

G2

23

CD3

33,522.50

33,522.50

2,570.50

30,952.00

30,952.00

0.00

Parts 1 and 4
GENERAL LEDGER

Cash
Explanation

Date

## Acct. No. 101

PR

Debit

31

CR2

499,297.20

31

CD3

Credit

Balance

2011
Mar.

499,297.2
0
106,472.0
0

Accounts Receivable
Explanation

Date

PR

392,825.2
0

Debit

Credit

Balance

2011
Mar.

31

S2

31

CR2

56,637.00

56,637.00
34,336.00

GST Receivable
Explanation

Date

22,301.00

## Acct. No. 108

PR

Debit

P2

5,871.90

Credit

Balance

2011
Mar.

31

Solutions Manual for Chapter 8

5,871.90

448

449

Solutions Manual for Chapter 8

449

450

## *Problem 8-9A - Perpetual (continued)

Merchandise Inventory
Explanation

Date

PR

## Acct. No. 119

Debit

Credit

Balance

2011
Mar.

1 Beginning balance

250,000.0
0

17

G2

2,425.00

247,575.0
0

31

S2

22,492.00

225,083.0
0

31

CR2

220,522.0
0

4,561.00

31

P2

31

CD3

74,225.00

78,786.00
1,436.00

Office Supplies
Date

Explanation

77,350.00

PR

Debit

P2

1,120.00

Credit

Balance

2011
Mar.

31

1,120.00

Store Supplies
Date

Explanation

PR

Debit

P2

1,670.00

Credit

Balance

2011
Mar.

16

## Acct. No. 163

Office Equipment
Date

Explanation

1,670.00

PR

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

450

451

Mar.

P2

19

G2

Solutions Manual for Chapter 8

20,850.00

20,850.00
630.00

20,220.00

451

452

Accounts Payable

Date

Explanation

PR

Debit

Credit

Balance

2011

Mar.

17

G2

2,570.50

(2,570.50)

19

G2

667.80

(3,238.30)

31

P2

31

CD3

103,736.9
0
76,108.00

Explanation

24,390.60

PST Payable
Date

100,498.6
0

PR

Debit

Credit

Balance

2011
Mar.

31

S2

31

CR2

Explanation

4,882.50

33,927.00

38,809.50

GST Payable
Date

4,882.50

PR

Debit

Credit

Balance

2011
Mar.

17

G2

145.50

145.50

19

G2

37.80

183.30

31

S2

2,929.50

3,112.80

31

CR2

20,356.20

23,469.00

## Long-Term Notes Payable

Date

Explanation

PR

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

452

453

Mar.

CR2

72,000.00

## George Bledsoe, Capital

Date

Explanation

PR

72,000.00

Debit

Credit

Balance

2011
Mar.

1 Beginning balance

250,000.0
0

Sales
Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

31

S2

48,825.00

48,825.00

31

CR2

339,270.0
0

388,095.0
0

Sales Discounts
Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

31

CR2

592.00

592.00

Acct. No. 502

Date

Explanation

PR

Debit

Credit

Balance

31

S2

22,492.00

22,492.00

31

CR2

220,522.0
0

243,014.0
0

2011
Mar.

## Sales Salaries Expense

Solutions Manual for Chapter 8

453

454

Date

Explanation

PR

Debit

Credit

Balance

15

CD3

15,900.00

15,900.00

31

CD3

15,900.00

31,800.00

2011
Mar.

Part 5

## THE BLEDSOE COMPANY

Trial Balance
March 31, 2011

Account

Debit

Cash .............................................................

\$392,825.20

22,301.00

## GST receivable .........................................

5,871.90

Merchandise inventory.........................

77,350.00

Office supplies..........................................

1,120.00

1,670.00

20,220.00

Credit

\$ 24,390.60

38,809.50

23,469.00

72,000.00

## George Bledsoe, capital .......................

250,000.00

Sales ............................................................

388,095.00

592.00

243,014.00

## Sales salaries expense ...........................

31,800.00

Totals ..........................................................
Solutions Manual for Chapter 8

\$796,764.10 \$796,764.10
454

455

Solutions Manual for Chapter 8

455

456

## THE BLEDSOE COMPANY

Schedule of Accounts Receivable
March 31, 2011

\$16,135.60

6,165.40

\$22,301.00

## THE BLEDSOE COMPANY

Schedule of Accounts Payable
March 31, 2011

## Arndt Company ....................................

\$ 2,957.40

Jett Supply...............................................

21,433.20

## Total accounts payable .....................

\$24,390.60

Solutions Manual for Chapter 8

456

457

700

SALES JOURNAL

Date
2011
Mar.

Account Debited
2
3
10
27
28
31

Leroy Hackett
Sam Snickers
Marjorie Coble
Marjorie Coble
Sam Snickers
Totals

Invoice
Number

PR

854
855
856
857
858

Accts.
Rec.
Debit
18,328.00
10,672.00
5,336.00
16,135.60
6,165.40
56,637.00
(106)

PST
Payable
Credit
1,580.00
920.00
460.00
1,391.00
531.50
4,882.50
(224)

GST
Payable
Credit
948.00
552.00
276.00
834.60
318.90
2,929.50
(225)

Page 2

Sales
Credit
15,800.00
9,200.00
4,600.00
13,910.00
5,315.00
48,825.00
(413)

## Fundamental Accounting Principles, Twelfth Canadian Edition

Date
2011
Mar. 6
12
13
15
20
31
31

Account Credited
L.T. Notes Pay.
Leroy Hackett
Sam Snickers
Sales
Marjorie Coble
Sales
Totals

Explanation

PR

Cash
Debit

Note to bank
251 72,000.00
Invoice, Mar 2

18,012.00
Invoice, Mar 3

10,488.00
Cash sales
191,028.80
Invoice, Mar 10
5,244.00
Cash sales
202,524.40
499,297.20
(101)

Sales
Discount
Debit

Accts.
Rec.
Credit

Page 2
Sales
Credit

Other
Accts.
Credit

PST
Payable
Credit

GST
Payable
Credit

72,000.00
316.00
184.00

18,328.00
10,672.00

92.00

5,336.00

592.00
(415)

164,680.00

16,468.00

9,880.80

174,590.00
34,336.00 339,270.00
(106)
(413)

17,459.00
33,927.00
(224)

10,475.40
20,356.20
(225)

72,000.00
()

458

Solutions Manual for Chapter 8

## *Problem 8-9A - Periodic (continued)

PURCHASES JOURNAL
Date
2011
Mar.

Date of
Invoice

Account
3
5
9
14
16
31

## Office Supplies/Arndt Company

Defore Industries
Office Equip./Jett Supply
The Welch Company
Store Supplies/Arndt Company
Totals

Mar 3
Mar 3
Mar 9
Mar 13
Mar 16

Terms

PR

Accts.
Payable
Credit

Purchases
Debit

## n/10 EOM 124/ 1,187.20

2/10, n/30
45,156.00
n/10 EOM 163/ 22,101.00
2/10, n/30
33,522.50
n/10 EOM 125/ 1,770.20
103,736.90
(201)

Page 2
Other
GST
Accounts Recble
Debit
Debit

42,600.00
31,625.00
74,225.00
(505)

1,120.00
20,850.00
1,670.00
23,640.00
(X)

## CASH DISBURSEMENTS JOURNAL

Ch.
No.

Payee

Mar. 41
13 6

Defore
Industries

Defore Industries

15 41
7

Payroll

Sales Salaries
Expense

23 41
8

The Welch
Company

31 41
9

Payroll

Sales Salaries
Expense

31

Totals

Date
2011

Account Debited

PR

Cash
Credit

44,304.00

621

15,900.00

30,368.00

621

Page 3

Pur.
Disc.
Credit

Other
Accts.
Debit

852.00

GST
Recble
Debit

Accts.
Payable
Debit
45,156.
00

15,900.00
584.00

30,952.
00
15,900.00

15,900.00
106,472.0

67.20
2,556.00
1,251.00
1,897.50
100.20
5,871.90
(108)

1,436.00

31,800.00

76,108.

701

459

0
(101)

00
(507)

(X)

(201)

460

## *Problem 8-9A - Periodic (continued)

GENERAL JOURNAL
Account Title and Explanations

Date

PR

Debit

## Mar. 17 Accounts PayableThe Welch Company .......

GST Payable .............................................
Purchases Returns and Allowances ..........
Returned merchandise.

201/
225
506

2,570.50

## 19 Accounts PayableJett Supply ........................

GST Payable .............................................
Office Equipment .......................................
Returned office equipment.

201/
225
163

667.80

2011

Page 2
Credit
145.50
2,425.00

37.80
630.00

Parts 2 and 4
ACCOUNTS RECEIVABLE SUBLEDGER

Marjorie Coble
Date

Explanation

PR

Debit

10

S2

5,336.00

20

CR2

27

S2

Credit

Balance

2011
Mar.

5,336.00
5,336.00

16,135.60

0.00
16,135.6
0

Leroy Hackett
Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

S2

12

CR2

18,328.00

18,328.0
0
18,328.00

0.00

Sam Snickers

Solutions Manual for Chapter 8

460

461

Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

S2

13

CR2

28

S2

Solutions Manual for Chapter 8

10,672.00

10,672.0
0
10,672.00

6,165.40

0.00
6,165.40

461

462

## *Problem 8-9A - Periodic (continued)

Parts 3 and 4
ACCOUNTS PAYABLE SUBLEDGER

Arndt Company
Date

Explanation

PR

Debit

Credit

Balance

2011

Mar.

P2

1,187.20

1,187.20

16

P2

1,770.20

2,957.40

Defore Industries
Date

Explanation

PR

Debit

Credit

Balance

45,156.00

45,156.00

2011
Mar.

P2

13

CD3

45,156.00

0.00

Jett Supply
Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

P2

19

G2

22,101.00
667.80

22,101.00
21,433.20

## The Welch Company

Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

14

P2

17

G2

Solutions Manual for Chapter 8

33,522.50
2,570.50

33,522.50
30,952.00

462

463

23

Solutions Manual for Chapter 8

CD3

30,952.00

0.00

463

464

Parts 1 and 4
GENERAL LEDGER

Cash
Explanation

Date

## Acct. No. 101

PR

Debit

31

CR2

499,297.20

31

CD3

Credit

Balance

2011
Mar.

499,297.2
0
106,472.0
0

Accounts Receivable
Explanation

Date

PR

392,825.2
0

Debit

Credit

Balance

2011
Mar.

31

S2

31

CR2

56,637.00

56,637.00
34,336.00

GST Receivable
Explanation

Date

22,301.00

## Acct. No. 108

PR

Debit

P2

5,871.90

Credit

Balance

2011
Mar.

31

5,871.90

Merchandise Inventory
Date

Explanation

PR

## Acct. No. 119

Debit

Credit

Balance

2011
Mar.

1 Beginning balance

Office Supplies
Solutions Manual for Chapter 8

250,000.0
0

464

465

Date

Explanation

PR

Debit

P2

1,120.00

Credit

Balance

2011
Mar.

31

1,120.00

Store Supplies
Date

Explanation

## Acct. No. 125

PR

Debit

P2

1,670.00

Credit

Balance

2011
Mar.

16

Solutions Manual for Chapter 8

1,670.00

465

466

Acct. No. 163

Office Equipment
Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

P2

19

G2

20,850.00
630.00

Accounts Payable

Date

Explanation

20,850.00
20,220.00

PR

Debit

Credit

Balance

2011

Mar.

17

G2

2,570.50

(2,570.50)

19

G2

667.80

(3,238.30)

31

P2

31

CD3

103,736.9
0
76,108.00

Explanation

24,390.60

PST Payable
Date

100,498.6
0

PR

Debit

Credit

Balance

2011
Mar.

31

S2

31

CR2

Explanation

4,882.50

33,927.00

38,809.50

## Acct. No. 225

GST Payable
Date

4,882.50

PR

Debit

Credit

Balance

2011
Mar.

17

G2

145.50

145.50

19

G2

37.80

183.30

Solutions Manual for Chapter 8

466

467

31

S2

31

CR2

Explanation

PR

3,112.80

20,356.20

23,469.00

Date

2,929.50

Debit

Credit

Balance

72,000.00

72,000.00

2011
Mar.

CR2

## George Bledsoe, Capital

Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

1 Beginning balance

250,000.0
0

Sales
Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

31

S2

48,825.00

48,825.00

31

CR2

339,270.0
0

388,095.0
0

## *Problem 8-9A - Periodic (continued)

Acct. No. 415

Sales Discounts
Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

31

Solutions Manual for Chapter 8

CR2

592.00

592.00

467

468

Purchases
Date

Explanation

PR

Debit

P2

74,225.00

Credit

Balance

2011
Mar.

31

74,225.00

Date

Explanation

PR

Debit

Credit

Balance

2011
Mar.

17

G2

2,425.00

## Acct. No. 507

Purchases Discounts
Date

Explanation

PR

2,425.00

Debit

Credit

Balance

2011
Mar.

31

CD2

1,436.00

## Sales Salaries Expense

Date

Explanation

1,436.00

PR

Debit

Credit

Balance

15

CD2

15,900.00

15,900.00

31

CD2

15,900.00

31,800.00

2011
Mar.

Solutions Manual for Chapter 8

468

469

Part 5

## THE BLEDSOE COMPANY

Trial Balance
March 31, 2011

Account

Debit

Cash .............................................................

\$392,825.20

22,301.00

5,871.90

## Merchandise inventory ........................

250,000.00

Office supplies..........................................

1,120.00

1,670.00

20,220.00

Credit

\$ 24,390.60

38,809.50

23,469.00

72,000.00

## George Bledsoe, capital .......................

250,000.00

Sales ............................................................

388,095.00

## Sales discounts ........................................

592.00

Purchases .................................................

74,225.00

2,425.00

1,436.00

## Sales salaries expense ...........................

Totals ..........................................................

Solutions Manual for Chapter 8

31,800.00
\$800,625.10 \$800,625.10

469

470

## THE BLEDSOE COMPANY

Schedule of Accounts Receivable
March 31, 2011

\$16,135.60

6,165.40

\$22,301.00

## THE BLEDSOE COMPANY

Schedule of Accounts Payable
March 31, 2011

## Arndt Company ....................................

\$ 2,957.40

Jett Supply...............................................

21,433.20

## Total accounts payable .....................

\$24,390.60

Solutions Manual for Chapter 8

470

471

708

## *Problem 8-10A (30 minutes)

Page X

Sales Journal

Date

Account Debited

Invoice
No.

PR

A/R Dr.

PST
Payable
Cr.

GST
Payable
Cr.

COGS Dr.
Sales
Cr

Merchandise Inventory
Cr.

2011
Oct K-Company
12

106

6,840

480

360

6,000

4,200

17 CanCor

107

7,980

560

420

7,000

4,600

30 Delton Hardware

108

4,560

320

240

4,000

2,900

Page X

## Cash Receipts Journal

Fundamental Accounting Principles, Twelfth Canadian Edition

Date

Account
Credited

Explanatio
n

PR

Cash
Dr.

Sales
Disc
Dr

A/R Cr.

COGS/Dr.
Merchandis
Other
PST
GST
e
Accounts Payable Payabl Inventory/
Sales Cr.
Cr.
Cr.
e Cr.
Cr.

2011
Oct 9 Sales

Inv #105

1,368

24 CanCor

7,910

26 K-Company

6,840

1,200
70

7,980
6,840

96

72

740

472

Purchases Journal
Date

Account Credited

Terms

PR

Merchandi
Other
se
Accounts Dr.
Inventory
Dr.

A/P Cr.

Page X
GST Recble
Dr.

2011
Oct 1

Lexor Suppliers

2/10,n
/30

4,240

4,000

240

27

Milton Suppliers

n/30

8,480

8,000

480

Page X

## Cash Disbursements Journal

Date

Ch #

Account Debited

PR

Cash Cr.

Merchandise
Inventory Cr.

Other
Accounts Dr.

GST
Recble Dr.

A/P Dr.

2011
Oct 5

13

Merchandise
inventory

2,120

10

14

Lexor Suppliers

4,160

2,000
80

120
4,240

473
Solutions Manual for Chapter 8

## *Problem 8-11A (30 minutes)

SALES JOURNAL

Date
2011
Oct.

Date

PR

PST
Payable
Credit

GST
Payable
Credit

Sales
Credit

12 K-Company

106

6,840

480

360

6,000

17 CanCor

107

7,980

560

420

7,000

30 Delton Hardware

108

4,560

320

240

4,000

Date
Account Credited
2011
Oct. 9 Sales
24 CanCor
26 K-Company

Date
2011
Oct.

Invoice
Number

Account Debited

Page X
Accts.
Rec.
Debit

Explanation
Inv #105

Page X
GST
Payable
Credit

96

Sales
Credit
72

1,200

7,980
6,840

Account Credited
1 Lexor Suppliers
27 Milton Suppliers

Ch.
No.

PR

Other
Accts.
Credit

## CASH RECEIPTS JOURNAL

Accts.
PST
Rec.
Payable
Credit
Credit

Payee

Date of
Invoice
Oct. 1
Oct. 27

PURCHASES JOURNAL
Accts.
Payable
Terms
PR
Credit
2/10,n/30
n/30

4,240
8,480

## CASH DISBURSEMENTS JOURNAL

Pur.
Cash
Disc.
Account Debited
PR
Credit
Credit

Cash
Debit

Sales
Discount
Debit

1,368
7,910
6,840

70

Page X
Purchases
Debit

Other
Accounts
Debit

4,000
8,000
Page X
Other
Accts.
Debit

GST
Recble
Debit
240
480

GST
Recble
Debit

Accts.
Payable
Debit

709

474

2011
Oct. 5 13
10 14

Cash purchase

Purchases

2,120

Lexor Suppliers

Lexor Suppliers

4,160

2,000
80

120
4,240

475

ALTERNATE PROBLEMS
Problem 8-1B (20 minutes)
Date

Transaction

Special
Journal

Subledger

NE

CR

MI

n/30.

AP/MI

AR/MI

## 5 The customer of May 4 returned defective

merchandise; the merchandise was scrapped.

AR

6 Regarding the May 3 purchase, received a credit memorandum from the supplier

AP/MI

CD

NE

AP

purchase.

CD

AP

CR

AR

CR

NE

CD

MI

NE

NE

## 2 Sold merchandise and received cash.

granting an allowance.

## 15 Paid mid-month salaries.

Solutions Manual for Chapter 8

475

476

Solutions Manual for Chapter 8

## Problem 8-2B (40 minutes)

Sales Journal
Date

Account Debited

Invoice
No.

Page: S1
PR

A/R Dr.

COGS Dr.

Sales Cr.

Merchandise Inventory
Cr.

2011
347

102,000

51,000

348

8,200

5,700

18 Lars Wilson

349

6,000

4,900

25 Nathan Blythe

350

28,000

14,500

6 Carol Larson

Date

Account Credited

PR

Explanatio
n

Cash Dr.

Sales
Disc
Dr

Page: CR1

A/R Cr.

2011
June A/R

12 Larson
24 A/R
Stohart

Carol

Inv. 348

8,036

Martha

Inv. 347

102,000

164

8,200
102,000

Sales Cr.

Other
Accounts
Cr.

COGS/Dr.
Merchandi
se
Inventory/
Cr.

711

477

## 27 A/R Lars Wilson

Inv. 349

120

5,880

6,000

Purchases Journal
Date

Account Credited

Date of
Invoice

Terms

P
R

Page: P1

A/P Cr.

Merchandise
Inventory Dr.

Office
Supplies
Dr.

Other
Accounts Dr.

2011
Exeter
Equip./Equipment
Whitby Co.
4

June 1

Suppliers
Unlimited

June 1

n30

45,000

June 4

1/5, n15

85,000

June 8

2/10,
n30

1,800

45,000
85,000
1,800

478

712

## Problem 8-2B (concluded)

Cash Disbursements
Date

Ch #

Account Debited

PR

Page: CD1

Cash Cr.

Merchandis
e
Inventory
Cr.

Other
Accounts Dr.

A/P Dr.

2011
June 11

101

Whitby Co.*

80,200

14

102

Salaries Expense

15,000

28

103

Exeter Equipment

45,000

29

104

Salaries Expense

15,000

80,200
15,000
45,000
15,000

## *85,000 4,800 = 80,200

General Journal
Fundamental Accounting Principles, Twelfth Canadian Edition

Date

Page: G1
PR

Debit

Credit

2011
June

4,800

4,800

## To record allowance received for

damages that occurred during delivery.

2,800

479

2,800

## To record unsatisfactory goods

returned by customer.

## 26 Merchandise Inventory .......................................

Cost of Goods Sold.........................................
Goods returned to inventory.

2,200
2,200

480

Solutions Manual for Chapter 8

## Problem 8-3B (40 minutes)

Note: Since posting to the General Ledger was not a requirement in this problem, posting references are shown for
values posted to the subledgers only.

Part 3
Date
2011
July
5
6
13
14

Date

Account Debited

SALES JOURNAL
Invoice
Number
PR

Karen Harden
Paul Kane
Kelly Grody
Karen Harden

Account
Credited

2011
Jul 15 Karen
y
Harden
15 Sales

918
919
920
921

A/R Dr.
Sales. Cr.
18,400
7,500
8,350
4,100

## CASH RECEIPTS JOURNAL

Sales
Cash
Discoun
Explanation
Debit
t Debit
PR
Sale of Jul 5

Cash sales

Date
Account Credited
2011
July
1 Beech Company

18,032

Page 3
Cost of Goods Sold Dr.
Merchandise Inventory Cr.

368

10,200
4,100
4,600
2,300
Accts.
Rec.
Credit

Other
Accts.
Credit

Sales
Credit

121,370

PURCHASES JOURNAL
Accounts Merchandis
Date of
Payable e Inventory
Invoice Terms
PR
Credit
Debit
2/10,
n/60

## Cost of Goods Sold Dr.

Merchandise Inventory
Cr.

18,400

121,370

Jun 30

Page 3

6,300

6,300

66,700
Office
Supplie
s Debit

Page 3
Other
Accts.
Debit

713

481

## 7 Blackwater Inc. /Store

Supp.
9 Poppes Supply /Store
Equip.

Jul 7
Jul 8

n/10
EOM
n/10
EOM

1,050

1,050

37,710

37,710

482

714

Ch.
No. Payee

Date
201
1

Jul
y

Date
2011
July

## 3 300 The Weekly

Journal
10 301 Beech Company
15 302 Payroll

Account Debited

Cash
Credit

Beech Company
Sales Salaries Expens

GENERAL JOURNAL
Account Titles and Explanations
8

PR

## Accounts PayableBlackwater Inc. ............

Store Supplies ........................................
Returned supplies to supplier.

Merchandis
e Inventory
Credit

575

201/
125

Page 3
Accts.
Payable
Debit

575

6,174
30,620

PR

Other
Accts.
Debit

126

Debit
150

30,620

Page 3
Credit
150

6,300

483

## Problem 8-3B (continued)

Parts 1, 2, 3
ACCOUNTS RECEIVABLE SUBLEDGER

Date
2011
July
5
14
15
Date
2011
July
13
Date
2011
July
6

Explanation

Karen Harden
PR
S3
S3
CR3

Explanation

Kelly Grody
PR
S3

Explanation

Paul Kane
PR

Solutions Manual for Chapter 8

S3

Debit
18,400
4,100

Debit

Credit

18,400
Credit

8,350
Debit
7,500

Balance
18,400
22,500
4,100
Balance
8,350

Credit

Balance
7,500

483

484

## Problem 8-3B (concluded)

ACCOUNTS PAYABLE SUBLEDGER

Date

Explanation

Beech Company
PR

Debit

Credit

Balance

2011

July

1
10

Date

P3
CD3
Explanation

Blackwater Inc.
PR

6,300
Debit

6,300

Credit

6,300
0
Balance

2011

July

7
8

Date
2011
July
9
Date
2011

P3
G3
Poppes Supply
Explanation
PR

150
Debit

P3
Sprague Company
Explanation
PR

Solutions Manual for Chapter 8

1,050

Credit
37,710

Debit

Credit

1,050
900
Balance
37,710
Balance

484

485

Solutions Manual for Chapter 8

Parts 2, 3, 4

Date
2011
July
5
6
13
14
29
30
31

Date

Account Debited

SALES JOURNAL
Invoice
P
Number
R

Karen Harden
Paul Kane
Kelly Grody
Karen Harden
Paul Kane
Kelly Grody
Totals

Account
Credited

2011
Jul 15
y
15
16
21

Karen
Harden
Sales
Paul Kane
L.T. Notes
Pay
23 Kelly Grody
24 Karen
Harden
31 Sales

918
919
920
921
922
923

A/R Dr.
Sales. Cr.
18,400
7,500
8,350
4,100
28,090
15,750
82,190
(106/413)

## CASH RECEIPTS JOURNAL

Sales
Cash
Discoun
Explanation
Debit
t Debit
PR
Sale of Jul 5

Cash sales
Sale of Jul 6
Note to bank 251
Sale of Jul
13
Sale of Jul
14
Cash sales

18,032

Page 3
Cost of Goods Sold Dr.
Merchandise Inventory Cr.

368

10,200
4,100
4,600
2,300
15,500
8,700
45,400
(502/119)
Accts.
Rec.
Credit

Page 3
Cost of Goods Sold Dr.
Merchandise Inventory
Cr.

18,400

121,370
7,350
20,000

150

7,500

8,183

167

8,350

4,018

82

4,100

79,020

Sales
Credit

Other
Accts.
Credit

121,370

66,700
20,000

79,020

43,500

717

486

31 Totals

257,973
(101)

767
(415)

38,350
(106)

200,390 20,000
(413)
(X)

110,200
(502/119)

487

718

## Problem 8-4B (continued)

Date
2011
July

Account Credited
1 Beech Company

PURCHASES JOURNAL
Accounts Merchandis
Date of
Payable e Inventory
Invoice Terms
PR
Credit
Debit
Jun 30

## 7 Blackwater Inc. /Store

Supp.
9 Poppes Supply /Store
Equip.
17 Sprague Company

Jul 7

20 Poppes Supply

Jul 19

26 Beech Company

Jul 26

31 Totals

Jul 8
Jul 17

2/10,
n/60
n/10
EOM
n/10
EOM
2/10,
n/60
n/10
EOM
2/10,
n/30

6,300

125/

1,050

1,050

165/

37,710

37,710

8,200

750

9,770

9,770

63,780

24,270

201
1

Jul
y

Ch.
No. Payee

## 3 300 The Weekly

Journal
10 301 Beech Company
15 302 Payroll

Page 3
Other
Accts.
Debit

(201)

Date

Office
Supplie
s Debit

Cash
Credit

Account Debited

PR

655

575

Beech Company

6,174
30,620

6,300

8,200
750

(119)

Merchandis
e Inventory
Credit

750
(124)

Other
Accts.
Debit

38,760
(X)

Page 3
Accts.
Payable
Debit

575
126

30,620

6,300

27 303 Sprague
Company
31 304 Payroll
31

Totals

Sprague Company
Sales Salaries
Expense

488

5,684

621

30,620
73,673
(101)

116

5,800*
30,620

242
(119)

61,815
(X)

12,100
(201)

489

## Problem 8-4B (continued)

Date
2011
July

GENERAL JOURNAL
Account Titles and Explanations
8

PR

Debit

## Accounts PayableBlackwater Inc. ............

Store Supplies .......................................
Returned supplies to supplier.

201/
125

150

## 24 Accounts PayableSprague Company ........

Merchandise Inventory...........................
Returned defective inventory to
merchandise supplier.

201/
119

2,400

Page 3
Credit
150

2,400

Parts 1, 2, 3, 4
GENERAL LEDGER
Cash
Explanation

Date

## Acct. No. 101

PR

Debit

Credit

Balance

2011

Balance Forward

June

3
0

95,000

July

3
1

CR3

3
1

CD3

257,973

352,973
73,673

Accounts Receivable
Date

Explanation

PR

279,300

## Acct. No. 106

Debit

Credit

Balance

2011
July

3
1

S3

3
1

CR3

Solutions Manual for Chapter 8

82,190

82,190
38,350

43,840

489

490

Merchandise Inventory
Date

Explanation

PR

Debit

Credit

Balance

2011
Jun.

3
0

Balance Forward

167,000

Jul.

2
4

G3

2,400

164,600

3
1

S3

45,400

119,200

3
1

CR3

110,200

9,000

3
1

P3

3
1

CD3

24,270

33,270
242

Office Supplies
Explanation

Date

PR

33,028

Debit

Credit

Balance

2011
July

3
1

P3

750

750

## Problem 8-4B (continued)

Acct. No. 125

Store Supplies
Explanation

Date

PR

Debit

Credit

Balance

2011
July

P3

G3

Solutions Manual for Chapter 8

1,050

1,050
150

900

490

491

Store Equipment
Explanation

Date

PR

Debit

Credit

Balance

2011
July

P3

37,710

37,710

Accounts Payable
Date

Explanation

PR

Debit

Credit

Balance

2011
July

G3

24

G3

31

P3

31

CD3

150

(150)

2,400

(2,550)
63,780

12,100

49,130

Explanation

Date

PR

61,230

Debit

Credit

Balance

2011
June

3
0

July

2
1

Balance Forward

167,000
CR3

20,000

Explanation

Date

PR

187,000

## Acct. No. 301

Debit

Credit

Balance

2011
Jun.

3
0

Balance Forward

95,000

Sales

Solutions Manual for Chapter 8

491

492

Explanation

Date

PR

Debit

Credit

Balance

2011
July

3
1

S3

3
1

CR3

82,190

82,190

200,390

282,580

## Acct. No. 415

Sales Discounts

Date

Explanation

PR

Debit

Credit

Balance

2011
July

3
1

Solutions Manual for Chapter 8

CR3

767

767

492

493

## Problem 8-4B (continued)

Cost of Goods Sold
Explanation

Date

PR

Debit

Credit

Balance

2011
July

3
1

S3

3
1

CR3

Explanation
PR

Date

45,400

45,400

110,200

155,600

Debit

Credit
Balance

2011

July

15
31

CD3
CD3
Explanation
PR

Date

30,620
30,620
Debit

30,620
61,240
Acct. No. 655
Credit
Balance

2011

July

CD3

575

575

## ACCOUNTS RECEIVABLE SUBLEDGER

Date
2011
July
5
14
15
24

Explanation

Karen Harden
PR
S3
S3
CR3
CR3

Date
2011
July
13
23
30

Explanation

Date
2011

Explanation

Kelly Grody
PR
S3
CR3
S3
Paul Kane
PR

Solutions Manual for Chapter 8

Debit
18,400
4,100

Debit
8,350
15,750
Debit

Credit

18,400
4,100
Credit
8,350

Credit

Balance
18,400
22,500
4,100
0
Balance
8,350
0
15,750
Balance

493

494

July

6
16
29

S3
CR3
S3

7,500
28,090

7,500

7,500
0
28,090

## Problem 8-4B (continued)

ACCOUNTS PAYABLE SUBLEDGER

Date

Explanation

Beech Company
PR

Debit

Credit

Balance

2011

July

1
10
26

P3
CD3
P3
Blackwater Inc.
Explanation
PR

Date

6,300

Debit

6,300
9,770
Credit

6,300
0
9,770
Balance

2011

July

7
8

Date
2011
July
9
20
Date
2011
July
17
24
27

P3
G3
Poppes Supply
Explanation
PR

150
Debit

P3
P3
Sprague Company
Explanation
PR

Solutions Manual for Chapter 8

P3
G3
CD3

1,050

Credit
37,710
750

Debit
2,400
5,800

Credit
8,200

1,050
900
Balance
37,710
38,460
Balance
8,200
5,800
0

494

495

## Problem 8-4B (continued)

Part 5
ELDRIDGE INDUSTRIES
Trial Balance
July 31, 2011
Account

Debit

Credit

## Cash ....................................................................................... \$279,300

Accounts receivable ........................................................................

43,840

33,028

750

900

37,710

\$ 49,130

187,000

## Gene Eldridge, capital.....................................................................

95,000

Sales ......................................................................................................

282,580

767

155,600

61,240

575

## Totals ..................................................................................... \$613,710 \$613,710

ELDRIDGE INDUSTRIES
Schedule of Accounts Receivable
July 31, 2011
Kelly Grody..............................................................................
Paul Kane................................................................................
Total accounts receivable ........................................................
Solutions Manual for Chapter 8

\$15,750
28,090
\$43,840
495

496

ELDRIDGE INDUSTRIES
Schedule of Accounts Payable
July 31, 2011

\$ 9,770

900

38,460

## Total accounts payable ..................................................................

\$49,130

Solutions Manual for Chapter 8

496

497

## Problem 8-4B (concluded)

Analysis component:
To find the error(s),

re-add the account balances on the schedule of accounts payable to confirm that
the addition was correct.
trace the balances listed on the schedule of accounts payable back to the
subsidiary accounts to confirm that they were listed correctly on the schedule.
recalculate the balance of each subsidiary account to confirm that the additions
and subtractions were correct.
trace the postings from each subsidiary account and from the controlling account
back to the appropriate journals.

Since the purchases and cash disbursements journals were footed and crossfooted before
posting, the previous steps should disclose the error.

Solutions Manual for Chapter 8

497

498

Solutions Manual for Chapter 8

## Problem 8-5B (120 minutes)

Parts 1, 2, 3
Date

Account Debited

2011
Oct.
6
12
15
16
21
31

Marge Craig
Heather Flatt
Amy Izon
Heather Flatt
Jan Wildman
Totals

Account
Credited

Date
2011
Oct. 2 Jan Wildman
15 Sales
15 Marge Craig
22 Heather Flatt
25 Amy Izon
28 Store
Supplies
31 Sales

Explanation

SALES JOURNAL
Invoice
P
Number R
913
914
915
916
917

Page 3
Cost of Goods Sold Dr.
Merchandise Inventory
Cr.

3,300
3,650
3,100
4,290
5,520
19,860
(106/413)

1,800
2,000
1,700
2,460
3,000
10,960
(502/119)

## CASH RECEIPTS JOURNAL

Sales
Discoun
Acct.
Cash
t
Rec.
PR
Debit
Debit
Credit

Invoice Nov

23
Cash sales
Invoice, Dec 6
Invoice, Dec

12
Invoice, Dec

15
Sold supplies 125
Cash sales

A/R Dr.
Sales. Cr.

4,116

84

Page 3
Sales
Credit

4,200*

38,830
2,401
3,577

49
73

2,450*
3,650**

2,842

58

2,900**

38,830

58
66,128

## Other Cost of Goods Sold Dr.

Acct. Merchandise Inventory
Credit
Cr.

21,400

58
66,128

36,400

725

499

31 Totals

117,952
(101)

264 13,200*
*
(415) (106)

## * \$3,300 \$850 return = \$2,450

** \$3,100 \$200 return = \$2,900

104,958

58

57,800

(413)

(X)

(502/119)

500

726

## Problem 8-5B (continued)

Date

Account Credited

2011
Oct.
2 Walters Company

PURCHASES JOURNAL
Accounts Merchandis
Date of
Payable
e
Invoice Terms
PR
Credit
Inventory
Debit
Oct 2

## 5 Green Supply Co.

Oct 3

15 Walters Company

Oct 15

15 Sunshine Company

Oct 15

Oct 16

## 20 Green Supply Co. /Store

Equip.
28 Sunshine Company

Oct 19

31 Totals

Oct 28

2/10,
n/60
n/10
EOM
2/10,
n/60
2/10,
n/60
n/10
EOM
n/10
EOM
2/10,
n/60

3,200

3,200

1,300

1,300

3,990

3,990

2,650

2,650

765

Page 2
Other
Accts.
Debit

765

165/

7,475

6,030

6,030

25,410

17,170

(201)

Office
Supplie
s Debit

7,475

(119)

765
(124)

7,475
(X)

501

Solutions Manual for Chapter 8

## Problem 8-5B (continued)

CASH DISBURSEMENTS JOURNAL
Date
201
1
Oct.

Ch.
No. Payee

## 2 619 Omni Realty Co.

6 620 Fireside
Company
12 621 Walters
Company
15 622 Jamie Ford
25 623 Walters
Company*
25 624 Sunshine
Company
29 625 Marlee Levin
30 626 Midwest Elec.
Co.
30 627 Jamie Ford.
31
Totals

## *3,990 640 return = 3,350

Merchandis
e
Inventory
Credit

Other
Accts.
Debit

Page 4
Accts.
Payable
Debit

Account Debited

PR

Cash
Credit

Rent Expense
Fireside Company

640

2,250
3,724

76

Walters Company

3,136

64

Sales Salaries
Expense
Walters Company

621

2,620

3,283

67

3,350

2,597

53

2,650

302

4,000

4,000

690

990

990

Sunshine Company
Marlee Levin,
Withdrawals
Utilities Expense

2,250

3,800
3,200

2,620

621 2,620
25,220
260
(101)
(507)

2,620
12,480
(X)

13,000
(201)

727

502

## Problem 8-5B (continued)

GENERAL JOURNAL
Account Title and Explanations

Date
201
1
Oct.

PR

Page 2
Credit

Debit

## 4 Accounts PayableFireside Company .........

Merchandise Inventory ..........................
Defective merchandise returned.

201/
119

460

## 9 Sales Returns and Allowances .....................

Accounts ReceivableMarge Craig .....
Returned merchandise was scrapped.

414
106/

850

## 18 Sales Returns and Allowances .....................

Accounts ReceivableAmy Izon ...........
Returned merchandise was scrapped.

414
106/

200

## 19 Accounts PayableWalters Company .........

Merchandise Inventory ..........................
Returned merchandise.

201/
119

640

## 20 Accounts PayableGreen Supply Co. ........

Office Supplies ......................................
Returned office supplies.

201/
124

143

460

850

200

640

143

## ACCOUNTS RECEIVABLE SUBLEDGER

Marge Craig

Date

Explanation

PR

Debit

Credit

Balance

2011
Oct.

S3

G2

1
5

CR3

3,300

3,300
850

2,450

2,450

Heather Flatt

Date

Explanation

PR

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

502

503

Oct.

1
2

S3

3,650

3,650

1
6

S3

4,290

7,940

2
2

CR3

Solutions Manual for Chapter 8

3,650

4,290

503

504

Amy Izon

Date

Explanation

PR

Debit

Credit

Balance

2011
Oct.

1
5

S3

1
8

G2

2
5

CR3

Date
2011
Sept 23
Oct.
2
21
Part 2

Date
2011
Sept 28
Oct.
4
6
Date
2011
Oct.
5
16
20
20
Date
2011
Oct. 15
25

Explanation

Jan Wildman
PR
S2
CR3
S3

3,100

Debit
4,200
5,520

3,100
200

2,900

2,900

Credit
4,200

Balance
4,200
0
5,520

Explanation

Fireside Company
PR
P1
G2
CD4

Debit
460
3,800

## Green Supply Company

Explanation
PR
Debit
P2
P2
P2
G2
Explanation

Sunshine Company
PR

Solutions Manual for Chapter 8

P2
CD4

143
Debit
2,650

Credit
4,260

Credit
1,300
765
7,475

Credit
2,650

Balance
4,260
3,800
0
Balance
1,300
2,065
9,540
9,397
Balance
2,650
0
504

505

28

Solutions Manual for Chapter 8

P2

6,030

6,030

505

506

## Problem 8-5B (continued)

Date
2011
Oct.
2
12
15
19
25

Explanation

P2
CD4
P2
G2
CD4

Parts 2, 3

Date
2011
Sept 30 Balance
Oct. 31
31
Date
2011
Sept 30 Balance
Oct.
9
18
31
31
Date
2011
Sept 30 Balance
Oct.
4
19
31
31
31
31
Date
2011
Sept 30 Balance
Oct. 20

Walters Company
PR

Debit
3,200
640
3,350

Credit
3,200
3,990

Balance
3,200
0
3,990
3,350
0

GENERAL LEDGER

Explanation

Cash

PR
CR3
CD4

Accounts Receivable
Explanation
PR
G2
G2
S3
CR3
Merchandise Inventory
Explanation
PR
G2
G2
S3
P2
CD4
CR3
Office Supplies
Explanation
PR

Solutions Manual for Chapter 8

G2

Debit
117,952

Debit

19,860

Debit

17,170

Debit

Credit
Balance

25,220

5,361
123,313
98,093

Credit
Balance
850
200
13,200

4,200
3,350
3,150
23,010
9,810

Credit
Balance
460
640
10,960
260
57,800

66,970
66,510
65,870
54,910
72,080
71,820
14,020

## Acct. No. 124

Credit Balance
143

607
464
506

507

31
Problem 8-5B (continued)
Date
2011
Sept 30 Balance
Oct. 28
Date
2011
Sept 30 Balance
Oct. 20
Date
2011
Sept 30 Balance
Date
2011
Sept 30 Balance
Oct.
4
19
20
31
31
Date
2011
Sept 30 Balance
Date
2011
Oct. 29
Date
2011
Oct. 31
31

P2

Store Supplies
Explanation
PR

765
Debit

CR3
Store Equipment
Explanation
PR
P2

1,229
Acct. No. 125
Credit
Balance
58

Debit

Credit
Balance
42,129
49,604

7,475

Explanation
PR
Debit

346
288

## Acct. No. 166

Credit
Balance
9,153

Accounts Payable
Explanation
PR
G2
G2
G2
P2
CD4
Marlee Levin, Capital
Explanation
PR

Debit
460
640
143
13,000
Debit

Credit
Balance

25,410

4,260
3,800
3,160
3,017
28,427
15,427

Credit
Balance
106,200

## Marlee Levin, Withdrawals

Explanation
PR
CD4
Explanation

Sales

Solutions Manual for Chapter 8

PR
S3
CR3

Debit

Credit
Balance

4,000
Debit

4,000
Acct. No. 413
Credit
Balance
19,860
104,958

19,860
124,818

507

508

Date
2011
Oct.
9
18
Date
2011
Oct. 31
Date
2011
Oct. 31
31
Date
2011
Oct. 15
30
Date
2011
Oct.
2
Date
2011
Oct. 30

## Sales Returns and Allowances

Explanation
PR
Debit
G2
G2
Sales Discounts
Explanation
PR
CR3
Cost of Goods Sold
Explanation
PR
S3
CR3
Sales Salaries Expense
Explanation
PR
CD4
CD4
Rent Expense
Explanation
PR
CD4
Utilities Expense
Explanation
PR

Solutions Manual for Chapter 8

CD4

850
200
Debit
264
Debit
10,960
57,800
Debit
2,620
2,620
Debit
2,250
Debit
990

Credit
Balance
850
1,050
Acct. No. 415
Credit Balance
264
Acct. No. 502
Credit
Balance
10,960
68,760
Acct. No. 621
Credit Balance
2,620
5,240
Acct. No. 640
Credit
Balance
2,250
Acct. No. 690
Credit
Balance
990

508

509

## Problem 8-5B (concluded)

Part 4
STARSHINE PRODUCTS
Trial Balance
October 31, 2011
Account
Cash .......................................................................
Accounts receivable ...............................................
Merchandise inventory ...........................................
Office supplies ........................................................
Store supplies ........................................................
Store equipment .....................................................
Accumulated amortization, store equipment ...........
Accounts payable ...................................................
Marlee Levin, capital ..............................................
Marlee Levin, withdrawals ......................................
Sales ......................................................................
Sales returns and allowances.................................
Sales discounts ......................................................
Cost of goods sold..................................................
Sales salaries expense ..........................................
Rent expense .........................................................
Utilities expense .....................................................
Totals .....................................................................

Debit
\$ 98,093
9,810
14,020
1,229
288
49,604

4,000

Credit

\$ 9,153
15,427
106,200

124,818
1,050
264
68,760
5,240
2,250
990
\$255,598 \$255,598

STARSHINE PRODUCTS

October 31, 2011

\$4,290

5,520

## Total accounts payable ........

\$9,810

STARSHINE PRODUCTS
Schedule of Accounts Payable
October 31, 2011

Solutions Manual for Chapter 8

509

510

## Green Supply Company ........

Sunshine Company. .............
Total accounts payable .........

Solutions Manual for Chapter 8

\$ 9,397
6,030
\$15,427

510

511

734

## Problem 8-6B (30 minutes)

Page 1

Sales Journal

Date

Account Debited

Invoice
No.

PR

A/R Dr.
Sales Cr.

COGS Dr.
PR Merchandise Inventory
Cr.

2011
213

300.00

108.00

15 J. Samuelson

214

750.00

270.00

22 V. Nels

215

600.00

200.60

30 M. Bains

216

810.00

270.81

July 9 W. Tilden

Purchases Journal
Fundamental Accounting Principles, Twelfth Canadian Edition

Date

Page 1
Merchandis
e
Inventory

Date of
Invoice

Terms

Tulsco Supply

July 4

n/30

450.00

450.00

Gentry Holdings

July 18

n/30

270.00

270.00

Account Credited

PR

A/P Cr.

PR

Dr.

2011
July 4
18

NOTE: An additional PR column has been added to facilitate the referencing of inventory entries into the

Office
Supplies
Dr.

Other
Accounts
Dr.

512

513

## Problem 8-6B (concluded)

Inventory Subledger Record Weighted-Average Perpetual
Inventory Balance
Date

PR

Purchases

Units

Unit
Cost

## Sales (at cost)

Total Cost

Unit
s

Unit
Cost

Total
Cost

(a)

(b)
(a)

Tota
l
Average
Unit Cost/Un
s
it

(b)

Total
Cost
Inventory Balance Calculations

July 31

Beginning inventory
30

@ \$12.0 = \$
0

360.0
0

30 \$12.00 \$ 360.0
0
30

4 P1

45

@ \$10.0 = \$
0

450.0
0

45 @ 10.0 =
0
450.00
75 \$10.80 \$ 810.0
0

10 @ \$10.8 = \$ 108.00
0

9 S1

25 @ \$10.8 = \$ 270.00
0

30

@ \$9.00 = \$

270.0
0

75

\$ 810.0
0

65

\$ 702.0
0

65

\$ 702.0
0

40

\$ 432.0
0

40

\$ 432.0
0

30 @ 9.00 =
270.00
70 \$10.03 \$ 702.0
0

22 S1

\$ 810.0
0

@ 10.8 =

25
0
270.00
40 \$10.80 \$ 432.0
0

18 P1

75

@ 10.8 =

10
0
108.00
65 \$10.80 \$ 702.0
0

15 S1

\$ 360.0
0

20 @ \$10.0 = \$ 200.60
3

Solutions Manual for Chapter 8

70

\$ 702.0
0

70

\$ 702.0
0

@ 10.0 =

20
3
200.60

513

514
50 \$10.03 \$ 501.4
0

27 @ \$10.0 = \$ 270.81
3

30 S1

105

\$1,080.00 82

## Cost of goods available for sale Cost of goods sold

= +

\$849.41

\$ 501.4
0

50

\$ 501.4
0

@ 10.0 =

27
3
270.81
23 \$10.03 \$ 230.5
9

Total

50

23

23

\$ 230.5
9

\$230.59
Ending inventory

Note: An additional PR column has been added to the Inventory Subledger Record to facilitate referencing of inventory
entries.

Solutions Manual for Chapter 8

514

515
726

## *Problem 8-7B (40 minutes)

Note: Since posting to the General Ledger was not a requirement in this problem, posting references are shown for
values posted to the subledgers only.

SALES JOURNAL

Page 3
A/R Dr.

Invoice
Date

Account Debited

Numbe
r

PR

Sales Cr.

5 Karen Harden

918

18,400

6 Paul Kane

919

7,500

13 Kelly Grody

920

8,350

14 Karen Harden

921

4,100

2011
July

## CASH RECEIPTS JOURNAL

Account
Date

Credited

Accts.

Cash

Disc.

Rec.

Sales

Accts.

Credit

Credit

Explanation

PR

Debit

Debit

Credit

Sale of July 5

18,032

368

18,400

2011
July

1 Karen Harden
5

Page 3
Other

Sales

1 Sales
5

516

Cash sales

121,370

121,370

PURCHASES JOURNAL
Accounts
Date
of
Date

Account Credited

Invoic
e

Terms

Office

Page 3
Other

Payable

Purchases

Supplies

Accounts

PR

Credit

Debit

Debit

Debit

2011
July

1 Beech Company

Jun.
30

2/10,n/60

6,300

July 7

n/10 EOM

1,050

1,050

## 9 Poppes Supply/Store Equipment

July 8

n/10 EOM

37,710

37,710

6,300

517

Solutions Manual for Chapter 8

## *Problem 8-7B (continued)

CASH DISBURSEMENTS JOURNAL

Ch.
Date

No.

Payee

Account Debited

PR

Purchas
e

Other

Page 3
Accts.

Cash

Discoun
t

Accts.

Payable

Credit

Credit

Debit

Debit

2011
July

Date
2011
July

3 300

The Weekly
Journal

1 301
0

Beech Company

Beech Company

1 302
5

Payroll

Sales Salaries
Expense

GENERAL JOURNAL
Account Titles and Explanations
8

## Accounts PayableBlackwater Inc. ............

Store Supplies ........................................
Returned supplies to supplier.

575

6,174

575
126

30,620

PR
201/
125

Debit
150

6,300
30,620

Page 3
Credit
150

737

518

## *Problem 8-7B (concluded)

ACCOUNTS RECEIVABLE SUBLEDGER

Date
2011
July
5
14
15

Explanation

Karen Harden
PR
S3
S3
CR3

Date
2011
July
13

Explanation

Date
2011
July
6

Explanation

Kelly Grody
PR
S3
Paul Kane
PR
S3

Debit

Credit

18,400
4,100

Debit

18,400
Credit

8,350
Debit

Balance
18,400
22,500
4,100
Balance
8,350

Credit

7,500

Balance
7,500

## ACCOUNTS PAYABLE SUBLEDGER

Beech Company
Explanation
PR

Date

Debit

Credit

Balance

2011

July

1
10

Date

P3
CD3
Explanation

Blackwater Inc.
PR

6,300
Debit

6,300

Credit

6,300
0
Balance

2011

July

7
8

Date
2011
July
9
Date
2011

P3
G3
Explanation

Poppes Supply
PR

150
Debit

P3
Sprague Company
Explanation
PR

Solutions Manual for Chapter 8

1,050

Credit
37,710

Debit

Credit

1,050
900
Balance
37,710
Balance

518

519

Solutions Manual for Chapter 8

519

520
Solutions Manual for Chapter 8

SALES JOURNAL

Page 3
Invoice

Date

Account Debited

A/R Dr.

Numbe
r

PR

Sales Cr.

5 Karen Harden

918

18,400

6 Paul Kane

919

7,500

13 Kelly Grody

920

8,350

14 Karen Harden

921

4,100

29 Paul Kane

922

28,090

30 Kelly Grody

923

15,750

2011
July

82,190

Totals

(106/413)

Account
Date
2011

Credited

Explanation

PR

Page 3

Sales

Accts.

Other

Cash

Disc.

Rec.

Sales

Accts.

Debit

Debit

Credit

Credit

Credit

739

July

521

1 Karen
5 Harden

Sale of July 5

1 Sales
5

Cash sales

1 Paul Kane
6

Sale of July 6

7,350

2 L.T. Notes P.
1

Note to bank

25
1

20,000

2 Kelly Grody
3

Sale of July 13

8,183

167

8,350

2 Karen
4 Harden

Sale of July 14

4,018

82

4,100

3 Sales
1

Cash sales

Totals

18,032

368

18,400

121,37
0

121,37
0
150

7,500
20,000

79,020

79,020

257,97
3

767

38,350

200,39
0

20,000

(101)

(415)

(106)

(413)

(X)

522

740

## *Problem 8-8B (continued)

PURCHASES JOURNAL

Page 3
Accounts

Date
of
Date

Account Credited

Invoic
e

Terms

Office

Other

Payable

Purchase
s

Supplie
s

Account
s

Credit

Debit

Debit

Debit

6,300

6,300

PR

2011
July

## Fundamental Accounting Principles, Twelfth Canadian Edition

1 Beech Company

Jun.
30

2/10,n/60

7 Blackwater Inc./Store
Supplies

July 7

n/10
EOM

125/

1,050

1,050

9 Poppes Supply/Store
Equipment

July 8

n/10
EOM

165/

37,710

37,710

17 Sprague Company

July
17

2/10,n/6
0

8,200

20 Poppes Supply

July
19

n/10
EOM

750

26 Beech Company

July
26

2/10,n/3
0

9,770

9,770

63,780

24,270

750

38,760

(201)

(505)

(124)

(X)

Totals

8,200
750

523

Purchas
e

Other

Cash

Discoun
t

Accts.

Payable

PR

Credit

Credit

Debit

Debit

655

575

Ch.
Date

No.

Payee

Account Debited

Page 3
Accts.

2011
July

3 300

The Weekly
Journal

1 301
0

Beech Company

Beech Company

1 302
5

Payroll

Sales Salaries
Expense

2 303
7

Sprague
Company

Sprague Company

3 304
1

Payroll

Sales Salaries
Expense

Totals

6,174

621

30,620

5,684

621

30,620
73,673
(101)

575
126

6,300
30,620

116

5,800*
30,620

242
(506)

61,815

12,100

(X)

(201)

524

## *Problem 8-8B (continued)

Date
2011
July

GENERAL JOURNAL
Account Titles and Explanations
8

PR

Debit

## Accounts PayableBlackwater Inc. ............

Store Supplies .......................................
Returned supplies to supplier.

201/
125

150

## 24 Accounts PayableSprague Company ........

Purchase Returns and Allowances ........
Returned defective inventory to
merchandise supplier.

201/
507

2,400

Page 3
Credit
150

2,400

Parts 1, 2, 3, 4
GENERAL LEDGER
Cash
Explanation

Date

## Acct. No. 101

PR

Debit

Credit

Balance

2011

Balance Forward

June

3
0

95,000

July

3
1

CR3

3
1

CD3

257,973

352,973
73,673

Accounts Receivable
Date

Explanation

PR

279,300

## Acct. No. 106

Debit

Credit

Balance

2011
July

3
1

S3

3
1

CR3

Solutions Manual for Chapter 8

82,190

82,190
38,350

43,840

524

525

Merchandise Inventory
Date

Explanation

PR

Debit

Credit

Balance

2011
Jun.

3
0

Balance Forward

167,000

## Acct. No. 124

Office Supplies
Explanation

Date

PR

Debit

Credit

Balance

2011
July

3
1

Solutions Manual for Chapter 8

P3

750

750

525

526

Acct. No. 125

Store Supplies
Explanation

Date

PR

Debit

Credit

Balance

2011
July

P3

G3

1,050

1,050
150

Store Equipment
Explanation

Date

900

PR

Debit

Credit

Balance

2011
July

P3

37,710

37,710

Accounts Payable
Date

Explanation

PR

Debit

Credit

Balance

2011
July

G3

24

G3

31

P3

31

CD3

150

(150)

2,400

(2,550)
63,780

12,100

49,130

## Long-Term Notes Payable

Explanation

Date

PR

61,230

Debit

Credit

Balance

2011
June

3
0

July

2
1

Balance Forward

Solutions Manual for Chapter 8

167,000
CR3

20,000

187,000

526

527

Explanation

Date

PR

Debit

Credit

Balance

2011
Jun.

3
0

Balance Forward

95,000

Sales
Explanation

Date

PR

Debit

Credit

Balance

2011
July

3
1

S3

3
1

CR3

82,190

82,190

200,390

282,580

## Acct. No. 415

Sales Discounts

Date

Explanation

PR

Debit

Credit

Balance

2011
July

3
1

Solutions Manual for Chapter 8

CR3

767

767

527

528

Purchases
Explanation

Date

## Acct. No. 505

PR

Debit

Credit

Balance

2011
July

3
1

P3

24,270

24,270

Purchase Discounts
Explanation

Date

PR

Debit

Credit

Balance

2011
July

3
1

CD3

242

Explanation

Date

PR

242

Debit

Credit

Balance

2011
July

2
4

G3

Explanation
PR

Date

2,400

Debit

2,400

Credit
Balance

2011

July

15
31

CD3
CD3
Explanation
PR

Date

30,620
30,620
Debit

30,620
61,240
Acct. No. 655
Credit
Balance

2011

July

CD3

575

575

## ACCOUNTS RECEIVABLE SUBLEDGER

Date
2011

Explanation

Karen Harden
PR

Solutions Manual for Chapter 8

Debit

Credit

Balance

528

529

July

5
14
15
24

Date
2011
July
13
23
30

S3
S3
CR3
CR3
Explanation

Kelly Grody
PR

Solutions Manual for Chapter 8

S3
CR3
S3

18,400
4,100

Debit
8,350
15,750

18,400
4,100
Credit
8,350

18,400
22,500
4,100
0
Balance
8,350
0
15,750

529

530

Date
2011
July
6
16
29

Explanation

Paul Kane
PR
S3
CR3
S3

Debit

Credit

7,500
28,090

7,500

Balance
7,500
0
28,090

## ACCOUNTS PAYABLE SUBLEDGER

Date

Explanation

Beech Company
PR

Debit

Credit

Balance

2011

July

1
10
26

Date

P3
CD3
P3
Explanation

Blackwater Inc.
PR

6,300

Debit

6,300
9,770
Credit

6,300
0
9,770
Balance

2011

July

7
8

Date
2011
July
9
20
Date
2011
July
17
24
27

P3
G3
Explanation

Poppes Supply
PR

150
Debit

P3
P3
Sprague Company
Explanation
PR

Solutions Manual for Chapter 8

P3
G3
CD3

1,050

Credit
37,710
750

Debit
2,400
5,800

Credit
8,200

1,050
900
Balance
37,710
38,460
Balance
8,200
5,800
0

530

531

## *Problem 8-8B (concluded)

Part 5
ELDRIDGE INDUSTRIES
Trial Balance
July 31, 2011
Account

Debit

Cash .................................................................................

\$279,300

43,840

167,000

750

900

37,710

Credit

\$ 49,130

187,000

## Gene Eldridge, capital ..............................................................

95,000

Sales ................................................................................................

282,580

Sales discounts............................................................................

767

Purchases......................................................................................

24,270

242

2,400

61,240

## Advertising expense .................................................................

575

Totals..............................................................................................

\$616,352

Solutions Manual for Chapter 8

\$616,352

531

532

ELDRIDGE INDUSTRIES
Schedule of Accounts Receivable
July 31, 2011
Kelly Grody........................................................................
Paul Kane .........................................................................
Total accounts receivable ..................................................

\$15,750
28,090
\$43,840

ELDRIDGE INDUSTRIES
Schedule of Accounts Payable
July 31, 2011

\$ 9,770

900

38,460

## Total accounts payable ............................................................

\$49,130

Solutions Manual for Chapter 8

532

746

## *Problem 8-9B - Perpetual (100 minutes) Part 4

SALES JOURNAL
Invoice
Date

Account Debited

Page 2
COGS

Accts.

PST

GST

Rec.

Payable

Payable

Sales

Dr./

Debit

Credit

Credit

Credit

MI Cr.

7,366.00

635.00

381.00

6,350.00

4,445.00

14,500.00 1,250.00

750.00

12,500.0
0

8,750.00

Number

PR

8 Leroy Holmes

439

10 Sam Spear

440

15 Marjorie Cook

441

4,930.00

425.00

255.00

4,250.00

2,975.00

22 Sam Spear

442

3,010.20

259.50

155.70

2,595.00

1,800.00

24 Marjorie Cook

443

3,758.40

324.00

194.40

3,240.00

2,260.00

28,935.0
0

20,230.0
0

(413)

(502/119)

2011
Nov.

31 Totals

(106)

(224)

(225)

Account
Date

Credited

Explanation

PR

Page 3
Other

PST

GST

Sales

Accts.

Cash

Disc.

Rec.

Sales

Accts

Payabl Payabl
e
e

Debit

Debit

Credit

Credit

Credit

Credit

Credit

COGS
Dr./
MI Cr.

534

2011
Nov 2 L.T. Notes
.
Pay

Note to bank

25
1

86,250.0
0

86,250.0
0

1 Sales
5

Cash sales

31,517.2
0

1 Leroy
8 Holmes

Invoice, Nov 8

0

1 Sam Spear
9

Invoice, Nov
10

0
0
0

2 Marjorie
5 Cook

Invoice, Nov
15

3 Sales
0

Cash sales

3 Totals
0

41,415.4
8

27,170.0
0

0
0
0

35,703.0
0

0
8
0

## 185,516. 462.0 26,796.0 62,873.0 86,250.0 6,287.3 3,772.3 44,000.0

68
0
0
0
0
0
8
0
(101)

(415)

(106)

(413)

(X)

(224)

(225)

(502/11
9)

Solutions Manual for Chapter 8

## *Problem 8-9B - Perpetual (continued)

PURCHASES JOURNAL
Date
2011
Nov.
1
4
5
11
16
30

Date of
Invoice

Account Credited
Jett Supply/Office Equip.
Defore Industries
Atlas Company/Store Supplies
The Welch Company
Atlas Company/Office Supplies
Totals

Nov 1
Nov 3
Nov 5
Nov 10
Nov 16

Terms

PR

Page 2
Accts. Merchandise Other
GST
Payable
Inventory Accounts Recble
Credit
Debit
Debit
Debit

## n/10 EOM 163/ 5,365.72

2/10, n/30
12,084.00
n/10 EOM 125/ 1,081.20
2/10, n/30
3,060.22
n/10 EOM 124/
592.54
22,183.68
(201)

11,400.00
2,887.00
14,287.00
(119)

5,062.00

303.72
684.00
1,020.00
61.20
173.22
559.00
33.54
6,641.00 1,255.68
(X)
(108)

## CASH DISBURSEMENTS JOURNAL

Ch.
Date

Page 3
Merch.

Other

GST

Accts.

Cash

Inventor
y

Accts.

Recble

Payable

Credit

Debit

Debit

Debit

No.

Payee

Account Debited

PR

Credit

1
2

633

Defore
Industries

Defore Industries

11,856.0
0

1
5

634

Payroll

Sales Salaries
Expense

621

8,435.00

635

2011
Nov.

2,496.00

228.00

12,084.0
0
8,435.00

48.00

2,544.00

747

536

9
3
0
3
0

636

Payroll

Sales Salaries
Expense

Totals

621

8,435.0
0

8,435.0
0

31,222.0
0

276.00 16,870.0
0

(101)

(119)

(X)

14,628.0
0
(201)

## *2,887 487 = 2,400; 2,400 x 2% = 48 discount

Solutions Manual for Chapter 8

536

537

## *Problem 8-9B - Perpetual (continued)

GENERAL JOURNAL
Account Titles and Explanations

Date
2011
Nov. 17

26

PR

Page 2
Credit

Debit

## Accounts PayableThe Welch Company ........

GST Payable.................................................
Merchandise Inventory ...............................
Returned merchandise.

201/
225
119

516.22

## Accounts PayableJett Supply ........................

Office Equipment .........................................
GST Payable.................................................
Returned office equipment.

201/
163
225

977.32

29.22
487.00

922.00
55.32

## ACCOUNTS RECEIVABLE SUBLEDGER

Marjorie Cook
Explanation

Date

PR

Debit

Credit

Balance

15

S2

4,930.50

4,930.50

24

S2

3,758.40

8,688.40

25

CR2

2011
Nov.

4,930.00

3,758.40

Credit

Balance

Leroy Holmes
Date

Explanation

PR

Debit

S2

7,366.00

2011
Nov.

8
18

CR2

7,366.00
7,366.00

0.00

Sam Spear
Date

Explanation

PR

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

537

538

Nov.

10

S2

19

CR2

22

S2

Parts 3 and 4

14,500.00

14,500.0
0
14,500.0
0

3,010.20

0.00
3,010.20

## ACCOUNTS PAYABLE SUBLEDGER

Atlas Company
Explanation

Date

PR

Debit

Credit

Balance

2011
Nov.

P2

1,081.20

1,081.20

16

P2

592.54

1,673.74

Solutions Manual for Chapter 8

538

539

## *Problem 8-9B - Perpetual (continued)

Defore Industries
Explanation

Date

PR

Debit

Credit

Balance

12,084.0
0

12,084.00

2011
Nov.

P2

12

CD2

12,084.00

PR

Debit

0.00

Jett Supply
Explanation

Date

Credit

Balance

2011
Nov.

P2

26

G2

5,365.72
977.32

5,365.72
4,388.40

## The Welch Company

Explanation

Date

PR

Debit

Credit

Balance

2011
Nov.

11

P2

3,060.22

3,060.22

17

G2

516.22

2,544.00

19

CD2

2,544.00

0.00

Parts 1 and 4
GENERAL LEDGER
Acct. No. 101

Cash
Date

Explanation

PR

Debit

CR2

185,516.6

Credit

Balance

2011
Nov.

30

Solutions Manual for Chapter 8

185,516.6

539

540

8
30

CD2

8
31,222.0
0

## Acct. No. 106

Accounts Receivable
Date

Explanation

154,294.6
8

PR

Debit

30

S2

33,564.60

30

CR2

Credit

Balance

2011
Nov.

GST Receivable
Date

Explanation

33,564.60
26,796.0
0

6,768.60

## Acct. No. 108

PR

Debit

P2

1,255.68

Credit

Balance

2011
Nov.

30

Solutions Manual for Chapter 8

1,255.68

540

541

## *Problem 8-9B - Perpetual (continued)

Acct. No. 119

Merchandise Inventory
Date

Explanation

PR

Debit

Credit

Balance

2011
Oct.

31

210,000.0
0

Nov.

17

G2

487.00

209,513.0
0

30

S2

20,230.0
0

189,283.0
0

30

CR3

44,000.0
0

145,283.0
0

30

P2

30

CD3

14,287.00

159,570.0
0
276.00

Office Supplies
Date

Explanation

159,294.0
0

PR

Debit

Credit

Balance

2011
Nov.

30

P2

559.00

559.00

Store Supplies
Date

Explanation

PR

Debit

P2

1,020.00

Credit

Balance

2011
Nov.

1,020.00

## Acct. No. 163

Office Equipment
Date

Explanation

Solutions Manual for Chapter 8

PR

Debit

Credit

Balance

541

542

2011
Nov.

P2

26

G2

5,062.00

5,062.00
922.00

Accounts Payable
Date

Explanation

PR

4,140.00

Debit

Credit

Balance

2011
Nov.

17

G2

516.22

(516.22)

26

G2

977.32

(1,493.54)

30

P2

30

CD2

22,183.6
8
14,628.00

6,062.14

PST Payable
Date

Explanation

20,690.14

## Acct. No. 224

PR

Debit

Credit

Balance

2011
Nov.

30

S2

2,893.50

2,893.50

30

CR2

6,287.30

9,180.80

Solutions Manual for Chapter 8

542

543

Acct. No. 225

GST Payable
Date

Explanation

PR

Debit

Credit

Balance

2011
Nov.

17

G2

29.22

29.22

26

G2

55.32

84.54

30

S2

1,736.10

1,820.64

30

CR2

3,772.38

5,593.02

Date

Explanation

PR

Debit

Credit

Balance

86,250.0
0

86,250.00

2011
Nov.

CR2

Date

Explanation

PR

Debit

Credit

Balance

2011
Oct.

31

210,000.0
0

## Acct. No. 413

Sales
Date

Explanation

PR

Debit

Credit

Balance

28,935.0
0

28,935.00

2011
Nov.

30

Solutions Manual for Chapter 8

S2

543

544

30

CR2

62,873.0
0

Sales Discounts
Date

Explanation

91,808.00

PR

Debit

Credit

Balance

2011
Nov.

30

CR2

462.00

462.00

Date

Explanation

PR

Debit

Credit

Balance

30

S2

20,230.00

20,230.00

30

CR3

44,000.00

64,230.00

PR

Debit

15

CD2

8,435.00

8,435.00

30

CD2

8,435.00

16,870.00

2011
Nov.

Date

Explanation

Credit

Balance

2011
Nov.

## *Problem 8-9B - Perpetual (concluded)

Part 5
CRYSTAL COMPANY
Trial Balance
November 30, 2011

## Account ............................................... Debit Credit

Cash ........................................................... \$154,294.68
Accounts receivable .................................... 6,768.60
GST receivable ........................................... 1,255.68
Merchandise inventory ................................ 159,294.00
Office supplies ............................................
559.00
Store supplies ............................................. 1,020.00
Office equipment......................................... 4,140.00
Solutions Manual for Chapter 8

544

545

## Accounts payable .......................................

PST payable ...............................................
GST payable ...............................................
Long-term notes payable ............................
Asha Crystal, capital ...................................
Sales...........................................................
Sales discounts...........................................
462.00
Cost of goods sold ...................................... 64,230.00
Sales salaries expense ............................... 16,870.00
Totals .......................................................... \$408,893.96

\$ 6,062.14
9,180.80
5,593.02
86,250.00
210,000.00
91,808.00

\$408,893.96

CRYSTAL COMPANY
Schedule of Accounts Receivable
November 30, 2011

\$3,758.40

3,010.20

## Total accounts receivable ......................

\$6,768.60

CRYSTAL COMPANY
Schedule of Accounts Payable
November 30, 2011

\$1,673.74

4,388.40

## Total accounts payable ...........................

\$6,062.14

Solutions Manual for Chapter 8

545

546

Solutions Manual for Chapter 8

## *Problem 8-9B - Periodic (100 minutes)

Part 4

SALES JOURNAL
Invoice

Date

Account Debited

Page 2
Accts.

PST

GST

Rec.

Payable

Payable

Sales

Credit

Credit

Credit

Number

PR

Debit

8 Leroy Holmes

439

7,366.00

635.00

381.00

6,350.00

10 Sam Spear

440

14,500.0 1,250.00
0

750.00

12,500.0
0

15 Marjorie Cook

441

4,930.00

425.00

255.00

4,250.00

22 Sam Spear

442

3,010.20

259.50

155.70

2,595.00

24 Marjorie Cook

443

3,758.40

324.00

194.40

3,240.00

0

28,935.0
0

2011
Nov.

31 Totals

(106)

(224)

(225)

(413)

Account
Date

Credited

Explanation

PR

Page 3

Sales

Accts.

Cash

Discoun
t

Rec.

Debit

Debit

Credit

Other

PST

GST

Sales

Accts

Payable

Payabl
e

Credit

Credit

Credit

Credit

753

547

2011
Nov.

2 L.T. Notes
Pay

Note to bank

1 Sales
5

Cash sales

1 Leroy
8 Holmes

Invoice, Nov
8

7,239.00

127.00

7,366.0
0

1 Sam Spear
9

Invoice, Nov
10

14,250.0
0

250.00

14,500.
00

2 Marjorie
5 Cook

Invoice, Nov
15

4,845.00

85.00

4,930.0
0

3 Sales
0

Cash sales

3 Totals
0

25
1

86,250.0
0

86,250.
00

31,517.2
0

41,415.4
8

27,170.
00

2,717.0
0

1,630.
20

35,703.
00

3,570.3
0

2,142.
18

185,516.
68

462.00

26,796.
00

62,873.
00

86,250.
00

6,287.3
0

3,772.
38

(101)

(415)

(106)

(413)

(X)

(224)

(225)

548
754

## *Problem 8-9B - Periodic (continued)

PURCHASES JOURNAL
Date
2011
Nov.
1
4
5
11
16
30

Date of
Invoice

Account Credited
Jett Supply/Office Equip.
Defore Industries
Atlas Company/Store Supplies
The Welch Company
Atlas Company/Office Supplies
Totals

Nov 1
Nov 3
Nov 5
Nov 10
Nov 16

Terms

PR

Accts.
Payable
Credit

## n/10 EOM 163/ 5,365.72

2/10, n/30
12,084.00
n/10 EOM 125/ 1,081.20
2/10, n/30
3,060.22
n/10 EOM 124/
592.54
22,183.68
(201)

Page 2
Other
GST
Purchases Accounts Recble
Debit
Debit
Debit
11,400.00
2,887.00
14,287.00
(505)

5,062.00

303.72
684.00
1,020.00
61.20
173.22
559.00
33.54
6,641.00 1,255.68
(X)
(108)

## CASH DISBURSEMENTS JOURNAL

Fundamental Accounting Principles, Twelfth Canadian Edition

Ch.
Date

Page 3
Pur.

Other

GST

Accts.

Cash

Disc.

Accts.

Recble

Payable

Debit

Debit

Debit

No.

Payee

Account Debited

PR

Credit

Credit

1
2

633

Defore
Industries

Defore Industries

11,856.0
0

228.0
0

1
5

634

Payroll

Sales Salaries
Expense

621

8,435.00

635

2011
Nov.

2,496.00

12,084.0
0
8,435.00

48.00

2,544.00

549

9
3
0
3
0

636

Payroll
Totals

Sales Salaries
Expense

621

8,435.0
0

8,435.0
0

31,222.0
0

276.0
0

16,870.0
0

14,628.0
0

(101)

(507)

(X)

(201)

550

## *Problem 8-9B - Periodic (continued)

GENERAL JOURNAL
Account Titles and Explanations

Date
2011
Nov. 17

26

PR

Page 2
Credit

Debit

## Accounts PayableThe Welch Company ........

GST Payable.................................................
Purchases Returns and Allowances .........
Returned merchandise.

201/
225
506

516.22

## Accounts PayableJett Supply ........................

Office Equipment .........................................
GST Payable.................................................
Returned office equipment.

201/
163
225

977.32

29.22
487.00

922.00
55.32

Parts 2 and 4
ACCOUNTS RECEIVABLE SUBLEDGER

Marjorie Cook
Explanation

Date

PR

Debit

Credit

Balance

15

S2

4,930.00

4,930.00

24

S2

3,758.40

8,688.40

25

CR3

2011
Nov.

4,930.00

3,758.40

Credit

Balance

Leroy Holmes
Date

Explanation

PR

Debit

S2

7,366.00

2011
Nov.

8
18

Solutions Manual for Chapter 8

CR3

7,366.00
7,366.00

0.00

550

551

Sam Spear
Explanation

Date

PR

Debit

10

S2

14,500.00

19

CR3

22

S2

Credit

Balance

2011
Nov.

Solutions Manual for Chapter 8

14,500.0
0
14,500.0
0

3,010.20

0.00
3,010.20

551

552

Parts 3 and 4

## ACCOUNTS PAYABLE SUBLEDGER

Atlas Company
Explanation

Date

PR

Debit

Credit

Balance

2011
Nov.

P2

1,081.20

1,081.20

16

P2

592.54

1,673.74

Defore Industries
Explanation

Date

PR

Debit

Credit

Balance

12,084.0
0

12,084.0
0

2011
Nov.

P2

12

CD3

12,084.00

0.00

Jett Supply
Explanation

Date

PR

Debit

Credit

Balance

5,365.72

5,365.72

2011
Nov.

P2

26

G2

977.32

4,388.40

## The Welch Company

Explanation

Date

PR

Debit

Credit

Balance

3,060.22

3,060.22

2011
Nov.

11

Solutions Manual for Chapter 8

P2

552

553

17

G2

516.22

2,544.00

19

CD3

2,544.00

0.00

Solutions Manual for Chapter 8

553

554

Parts 1 and 4
GENERAL LEDGER
Acct. No. 101

Cash
Date

Explanation

PR

Debit

30

CR3

185,516.6
8

30

CD3

Credit

Balance

2011
Nov.

185,516.6
8
31,222.0
0

## Acct. No. 106

Accounts Receivable
Date

Explanation

154,294.6
8

PR

Debit

30

S2

33,564.60

30

CR3

Credit

Balance

2011
Nov.

33,564.60
26,796.0
0

GST Receivable
Date

Explanation

6,768.60

PR

Debit

P2

1,255.68

Credit

Balance

2011
Nov.

30

1,255.68

## Acct. No. 119

Merchandise Inventory
Date

Explanation

PR

Debit

Credit

Balance

2011
Oct.

31 Beginning balance

Solutions Manual for Chapter 8

210,000.0

554

555

Office Supplies
Date

Explanation

PR

Debit

Credit

Balance

2011
Nov.

30

P2

559.00

559.00

## Acct. No. 125

Store Supplies
Date

Explanation

PR

Debit

P2

1,020.00

Credit

Balance

2011
Nov.

Solutions Manual for Chapter 8

1,020.00

555

556

Acct. No. 163

Office Equipment
Date

Explanation

PR

Debit

P2

5,062.00

26

G2

Credit

Balance

2011
Nov.

5,062.00
922.00

Accounts Payable
Date

Explanation

PR

4,140.00

Debit

Credit

Balance

2011
Nov.

17

G2

516.22

(516.22)

26

G2

977.32

(1,493.54)

30

P2

30

CD3

22,183.6
8
14,628.00

6,062.14

PST Payable
Date

Explanation

20,690.14

PR

Debit

Credit

Balance

2011
Nov.

30

S2

2,893.50

2,893.50

30

CR3

6,287.30

9,180.80

## Acct. No. 225

GST Payable
Date

Explanation

PR

Debit

Credit

Balance

2011
Nov.

17

G2

29.22

29.22

26

G2

55.32

84.54

Solutions Manual for Chapter 8

556

557

30

S2

1,736.10

1,820.64

30

CR3

3,772.38

5,593.02

Date

Explanation

PR

Debit

Credit

Balance

86,250.0
0

86,250.00

2011
Nov.

CR3

## Asha Crystal, Capital

Date

Explanation

PR

Debit

Credit

Balance

2011
Oct.

31 Beginning balance

Solutions Manual for Chapter 8

210,000.0
0

557

558

Acct. No. 413

Sales
Date

Explanation

PR

Debit

Credit

Balance

2011
Nov.

30

S2

28,935.0
0

28,935.00

30

CR3

62,873.0
0

91,808.00

Sales Discounts
Date

Explanation

PR

Debit

Credit

Balance

2011
Nov.

30

CR3

462.00

462.00

Purchases
Date

Explanation

PR

Debit

P2

14,287.00

Credit

Balance

2011
Nov.

30

14,287.00

Date

Explanation

PR

Debit

Credit

Balance

2011
Nov.

17

G2

487.00

## Acct. No. 507

Purchases Discounts
Date

Explanation

PR

487.00

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

558

559

Nov.

30

CD3

276.00

Date

Explanation

276.00

## Acct. No. 621

PR

Debit

Credit

Balance

15

CD3

8,435.00

8,435.00

30

CD3

8,435.00

16,870.00

2011
Nov.

Solutions Manual for Chapter 8

559

560

## *Problem 8-9B - Periodic (concluded)

Part 5
CRYSTAL COMPANY
Trial Balance
November 30, 2011

## Account ............................................... Debit Credit

Cash ........................................................... \$154,294.68
Accounts receivable .................................... 6,768.60
GST receivable ........................................... 1,255.68
Merchandise inventory ................................ 210,000.00
Office supplies ............................................
559.00
Store supplies ............................................. 1,020.00
Office equipment......................................... 4,140.00
Accounts payable .......................................
PST Payable ...............................................
GST Payable ..............................................
Long-term notes payable ............................
Asha Crystal, capital ...................................
Sales...........................................................
Sales discounts...........................................
462.00
Purchases................................................... 14,287.00
Purchases returns and allowances .............
Purchases discounts ...................................
Sales salaries expense ............................... 16,870.00
Totals .......................................................... \$409,656.96

\$ 6,062.14
9,180.80
5,593.02
86,250.00
210,000.00
91,808.00
487.00
276.00
\$409,656.96

CRYSTAL COMPANY
Schedule of Accounts Receivable
November 30, 2011

\$3,758.40

3,010.20

## Total accounts receivable ......................

\$6,768.60

CRYSTAL COMPANY
Schedule of Accounts Payable
November 30, 2011

\$1,673.74

4,388.40

## Total accounts payable ...........................

\$6,062.14

Solutions Manual for Chapter 8

560

561

Solutions Manual for Chapter 8

## *Problem 8-10B (30 minutes)

Page X

Sales Journal

Date

Account Debited

Invoic
e No.

PR

A/R
Dr

PST
Payable
CR

GST
Payable

COGS DR
Sales Cr

CR

Merchandise Inventory
CR

2011
May 3 Ajax Holdings
30 Allendale Arena

361

6,840

480

360

6,000

3,200

363

4,218

296

222

3,700

1,900

## Date Account Credited Explanatio PR

n

Cash
DR

Sales
Disc
Dr

Page X

Other
A/R CR
Account
Sales
s CR
CR

PST
GST
COGS/DR
Payable Payabl Merchandise
CR
e CR Inventory/CR

2011
May John
1 Capital

Trenton,

9,000

12 A/R Ajax

6,780

13 Sales
15 Bank
Payable

Inv #362
Loan

2,052
5,000

9,000
60 6,840
1,800

144
5,000

108

1,100

761

562

Purchases Journal
Date

Account Credited

Terms

PR

Page X
Merchandise
Inventory
DR

A/P CR

Other
Accounts
DR

GST
Recble DR

2011
Moore Corporation/Off.
Supplies
London Company
16

May 7

n/30

3,392

1/15,n
/30

7,632

3,200
7,200

192
432

## Cash Disbursements Journal

Date

Ch #

Account Debited

PR

Cash CR

May 5

83

Merchandise Inventory

1,696

30

84

A/P

Corporation

3,392

Merchandis
e
Inventory
CR

Page X
Other
Accounts DR

GST
Recble DR

1,600

96

A/P DR

2011

Moore

3,392

563

762

SALES JOURNAL

Date
2011
May

Date
2011
May 1
12
13
15

## Fundamental Accounting Principles, Twelfth Canadian Edition

Date
2011
May

3 Ajax Holdings
30 Allendale Arena

Account Credited
John Trenton, Capital
A/R Ajax
Sales
Bank Loan Payable

Explanation

Inv #362

## 7 Moore Corporation/Off. Supplies

Ch.
No.

Payee

PR

361
363

Account Credited

16 London Company

Date

Invoice
Number

Account Debited

PR

Cash
Debit
9,000
6,780
2,052
5,000

Date of
Invoice

Page X
Accts.
Rec.
Debit

PST
Payable
Credit

6,840
4,218

GST
Payable
Credit

480
296

## CASH RECEIPTS JOURNAL

Sales
Accts.
Discount
Rec.
Sales
Debit
Credit
Credit

Sales
Credit

360
222

6,000
3,700

Page X
Other
PST
Accts.
Payable
Credit
Credit

GST
Payable
Credit

9,000
60

6,840
1,800

144

108

5,000
PURCHASES JOURNAL
Accts.
Payable
Terms
PR
Credit

Page X
Purchases
Debit

May 7

N/30

3,392

May 16

1/15,n/30

7,632

7,200

## CASH DISBURSEMENTS JOURNAL

Cash
Pur. Disc.
Account Debited
PR
Credit
Credit

PageX
Other Accts.
Debit

Other
Accounts
Debit
3,200

GST
Recble
Debit
192
432

GST Recble
Debit

Accts. Payable
Debit

564

2011
May 5 83
30 84

Merchandise Inventory

Purchases

1,696

A/P Moore
Corporation

Lexor Suppliers

3,424

1,600

96
3,424

565

Solutions Manual for Chapter 8

## ANALYTICAL & REVIEW PROBLEMS

A&R Problem 8-1
Sales Journal

Page 1
COGS Dr.

Date

Account Debited

Invoice
No.

A/R Dr.
PR

Sales Cr.

PR

Merchandise Inventory
Cr.

2011
210

1,125.00

465.75

18 Thorhild Co-op

211

2,250.00

1,090.50

24 Boyle Grocery

212

750.00

353.00

## Oct. 9 Kitchen Club

Purchases Journal

Date

Account
Credited

Date of
Invoice

Page 1
Merchandise
Inventory

Terms

PR

A/P CR

PR

DR

2011
Oct. 3 Arnold Brothers Oct. 3

2/10,
n/30

750.00

750.00

2/10,
n/30

1,550.00

1,550.00

Office
Supplies
Dr.

Other
Accounts
DR

763

566

2/10,
n/30

600.00

600.00

## Cash Disbursements Journal

Date

Ch #

Payee

Account Debited

PR

Cash Cr.

Page 1
Merchandise
Other
Inventory Accounts Dr.
PR
A/P Dr.
Cr.

2011

600.00

## 23 102 Arnold Brothers A/P Arnold Brothers

1,519.00

NOTE: An additional PR column has been added to the Sales and Purchases Journals
to facilitate the referencing of inventory entries into the inventory subledger.

600.00
31.00

1,550.0
0

567

General Journal

Date

Page: G1

PR

Debit

Credit

2011
Oct.

150.00

150.00

## Inventory Subledger Record Weighted-Average Perpetual

Inventory Balance
Date

PR

Purchases

Units

Unit
Cost

## Sales (at cost)

Unit
Total Cost
s

Unit
Cost

(a)

Total
Cost

(b)
(a)

Averag
Total e Cost/
Units Unit

(b)

Total
Cost
Inventory Balance Calculations

Oct.
1

Beginning inventory
85 @ \$5.0 = \$
0

85 \$5.00 \$

25.00

425.0
0
85

3 P1 100 @ \$7.5 = \$
0

100 @ 7.5 =
0

50.00
185 \$6.35 \$ 1,175.0
0

4 G1

20 @ \$7.5 =
0
\$

150.00

9 S1

75 @ \$6.21 = \$

Solutions Manual for Chapter 8

465.7
5

425.
00

750.00

185

\$ 1,175.
00

185

\$ 1,175.
00

20 @ 7.5 =
0
165 \$6.21 \$ 1,025.0
0

150.00

165

\$ 1,025.
00

165

\$ 1,025.
00

75 @ 6.2 =
1

465.75

567

568
90 \$6.21 \$

559.2
5

## 15 P1 200 @ \$7.7 = \$ 1,550.0

5
0

15 @ \$7.27 = \$ 1,090.5
0
0

31.00
140 \$7.06 \$

50 @ \$7.06 = \$

24 S1

75 @ \$8.0 = \$
0

987.7
5

353.0
0
634.7
5

600.0
0

440

559.
25

\$3,144.00 27
5

## Cost of goods available for sale Cost of goods sold

=

@ 7.7 =
5
1,550.00

290

\$ 2,109.
25

290

\$ 2,109.
25

140

\$ 1,018.
75

140

\$ 1,018.
75

31.00

140

987.
75

140

987.
75

\$1,909.25 165
+

353.00

90

634.
75

90

634.
75

75 @ 8.0 =
0
165 \$7.48 \$ 1,234.7
5

Total

90

50 @ 7.0 =
6
90 \$7.06 \$

31 P1

559.
25

@ 7.2 =

150
7
1,090.50
140 \$7.28 \$ 1,018.7
5

23 G1

200
290 \$7.27 \$ 2,109.2
5

18 S1

90

165

600.00
\$ 1,234.
75

\$1,234.75

Ending inventory

Note: An additional PR column has been added to the Inventory Subledger Record to facilitate referencing of inventory
entries.

Solutions Manual for Chapter 8

568

569

Solutions Manual for Chapter 8

569

570

Ethics Challenge
EC 81
1. Independence in fact means that the auditor maintains an objective point of view
of the client. Independence in appearance means that a third party viewing the
relationship between the auditor/client would have no reason to believe that the
auditor is not independent of the client.
2. While auditors are hired by their clients to perform audits, auditors also have a
responsibility to the public. In our society auditors provide credibility to financial
reporting situations by offering professional audit opinions about companies
financial statements. While it is sometimes difficult to be responsible to clients as
well as the public, auditors must maintain their independence to keep the public
trust.
3. Since John Harris is a sole practitioner it is questionable whether he can consult on
the clients accounting system and then remain objective in subsequent years
when he performs the audit of the company. Large firms often separate consulting
and auditing engagements for the same client by having staff stationed in two
different geographic branches of the firm do the work. Or a large local firm might
be able to perform consulting and auditing for the same client by assigning
different personnel to the two jobs. In this scenario John would need to do both
jobs himself, making it difficult to maintain independence in fact and appearance.

Solutions Manual for Chapter 8

570

571

## Focus on Financial Statements

FFS 8-1
Single-step income statement:
MANGO DESIGNS
Income Statement
For Month Ended June 30, 2011

Revenues:

## Net sales ............................................................

Expenses:
Cost of goods sold ............................................
Sales salaries expense .....................................
Office supplies expense ...................................
Amortization expense, store equipment ...........
Interest expense ................................................
Total expenses ...................................................
Net income ...............................................................

Solutions Manual for Chapter 8

\$211,404
\$134,750
42,000
13,400
600
500
200

191,450
\$ 19,954

571

572

## FFS 8-1 (concluded)

MANGO DESIGNS
Statement of Owners Equity
For Month Ended June 30, 2011

## Tom Mandalay, capital, June 1 .........

Add: Owner investment .....................

-0-

75,000

19,954

## Tom Mandalay, capital, June 30 ........

\$94,954

MANGO DESIGNS
Balance Sheet
June 30, 2011

Assets

Current assets:
Cash .............................................................................
Accounts receivable....................................................
Merchandise inventory ...............................................
Office supplies ............................................................
Total current assets ...................................................
Property, plant and equipment:
Store equipment ..........................................................
Less: Accumulated amortization .........................
Total assets .......................................................................

\$156,304
64,000
36,750
4,600
\$32,000
500

\$261,654
31,500
\$293,154

Liabilities

Current liabilities:
Accounts payable .......................................................
Interest payable ...........................................................
Total current liabilities ................................................
Long-term liabilities:
Notes payable ..............................................................
Total liabilities ................................................................
Owners Equity

## Tom Mandalay, capital ...............................................

Total liabilities and owners equity ..................................

\$148,000
200

\$148,200
50,000

\$198,200
94,954
\$293,154

Analysis Component
Mango Designs operates under a perpetual inventory system because the special
journals include the Cost of Goods Sold account.

Solutions Manual for Chapter 8

572

573

FFS 8-2
Danier Leathers June 25, 2005, balance sheet includes Accounts receivable of \$594
(thousand), about 0.7% of total assets (calculated as \$594/\$83,365 x 100). Although
these accounts receivable are not significant in total, they represent amounts owed by
various customers to Danier so it would help decision makers better monitor collection if
the details of individual balances owed, by whom, and dates due were maintained in an
accounts receivable subledger.

The same logic would apply regarding the June 25, 2005, Accounts payable and accrued
liabilities balance of \$8,170 (thousand), about 10% of total assets (calculated as
\$8,170/\$83,365 x 100). Since these accounts payable are significant in total and
represent amounts owed to various creditors, it would help decision makers better
manage payments if the details of individual balances owed, by whom, credit terms, and
dates due were maintained in an accounts payable subledger.

The June 25, 2005, balance sheet shows inventories of \$29,031 (thousand), about 34.82%
of total assets (calculated as \$29,031/\$83,365 x 100). Because Danier sells clothing and
accessories, the inventory balance is significant and represents a large variety of items. It
would help decision makers better manage inventory if the details of unit costs, units
sold, units purchased, and units on hand along with any returns and/or allowances were
detailed in an inventory subledger.

Solutions Manual for Chapter 8

573

574

## Critical Thinking Question

CT 8-1
Note to instructor: Student responses will vary therefore the answer here is only suggested
and not inclusive of all possibilities; it is presented in point form for brevity.

Problem(s):

Detailed information regarding mining assets is required but is not readily available
given the current accounting information system
Goal(s)*:

## To ensure the accounting information system is maintained in such a way that

reasonable internal requests for information can be fulfilled efficiently and
effectively
Assumption(s)/Principle(s):

That the computer system in place at Northern Outposts can accommodate special
purpose reports
The disclosure principle requires that anything of significance be reported
Facts:

as presented
Conclusion(s)/Consequence(s):

## Internal/external reporting requirements need to be identified and matched against what

is currently being provided by the accounting information system gaps need to be
identified and resolved to ensure that decisions dependent on such reports can be done
efficiently and effectively

## *The goal is highly dependent on perspective.

Solutions Manual for Chapter 8

574

575

770

COMPREHENSIVE PROBLEMS
Comprehensive Problem 8.1Alpine Company (150 minutes)
SALES JOURNAL

Page 2
Invoice

Date

Account Debited

A/R Dr.

COGS Dr.

Sales Cr.

Merch. Inv.
Cr

Numbe
r

PR

2 Essex Company

8785

6,100

3,660

16 Essex Company

8786

3,990

2,394

22 Oscar Services

8787

6,850

4,110

26 Deaver Corp.

8788

2011
Ma
y

31 Totals

14,210

31,150
(106/4
13)

Account
Date

Credited

Explanation

PR

8,526
18,690
(502/119)

Other

Page 2

Sales

Accts.

COGS Dr.

Cash

Disc.

Rec.

Sales

Accts.

Merch.
Inv.

Debit

Debit

Credit

Credit

Credit

Credit

576

2011
May

5 Nabors, Inc.*

Sale of Apr. 28

9 Store
Supplies

1 Essex
1 Company

Sale of May 2

1 Sales
5

3 Oscar
0 Services

Sale of May 22

3 Sales
1

3 Totals
1

## *4,725 175 = 4,550; 4,550 x 2% = 91 discount

12
5

4,459

91

4,550

350
5,978

350
122

6,100

59,220

6,713

137

59,220

35,532

66,052

39,630

6,850

66,05
2
142,77
2

350

17,500

125,272

350

75,162

(101)

(414)

(106)

(413)

(X)

(502/11
9)

577
Solutions Manual for Chapter 8

## Comprehensive Problem 8.1Alpine Company

(continued)

PURCHASES JOURNAL

Page 2

Date of
Date

Account Credited

Invoic
e

Accounts

Merchandi
se

Payable

s

Terms

PR

Credit

Debit

May
04

n/10
EOM

125/

37,729

37,072

## 10 Off. Equip./Thompson Supp.

May
10

n/10
EOM

163/

4,074

11 Gale, Inc.

May
10

2/10,
n/30

8,800

8,800

17 Chandler Corp.

May
14

2/10,
n/60

13,650

13,650

## 24 Store Supp./Thompson Supp.

May
24

n/10
EOM

125/

9,030

8,120

25 Parkay Products

May
23

2/10,
n/30

3,080

3,080

76,363
(201)

Office

Other

Debit

Debit

83

574

2011
May

## 4 Store Supp./Thompson Supp.

31 Totals

4,074

280

630

70,722

363

5,278

(119)

(124)

(X)

771

CASH DISBURSEMENTS

578

JOURNAL

Ch.
Date

No.

Payee

Account Debited

PR

Page 2

Merchandis Other
e

Accts.

Cash

Inventory

Accts.

Payable

Credit

Credit

Debit

Debit

2011
May

8 3411 Parkay
Products
15 3412 Payroll

Space

642

Space

641

3,710

6,174

Parkay Products

2,968

621

620

8,470

742
126

6,300
5,320
3,150

Gale, Inc.

8,624

176

8,800

Chandler Corp.

13,37
7

273

13,650

## 26 3415 Trinity Power

Utilities Expense

690

1,283

1,283

## 29 3416 Clint Barry

C. Barry, Withdrawal

302

7,000

7,000

30 3417 Payroll

621

620

31

Totals

5,320
3,150

8,470
57,10
8

575

28,933

(119)

(X)

28,750

579

(101)

(201)

580

## Comprehensive Problem 8.1Alpine Company (continued)

Date
2011
May

GENERAL JOURNAL
Account Titles and Explanations

PR

Debit

## Sales Returns and Allowances ......................... 415

Accounts ReceivableNabors, Inc........... 106/

175

## Accounts PayableParkay Products .............. 201/

Merchandise Inventory .............................. 119

798

12

## Accounts PayableThompson Supply Co. ..... 201/

Office Equipment........................................ 163

854

Page 3
Credit
175
798
854

May 31

## Insurance Expense ............................................

Prepaid Insurance ......................................

637
128

553

31

## Store Supplies Expense ....................................

Store Supplies ............................................

651
125

669

31

## Office Supplies Expense ...................................

Office Supplies ...........................................

650
124

289

31

## Amortization Expense, Store Equipment .........

Accumulated Amort., Store Equipment ....

613
166

567

31

## Amortization Expense, Office Equipment ........

Accumulated Amort., Office Equipment ...

612
164

329

31

## Cost of Goods Sold ...........................................

Merchandise Inventory ..............................

502
119

4,577

Solutions Manual for Chapter 8

553
669
289
567
329
4,577

580

581

## Comprehensive Problem 8.1Alpine Company (continued)

Closing entries:

Page 4

2011
May 31

Sales ................................................................
Income Summary ................................

413
901

156,422

31

## Income Summary ............................................

Sales Discounts.......................................
Sales Returns and Allowances...............
Cost of Goods Sold .................................
Amort. Expense, Office Equipment ........
Amort. Expense, Store Equipment .........
Office Salaries Expense ..........................
Sales Salaries Expense...........................
Insurance Expense ..................................
Rent Expense, Office Space ...................
Rent Expense, Selling Space..................
Office Supplies Expense .........................
Store Supplies Expense..........................
Utilities Expense......................................

901
414
415
502
612
613
620
621
637
641
642
650
651
690

123,294

31

## Income Summary ............................................

Clint Barry, Capital ..................................

901
301

33,128

31

## Clint Barry, Capital .........................................

Clint Barry, Withdrawals .........................

301
302

7,000

Solutions Manual for Chapter 8

156,422
350
175
98,429
329
567
6,300
10,640
553
742
2,968
289
669
1,283
33,128
7,000

581

582

GENERAL LEDGER

Cash
Explanation

Date

## Acct. No. 101

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

50,247

May

31

R2

31

CD2

142,772

193,019
57,108

Accounts Receivable
Explanation

Date

135,911

## Acct. No. 106

PR

Debit

Credit

Balance

2011
Apr.
May

30 Balance

4,725

G3

31

S2

31

CR2

Merchandise Inventory
Explanation

Date

175
31,150

4,550
35,700

17,500

18,200

## Acct. No. 119

PR

Debit

Credit

Balance

2011
Apr.
May

30 Balance

220,080

G3

798

219,282

31

S2

18,690

200,592

31

P2

31

CR2

75,162

196,152

31

CD2

575

195,577

Solutions Manual for Chapter 8

70,722

271,314

582

583

31

G3

4,577

Office Supplies
Explanation

Date

191,000

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

430

May

31

P2

31

G3

363

793
289

Store Supplies
Date

Explanation

504

PR

Debit

Credit

Balance

2011
Apr.
May

30 Balance

2,447

P2

CR2

24

P2

31

G3

574

3,021
350

630

2,671
3,301

669

2,632

## Comprehensive Problem 8-1Alpine Company (continued)

Prepaid Insurance

Date

Explanation

## Acct. No. 128

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

May

31

Date

3,318
G3

Office Equipment
Explanation

Solutions Manual for Chapter 8

553

2,765

PR

Debit

Credit

Balance

583

584

2011
Apr.

30 Balance

22,470

May

10

P2

12

G3

Explanation
PR

Date

4,074

26,544
854

25,690

Debit

Credit

Balance

2011
Apr.

30 Balance

May

31

9,898
G3

Store Equipment
Explanation

Date

329

10,227

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

38,920

Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

May

31

17,556
G3

567

## Acct. No. 201

Accounts Payable
Explanation

Date

18,123

PR

Debit

Credit

Balance

2011
Apr.
May

30 Balance
3

Solutions Manual for Chapter 8

7,098
G3

798

6,300

584

585

12

G3

31

P2

31

CD2

Solutions Manual for Chapter 8

854

5,446
76,363

28,750

81,809
53,059

585

586

## Comprehensive Problem 8.1Alpine Company (continued)

Clint Barry, Capital
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

308,085

May

31

G4

31

G4

Explanation

Date

33,128
7,000

341,213
334,213

PR

Debit

Credit

Balance

2011
May

29

CD2

31

G4

7,000

7,000
7,000

Sales
Explanation

Date

PR

Debit

Credit

Balance

2011
May

31

S2

31

CR2

31

G4

156,422

PR

Debit

Sales Discounts
Explanation

Date

31,150

31,150

125,272

156,422
0

Credit

Balance

2011
May

Date

31

CR2

31

G4

## Sales Returns and Allowances

Explanation

Solutions Manual for Chapter 8

350

350
350

PR

Debit

Credit

Balance

586

587

2011
May

G3

31

G4

Date

Explanation

175

175
175

## Acct. No. 502

PR

Debit

Credit

Balance

2011
May

31

S2

18,690

18,690

31

CR2

75,162

93,852

31

G3

4,577

98,429

31

G4

Solutions Manual for Chapter 8

98,429

587

588

## Comprehensive Problem 8.1Alpine Company (continued)

Amortization Expense, Office Equipment
Explanation
PR

Date

Debit

Credit

Balance

2011
May

31

G3

31

G4

329

329
329

Date

Explanation

PR

0
Acct. No. 613

Debit

Credit

Balance

2011
May

31

G3

31

G4

Explanation

Date

567

567
567

PR

Debit

Credit

Balance

2011
May

15

CD2

3,150

3,150

30

CD2

3,150

6,300

31

G4

Explanation

Date

6,300

## Acct. No. 621

PR

Debit

Credit

Balance

2011
May

Date

15

CD2

5,320

5,320

30

CD2

5,320

10,640

31

G4

Insurance Expense
Explanation

Solutions Manual for Chapter 8

10,640

PR

Debit

Credit

Balance

588

589

2011
May

31

G3

31

G4

553

553
553

Date

Explanation

PR

Debit

Credit

Balance

2011
May

CD2

31

742

G4

742
742

Date

Explanation

PR

Debit

CD2

2,968

Credit

Balance

2011
May

1
31

G4

2,968
2,968

## Comprehensive Problem 8.1Alpine Company (continued)

Office Supplies Expense

Date

Explanation

PR

Debit

31

G3

289

31

G4

Credit

Balance

2011
May

289
289

## Store Supplies Expense

Explanation

Date

PR

Debit

Credit

Balance

2011
May

31

G3

31

G4

Solutions Manual for Chapter 8

669

669
669

589

590
Utilities Expense
Explanation

Date

PR

Debit

Credit

Balance

2011
May

26

CD2

31

G4

1,283

1,283
1,283

Income Summary
Explanation

Date

PR

Debit

Credit

Balance

2011
May

31

G4

156,422

156,422

31

G4

123,294

33,128

31

G4

33,128

## ACCOUNTS RECEIVABLE SUBLEDGER

Deaver Corp.
Explanation

Date

PR

Debit

S2

14,210

PR

Debit

Credit

Balance

2011
May

26

14,210

Essex Company
Explanation

Date

Credit

Balance

2011
May

S2

11

CR2

16

S2

Solutions Manual for Chapter 8

6,100

6,100
6,100

3,990

0
3,990

590

591

Solutions Manual for Chapter 8

591

592

Nabors, Inc.
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

28

S1

May

G3

CR2

4,725

4,725
175

4,550

4,550

Oscar Services
Explanation

Date

PR

Debit

Credit

Balance

2011
May

22

S2

30

CR2

6,850

6,850
6,850

## ACCOUNTS PAYABLE SUBLEDGER

Chandler Corp.

Date

Explanation

PR

Debit

Credit

Balance

2011
May

17

P2

13,650

23

CD2

13,650

PR

Debit

13,650
0

Gale, Inc.

Date

Explanation

Credit

Balance

2011
May

11

Solutions Manual for Chapter 8

P2

8,800

8,800

592

593

19

CD2

8,800

Parkay Products
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

29

P2

May

G3

CD2

25

7,098

7,098

798

6,300

6,300

P2

3,080

3,080

## Thompson Supply Co.

Date

Explanation

PR

Debit

Credit

Balance

2011
May

P2

37,729

37,729

10

P2

4,074

41,803

12

G3

24

P2

Solutions Manual for Chapter 8

854

40,949
9,030

49,979

593

594

## Comprehensive Problem 8.1Alpine Company (continued)

ALPINE COMPANY
Work Sheet
For Month Ended May 31, 2011
Balance Sheet
and

Income

Statement of

Statement

Owners Equity

## Debit Credit Debit Credit Debit Credit Debit Credit

Cash .............................................. 135,91
1

135,91
1

18,200

7

(f)
4,577

191,00
0

793

(c)
289

504

3,301

(b)
669

2,632

3,318

(a)
553

2,765

Office equipment

25,690

equip.

25,690
9,898

(e)
329

10,227
38,920

equip.

17,556

53,059

53,059

## Clint Barry, Capital .................

308,08
5

308,08
5

Solutions Manual for Chapter 8

(d)
567

18,123

594

595

## Clint Barry, Withdrawals .....

7,000

Sales .............................................

7,000
156,42
2

156,42
2

Sales discounts.........................

350

350

## Sales returns and allowances

.......................................................

175

175

(f)
4,577

equipment

(e)

equipment

(d)

98,429
329

329
567
567
6,300

6,300

10,640

(a)

553
553

742

742

2,968

2,968

(c)

(b)

289
669

1,283

## Totals ...................................... 545,02 545,02 6,984

0
0
Net income.................................
Totals ......................................

Solutions Manual for Chapter 8

289
669

1,283
6,984 123,29 156,42 422,62 389,49
4
2
2
4
33,12
8

33,128

2
2
2
2

595

596

## Comprehensive Problem 8.1Alpine Company (continued)

ALPINE COMPANY
Income Statement
For Month Ended May 31, 2011

Revenue:
Sales ...................................................................
Less: Sales discounts .................................
Sales returns and allowances ...........
Net sales ............................................................
Cost of goods sold...................................................
Gross profit on sales ..............................................
Operating expenses:
Selling expenses:
Sales salaries expense ................................
Rent expense, selling space .......................
Store supplies expense ...............................
Amortization expense, store equipment .....
Total selling expenses .................................
General and administrative expenses:
Office salaries expense ................................
Utilities expense ...........................................
Rent expense, office space .........................
Insurance expense .......................................
Amortization expense, office equipment ....
Office supplies expense ..............................
Total general and administrative expenses
Total operating expenses ..................................
Net income ...............................................................

Solutions Manual for Chapter 8

\$10,640
2,968
669
567
\$6,300
1,283
742
553
329
289

350
175

\$156,422
525
\$155,897
98,429
\$ 57,468

\$ 14,844

9,496

24,340
\$ 33,128

596

597

## Comprehensive Problem 8.1 Alpine Company (continued)

ALPINE COMPANY
Statement of Owners Equity
For Month Ended May 31, 2011

\$308,085

## Add: Net income .....................................

33,128

Total ...........................................................

\$341,213

Less: Withdrawals..................................

7,000

## Clint Barry, Capital, May 31 ................

\$334,213

ALPINE COMPANY
Balance Sheet
May 31, 2011

Assets

Current assets:
Cash .............................................................................
Accounts receivable....................................................
Merchandise inventory ...............................................
Office supplies ............................................................
Store supplies .............................................................
Prepaid insurance ......................................................
Total current assets ...................................................
Property, plant and equipment:
Office equipment....................................................
Less: Accumulated amortization .....................
Store equipment.....................................................
Less: Accumulated amortization .....................
Total property, plant and equipment .........................
Total assets .......................................................................

\$135,911
18,200
191,000
504
2,632
2,765
\$25,690
10,227
\$38,920
18,123

\$351,012

\$15,463
20,797

36,260
\$387,272

Liabilities

Current liabilities:
Accounts payable .......................................................

Owners Equity

## Clint Barry, Capital .....................................................

Total liabilities and owners equity ..................................

Solutions Manual for Chapter 8

\$ 53,059
334,213
\$387,272

597

## Comprehensive Problem 8.1Alpine Company (concluded)

ALPINE COMPANY
Post-Closing Trial Balance
May 31, 2011

## Account............................. Debit Credit

Cash ........................................................... \$135,911
Accounts receivable ....................................
18,200
Merchandise inventory ................................ 191,000
Office supplies ............................................
504
Store supplies .............................................
2,632
Prepaid insurance .......................................
2,765
Office equipment.........................................
25,690
Accumulated amortization, office equipment
Store equipment .........................................
38,920
Accumulated amortization, store equipment
Accounts payable ......................................
Clint Barry, Capital ......................................
Totals .......................................................... \$415,622

\$ 10,227
53,059
334,213
\$415,622

18,123

ALPINE COMPANY
Schedule of Accounts Receivable
May 31, 2011

\$14,210

3,990

## Total accounts receivable ..........................

\$18,200

ALPINE COMPANY
Schedule of Accounts Payable
May 31, 2011

\$ 3,080

## Thompson Supply Co. .................................

49,979

Solutions Manual for Chapter 8

598

## Total accounts payable ..............................

Solutions Manual for Chapter 8

\$53,059

599

784

## *Comprehensive Problem 8.2Alpine Company (150 minutes)

SALES JOURNAL

Page 2
Invoice

Date

Account Debited

A/R Dr.

Numbe
r

PR

Sales Cr.

2 Essex Company

8785

6,100

16 Essex Company

8786

3,990

22 Oscar Services

8787

6,850

26 Deaver Corp.

8788

14,210

2011
Ma
y

31
31,150
Fundamental Accounting Principles, Twelfth Canadian Edition

(106/41
3)

Accts.

Cash

Disc.

Rec.

Sales

Accts.

PR

Debit

Debit

Credit

Credit

Credit

4,459

91

4,550

Account
Date

Credited

Explanation

2011
May

5 Nabors, Inc.

Sale of Apr. 28

Page 2

Sales

Other

9 Store
Supplies

1 Essex
1 Company

Sale of May 2

5,978

1 Sales
5

59,220

3 Oscar
0 Services

Sale of May 22

6,713

3 Sales
1

## Cash sales, May 1631

66,05
2

3 Totals
1

12
5

350

142,77
2
(101)

350
122

6,100
59,220

137

6,850
66,052

350

17,500

125,27
2

350

(414)

(106)

(413)

(X)

Solutions Manual for Chapter 8

## *Comprehensive Problem 8.2Alpine Company (continued)

PURCHASES JOURNAL

Page 2
Accounts

Date
of
Date

Account Credited

Invoic
e

Office

Other

Payable

Purchases

Supplie
s

Accounts

Debit

Debit

83

574

Terms

PR

Credit

Debit

May
04

n/10 eom

125/

37,729

37,072

## 10 Off. Equip./Thompson Supp.

May
10

n/10
eom

163/

4,074

11 Gale, Inc.

May
10

2/10,
n/30

8,800

8,800

17 Chandler Corp.

May
14

2/10,
n/60

13,650

13,650

## 24 Store Supp./Thompson Supp.

May
24

n/10
eom

125/

9,030

8,120

25 Parkay Products

May
23

2/10,
n/30

3,080

3,080

76,363

70,722

(201)

(505)

2011
May

31 Totals

4,074

280

630

363

5,278
(X)

(124)
785

Ch.
Date

No.

Payee

Page 2

Purchas
e

Other

Cash

Discoun
t

Accts.

Payable

Credit

Credit

Debit

Debit

Account Debited

PR

Space

642

Space

641

3,710

6,174

Accts.

2011
May

1 341
0

S&M Mgmt.
Co.

2,968

8 341
1

Parkay
Products

Parkay Products

1 341
5 2

Payroll

621

## Office Salaries Expense

620

8,470

742
126

6,300
5,320
3,150

1 341
9 3

Gale, Inc.

Gale, Inc.

8,624

176

8,800

2 341
3 4

Chandler
Corp.

Chandler Corp.

13,377

273

13,650

2 341
6 5

Trinity Power

Utilities Expense

690

1,283

1,283

2 341
9 6

Clint Barry

C. Barry, Withdrawal

302

7,000

7,000

3 341
0 7

Payroll

621

5,320

3
1

Totals

620

8,470
57,108

(101)

3,150
575

28,933

28,750

(119)

(X)

(201)

## *Comprehensive Problem 8.2Alpine Company (continued)

Date
2011
May

GENERAL JOURNAL
Account Titles and Explanations

PR

Debit

## Sales Returns and Allowances ......................... 415

Accounts ReceivableNabors, Inc........... 106/

175

## Accounts PayableParkay Products .............. 201/

Purchase Returns and Allowances ........... 507

798

12

## Accounts PayableThompson Supply Co. ..... 201/

Office Equipment........................................ 163

854

Page 3
Credit
175
798
854

May 31

## Insurance Expense ............................................

Prepaid Insurance ......................................

637
128

553

31

## Store Supplies Expense ....................................

Store Supplies ............................................

651
125

669

31

## Office Supplies Expense ...................................

Office Supplies ...........................................

650
124

289

31

## Amortization Expense, Store Equipment .........

Accumulated Amort., Store Equipment ....

613
166

567

31

## Amortization Expense, Office Equipment ........

Accumulated Amort., Office Equipment ...

612
164

329

Solutions Manual for Chapter 8

553
669
289
567
329

605

Closing entries:

2011
May 31

Page 4

## Merchandise Inventory ...................................

Sales ................................................................
Purchase Discounts .......................................
Purchase Returns and Allowances ...............
Income Summary.....................................

119
413
506
507
901

191,000
156,422
575
798

31

## Income Summary ............................................

Merchandise Inventory............................
Sales Discounts .......................................
Sales Returns and Allowances ...............
Purchases ................................................
Amort. Expense, Office Equipment ........
Amort. Expense, Store Equipment .........
Office Salaries Expense ..........................
Sales Salaries Expense ...........................
Insurance Expense ..................................
Rent Expense, Office Space ...................
Rent Expense, Selling Space ..................
Office Supplies Expense .........................
Store Supplies Expense ..........................
Utilities Expense ......................................

901
119
414
415
505
612
613
620
621
637
641
642
650
651
690

315,667

31

## Income Summary ............................................

Clint Barry, Capital ..................................

901
301

33,128

31

## Clint Barry, Capital..........................................

Clint Barry, Withdrawals .........................

301
302

7,000

Solutions Manual for Chapter 8

348,795
220,080
350
175
70,722
329
567
6,300
10,640
553
742
2,968
289
669
1,283
33,128
7,000

606

GENERAL LEDGER

Cash
Explanation

Date

## Acct. No. 101

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

50,247

May

31

R2

31

CD2

142,772

193,019
57,108

Accounts Receivable
Explanation

Date

135,911

## Acct. No. 106

PR

Debit

Credit

Balance

2011
Apr.
May

30 Balance

4,725

G3

31

S2

31

CR2

Merchandise Inventory
Explanation

Date

175
31,150

4,550
35,700

17,500

18,200

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

220,080

May

31

G4

31

G4

220,080
191,000

191,000

## Acct. No. 124

Office Supplies
Date

Explanation

Solutions Manual for Chapter 8

PR

Debit

Credit

Balance

607

2011
Apr.

30 Balance

430

May

31

P2

31

G3

363

793
289

## Acct. No. 125

Store Supplies
Date

Explanation

504

PR

Debit

Credit

Balance

2011
Apr.
May

30 Balance

2,447

P2

CR2

24

P2

31

G3

Solutions Manual for Chapter 8

574

3,021
350

630

2,671
3,301

669

2,632

608

## *Comprehensive Problem 8.2Alpine Company (continued)

Prepaid Insurance

Date

Explanation

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

May

31

3,318
G3

Office Equipment
Explanation

Date

553

2,765

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

22,470

May

10

P2

12

G3

Explanation
PR

Date

4,074

26,544
854

25,690

Debit

Credit

Balance

2011
Apr.

30 Balance

May

31

9,898
G3

Store Equipment
Explanation

Date

329

10,227

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

38,920

Date

Explanation

PR

## Acct. No. 166

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

609

Apr.

30 Balance

May

31

17,556
G3

567

## Acct. No. 201

Accounts Payable
Explanation

Date

18,123

PR

Debit

Credit

Balance

2011
Apr.
May

30 Balance

7,098

G3

798

6,300

12

G3

854

5,446

31

P2

31

CD2

Solutions Manual for Chapter 8

76,363
28,750

81,809
53,059

610

## *Comprehensive Problem 8.2Alpine Company (continued)

Clint Barry, Capital
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

30 Balance

308,085

May

31

G4

31

G4

Explanation

Date

33,128
7,000

341,213
334,213

PR

Debit

Credit

Balance

2011
May

29

CD2

31

G4

Sales
Explanation

Date

7,000

7,000
7,000

PR

Debit

Credit

Balance

2011
May

31

S2

31

CR2

31

G4

156,422

PR

Debit

Sales Discounts
Explanation

Date

31,150

31,150

125,272

156,422
0

Credit

Balance

2011
May

Date

31

CR2

31

G4

## Sales Returns and Allowances

Explanation

Solutions Manual for Chapter 8

350

350
350

PR

Debit

Credit

Balance

611

2011
May

G3

31

G4

Date

Purchases
Explanation

175

175
175

## Acct. No. 505

PR

Debit

Credit

Balance

2011
May

31

P2

31

G4

Solutions Manual for Chapter 8

70,722

70,722
70,722

612

## *Comprehensive Problem 8.2Alpine Company (continued)

Purchase Discounts
Explanation

Date

PR

Debit

Credit

Balance

2011
May

31

CD2

31

G4

Explanation
PR

Date

575

575

575

Debit

Credit

Balance

2011
May

CD2

31

G4

Explanation
PR

Date

798

798

798

Debit

Credit

Balance

2011
May

31

G3

31

G4

329

329
329

Date

Explanation

PR

0
Acct. No. 613

Debit

Credit

Balance

2011
May

31

G3

31

G4

Explanation

Date

567

567
567

## Acct. No. 620

PR

Debit

Credit

Balance

2011
May

15

Solutions Manual for Chapter 8

CD2

3,150

3,150

613

30

CD2

31

G4

Explanation

Date

3,150

6,300
6,300

## Acct. No. 621

PR

Debit

Credit

Balance

2011
May

15

CD2

5,320

5,320

30

CD2

5,320

10,640

31

G4

Insurance Expense
Explanation

Date

10,640

PR

Debit

31

G3

553

31

G4

Credit

Balance

2011
May

553
553

## *Comprehensive Problem 8.2Alpine Company (continued)

Rent Expense, Office Space

Date

Explanation

PR

Debit

Credit

Balance

2011
May

CD2

31

742

G4

742
742

Date

Explanation

## Acct. No. 642

PR

Debit

CD2

2,968

Credit

Balance

2011
May

1
31

Solutions Manual for Chapter 8

G4

2,968
2,968

614

Date

Explanation

PR

Debit

31

G3

289

31

G4

Credit

Balance

2011
May

289
289

## Store Supplies Expense

Explanation

Date

PR

Debit

Credit

Balance

2011
May

31

G3

31

G4

Utilities Expense
Explanation

Date

669

669
669

PR

Debit

Credit

Balance

2011
May

26

CD2

31

G4

1,283

1,283
1,283

## Acct. No. 901

Income Summary
Explanation

Date

PR

Debit

Credit

Balance

2011
May

31

G4

31

G4

315,667

33,128

31

G4

33,128

Solutions Manual for Chapter 8

348,795

348,795

615

## *Comprehensive Problem 8.2Alpine Company (continued)

ACCOUNTS RECEIVABLE SUBLEDGER

Deaver Corp.
Explanation

Date

PR

Debit

S2

14,210

PR

Debit

Credit

Balance

2011
May

26

14,210

Essex Company
Explanation

Date

Credit

Balance

2011
May

S2

11

CR2

16

S2

6,100

6,100
6,100

3,990

0
3,990

Nabors, Inc.
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

28

S2

May

G3

CR2

4,725

4,725
175

4,550

4,550

Oscar Services
Explanation

Date

PR

Debit

Credit

Balance

2011
May

22

Solutions Manual for Chapter 8

S2

6,850

6,850

616

30

Solutions Manual for Chapter 8

CR2

6,850

617

## *Comprehensive Problem 8.2Alpine Company (continued)

ACCOUNTS PAYABLE SUBLEDGER

Chandler Corp.

Date

Explanation

PR

Debit

Credit

Balance

2011
May

17

P2

13,650

23

CD2

13,650

PR

Debit

13,650
0

Gale, Inc.

Date

Explanation

Credit

Balance

2011
May

11

P2

19

CD2

8,800
8,800

8,800
0

Parkay Products
Explanation

Date

PR

Debit

Credit

Balance

2011
Apr.

29

P2

May

G3

CD2

25

7,098

7,098

798

6,300

6,300

P2

3,080

3,080

## Thompson Supply Co.

Date

Explanation

PR

Debit

Credit

Balance

2011

Solutions Manual for Chapter 8

618

May

P2

37,729

37,729

10

P2

4,074

41,803

12

G3

24

P2

Solutions Manual for Chapter 8

854

40,949
9,030

49,979

619

## *Comprehensive Problem 8.2Alpine Company (continued)

ALPINE COMPANY
Work Sheet
For Month Ended May 31, 2011
Balance Sheet
and

Income

Statement of

Statement

Owners Equity

## Debit Credit Debit Credit Debit Credit Debit Credit

Cash................................................. 135,91
1

135,91
1

18,200

0

## 220,08 191,00 191,00

0
0
0

Office supplies.............................

793

(c)
289

504

Store supplies..............................

3,301

(b)
669

2,632

3,318

(a)
553

2,765

## Office equipment........................ 25,690

Accumulated Amort., office
equip.

25,690
9,898

(e)
329

10,227
38,920

equip.

17,556

53,059

53,059

308,08
5

308,08
5

## Clint Barry, Withdrawals ........

7,000

Solutions Manual for Chapter 8

(d)
567

18,123

7,000

620

Sales ................................................

156,42
2

156,42
2

350

350

175

175

70,722

575

575

## Purchase returns and

allowances ....................................

798

798

## Amort. expense, office

equipment ....................................

(e)
329

329

## Amort. expense, store

equipment ....................................

(d)
567

567

6,300

6,300

10,640

(a)
553

553

742

742

2,968

2,968

(c)
289

289

(b)
669

669

## Utilities expense .........................

1,283

1,283

Totals ......................................... 546,39 546,39 2,407 2,407 315,66 348,79 422,62 389,49
3
3
7
5
2
4
Net income ...................................
Totals .........................................

Solutions Manual for Chapter 8

33,12
8

33,128

5
5
2
2

621

## *Comprehensive Problem 8.2Alpine Company (continued)

ALPINE COMPANY
Income Statement
For Month Ended May 31, 2011

Revenue:
Sales ...................................................................
Less: Sales discounts .................................
Sales returns and allowances ...........
Net sales .............................................................
Cost of goods sold:
Merchandise inventory, April 30........................
Purchases ...........................................................
Less: Purchase discounts ...........................
Purchase returns and allowances ....
Cost of goods purchased ..................................
Goods available for sale ....................................
Merchandise inventory, May 31 .........................
Cost of goods sold .............................................
Gross profit on sales ..............................................
Operating expenses:
Selling expenses:
Sales salaries expense ................................
Rent expense, selling space .......................
Store supplies expense ...............................
Amortization expense, store equipment .....
Total selling expenses .................................
General and administrative expenses:
Office salaries expense ................................
Utilities expense ...........................................
Rent expense, office space .........................
Insurance expense .......................................
Amortization expense, office equipment ....
Office supplies expense ..............................
Total general and administrative expenses
Total operating expenses ..................................
Net income................................................................

Solutions Manual for Chapter 8

\$575
798

\$70,722
1,373

\$10,640
2,968
669
567
\$6,300
1,283
742
553
329
289

350
175

\$156,422
525
\$155,897

220,080

69,349
\$289,429
191,000

98,429
\$ 57,468

\$ 14,844

9,496

24,340
\$ 33,128

622

## *Comprehensive Problem 8.2Alpine Company (continued)

ALPINE COMPANY
Statement of Owners Equity
For Month Ended May 31, 2011

\$308,085

## Add: Net income .....................................

33,128

Total ............................................................

\$341,213

7,000

## Clint Barry, Capital, May 31 .................

\$334,213

ALPINE COMPANY
Balance Sheet
May 31, 2011

Assets

Current assets:
Cash..............................................................................
Accounts receivable ....................................................
Merchandise inventory................................................
Office supplies ............................................................
Store supplies .............................................................
Prepaid insurance ......................................................
Total current assets ....................................................
Property, plant and equipment:
Office equipment .........................................................
Less: Accumulated amortization .........................
Store equipment ..........................................................
Less: Accumulated amortization .........................
Total property, plant and equipment .........................
Total assets .....................................................................

\$135,911
18,200
191,000
504
2,632
2,765
\$25,690
10,227 \$ 15,463
\$38,920
18,123
20,797

\$351,012

36,260
\$387,272

Liabilities

Current liabilities:
Accounts payable .................................................

Owners Equity

## Clint Barry, Capital .........................................................

Total liabilities and owners equity ..................................

Solutions Manual for Chapter 8

\$ 53,059
334,213
\$387,272

623

## *Comprehensive Problem 8.2Alpine Company (concluded)

ALPINE COMPANY
Post-Closing Trial Balance
May 31, 2011

## Account ............................................. Debit Credit

Cash ........................................................... \$135,911
Accounts receivable ....................................
18,200
Merchandise inventory ................................ 191,000
Office supplies ............................................
504
Store supplies .............................................
2,632
Prepaid insurance .......................................
2,765
Office equipment .........................................
25,690
Accumulated amortization, office equipment
Store equipment..........................................
38,920
Accumulated amortization, store equipment
Accounts payable .......................................
Clint Barry, Capital ......................................
Totals .......................................................... \$415,622

\$ 10,227
53,059
334,213
\$415,622

18,123

ALPINE COMPANY
Schedule of Accounts Receivable
May 31, 2011

\$14,210

3,990

## Total accounts receivable ..........................

\$18,200

ALPINE COMPANY
Schedule of Accounts Payable
May 31, 2011

## Parkay Products ...........................................

Solutions Manual for Chapter 8

\$ 3,080

624

49,979

\$53,059