Homework Solutions – Chapter 3

Week 3
AP3-5A

a. Inventory 3,100
Accounts Payable 3,100

b. Accounts Payable 3,000

Cash 3,000

c. Accounts Receivable 2,700

Sales Revenue 2,700
Cost of Goods Sold 1,800
Inventory 1,800

d. Cash 2,000
Accounts Receivable 2,000

e. Supplies 1,400
Accounts Payable 1,400

f. Supplies Expense 500

Supplies 500

g. Equipment 7,500
Cash 7,500

h. Cash 12,000
 Bank Loan Payable 12,000

i. Cash 20,000
Common Shares 20,000

j. Wages Expense 6,300

Cash 6,300

k. Interest Expense 150

Bank Loan Payable 1,850
Cash 2,000
l. Rent Expense 2,500
Cash 2,500

m. Land 23,000
Cash 3,000
Mortgage Payable 20,000

LO 6 BT: AP Difficulty: M Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting
AP3-7A

a. 1. Cash 200,000
Common Shares 200,000

2. Inventory 475,000
Accounts Payable 475,000

3. Accounts Receivable 640,000

Sales Revenue 640,000
Cost of Goods Sold 380,000
Inventory 380,000

4. Cash 580,000
Accounts Receivable 580,000

5. Accounts Payable 430,000

Cash 430,000

6. Vehicles 36,000
Cash 36,000

7. Rent Expense 24,000

Prepaid Rent 2,000
Cash 26,000

8. Operating Expenses 20,000

Cash 18,000
 Accounts Payable 2,000

9. Depreciation Expense 2,000

Accumulated Depreciation,
Vehicles 2,000

10. Dividends Declared 6,000

Cash 6,000
AP3-7A (Continued)

b. Sweet Dreams Chocolatiers Ltd.: T-Accounts

Cash Accounts Receivable

Bal. 0 Bal. 0
(1) 200,000 430,000 (5) (3) 640,000 580,000 (4)
(4) 580,000 36,000 (6)
26,000 (7) Bal. 60,000
18,000 (8)
6,000 (10)

Bal. 264,000

Prepaid Rent
Bal. 0
(7) 2,000

Bal. 2,000

Inventory Vehicles
Bal. 0 Bal. 0
(2) 475,000 380,000 (3) (6) 36,000

Bal. 95,000 Bal. 36,000

Accumulated Depreciation, Vehicles

Bal. 0
2,000 (9)
Bal. 2,000

Accounts Payable Common Shares

0 Bal. 0 Bal.
(5) 430,000 475,000 (2) 200,000 (1)
2,000 (8)
200,000 Bal.
47,000 Bal.
Retained Earnings Dividends Declared
0 Bal. Bal. 0
(10) 6,000

Bal. 6,000

Sales Revenue Cost of Goods Sold

0 Bal. Bal. 0
640,000 (3) (3) 380,000

640,000 Bal. Bal.380,000

Rent Expense Operating Expenses

Bal. 0 Bal. 0
(7) 24,000 (8) 20,000

Bal. 24,000 Bal. 20,000

 Depreciation Expense

Bal. 0
(9) 2,000

Bal. 2,000
AP3-7A (Continued)

c.
Sweet Dreams Chocolatiers Ltd.
Trial Balance
December 31, 2020

Debit Credit
Cash $264,000
Accounts receivable 60,000
Prepaid rent 2,000
Inventory 95,000
Vehicles 36,000
Accumulated depreciation, vehicles $2,000
Accounts payable 47,000
Common shares 200,000
Retained earnings -0-
Dividends declared 6,000
Sales revenue 640,000
Cost of goods sold 380,000
Rent expense 24,000
Operating expenses 20,000
Depreciation expense 2,000
$889,000 $889,000

LO 6 BT: AP Difficulty: M Time: 60 min. AACSB: None CPA: cpa-t001 CM: Reporting
AP3-6B

Aug. 1 Cash 250,000

Equipment 50,000
Common Shares 300,000

Aug. 1 Cash 100,000

Bank Loan Payable 100,000

Aug. 3 Rent Expense 3,000

Deposits 3,000
Cash 6,000

Aug. 8 Inventory 32,800

Accounts Payable 32,800

Aug.12 Advertising Expense 6,800

Cash 6,800

Aug.14 Cash 25,100

Accounts Receivable 25,100
Sales Revenue 50,200

Cost of Goods Sold 17,100

Inventory 17,100
AP3-6B (Continued)

Aug.19 Accounts Payable 25,000

Cash 25,000

Aug.25 Cash 22,600

Accounts Receivable 22,600

Aug.26 Inventory 23,000

Accounts Payable 23,000

Aug.29 Utilities Expense 2,700

Accounts Payable 2,700

Aug.31 Cash 40,800

Accounts Receivable 20,000
Sales Revenue 60,800

Cost of Goods Sold 20,700

Inventory 20,700

Wages Expense1 23,400

Cash 23,400
1
$3,900 X 6

Bank Loan Payable 2,500

Interest Expense1 500
Cash 3,000
1
$100,000 X 6% X 1/12

Dividends Declared1 30,000

Dividends Payable 30,000
1
30,000 shares x $1

LO 6,7 BT: AP Difficulty: M Time: 40 min. AACSB: None CPA: cpa-t001 CM: Reporting
AP3-7B
a. 1. Cash 150,000
Common Shares 150,000

2. Equipment 75,000
Cash 75,000

3. Supplies 9,600
Accounts Payable 9,600

4. Supplies Expense 8,400

Supplies 8,400

5. Cash 124,000
Service Revenue 124,000

6. Cash 15,000
Bank Loan Payable 15,000

7. Wages Expense 50,000

Cash 49,000
Wages Payable 1,000

8. Depreciation Expense 3,000

Accumulated Depreciation,
Equipment 3,000

9. Utilities Expense 22,000

Cash 22,000

10. Interest Expense1 600

Cash 600
1
$15,000 x 8% x 6/12 = $600
AP3-7B (Continued)

b. Sparkling Clean Dry Cleaners: T-Accounts

Cash Supplies
Bal. 0 Bal. 0
(1) 150,000 75,000 (2) (3) 9,600 8,400 (4)
(5) 124,000 49,000 (7)
(6)15,000 22,000 (9) Bal. 1,200
600 (10)

Bal. 142,400

Equipment Accumulated Depreciation, Equip.

Bal. 0 0 Bal.
(2) 75,000 3,000 (8)

Bal. 75,000 3,000 Bal.

Accounts Payable Bank Loan Payable

0 Bal. 0 Bal.
9,600 (3) 15,000 (6)

9,600 Bal. 15,000 Bal.

Wages Payable Common Shares

0 Bal. 0 Bal.
1,000 (7) 150,000 (1)

1,000 Bal. 150,000 Bal.

Service Revenue Depreciation Expense

0 Bal. Bal. 0
124,000 (5) (8) 3,000

124,000 Bal. Bal. 3,000

AP3-7B (Continued)

Interest Expense Supplies Expense

Bal. 0 Bal. 0
(10) 600 (4) 8,400

Bal. 600 Bal. 8,400

Utilities Expense Wages Expense

Bal. 0 Bal. 0
(9) 22,000 (7) 50,000

Bal. 22,000 Bal. 50,000

AP3-7B (Continued)

c.
Sparkling Clean Dry Cleaners Inc.
Trial Balance
December 31, 2020

Debit Credit
Cash $142,400
Supplies 1,200
Equipment 75,000
Accumulated depreciation, equipment $3,000
Accounts payable 9,600
Wages payable 1,000
Bank loan payable 15,000
Common shares 150,000
Retained earnings -0-
Service revenue 124,000
Supplies expense 8,400
Utilities expense 22,000
Wages expense 50,000
Interest expense 600
Depreciation expense 3,000
$302,600 $302,600

LO 6 BT: AP Difficulty: M Time: 60 min. AACSB: None CPA: cpa-t001 CM: Reporting
 Tutorial Question
AP3-13A
a. Clean and White Linen Supplies Ltd. – Journal Entries

1. Prepaid Insurance 3,900

Cash 3,900

2. Inventory 120,000
Accounts Payable 120,000

3. Accounts Receivable 180,000

Sales Revenue 180,000

Cost of Goods Sold 100,000

Inventory 100,000

4. Cash1 130,000
Accounts Receivable 390,000
Service Revenue 520,000
1
($520,000 x 1/4)

5. Accounts Payable 130,000

Cash 130,000

6. Cash 246,000
Accounts Receivable 246,000

7. Advertising Expense 12,000

Cash 12,000

8. Interest Expense1 10,500

Bank Loan Payable 30,000
Cash 40,500
1
$150,000 x 7% = $10,500

9. Cash 3,000
Dividend Revenue 3,000

10. Utilities Expense 15,000

Cash 15,000
AP3-13A (Continued)

11. Dividends Declared 12,000

Cash 12,000

12. a. Wages Payable 8,000

Wages Expense 94,000
Cash 102,000

b. Wages Expense 2,000

Wages Payable 2,000

13. Depreciation Expense1 30,000

Accumulated Depreciation,
Equipment 30,000
1
($330,000–$30,000] ÷ 10 years

14. Insurance Expense1 1,300

Prepaid Insurance 1,300
1
($3,900 x 1/3)

b. Clean and White Linen Supplies Ltd.: T-Accounts

Cash Accounts Receivable

Bal. 90,000 Bal. 96,000
(4) 130,000 3,900 (1) (3) 180,000 246,000 (6)
(6) 246,000 130,000 (5) (4) 390,000
(9) 3,000 12,000 (7)
40,500 (8) 420,000
15,000 (10)
12,000 (11)
102,000 (12a)
Supplies
153,600 Bal. 2,000

2,000
AP3-13A (Continued)

Inventory Prepaid Insurance

Bal. 60,000 Bal. 0

(2) 120,000 100,000 (3) (1) 3,900 1,300 (14)

80,000 2,600

Long-term Investments Bank Loan Payable

Bal. 80,000 150,000 Bal.
(8) 30,000
80,000
120,000

Equipment Accumulated Depreciation, Equipment

Bal. 330,000 90,000 Bal.
30,000 (13)
330,000
120,000

Accounts Payable Wages Payable

60,000 Bal. 8,000 Bal.
(5) 130,000 120,000 (2) (12) 8,000
2,000 (12b)
50,000
2,000

Common shares Retained earnings

250,000 Bal. 100,000 Bal.

250,000
(CE)12,000 438,200 (CE)

526,200
AP3-13A (Continued)

Dividends Declared
Bal. 0
(11) 12,000
12,000 (CE)

Service Revenue
0 Bal.
520,000 (4)
(CE) 520,000

Sales Revenue Dividend Revenue

0 Bal. 0 Bal.
180,000 (3) 3,000 (9)
(CE) 180,000 (CE) 3,000

0 0

Cost of Goods Sold Advertising Expense

Bal. 0 Bal. 0
(3) 100,000 (7) 12,000
100,000 (CE) 12,000 (CE)

0 0
AP3-13A (Continued)

Utilities Expense Wages Expense

Bal. 0 Bal. 0
(10) 15,000 (12a)94,000
15,000 (CE) (12b) 2,000

0 96,000
96,000 (CE)

Insurance Expense Depreciation Expense

Bal. 0 Bal. 0
(14) 1,300 (13) 30,000
1,300 (CE) 30,000 (CE)

0 0

Interest Expense
Bal. 0
(8) 10,500
10,500 (CE)

Income Summary
Bal. 0
703,000 (CE)
(CE) 264,800
438,200
(CE) 438,200
0
AP3-13A (Continued)

c.
Clean and White Linen Supplies Ltd.
Adjusted Trial Balance
December 31, 2020

Debit Credit
Cash $153,600
Accounts receivable 420,000
Inventory 80,000
Supplies 2,000
Prepaid insurance 2,600
Long-term investments 80,000
Equipment 330,000
Accumulated depreciation, equipment $ 120,000
Accounts payable 50,000
Wages payable 2,000
Bank loan payable 120,000
Common shares 250,000
Retained earnings 100,000
Dividends declared 12,000
Service revenue 520,000
Sales revenue 180,000
Dividend revenue 3,000
Cost of goods sold 100,000
Advertising expense 12,000
Utilities expense 15,000
Wages expense 96,000
Insurance expense 1,300
Interest expense 10,500
Depreciation expense 30,000
$1,345,000 $1,345,000
AP3-13A (Continued)

d.
Clean and White Linen Supplies Ltd.
Statement of Income
For the year ended December 31, 2020

Revenues
Service revenue $520,000
Sales revenue 180,000
Dividend revenue 3,000
Total revenues 703,000
Expenses
Cost of goods sold $100,000
Advertising expense 12,000
Utilities expense 15,000
Wages expense 96,000
Insurance expense 1,300
Interest expense 10,500
Depreciation expense 30,000
Total expenses 264,800
Net income $438,200
AP3-13A (Continued)

e. Closing entries (CE)

i. Service Revenue 520,000

Sales Revenue 180,000
Dividend Revenue 3,000
Income Summary 703,000

Income Summary 264,800

Cost of Goods Sold 100,000
Advertising Expense 12,000
Utilities Expense 15,000
Wages Expense 96,000
Insurance Expense 1,300
Interest Expense 10,500
Depreciation Expense 30,000

Income Summary1 438,200

Retained Earnings 438,200
1
($703,000 - $264,800)

ii. Retained Earnings 12,000

Dividends Declared 12,000
AP3-13A (Continued)
f.
Clean and White Linen Supplies Ltd.
Statement of Financial Position
As at December 31, 2020

ASSETS
Current assets
Cash $153,600
Accounts receivable 420,000
Inventory 80,000
Supplies 2,000
Prepaid insurance 2,600
Total current assets 658,200

Long-term investments $80,000

Equipment 330,000
Less accumulated depreciation (120,000) 210,000
290,000

TOTAL ASSETS $948,200

LIABILITIES
Current Liabilities
Accounts payable $50,000
Wages payable 2,000
Total current liabilities $52,000

Non-current: Bank loan payable 120,000

Total liabilities $172,000

SHAREHOLDERS’ EQUITY
Common shares $250,000
Retained earnings* 526,200
Total shareholders’ equity 776,200

TOTAL LIABILITIES &

SHAREHOLDERS’ EQUITY $948,200
*$100,000 + $438,200 – $12,000 = $526,200
 Week 4
AP3-9A

Adjusting entries

1. Unearned Revenue 9,300

Sales Revenue ($12,400 x 3/4) 9,300

2. Wages Expense 2,000

Wages Payable 2,000

3. Rent Expense 42,000

Prepaid Rent 42,000

Correct balance of prepaid rent at Dec. 31, 2020 = December 31’s

prepayment of $4,000 for January, 2021. Therefore, the balance of Prepaid
Rent account must be brought to $4,000. ($46,000 - $4,000 = $42,000).
Alternatively, rent expense for year = ($3,000 x 6) + ($4,000 x 6) =
$42,000.

4. Supplies Expense1 4,500

Supplies 4,500
1
($5,000 - $500)
This brings the Supplies account to its correct balance of $500.

5. Depreciation Expense1 6,500

Accumulated Depreciation,
Building 6,500
1
($150,000 – $20,000) ÷ 20 = $6,500

6. Interest Expense1 2,700

Interest Payable 2,700
1
($40,000 x 9% x 9/12 = $2,700)
AP3-9A (Continued)

Calculation of income before income tax:

Sales revenue ($840,000 + $9,300) $849,300

Cost of goods sold (482,000)
Wages expense ($95,000 + $2,000) (97,000)
Miscellaneous expense (14,000)
Rent expense (42,000)
Supplies expense (4,500)
Interest expense (2,700)
Depreciation expense (6,500)
Income before income tax $ 200,600

*($200,600 x 30% = $60,180)

7. Income Tax Expense* 60,180

Income Tax Payable 60,180

LO 7 BT: AP Difficulty: H Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting
AP3-10A

a. Closing entries, September 30:

Sales Revenue 488,000

Interest Revenue 2,000
Income Summary 490,000

Income Summary 455,000

Cost of Goods Sold 316,000
Wages Expense 70,000
Rent Expense 26,000
Depreciation Expense 43,000

Income Summary1 35,000

Retained Earnings 35,000
1
($490,000 - $455,000)

Retained Earnings 18,000

Dividends Declared 18,000

b. Closing balance of Retained Earnings, September 30:

Retained earnings, opening balance $70,000

Add: net income 35,000
Less: dividends declared ( 18,000)
Retained earnings, closing balance $87,000

LO 8 BT: AP Difficulty: E Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

AP3-12A
a. Hughes Tools Company: Journal Entries

1. Cash 175,000
Common Shares 175,000

2. Cash 225,000
Notes Payable 225,000

3. Rent Expense 60,000

Prepaid Rent 15,000
 Cash 75,000

4. Equipment 220,000
Cash 220,000

5. Inventory 90,000
Cash 90,000

6. Inventory 570,000
Accounts Payable 570,000

7. Cash 80,000
Accounts Receivable 720,000
Sales Revenue 800,000

8. Cash 650,000
Accounts Receivable 650,000
AP3-12A (Continued)

9. Accounts Payable 510,000

Cash 510,000

10. Cost of Goods Sold 560,000

Inventory 560,000

11. Selling and Admin-

istrative Expenses 86,500
Cash 82,500
Accounts Payable 4,000

12. Interest Expense1 22,500

Notes Payable 25,000
Cash 47,500
1
($225,000 X 10% = $22,500)

13. Depreciation Expense1 20,000

Accumulated Depreciation,
Equipment 20,000
1
[($220,000 – $20,000) ÷ 10 years = $20,000]

14. Dividends Declared 7,000

Cash 7,000
AP3-12A (Continued)

b. Hughes Tools Company: T-Accounts

Cash Accounts Receivable

0 0
(1) 175,000 75,000 (3) (7) 720,000 650,000 (8)
(2) 225,000 220,000 (4)
(7) 80,000 90,000 (5) 70,000
(8) 650,000 510,000 (9)
82,500 (11)
47,500 (12)
7,000 (14)

98,000

Inventory Prepaid Rent

0 0
(5) 90,000 (3) 15,000
(6) 570,000 560,000 (10)
15,000
100,000

Equipment Accumulated Depreciation, Equip.

0 0
(4) 220,000 20,000 (13)

220,000 20,000

Accounts Payable Income Summary

0 800,000 (CE)
(9) 510,000 570,000(6) (CE) 749,000
4,000 (11) (CE) 51,000
64,000 0
AP3-12A (Continued)

Notes Payable
0
(12) 25,000 225,000 (2)

200,000

Common Shares Retained Earnings

0 0
175,000 (1) (CE)7,000 51,000 (CE)

175,000 44,000

Dividends Declared Sales Revenue

0 0
(14) 7,000 7,000(CE) (CE) 800,000 800,000 (7)

0 0

Cost of Goods Sold Rent Expense

0 0
(10) 560,000 560,000 (CE) (3) 60,000 60,000 (CE)

0 0

Depreciation Expense Interest Expense

0 0
(13) 20,000 20,000 (CE) (12) 22,500 22,500 (CE)

0 0

Selling & Administrative Expenses

0
(11) 86,500 86,500 (CE)
0
AP3-12A (Continued)

c.
Hughes Tools Company
Adjusted Trial Balance
September 30, 2020

Debit Credit
Cash $ 98,000
Accounts receivable 70,000
Inventory 100,000
Prepaid rent 15,000
Equipment 220,000
Accumulated depreciation, equipment $ 20,000
Accounts payable 64,000
Notes payable 200,000
Common shares 175,000
Retained earnings -0-
Dividends declared 7,000
Sales revenue 800,000
Cost of goods sold 560,000
Rent expense 60,000
Depreciation expense 20,000
Interest expense 22,500
Selling & administrative expenses 86,500
$1,259,000 $1,259,000
AP3-12A (Continued)

d. Closing Entries (CE)

Sales Revenue 800,000

Income Summary 800,000
Income Summary 749,000
Cost of Goods Sold 560,000
Rent Expense 60,000
Depreciation Expense 20,000
Interest Expense 22,500
Selling and Administrative Expenses 86,500

Income Summary 51,0001

Retained Earnings 51,000
1
($800,000 - $749,000)

Retained Earnings 7,000

Dividends Declared 7,000

LO 6,8 BT: AP Difficulty: M Time: 60 min. AACSB: None CPA: cpa-t001 CM: Reporting

AP3-10B

a. Closing entries, January 31:

Sales Revenue 956,000

Interest Revenue 19,000
Income Summary 975,000

Income Summary 632,000

Cost of Goods Sold 560,000
Depreciation Expense 10,000
Wages Expense 41,000
Utilities Expense 9,000
Insurance Expense 12,000

Income Summary1 343,000

Retained Earnings 343,000
 1
($975,000 - $632,000)

Retained Earnings 21,000

Dividends Declared 21,000

b. Ending balance of Retained Earnings, January 31:

Retained earnings, opening balance $ 88,000

Add: net income 343,000
Less: dividends declared ( 21,000)
Retained earnings, ending balance $410,000

LO 8 BT: AP Difficulty: E Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

Tutorial
AP3-15A
a. Information Inc.
Adjusted Trial Balance
December 31, 2020
Debits Credits
Cash $ 20,000
Accounts Receivable 150,000
Notes Receivable 26,000
Prepaid Insurance ($0 + $900) 900
1
Interest Receivable ($0 + $867 ) 867
Supplies ($3,700 – $3,100) 600
Inventory 140,000
Equipment 200,000
Accumulated Depreciation,
Equipment ($20,000 + $20,000) $ 40,000
Buildings 360,000
Accumulated Depreciation,
Buildings ($40,000 + $10,000) 50,000
Land 160,000
Accounts Payable 72,700
Notes Payable 30,000
Wages Payable ($0 + $3,000) 3,000
Dividends Payable ($0 + $50,000) 50,000
Unearned Revenue ($6,000 – $2,000) 4,000
Common Shares 570,000
Retained Earnings 177,000
Dividends Declared ($12,000 + $50,000) 62,000
Sales Revenue 963,000
1
Interest Revenue ($0 + $867 ) 867
Rent Revenue ($0 + $2,000) 2,000
Cost of Goods Sold 590,000
Utilities Expense 2,500
Wages Expense ($125,000 + $3,000) 128,000
Miscellaneous Expense 5,200
Insurance Expense ($6,300 – $900) 5,400
Advertising Expense 76,000
Interest Expense 2,000
Supplies Expense ($0 + $3,100) 3,100
Depreciation Expense ($0 + $10,000 + $20,000) 30,000 ________
1,962,567 1,962,567
AP3-15A (Continued)

a. calculations
1
($26,000 x 10% x 4/12) = $867

b.
Information Inc.
Statement of Income
For the year ended December 31, 2020

Revenues
Sales revenue $ 963,000
Rent revenue 2,000
Interest revenue 867
Total revenues 965,867

Expenses:
Cost of goods sold 590,000
Utilities expense 2,500
Wages expense 128,000
Miscellaneous expense 5,200
Insurance expense 5,400
Advertising expense 76,000
Supplies expense 3,100
Interest expense 2,000
Depreciation expense 30,000
Total expenses 842,200

Net income $123,667

c. Beginning retained earnings, Jan. 1, 2020 $177,000

Net income 123,667
Dividends declared ( 62,000)
Ending retained earnings, Dec. 31, 2020 $238,667
AP3-15A (Continued)

d.
Information Inc.
Statement of Financial Position
As at December 31, 2020
Current assets:
Cash $ 20,000
Accounts receivable 150,000
Notes receivable 26,000
Prepaid insurance 900
Interest receivable 867
Supplies 600
Inventory 140,000
Total current assets $338,367
Non-current assets:
Equipment 200,000
Less: Accumulated depreciation (40,000)
Building 360,000
Less: Accumulated depreciation (50,000)
Land 160,000
Net non-current assets 630,000
Total assets $968,367
Liabilities
Current liabilities:
Accounts payable $ 72,700
Notes payable 30,000
Wages payable 3,000
Dividends payable 50,000
Unearned revenue 4,000
Total liabilities $159,700

Shareholders’ Equity
Common shares $570,000
Retained earnings 238,667
Total shareholders’ equity 808,667
Total liabilities and shareholders’ equity $968,367
LO 6,7 BT: AP Difficulty: H Time: 60 min. AACSB: None CPA: cpa-t001 CM: Reporting