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Chapter 2

Processing Accounting Information
Questions
1. The basic summary device of accounting is the account.
It resembles the letter T, and its left side is called the
debit side and its right side the credit side.
2. The statement is false because debit means left and
credit means right. Debits and credits are used to record
increases and decreases in accounts, so debits can be
increases or decreases depending on the type of account
involved, and likewise for credits.
3. The three basic types of accounts are ASSETS,
LIABILITIES, and SHAREHOLDERS’ EQUITY. Two
additional types of accounts are REVENUES and
EXPENSES. They are most closely related to
shareholders’ equity; revenues increase shareholders’
equity and expenses decrease shareholders’ equity.
4.

5.

66

Transactions are events that affect the financial position
of the entity and that may be reliably recorded. They are
the raw material of accounting. Without transactions,
there would be nothing to account for.
Business
Transaction

Source
→ Transaction
Documents
Analysis

Financial Accounting Canadian Edition Instructor’s Solutions Manual

Entry
Journal

→ Posting to
Ledger

6. 1
1
0
2
0
2
0
1

a. Issuance of shares
b. Revenue transaction
c. Purchase of supplies on credit
d. Expense transaction
e. Cash payment on account
f. Dividends
g. Borrowing money on a note payable
h. Sale of service on account

7. Cash
Accounts Receivable
Notes Payable

Common Shares
Sales Revenue
Salary Expense

8. “Accounts Payable has a credit balance of $1,700” means
that the entity owes $1,700 to its creditors on a debt that
is not evidenced by a formal note payable.
9. The two business transactions are (1) Brown’s providing
laundry service and earning revenue and (2) Baylor’s
paying cash to Brown. Brown’s earning the revenue
increases the shareholders’ equity of the entity, and
Baylor’s payment of cash increases Brown’s cash.
10. Accountants prepare a trial balance to determine whether
the total debits equal the total credits.
11. The normal balance of an account is the side of the
account—debit or credit—that records an increase. Also,
an account’s normal balance is the side of the account
that usually has the account’s balance.

Chapter 2

Processing Accounting Information

67

12. Account Type
Assets
Liabilities
Shareholders’ equity
Revenues
Expenses

Normal Balance
Debit
Credit
Credit
Credit
Debit

13. This error does not cause the trial balance to be out of
balance because both the total debits and the total
credits are overstated by the same amount, $4,500
($5,000 – $500).
14. Collecting cash on account has no effect on total assets
because the increase in cash, which increases total
assets, is offset by the decrease in accounts receivable,
which decreases total assets.
15. The advantage of “journal-less” transaction analysis is
the saving of time. Transactions are recorded directly in
the ledger without recording them in the journal.

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Financial Accounting Canadian Edition Instructor’s Solutions Manual

Check Points
(5 min.)

CP 2-1

Nelson’s payment was a transaction of the business, which,
however, was not an expense.
Nelson acquired an asset, Equipment, because the equipment
is an economic resource of the business.

(5 min.)

CP 2-2

a. $56,300
b. $12,800
c. $3,000
d. $5,800 [Service revenue of $8,500 ($5,500 + $3,000) – Total
expenses of $2,700 ($1,100 + $1,200 + $400) = Net income of
$5,800]
e. $500

Chapter 2

Processing Accounting Information

69

(5-10 min.)

Bal.

Cash
22,000
2,000
20,000

4,000

CP 2-3

Accounts Receivable
1,000
Bal.
1,000

(5 min.)

CP 2-4

Increased total assets:

May 1
(Cash)
May 1
(Medical supplies)
May 3–10 (Cash, Accounts
receivable)

Decreased total assets:

May 2

70

(Cash)

Financial Accounting Canadian Edition Instructor’s Solutions Manual

....... 15 Cash................................................................................(10 min....................... Cash....... Cash..................... Received cash on account...........000 28 Cash.000 30 Interest Expense ......000 1.... 20........ Paid salary expense...000 200 3.................... Service Revenue ..............000 4................) CP 2-5 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT Apr......................... Performed service on account........................... 4. Received utility bill........... Borrowed money from the bank... Accounts Receivable................... 200 30 Salary Expense ................... Accounts Payable ..................... Paid interest expense... 1.......000 Processing Accounting Information 300 71 ..... 3.................................... 300 Chapter 2 CREDIT 20..... Note Payable..000 29 Utilities Expense ................000 22 Accounts Receivable.....................

......) CP 2-6 Req...............(10-15 min.......... 1.......000 Req............... as shown in the Accounts Payable account..500 Accounts Payable .500 Req................................. Paid cash on account............. 3 Kumar’s business owes $1.... 2 Accounts Payable 500 Bal............. Cash ........ 500 CREDIT 1.. 1.......... Accounts Payable .....500 1. 72 Financial Accounting Canadian Edition Instructor’s Solutions Manual 500 .000........ Purchased supplies on account............ 1 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT Supplies...

........................ 1 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT Accounts Receivable. 300 Total assets ........ 300 Service Revenue 800 Bal.. $500 Accounts receivable.. Cash 500 500 Accounts Receivable 800 500 Bal..... Accounts Receivable……………... Total assets Cash .... $800 $800: Chapter 2 Processing Accounting Information 73 ..... The Centre earned $800: Service Revenue b...............) CP 2-7 Req.............. 800 Req................. 500 CREDIT 800 500 Req....... 3 a... Performed service on account....... Service Revenue .. Received cash on account.(10-15 min.................... 2 Bal..................... 800 Cash.......

............... 50 Shareholders’ equity..............800 – $100) 4.....) CP 2-8 Roots Canada Ltd......................... 260 ___ Total ........................... Net income 74 = $5.......000) 2......... Total assets CP 2-9 = $53. $ 10 Other liabilities...800 ($8...300 + $2.......... Total liabilities = $100 3...... Trial Balance December 31............. Total shareholders’ equity = $53..... 30 Revenues.............500 – $1.... $ 30 Other assets........ 100 Accounts payable..........................700 ($53...............100 – $1..... 2004 ACCOUNT DEBIT CREDIT Millions Cash ..) 1.....800 ($33... $390 $390 Roots’ net income: $40 million ($300 – $260) (10 min.200 – $400) Financial Accounting Canadian Edition Instructor’s Solutions Manual . 300 Expenses ...(10 min...................000 + $500 + $18....

Total debits = $121.000) Total credits = $ 58.000) Total credits = $58.000 (original amount of accounts receivable) 2.000) Difference = $ 4.000 – $18.000 / 9 = $7.600 Difference = $18.600 ($58.600 + $2.600 ($58.600 ($58.600 – $2.600) $63.000 / 9 = $2.000 / 2 = $2.000 (an integer).000 ($76.10 min.000 ($121. Total debits = $56.000) Total credits = $60.600 – $58.600 + $81.) 1. Total debits CP 2-10 = $76.600 – $58.600 + $20.000 – $2.600 ($58.600 – $56.000 (original amount of accounts receivable) Chapter 2 Processing Accounting Information 75 .600) $18.600 Difference = $ 63.000 ($60.600) $4. which suggests either a transposition or a slide 3.

Record of transactions H 8. Copying data from the journal to the ledger Financial Accounting Canadian Edition Instructor’s Solutions Manual . Journal D. Receivable E.(10 min. Assets – Liabilities E 7. Normal balance B. Expense H. Payable C. Left side of an account I C 10. Ledger J 2. Side of an account where increases are recorded J. Net income 76 CP 2-11 I. Revenues – Expenses F 5. Debit G. Owners’ equity F. Always a liability B 4. Grouping of accounts G 6. Always an asset A 9.) D 1. Posting A. Using up assets in the course of operating a business 3.

000 ($500.000) Chapter 2 Processing Accounting Information 77 .000 Total debits CP 2-12 Common Shares 500.000) Total credits = $700.(5 min.000 = $700.000 + $500.000 Equipment 200.000 Accounts Payable 200.000 ($200.000 + $200.) Cash 500.

000 – $70.000 Equipment 100.) TO: Home Office FROM: Keith Farris. After all these transactions.000 78 Financial Accounting Canadian Edition Instructor’s Solutions Manual .000 = $30.Exercises (10-15 min.000* Note payable $320. a building. I used the store’s beginning cash plus the borrowed money to purchase land.000 Common shares 40. Store Manager E 2-1 During the first week. equipment.000 Supplies 40.000 Building 120.000 Total liabilities and Total assets $360. and supplies.000 – $40. Gander Store Balance Sheet Date ASSETS LIABILITIES Cash $ 30.000 SHAREHOLDERS’ EQUITY Land 70. the store’s balance sheet appears as follows: Discount Tire Company Ltd.000 79 _____ *$40.000 – $120.000 shareholders’ equity $360. I borrowed $320.000 – $100.000 + $320.000 on a note payable.

No effect on total assets. Increased assets (accounts receivable) 2. i. e. Increased assets (cash) 3. Decreased assets (cash) 3. b. j.a. Increase in cash offsets the decrease in accounts receivable. Increase in land offsets the decrease in cash. Decreased assets (cash) 1. Chapter 2 Processing Accounting Information 79 . f.) E 2-2 (10-15 min.) E 2-3 Purchase of asset on account Borrow money Purchase of asset for cash Sale of asset for cash Collection of an account receivable Payment of dividends to owners Expense transaction Pay a liability Issuance of shares Revenue transaction (Answers will vary. c. b. Increase in cash offsets the decrease in land. 3. d. Increased assets (cash) 2. d. No effect on total assets. c.) a. g. e. No effect on total assets. h. (5-10 min. Increased assets (machinery and equipment) 1. No effect (a personal transaction) 3. 1. 1.

5.000 12 2.000 15-31 (1.000 15 Not a transaction of the business.) .000 E 2-4 Veterinary Clinic Ltd.000 _____ 31 (1. 30.000 9 (15.000 4.000 Accounts Payable + +  35.800 (1.800 10. 6 35.500) 500 2.000) 15.500) Bal.500 15.400) (1.000  10.000 1.000 (1.000 Date Req.000) (300) 31 500 (500) 31 10.000 Note Payable + LIABILITIES Analysis of Transactions Oct.400) (1.000) (300) Retained Earnings Service revenue Salary expense Rent expense Utilities expense Issued shares Type of Shareholders’ Equity Transaction SHAREHOLDERS’ EQUITY Common Shares + 50. 15-31 4. 1 (10-20 min.000 35.300 8.300 4.Cash = Veterinary Supplies + Land = ASSETS Accounts + Receivable + 80 Financial Accounting Canadian Edition Instructor’s Solutions Manual 50.

$5.) Chapter 2 Processing Accounting Information 81 .300.700.500 ($500 + $10.(continued) E 2-4 Req. $8.800 b. $5. $4. $50. 2 a.000) d. equals net income.000 c.000 minus total expenses of $2.300 (Revenue. $10.

..................... Borrowed money... Utilities Expense................................................................ 1.............................................................................................000 Not a transaction of the business...................... Issued shares to owner.......... 15............ Service Revenue ...................................................................000 1.............. Paid on account..000 Veterinary Supplies ............................................. Cash .....700 500 10.. Cash ................... 10.............................000 300 Cash.................... Rent Expense....................(10-15 min..................... 2. 500 Cash................................................................400 1... Cash . 4.. Purchased land...500 ..000 4...................000 2..... Note Payable ........... Common Shares ................. Sold supplies...................................................................... Accounts Receivable .................... 6 9 12 DEBIT Cash.........................................................000 Salary Expense ... 35....................... 1.............) E 2-5 Journal DATE Oct......000 15.......... Paid expenses.................................... Veterinary Supplies ........500 31 31 31 Financial Accounting Canadian Edition Instructor’s Solutions Manual CREDIT 35........................................................................000 15 15-31 82 ACCOUNT TITLES AND EXPLANATION 8.................000 Land............................... Performed service for cash and on account........... Purchased supplies on account......... Accounts Payable............000 Accounts Payable........ 15-31 Cash.................000 2............

1 Cash balance = $4 million ($100 – $70 – $55 + $30 + $20 – $21) Req.) E 2-6 Req.(10-15 min. 2 Company owes $36 million [$60 – $55 + $30 + ($22 – $21)] Req. 3 Net loss = $2 million ($20 – $22) Chapter 2 Processing Accounting Information 83 .

...............200 1................ 1.....000 6 Cash ............000 2 Office Supplies .... 1 (journal entries) Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT Aug.......................... Service Revenue....................... Service Revenue...................... Cash......000 500 84 Financial Accounting Canadian Edition Instructor’s Solutions Manual CREDIT 18. 800 4 Land .............. Paid cash on account.000 2... 100 17 Accounts Receivable ............................................) E 2-7 Req............ Cash.. 2........000 800 14...................................... Issued common shares to owner........................ 1 Cash ........... 1.....................000 100 1...........................200 23 Cash ...............200 30 Salary Expense .....200 1...................................................... 18...................................................................... Purchased office supplies on account..........000 9 Accounts Payable........................................ Performed service on account....................... 14........................................................................................ Paid cash for land. Common Shares............................ Received cash on account...... 1..... Accounts Payable .......................(10-20 min........... Accounts Receivable .................... Cash.... Performed services for cash.... Rent Expense...500 ...................................... Paid cash expenses..................................

200) Total liabilities = $700 ($800 – $100) Net income (profit) = $1.000 – $500) Chapter 2 Processing Accounting Information 85 .600 ($18.500) Expects to collect on account = $0 ($1.000 – $100 + $1.200 – $1.200 – $1.(continued) E 2-7 Req.000 + $2.700 ($2.000 + $1.200 – $1.000 – $14. 2 Ending cash = $5.

200 Aug.000 Salary Expense Aug. 1 Aug. 30 1. 9 100 Aug. 31 -0- Land Aug. 1 18. 2 800 Aug.600 Office Supplies Aug. 1 6 23 Aug.000 Aug. 31 1. 4 14.000 Aug.000 Rent Expense Aug.) E 2-8 Req.000 2. 4 14.000 Aug. 23 1. 31 800 Accounts Payable Aug.200 30 1. 31 500 86 Financial Accounting Canadian Edition Instructor’s Solutions Manual . 2 Aug. 31 14. 31 Cash 18. 31 Accounts Receivable Aug.200 Aug. 6 2. 31 18.000 Aug.200 Aug.(20-30 min. 30 500 Aug.000 17 1.000 9 100 1. 17 1. 31 3.500 5.200 Common Shares Aug.000 800 700 Service Revenue Aug.

................400 – $700).........200 Salary expense .... Trial Balance August 31....... 3......... $19.................................700 Chapter 2 Processing Accounting Information 87 .............................000 Rent expense ........900 $21...................000 Service revenue... $ 5. $20..........600 + $800 + $14........................................000)........... 18. 2005 ACCOUNT DEBIT CREDIT Cash.................900 Req........... 14.... 3 Total assets ($5.................000 Accounts payable .. 1...............600 Accounts receivable .............................................. 500 Total ...............(continued) E 2-8 Req. 800 Land . $21......... 0 Office supplies..............400 Total liabilities ......... 2 Computex Learning Systems Inc. (700) Total shareholders’ equity ($20...... $ 700 Common shares .

............ Paid cash on account.... 3....... Accounts Payable . Purchased land by paying cash and signing a note payable............................ Purchased supplies on account................000 – $300) Company owes $30. 600 Cash................) E 2-9 Journal DATE ACCOUNT TITLES AND EXPLANATION 1... Borrowed money...... Supplies .............. Note Payable.........................000 + $7...000 Cash balance = $12...... Issued common shares.......... Cash........ 31. 5. 7..................................(10-15 min..............000 Supplies ....................000 + $100 – $8.......... Cash............. Common Shares.......000) 88 Financial Accounting Canadian Edition Instructor’s Solutions Manual CREDIT 300 ............................ 2..................................................................................... 300 20.......800 ($20.......................000 Accounts Payable .........000 23............. Sold supplies for cash....... 100 Equipment..... 6....................................... signed note payable......................................................000 7........... Note Payable...............................000 + $23..... DEBIT Cash.....000 8.........300 ($600 – $300 + $7........... Paid cash for equipment............000 Land................... 20. Cash..... 7........................000 600 100 6..... 6..000 – $6..............000 Cash........................................ 4......................

.....000)............................250 Land .................... 300  Total . Chapter 2 Processing Accounting Information 89 ..100 $145.500 Building ................. 13. $ 4.................................. 2004 ACCOUNT DEBIT CREDIT Cash... Trial Balance May 31....... 15....000 Accounts receivable ....................................) E 2-10 Req.......... 48.. 1 Mirvish Appliance Service Ltd.........650 Utilities expense... 8...... 29............. 1........... equals Retained Earnings ($57........100)............000 Accounts payable .. 57....... 6..............000 Common shares ..............................000* Dividends . $145.........000 Service revenue. minus total credits except Retained Earnings ($88....400 Delivery expense...............300 Note payable .(10-20 min..........000 Salary expense ...............100 *Total debits ($145............800 Retained earnings ... 75............ $ 9.. 22............100)..

......... 300 Total expenses...... $8..................(continued) E 2-10 Req......350 Net income ........... 10.......... Income Statement For the Month Ended May 31.. 1... 2 Mirvish Appliance Service Ltd.........400 Delivery expense ..... $22.................... $11..................650 Utilities expense ...................... 2004 Service revenue ......650 90 Financial Accounting Canadian Edition Instructor’s Solutions Manual ..........000 Salary expense ............

................. 600 Land .. Trial Balance February 28....000 + $1.... 800 Utilities expense. 1.. Common shares ....... Cost of goods sold........................................................000 – $100 + $200 = $4.600 Accounts Payable: $3.....100* 48.. $ 4....... 17......................100 Common Shares: $47.......700 _______ $88..........600 Accounts Receivable: $13..... 500* Total ..300 Utilities Expense: $300 + $200 = $500 Chapter 2 Processing Accounting Information 91 ......................100 _____ *Explanations: Cash: $4.....................................000 Accounts payable ........400 Supplies..... 3.......) Brandon Auto Paint Ltd............ $88.. Sales revenue ....................900 Salary expense .200 + $400 = $4................600* Accounts receivable .......(15-25 min.300* 35... 46................. 12...700 Rent expense ....................900 + $400 = $48.600* Inventory ........ 2005 ACCOUNT DEBIT Cash....000 – $400 = $12.100 E 2-11 CREDIT $ 4..................

000 (b) (d) (e) (g) 2. 1. 20. (c) Bal.500 Financial Accounting Canadian Edition Instructor’s Solutions Manual . Cash 8.(5-15 min.400 Common Shares (a) 20.300 Office Supplies 800 800 Accounts Payable 400 (c) Bal. (e) (g) Bal.700 (a) Bal.500 1. Salary Expense 1.400 800 400 Commission Revenue (f) 1.700 Bal.000 E 2-12 Accounts Receivable (f) 1.700 (b) Bal.400 12.400 Bal. Dividends 2.) (a) Bal.800 92 1.000 2. 1.800 400 2. Office Furniture 12.800 1.000 (d) Bal.500 1. Rent Expense 1.700 Bal.

) E 2-13 Req.............. $ 1..600) Chapter 2 Processing Accounting Information 93 ................................................ $1.... 1........................500 $22...................800 Rent expense ........ 1 Linda English Insurance Ltd................................. The result of operations was a net loss of $1........................ 1...500 Total expenses ............400 Accounts payable .... 1........400 Dividends ...(10-20 min...............500 Req..............600.... 1.................................700 Office supplies.....800 Rent expense .................................. $ 400 Common shares ....................... 2...... 2 The business performed poorly during July......... $22..... (3..... $ 2........... 800 Office furniture ... Trial Balance July 31......500 Total ...700 Salary expense . 1....000 Commission revenue................................................. as shown by the income statement accounts: Commission revenue....... 12...... $(1....................................................300) Net income (loss..300 Accounts receivable .... 2006 ACCOUNT DEBIT CREDIT Cash.700 Salary expense . 20.

000 Dec.500 Utilities Expense Dec.700 Bal. 3. 2 7. 4 3. 18 1.600 5 300 Bal.100 Dec. 4 Furniture 3. 2 9 Bal.900 Dividends Rent Expense Dec. 3 Equipment 3. 5 Supplies 300 Dec. 2.700 Dec. Cash 7.000 200 Common Shares Dec.600 500 3. 1 and 3 Dec. 12 200 94 Accounts Receivable Dec.(20-30 min. 2 500 Salary Expense Financial Accounting Canadian Edition Instructor’s Solutions Manual . 9 800 18 1.000 Accounts Payable Dec. 2 800 3 12 4.000 Service Revenue Dec.) E 2-14 Reqs.

.........................600 300 800 200 1.000 3.................... Common Shares............. Service Revenue ...............................000 2 Rent Expense ....000 500 3.............. 300 9 Cash.............................................................................. Accounts Payable .....(continued) E 2-14 Req.................................... Cash....700 Processing Accounting Information 95 ......... 3....600 5 Supplies ............. Cash............................ 1............... 800 12 Utilities Expense .......................................................................... 2 Cash................ Accounts Payable .............................................. Service Revenue ... Cash...700 Chapter 2 CREDIT 7.... 2 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT Dec... 7............... 500 3 Equipment............................................................. 3..........................................000 4 Furniture...................... 200 18 Accounts Receivable.................................................

.... 200 Salary expense ...................700 Supplies........ Trial Balance December 18...... $13........................000 Dividends.... $ 3................... 7.400 96 Financial Accounting Canadian Edition Instructor’s Solutions Manual ............400 $13................000 Furniture ......................600 Accounts payable.... 1......... 500 Utilities expense ..... 3.............. $ 4................. —  Total ............................. 3.......... 2........... 300 Equipment .... — Service revenue .... 2004 ACCOUNT DEBIT CREDIT Cash ..100 Accounts receivable ....500 Rent expense ............................................900 Common shares .................. 4 Tsui Tax Consulting Ltd............................(continued) E 2-14 Req..........

600 + $81.200 + X – $15. 10.200 – X = $ 5. March receipts Mar.) E 2-15 a.100 Mar. 6.800 Feb.400 Chapter 2 Processing Accounting Information 97 .200 March Net income X = $20.600 81.400 X = $80.500 $6. 31 Bal. 28 Bal.100 b.(20-40 min.400 X = $80.500 X = $20.800 = $10. 31 Bal. 28 Bal. Net income for March 2003 – Given as follows: Retained Earnings March dividends 15.200 March payments 5. Cash 4.400 $4. Total cash paid during March: Feb.

900 + $16.800 payments on note X new borrowing 16.(continued) E 2-15 c. 31 Bal.900 March March X = 8. Cash paid on a note payable during March: Note Payable Feb.100 $24.400 $13. 28 Bal.700 X = $58.100 d.300 – X = $21.400 X = $ 8.500 – X = $26.300 Mar.300 + $60.800 98 Financial Accounting Canadian Edition Instructor’s Solutions Manual .700 X = $58. March sales on account Mar.500 March collections 26. Cash collections from customers during March: Feb. 31 Bal. 28 Bal. Accounts Receivable 24. 13.300 60. 21.

. total debits will be $52.... Salary expense .................................700)... Land .....700).. Chapter 2 Processing Accounting Information 99 ....... $ 4... Advertising expense. Note payable ......000 $ 5....................... Totals ..........500 $52........................... Common shares .... Accounts payable .200 800 39......900 ($2............ Service revenue........200 Out of balance by $1............ Trial Balance December 31........000 7.. 1 Road Runner Inc........) E 2-16 Req.700 The correct balance of Accounts Receivable should be $3... After this correction.............200 2.......................... the same as total credits.......400 900 _______ $50.................... 2005 Cash..000 25....200 + $1.......100 3.....800 5..300 9... Accounts receivable ..(20-30 min..... Retained earnings ...200 ($50......... Supplies....................500 + $1.........

........200 $141.... 85.......... 2.800 + $2. 3..... 7....... Trial Balance December 31..000) ....700 = $3... 3 a.000).200 Req. $141..400 + $400).... 25.........900)....400..000)... as indicated by the excess of revenue ($16... Total assets = $134.......900  Totals..200 + $1..000) .....100) over total expenses ($6.......000) ............................. b....... which is $9.............. 119.000 Retained earnings..800 Accounts receivable ($2.. 10... Road Runner is profitable.......... 2 Road Runner Inc.000 Common shares..........200 – $400)......900 Supplies .. 100 Financial Accounting Canadian Edition Instructor’s Solutions Manual ...........800 + $2....100 Salary expense ($3.500 ($3.......300 Service revenue ($9..........000) ....... 16....000 + $80........800 + $10...........800 Note payable ($5.......000 + $80.......700 + $7... 2005 Cash ($4....800 Advertising expense ($900 + $2.000 Accounts payable ($5.... 800 Land ($39...................100 + $7..... $ 3......... $ 7.......000)......900 + $800 + $119..(continued) E 2-16 Req.....

........000** Explanation:*** Regina’s expense is Hillcrest’s revenue............000 2..000 **$10.. __________ *$15.........000 – $8.(10-15 min..) E 2-17 Regina: Income statement Consulting expense ......000** Hillcrest: Income statement Service revenue.........000 – $8..000 = $7.............000 = $2.... Chapter 2 Processing Accounting Information 101 .......... June 30 $ -010.000 July $ -0- Balance sheet Cash .... June $10.......... Accounts receivable ........... June $10....000 July $ -0- Balance sheet Cash .....000 10... Regina’s account payable is Hillcrest’s account receivable.... Accounts payable.000 July 31 $7..........000 ***Wording may vary....... Regina’s cash payment is Hillcrest’s cash receipt. June 30 $15...000* 2.000 July 31 $8....

000 + $33.000 + $7.000 + $3. 2005. Note: Student responses may vary. along with their balances at December 31. This says nothing about the soundness of the business.’s net income or net loss for the current period. The trial balance is an internal document used by accountants. This trial balance lists the accounts of Mach-1 Inc. subtract total expenses from total revenue. To compute Mach-1 Inc. 102 Financial Accounting Canadian Edition Instructor’s Solutions Manual . During the current period. The balance sheet and the income statement are financial statements used by managers. and investors for decision making. earned a net income of $29.000 minus total expenses of $57.000($14.Problems Group A (15-30 min.000)].) P 2-1A Dear Nicole. creditors. Mach-1 Inc. It merely means that total debits equal total credits in the company ledger. is a sound company. The fact that the trial balance is in balance does not mean that Mach-1 Inc. It is not the same as a balance sheet and an income statement.000 [service revenue of $86.

000 1. a) b) c) d) e) f) g) h) (900) (300) (1.750 Retained Earnings 103 Issued shares Service revenue Rent expense Advertising expense Dividends Issued shares Service revenue Type of Shareholders’ Equity Transaction SHAREHOLDERS’ EQUITY Haas Interiors Inc.000 4.450 (500) 500 1.000 + $26.850 6.700 (5. (45-60 min.700 2.i) Bal.800) 10.850 14.000) Cash Req.000 (5.000 Processing Accounting Information 12.000) 1.000 6.000 8.000 1.) .850 ____ 3.000 Chapter 2 ____ 1.800) 8.500 Land LIABILITIES Accounts Common = Payable + Shares + = Analysis of Transactions Accounts + Receivable + Supplies + ASSETS 1.400 2.000 4. 1 P 2-2A 2.000 $26.250 9.400 (900) (300) (1.400 1.000 12.000 9. Bal.

.. 2004 Retained earnings.. 2004 $ 8....... 300 Total expenses . August 31..100 Expenses: Rent expense ..... $7............ Income Statement For the Month Ended September 30....(continued) P 2-2A Req.. 2004 Revenues: Service revenue ($6.850 104 Financial Accounting Canadian Edition Instructor’s Solutions Manual ......900 Req................ $900 Advertising expense ........ 2 Haas Interiors Inc...400)......... Statement of Retained Earnings For the Month Ended September 30.......800) Retained earnings..... September 30... $9.. 2004 $ 2..............700 + $2........... 3 Haas Interiors Inc..200 Net income .650 Less: Dividends (1............... 1................900 10...750 Add: Net income for the month 7......

..................850 shareholders' equity........... Haas Interiors Inc.........850 Chapter 2 Processing Accounting Information 105 ...(continued) P 2-2A Req..... Land..... 2004 LIABILITIES $10......... 14... Accounts receivable ...000 3....... $ 4....... Total assets.......000 Common shares ........... 4 ASSETS Cash. Balance Sheet September 30............ $26.....850 Total shareholders’ equity 22..000 EQUITY 12................850   Total liabilities and $26................ 8..... Supplies .....000 Retained earnings ...............450 Accounts payable.......400 SHAREHOLDERS’ 1.....

....................................800 ................ b...........000 Accounts Receivable ........................ h................................) P 2-3A Req....................................700 5......................... i.............................................. e.000 Supplies............. d.. 1............ Cash ........000 1...... 6.000 Cash ................................200 1..700 Accounts Payable ..... g.000 2... 900 300 Dividends ....................... Service Revenue... Accounts Receivable ........400 Rent Expense.. 106 DEBIT Cash ..000 6.. 500 Cash .. 1............................................ 1....................800 Financial Accounting Canadian Edition Instructor’s Solutions Manual CREDIT 9........................................................ Accounts Payable .......... Common Shares.................................. 1 Journal ACCOUNT TITLES a..... Advertising Expense..........(30-40 min............... 5.. Cash .............000 500 1............. Service Revenue................ f.... 9...... 2.000 Cash ..................... Cash ...................................................... c.............400 1.................. Common Shares......................

000 14.000 Service Revenue 6.700 1.500 500 2.400 Common Shares 4.000 9.000 8.400 9.250 5.(continued) P 2-3A Reqs.000 Dividends 1.000 Retained Earnings 2.100 Accounts Receivable 1.000 4.750 Land 12.000 9.400 3.000 1.000 1.200 6.800 500 1.450 Accounts Payable 5.800 Advertising Expense 300 The balances of all the accounts Cash through Common Shares agree with the ending balances obtained in Problem 2-2A. 2 and 3 Cash 1.000 1.000 10.000 Rent Expense 900 Supplies 1.700 2. Chapter 2 Processing Accounting Information 107 .

(40-50 min.) P 2-4A Req. 4 c 5 a 6 a 7 a 10 c 11 c 12 b 18 a 21 a 25 a 28 a 108 Financial Accounting Canadian Edition Instructor’s Solutions Manual . Classification of Transactions Feb. 1 Gerbing and Associates Inc.

000 4.000 4.000 + P 2-4A Gerbing and Associates Inc.500) 7.000) Bal.500 4. 5.000 17.500 22.200 Date Req. 4* 5 22. _____ ASSETS = Chapter 2 ___ 300 300 3.000) 28 (2.000 Processing Accounting Information 17.000) 1.500) 25 (1. 2 (continued) .000 6 (300) 7 (10.500 (3.000 *Not a transaction of the business. Accounts Common Retained Payable + Shares + Earnings LIABILITIES Analysis of Transactions Accounts Office Cash + Receivable+ Supplies + Furniture = Feb.000) (2.000 (1.000) 10* 11* 12* 18 21 (3.000 Rent expense Dividends 109 Service revenue Issued shares Type of Shareholders’ Equity Transaction SHAREHOLDERS’ EQUITY 22.000 $26.$26.

110 Financial Accounting Canadian Edition Instructor’s Solutions Manual .500 ($5.000 ($26. or $22.000 + $300 + $17.200 + $4.500 – $3. The business’s total resources (total assets) are $26. which has nothing to do with Retained Earnings. so Gerbing’s ownership interest in the assets of the business is $23. The business has $5. The cash balance takes into consideration all amounts received from all sources.000). The business owes total liabilities of $3.500.000). b. Share issuances go into the Common Shares account.000 + $1. Retained Earnings. holds the amounts of the revenues and expenses. which may or may not be received or paid in cash. on the other hand. 3 a.(continued) P 2-4A Req.500.200 in cash. There is therefore no relationship between cash and retained earnings. including cash received from the issuance of shares.

....... 1............................. Paid on account... 4 Journal DATE Feb.............(continued) P 2-4A Req.. Cash....................................... 2............ 22..............000 300 10.....000 7...........000 3....................... Common Shares...................... Cash..................... Paid dividend........................................000 21 Accounts Payable .............. Cash. 17.........000 18 Accounts Receivable...000 28 Dividends ............................. Service Revenue . Cash.......... 300 7 Office Furniture .......................000 Processing Accounting Information 111 .................. Performed service on account........................................................ Issued shares to owner.............000 Chapter 2 CREDIT 22............................000 6 Supplies ................................ 4........................................000 4.. ACCOUNT TITLES AND EXPLANATION DEBIT 5 Cash........000 2.............................. Cash.... Accounts Payable ..........................500 25 Rent Expense .. 3...... Paid rent............500 1..... Purchased furniture.................... Purchased supplies.........

...000 20...................................................................000 25................................ Cash..................000 11............................... Common Shares ........................) P 2-5A Req............................................................... Cash....... Cash.......................................................000 10 Supplies........... Rent Expense................. Accounts Receivable ................ explanations not required) Journal DATE May 112 ACCOUNT TITLES DEBIT 1 Cash ............ Notes Payable ..............000 31 Cash ....................... Cash.................................... 20..........300 4......................................................... 6....... 9.200 19 Accounts Payable...........................................................000 700 1.................500 400 31 Dividends ..................000 22 Cash ....000 ................. 1 (journal entries................................ 700 9 Land .....000 31 Salary Expense .....................000 5 Rent Expense....... 2............................... Notes Payable .. Accounts Payable .............. Service Revenue........................................................000 5...... 4..................................... 1.................000 1.......................200 1............000 Financial Accounting Canadian Edition Instructor’s Solutions Manual CREDIT 9............ 1.........................................................................000 4..................... Cash..................................... 26........... Utilities Expense...(15-20 min.............................................400 1.............

000 + $1.000) Chapter 2 Processing Accounting Information 113 .200 – $1.000 ($9.000 – $1.000 + $20.(continued) P 2-5A Req.000) Total amount owed: $45.000 – $700 – $1.000 + $20.000 + $6.000 – $4. 2 Cash: $24.200 ($25.300 – $4.

.............................000 3 Supplies... explanations not required) Journal DATE Jan..................... Cash ........... Service Revenue................................................. 33................. 114 ACCOUNT TITLES DEBIT 2 Cash ........ 500 2.. Furniture.......................... Cash ............................. Accounts Payable .............600 110 400 ...........................................) P 2-6A Req.........000 11 Accounts Receivable ..............................500 22.........500 7 Land ..........000 800 2........... Common Shares........................................ Service Revenue............................ 400 Financial Accounting Canadian Edition Instructor’s Solutions Manual CREDIT 33............... 1 (journal entries. 110 18 Cash ............. Accounts Receivable ............................................. 800 16 Accounts Payable ...... 2............................................................................................... Cash ..................................000 3.................. 22. 1..(50-60 min.....100 1.....600 17 Utilities Expense............................600 4 Cash ................

.. Cash ........................ 1............ 1...........800 31 Salary Expense ............300 2...... explanations not required) Journal DATE ACCOUNT TITLES DEBIT Jan................ 22 Utilities Expense ............. Cash ....................................................200 Chapter 2 CREDIT 130 1.........................200 Processing Accounting Information 115 . Service Revenue.... 130 29 Cash............(continued) P 2-6A Req.................... Cash ............................800 1......................300 31 Dividends ................... 1 (journal entries............... 2...........................

31 2.600 Jan. Supplies 500 500 Land 22.000 Jan.000 22.600 400 17 110 1. 33. Furniture 2.300 31 2.000 Common Shares Jan. 11 800 Jan. 17 110 22 130 Bal. 2.300 Utilities Expense Jan. 500 Accounts Receivable Jan. 400 Jan. 3 Bal. Cash 33.100 Bal.800 22 130 31 1.000 Dividends Jan. 7 Bal.600 Jan. 18 400 Bal. 1. 240 116 Financial Accounting Canadian Edition Instructor’s Solutions Manual .500 16 2. 2 33.500 11 800 29 1. 3 3. 2 (ledger accounts) Bal. 16 2. 4. 31 1. Jan.200 Service Revenue Jan.000 Bal. 7 22.(continued) P 2-6A Req.360 Jan. 4 1. 3 Bal.300 Bal. 2 4 18 29 Accounts Payable Jan.600 2.200 8.100 Salary Expense Jan.200 Bal.800 Bal.000 1.

........................300 – $240) Chapter 2 Processing Accounting Information 117 ........200 Service revenue....................360 Accounts receivable .. 4......360 + $400 + $500 + $2. 240 Total ...100 – $1............................ 4 Total resources (assets) = $33.. $ 8...000 Dividends ...........000 Accounts payable ... $37..................600 + $22................... 2004 ACCOUNT DEBIT CREDIT Cash.....................600 Req.......600 Land .860 ($8.................................. 2................000) Amount owed (total liabilities) = $500 Profit (net income) = $2........... 500 Furniture............... 400 Supplies...... 3 O’Dell Financial Planners Ltd................300 Utilities expense.......... 33........................100 Salary expense ........ 2...(continued) P 2-6A Req.. $ 500 Common shares ..560 ($4.........600 $37.... 1.. Trial Balance January 31....... 22......

300 Financial Accounting Canadian Edition Instructor’s Solutions Manual .000 Service Revenue (f) 500 (g) 1.800 (j) 1.800 (d) Bal.000 1. 60. Building 50. 118 Dividends 2.000 22. Office Supplies 400 400 (a) Bal.600 Accounts Receivable (g) 1. 400 600 900 Common Shares (a) 60.100 (k) (l) 3.000 (l) Bal. 2.000 (h) Accounts Payable 100 (d) (i) Bal. Cash 10.600 Note Payable (b) 20.000 Bal.000 (e) 500 (h) 1.800 Bal.000 50.600 2.300 100 1. 20. 1 and 2 (a) (b) (f) (j) Bal.100 Bal. 22.800 2.000 Bal.000 Bal.000 (c) 20. 700 Transmitting Equipment (c) 22.(40-50 min.) P 2-7A Reqs.

300 Advertising Expense (k) 800 Bal. Rent Expense 1.000 (i) Bal. Salary Expense 1. 800 P 2-7A (k) Bal.300 1.000 1. Utilities Expense 600 600 Chapter 2 Processing Accounting Information 119 .(continued) (e) Bal.

....900 ($3...300 – $1.............. 20.800 + $700 + $400 + $22.. 2005 ACCOUNT DEBIT CREDIT Cash .........(continued) P 2-7A Req........000 Advertising expense ............900 ($900 + $20........200 Req....000 + $50........000 Accounts payable......... $83.................................... 50.............800 Accounts receivable .......... 800 Utilities expense ........ 1....... Trial Balance January 31...........400 ($2......... 1..... 4 Total assets = $76......000) Net loss = $1.... 60........................ 700 Office supplies......600 Service revenue .... 22........ $ 3.......................300 Rent expense ....... 600  Total ........000 Common shares ....................300 Salary expense ..............................300 – $1........ 2.......... 3 Red River CableVision Inc.....000) Total liabilities = $20....200 $83............000 – $800 – $600) 120 Financial Accounting Canadian Edition Instructor’s Solutions Manual ..............000 Building ......... 2.... $ 900 Note payable ................ 400 Transmitting equipment .000 Dividends......

had a net income of $35. This says nothing about the soundness of the business.) P 2-1B Dear Anita. To compute Salon Adeva Inc. It is not the same as a balance sheet and an income statement. It merely means that total debits equal total credits in the company ledger.000)].000 ($63.’s net income or net loss for the current period. creditors.Problems Group B (15-30 min. 2006. The balance sheet and the income statement are financial statements used by managers.000 [service revenue of $134. Note: Student responses may vary. is a sound company. along with their balances at December 31. The trial balance is an internal document used by accountants.000 minus total expenses of $99. subtract total expenses from total revenue.. The fact that the trial balance is in balance does not mean that Salon Adeva Inc. This trial balance lists the accounts of Salon Adeva Inc.000 + $7. and investors for decision making. Salon Adeva Inc.000 + $26.000 + $3. Chapter 2 Processing Accounting Information 121 . In this instance.

400 $75.400) 4.400) Dividends 17. Accounts Common Retained = Payable + Shares + Earnings = Analysis of Transactions Financial Accounting Canadian Edition Instructor’s Solutions Manual 1. 1 (45-60 min.400) 44.700 (1.000 (750) 2. a) b) c) d) e) f) g) h) 1.000 Service revenue Issued shares (1.700 10.490 5. Bal.000 (1.720 720 (1.500 4.920 53.100 Land LIABILITIES + 4.700 1.) .200) (660) (2.720 42.610 Req.240 ___ 720 720 Accounts + Receivable + Supplies + ASSETS 24.000 42.660 Type of Shareholders’ Equity Transaction SHAREHOLDERS’ EQUITY Bow River Designers Inc.122 i) Bal.200) Rent expense (660) Advertising expense (2.100 Service revenue 12.100 24.000 P 2-2B Issued shares 5.400) 5.920 6.100 750 Cash $75.