The Accounting Information System: Learning Objectives

Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition
CHAPTER 3
THE ACCOUNTING INFORMATION SYSTEM
LEARNING OBJECTIVES
1. Analyze the effect of transactions on the accounting equation.
2. Explain how accounts, debits, and credits are used to record transactions.
3. Journalize transactions in the general journal.
4. Post transactions to the general ledger.
5. Prepare a trial balance.
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES

AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Questions
1. 1 C 5. 2 C 9. 3,4 C 13. 4 K 17. 1,3,4,5 C
2. 1 C 6. 2 C 10. 3,4 C 14. 5 C
3. 1 C 7. 3 C 11. 4 K 15. 5 C
4. 2 C 8. 3 C 12. 4 K 16. 5 C
Brief Exercises
1. 1 C 4. 2 AP 7. 3 AP 10. 4 AP 13. 5 AN
2. 1 AN 5. 1,2 AN 8. 3 AP 11. 4 AP
3. 2 AP 6. 3 AP 9. 4 AN 12. 5 AP
Exercises
1. 1 AN 4. 1,2 AN 7. 1,2,3,4 AN 10. 4,5 AP 13. 5 AP
2. 1 AN 5. 3 AP 8. 4 AP 11. 5 AP 14. 5 AP
3. 2 K 6. 3 AP 9. 4 AN 12. 5 AP 15. 5 AN
Problems: Set A and B
1. 1 AN 4. 2 K 7. 3,4 AP 10. 5 AP
2. 1 AN 5. 1,2,3 AN 8. 3,4,5 AP 11. 5 AP
3. 2 AP 6. 3 AP 9. 3,4,5 AP 12. 5 AN
Accounting Cycle Review
1. 3,4,5 AP 2. 3,4,5 AP
Cases
1. 1 AP 3. 3,4,5 E 5. 5 S
2. 1 AN 4. 5 AN 6. 3,4,5 AN
Solutions Manual 3-1 Chapter 3

Copyright © 2017 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
Legend: The following abbreviations will appear throughout the solutions manual
file.
LO Learning objective
BT Bloom's Taxonomy
K Knowledge
C Comprehension
AP Application
AN Analysis
S Synthesis
E Evaluation
Difficulty: Level of difficulty
S Simple
M Moderate
C Complex
Time: Estimated time to prepare in minutes
AACSB Association to Advance Collegiate Schools of Business
Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
CPA CM CPA Canada Competency
cpa-e001 Ethics Professional and Ethical Behaviour
cpa-e002 PS and DM Problem-Solving and Decision-Making
cpa-e003 Comm. Communication
cpa-e004 Self-Mgt. Self-Management
cpa-e005 Team & Lead Teamwork and Leadership
cpa-t001 Reporting Financial Reporting
cpa-t002 Stat. & Gov. Strategy and Governance
cpa-t003 Mgt. Accounting Management Accounting
cpa-t004 Audit Audit and Assurance
cpa-t005 Finance Finance
cpa-t006 Tax Taxation

ANSWERS TO QUESTIONS
1. (a) Only events that cause a change in an asset, liability, or
shareholders’ equity account are recorded as accounting
transactions. Other events, such as the agreement to provide a
service, do not immediately impact an asset, liability, or
shareholder’s equity account and, therefore, are not considered an
accounting transaction.
(b) Examples of events that would not be recorded include hiring
employees, signing a lease, and placing an order to purchase
services.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
2. Accounting transactions that affect the accounting equation (assets =

liabilities + shareholders’ equity) should be recorded.
(a) Winning an award is not an accounting transaction, as it does not
affect the accounting equation. The award did not involve the receipt
of an asset, such as cash.
(b) Supplies purchased on account is an accounting transaction
because it affects the accounting equation (assets are increased
because supplies were received and liabilities are increased
because accounts payable were incurred).
(c) A shareholder dying is not an accounting transaction, as it does not
affect the accounting equation.
(d) Declaring and paying a cash dividend to shareholders is an
accounting transaction as it does affect the accounting equation
(shareholders’ equity is decreased and assets (cash) are
decreased).
(e) The agreement to provide legal services to the company is not an
accounting transaction as it does not affect the accounting equation.
No expense has been incurred yet and no liabilities have been
affected as yet. Once the lawyer begins providing services and an
amount is paid or owed, then a transaction would be recorded.
LO 1 BT: C Difficulty: C Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

3. Yes, a company can enter into a transaction in which only the left (assets)
side of the accounting equation is affected. An example would be a
transaction where an increase in one asset is offset by a decrease in
another asset. A decrease in the Accounts Receivable account which is
offset by an increase in the Cash account is a specific example (that is, a
customer paying for goods previously purchased on account).
LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
4. The structure of the accounting equation matches the debit-credit rules in

accounting. Assets are shown on the left-hand side of the accounting
equation and debits are shown on the left-hand side of the accounting
equation and T accounts. Because of this, asset accounts have normal
debit balances. Liabilities and shareholders’ equity are shown on the
right-hand side of the accounting equation and credits are shown on the
right-hand side of the accounting equation and T accounts. Liabilities and
shareholders’ equity accounts (such as share capital and retained
earnings) have normal credit balances. Following the debit-credit rules
will ensure that the accounting equation will be consistently applied.
5. Shareholders' equity consists of different components, and they do not all

move in the same direction. Shareholders’ equity is usually comprised of
share capital (which is increased by credits) and retained earnings.
Retained earnings can be further subdivided into revenues and expenses
and dividends declared which are then added to opening retained
earnings in the case of revenues, and deducted from opening retained
earnings in the case of expenses and dividends. Revenues are increased
by credits while expenses and dividends declared are increased by
debits.

6. Emily is likely relating the term debit and credit to the normal balances of
accounts. Since assets have normal debit balances and, from a personal
standpoint, acquiring and possessing assets is viewed in a positive light,
it might follow in Emily’s mind that debits are favourable. On the other
hand, liabilities have a normal credit balance and might be viewed by
Emily in a negative light because debt is unfavourable from a personal
standpoint. However, Emily is incorrect. Debits mean nothing more than
the left side of accounts and credits the right side of the accounts. Neither
is favourable or unfavourable.
7. (a) A general journal is a book of original entry, in which transactions

are recorded in chronological order.
(b) The general journal facilitates the recording process by documenting
the debit and credit effects on specific accounts. The general journal
discloses the complete effect of a transaction in one place, including
an explanation and, where applicable, identification of the source
document. The general journal provides a chronological record of
transactions and it helps to prevent and locate errors, because the
debit and credit amounts for each entry can be quickly compared.
8. While the account title choices suggested by Meghan provide details of

the type of truck the company purchased, the title of the account used to
record the purchase should be more generic to include all types of trucks
and other vehicles that can be owned and used by the business.
Ambiguous or multiple account titles with similar names can lead to
incorrect financial reporting. The name of the account often used by
companies for purchases of this nature is Vehicles.

9. This would not be efficient because the journal provides a record that
shows both “sides” of the transaction along with a description of the
transaction. This information is vital to the understanding of the event. A
general ledger is not intended to be used to capture the recording of
transactions, but to tabulate the effects of transactions in separate
accounts. The balances arrived at in the ledger are then used to
communicate information to the users of the financial statements. If one
attempted to omit the use of journal entries, one could not retrace the
transactions as they originated in the journal. One would only see one
side of a transaction at a time by looking at an account in the ledger. It
would become very confusing and unruly to try to keep track of
transactions.
LO 3,4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
10. Posting should be done on a timely basis, at least monthly, so that

account balances can be monitored and reconciled. This ensures that
any errors are identified as soon as possible.
LO 3,4 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
11. (a) The general ledger is the entire group of accounts maintained by a
company, including all the asset, liability, and shareholders' equity
accounts, including the share capital, retained earnings, dividends
declared, revenue, and expense accounts.
(b) The general ledger is often arranged in the order in which accounts
are presented in the financial statements, beginning with the
statement of financial position accounts. The asset accounts come
first, followed by liability accounts, and then shareholders’ equity
declared, revenue, and expense accounts.
LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

12. (a) The chart of accounts is a list of a company’s accounts. The chart of
accounts is important, particularly for a company that has a large
number of accounts, because it helps organize the accounts and
identify their location in the general ledger.
(b) Numbering the accounts helps identify and sort the accounts.
13. Cash, Accounts Receivable, Supplies, Prepaid Insurance, Accounts

Payable, Unearned Revenue, Common Shares, Dividends Declared,
Service Revenue, Salaries Expense, and Income Tax Expense.
LO 4 BT: K Difficulty: S Time: 5 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
14. (a) A trial balance is a list of accounts and their balances at a point in
time. The primary purpose of a trial balance is to prove the
mathematical equality of debits and credits after all journalized
transactions have been posted. A trial balance also facilitates the
discovery of errors in journalizing and posting. In addition, it is useful
in preparing financial statements.
(b) While it does not matter in what order the accounts are listed in the
trial balance, it is usual for the accounts in the trial balance to be
listed in the same order as they are listed in the general ledger
(asset accounts, liability accounts, and shareholders’ equity
declared, revenue, and expense accounts). This makes it easier to
compare the trial balance accounts to the general ledger accounts,
as well as to prepare the financial statements from the trial balance.

15. The retained earnings account in the unadjusted trial balance shows the
beginning balance of the period (which is the same as the ending balance
of the prior period) as it has not yet been updated for the effect that the
revenues, expenses, and dividends declared have on retained earnings
for the current accounting period. (Note to instructors: This chapter only
includes references to an unadjusted and pre-closing trial balance; the
post-closing trial balance is not introduced until Chapter 4.)
16. Claire, here are some tips to help you find the $100 difference in the trial
balance columns assuming it is a single error:
1. If the difference between the debit and credit totals is an amount

such as $1, $100, or $1,000, re-add the trial balance columns and
recalculate the account balances.
2. If the amount of the difference can be evenly divided by two, (which
it is in this case) scan the trial balance to see if a balance equal to
half the error has been entered in the wrong column.
3. If the amount of the difference can be evenly divided by nine, (which
it is not in this case) retrace the account balances on the trial
balance to see whether they have been incorrectly copied from the
ledger. For example, if a balance was $12 but was listed as $21, a
$9 error has been made. Reversing the order of numbers is called a
transposition error. A slide, which is adding or deducting one or
several zeros in a figure, has the same effect.
4. If the amount of the difference cannot be evenly divided by two or
nine, scan the ledger to see whether an account balance in the
amount of the error has been omitted from the trial balance. Scan
the journal to see whether a posting in the amount of the error has
been omitted.
When all else fails, all of the transactions should be carefully traced
through the process again.
LO 5 BT: C Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

17. The first four steps in the accounting cycle are:

(a) (1) Analyze the business transactions and determine their effects
on the accounting equation and also determine when and how
to record the transactions.
(2) Journalize the transactions in the general journal to record the
effects of the transactions on the accounts involved in the
transactions.
(3) Post to the general ledger accounts to provide an accumulation
of the effect of several journalized transactions in the individual
accounts.
(4) Prepare a trial balance to prove that the sum of the debit
account balances equals the sum of the credit account balances
after posting.
(b) It does matter in which order the steps of the accounting cycle are
completed. Each step performed has been designed in the
sequence with the understanding that the previous step has been
performed. Failing to do so would result in incomplete and
inaccurate financial information.
LO 1,3,4,5 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 3-1
(a)
Assets = Liabilities + Shareholders’ Equity
1. (+) (-) NE NE
2. NE NE NE
3. NE NE NE
4. (+) NE (+)
5. NE NE NE
(b) Items 1 and 4 are accounting transactions that should be recorded in the
accounting records. Each of these transactions have an impact on the
accounting equation as shown in part (a).
Items 2, 3, and 5 should not be recorded in the accounting equation.

They do not yet impact the accounting equation.

BRIEF EXERCISE 3-2

Retained Earnings
= –
Trans- Accounts Prepaid Accounts Unearned Common + – Dividends
action Cash Receivable Supplies Insurance Payable Revenue + Shares Revenues Expenses Declared
1. +$250 +$250
2. +$500 +$500
3. –$300 −$300
4. +5,000 +$5,000
5. –100 −$100
6. +500 −500
7. −250 −250
8. –100 +$100
9. +300 +$300
10. −300 +300
Total $5,050 + $0 +$250 + $100 = $0 + $0 + $5,000 + $800 – $300 – $100
TOTAL ASSETS = $5,400 TOTAL LIABILITIES + SHAREHOLDERS’ EQUITY = $5,400

LO 1 BT: AN Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3-3
(a) (b) (c) (d)

Basic Normal Debit Credit
Type Balance Effect Effect
1. Accounts Payable Liability Credit decrease increase
2. Accounts Receivable Asset Debit increase decrease
3. Cash Asset Debit increase decrease
Shareholder's
4. Common Shares Credit decrease increase
equity
Shareholder's
5. Dividends Declared Debit increase decrease
equity
6. Equipment Asset Debit increase decrease
Shareholder's
7. Income Tax Expense Debit increase decrease
equity
Shareholder's
8. Retained Earnings Credit decrease increase
equity
Shareholder's
9. Service Revenue Credit decrease increase
equity
10. Unearned Revenue Liability Credit decrease increase
LO 2 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3-4
Account Debited Account Credited
(a) (b) (c) (a) (b) (c)
Specific Specific
Transaction Basic Type Account Effect Basic Type Account Effect
1. Asset Cash Increase Shareholders’ Common Increase
equity Shares
2. Asset Prepaid Increase Asset Cash Decrease
Rent
3. Shareholders’ Salaries Increase Asset Cash Decrease
equity Expense
4. Asset Accounts Increase Shareholders’ Service Increase
Receivable equity Revenue
5. Asset Cash Increase Asset Accounts Decrease
Receivable
6. Asset Supplies Increase Liability Accounts Increase
Payable
7. Liability Accounts Decrease Asset Cash Decrease
Payable
8. Asset Cash Increase Liability Bank Loan Increase
Payable

BRIEF EXERCISE 3-5
Transaction 1 June 1: Issued common shares to shareholders in exchange

for $2,500 cash.
(a) Basic The asset account Cash is increased by $2,500; the

Analysis shareholders’ equity account Common Shares is increased by
$2,500.
(b) Equation Assets = Liabilities + Shareholders’

Analysis Equity
Common
Cash Shares
+$2,500 +$2,500
(c) Debit−Credit Debits increase assets: debit Cash $2,500.

Analysis Credits increase share capital (shareholders’ equity): credit
Common Shares $2,500.
Transaction 2 June 4: Purchased supplies on account for $250.
(a) Basic The asset account Supplies is increased by $250; the liability
Analysis account Accounts Payable is increased by $250.

Analysis Equity
Accounts
Supplies Payable
+$250 +$250
(c) Debit−Credit Debits increase assets: debit Supplies $250.

Analysis Credits increase liabilities: credit Accounts Payable $250.

BRIEF EXERCISE 3-5 (CONTINUED)

(a), (b), and (c) (continued)
Transaction 3 June 7: Billed J. Kronsnoble $300 for welding work done.
(a) Basic The asset account Accounts Receivable is increased by $300;

Analysis the revenue account Service Revenue is increased by $300.

Analysis Equity
Accounts Service
Receivable Revenue
+$300 +$300
(c) Debit−Credit Debits increase assets; debit Accounts Receivable $300.

Analysis Credits increase revenues; credit Service Revenue $300.
Transaction 4 June 18: Received partial payment from J. Kronsnoble for work
billed on June 7.
(a) Basic The asset account Cash is increased by $200; the asset
Analysis account Accounts Receivable is decreased by $200.

Analysis Equity
Cash
+$200
Accounts
Receivable
-$200
(c) Debit−Credit Debits increase assets: debit Cash $200.

Analysis Credits decrease assets: credit Accounts Receivable $200.

Transaction 5 June 25: Hired new employee to start work on July 3.
(a) Basic An accounting transaction has not occurred. There is only an

Analysis agreement of employment to start on July 3.
Transaction 6 June 27: Received cash of $200 from Liu Controls Ltd. as a
deposit for welding work to be done in July.
(a) Basic The asset account Cash is increased by $200; the liability
Analysis account Unearned Revenue is increased by $200.

Analysis Equity
Unearned
Cash Revenue
+$200 +$200

Analysis Credits increase liabilities: credit Unearned Revenue $200.

Transaction 7 June 28: Paid for supplies purchased on June 4.
(a) Basic The asset account Cash is decreased by $250; the liability
Analysis account Accounts Payable is decreased by $250.

Analysis Equity
Accounts
Cash Payable
-$250 -$250
(c) Debit−Credit Debits decrease liabilities: debit Accounts Payable $250.

Analysis Credits decrease assets: credit Cash $250.
Transaction 8 June 29: Paid $100 for monthly income tax instalment.
(a) Basic The expense account Income Tax Expense is increased by

Analysis $100; the asset account Cash is decreased by $100.

Analysis Equity
Income Tax
Cash Expense
-$100 -$100
(c) Debit−Credit Debits increase expenses: debit Income Tax Expense $100.
LO 1,2 BT: AN Difficulty: M Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3-6
1. Supplies ....................................................... 250

Accounts Payable ................................. 250
2. Accounts Receivable ................................... 500

Service Revenue ................................... 500
3. Salaries Expense ......................................... 300

Cash ...................................................... 300
4. Cash ............................................................ 5,000

Common Shares ................................... 5,000
5. Dividends Declared ...................................... 100

Cash ...................................................... 100
6. Cash ............................................................ 500

Accounts Receivable ............................. 500
7. Accounts Payable ..................................... 250

Cash ................................................... 250
8. Prepaid Insurance ........................................ 100

Cash ................................................... 100
9. Cash .......................................................... 300

Unearned Revenue ............................ 300
10. Unearned Revenue .................................... 300

Service Revenue ................................ 300
LO 3 BT: AP Difficulty: M Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 3-7
1. Cash ............................................................ 5,000

Common Shares ................................... 5,000
2. Prepaid Rent ................................................ 2,100

Cash ...................................................... 2,100
3. Salaries Expense ......................................... 500

Cash ...................................................... 500
4. Accounts Receivable ................................... 1,200

Service Revenue ................................... 1,200
5. Cash ............................................................ 900

Accounts Receivable ............................. 900
6. Supplies ....................................................... 500

Accounts Payable.................................. 500
7. Accounts Payable ........................................ 500

Cash ...................................................... 500
8. Cash ............................................................ 1,000

Bank Loan Payable ............................... 1,000

BRIEF EXERCISE 3-8
June 1 Cash ....................................................... 2,500

Common Shares.......................... 2,500
4 Supplies ................................................. 250

Accounts Payable ........................ 250
7 Accounts Receivable .............................. 300

Service Revenue ......................... 300
18 Cash ....................................................... 200

Accounts Receivable ................... 200
25 No transaction – no asset, liability, or equity account affected
27 Cash ..................................................... 200

Unearned Revenue ...................... 200
28 Accounts Payable .................................. 250

Cash ............................................ 250
29 Income Tax Expense ............................. 100

Cash ............................................ 100

BRIEF EXERCISE 3-9

Accounts Receivable Accounts Payable Service Revenue
Aug. 10 17,500 Aug. 5 (c) 6,000 Aug. 10 50,000
15 6,500 18 3,400 Aug. 12 500
Aug. 23 (a) 15,000 Aug. 29 5,800 15 45,000
Bal. 9,000 Bal. 3,600 Bal. (e) 94,500
Sept. 5 (b) 4,000 Sept. 12 7,700 Sept. 5 (f) 4,950
Sept. 15 8,000 Sept. 23 5,900 Sept. 25 450
Bal. 5,000 Bal. (d) 5,400 Bal. 99,000
(a) $17,500 + $6,500 – $9,000 = $15,000
(b) $5,000 – $9,000 + $8,000 = $4,000
(c) $3,600 + $5,800 – $3,400 = $6,000
(d) $3,600 + $7,700 – $5,900 = $5,400
(e) $50,000 – $500 + $45,000 = $94,500
(f) $99,000 + $450 – $94,500 = $4,950

BRIEF EXERCISE 3-10
Cash
June 1 2,500 June 28 250
June 18 200 June 29 100
June 27 200
Bal. 2,550
Accounts Receivable
June 7 300 June 18 200
Bal. 100
Supplies
June 4 250
Accounts Payable
June 28 250 June 4 250
Bal. 0
Unearned Revenue
June 27 200
Common Shares
June 1 2,500
Service Revenue
June 7 300
Income Tax Expense

June 29 100

BRIEF EXERCISE 3-11
(a)
May 4 Billed clients $3,200 for services provided on account

May 7 Declared and paid dividends of $500
May 11 Collected $1,900 from a customer on account
May 21 Received $2,000 from client for services provided
May 25 Paid salaries of $2,500
May 28 Paid supplier $200 on account
May 31 Paid income tax of $750
(b)
Cash
Apr. 30 1,500 May 7 500 Dividends Declared
May 11 1,900 May 25 2,500 May 7 500
May 21 2,000 May 28 200
May 31 750
Bal. 1,450 Service Revenue
May 4 3,200
Accounts Receivable May 21 2,000
Apr. 30 1,800 May 11 1,900 Bal. 5,200
May 4 3,200
Bal. 3,100
Income Tax Expense
May 30 750
Accounts Payable
May 28 200 Apr. 30 900 Salaries Expense
Bal. 700 May 25 2,500

BRIEF EXERCISE 3-12
(a) Account Normal Balance

Accounts payable ............................................................ Credit
Accounts receivable ........................................................ Debit
Accumulated depreciation—equipment ........................... Credit
Cash ................................................................................ Debit
Common shares .............................................................. Credit
Dividends declared .......................................................... Debit
Equipment ....................................................................... Debit
Held for trading investments............................................ Debit
Income tax expense ........................................................ Debit
Rent expense .................................................................. Debit
Retained earnings ........................................................... Credit
Salaries expense ............................................................. Debit
Service revenue .............................................................. Credit
Unearned revenue .......................................................... Credit

(b)
CARLAND INC.
Trial Balance
June 30, 2018
Debit Credit
Cash $ 4,400
Accounts receivable 4,000
Held for trading investments 6,000
Equipment 17,000
Accumulated depreciation—equipment $ 3,600
Accounts payable 3,000
Unearned revenue 150
Common shares 10,000
Retained earnings 12,650
Dividends declared 200
Service revenue 7,600
Salaries expense 4,000
Rent expense 1,000
Income tax expense 400 _
Totals $37,000 $37,000
(Total of debit account balances = Total of credit account balances)


BRIEF EXERCISE 3-13
(a) (b) (c)

Error In Balance Difference Larger Column
1. No $ 900 Debit
2. No 1,000 Credit
3. Yes N/A N/A
4. Yes N/A N/A
5. Yes N/A N/A
6. No 1,000 Debit
LO 5 BT: AN Difficulty: C Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

SOLUTIONS TO EXERCISES
EXERCISE 3-1
(a)
1. Received cash of $1,000 from a customer as a deposit for work to be done
in the future.
2. Purchased equipment for $5,000 paying cash $1,000 with the remaining
balance of $4,000 on account.
3. Paid $750 for supplies.
4. Performed services for $9,500 collecting cash of $4,100 and the remaining
balance on account of $5,400.
5. Paid $2,000 to suppliers on account.
6. Declared and paid dividends of $1,000.
7. Paid for operating expenses of $4,800
8. Collected $5,000 on account from customers.
9. Paid interest expense of $300
10. Paid income tax expense of $880.
(b)
Service revenue $9,500
Less: Expenses
Operating expenses $4,800
Interest expense 300
Income tax expense 880
Total expenses 5,980
Net income $3,520
Retained earnings:
Beginning balance $4,500
Add: Net income 3,520
Less: Dividends declared (1,000)
Ending balance $7,020
[Revenues – Expenses = Net income or (loss)]

EXERCISE 3-1 (CONTINUED)
(c)

Retained Earnings
–
Accounts Accounts Unearned Common + – Dividends
Cash Receivable Supplies Equipment = Payable Revenue + Shares Bal. Revenues Expenses Declared
July 31 Bal.
$6,500 $5,000 $2,000 $5,000 $4,500
(1) +1,000 +$1,000
(2) −1,000 +$5,000 +4,000
(3) −750 +$750
(4) +4,100 +5,400 +$9,500
(5) -2,000 -2,000
(6) -1,000 -$1,000
(7) -4,800 -$4,800
(8) +5,000 -5,000
(9) -300 -300
(10) -880 -880
Aug. 31 Bal. $5,870 + $5,400 + $750 + $5,000 = $4,000 + $1,000 + $5,000 +$4,500 + $9,500 - $5,980 - $1,000


EXERCISE 3-2
Retained Earnings
Bank –
Accounts Prepaid Accounts Loan Common + – Dividends
Trans. Cash Receivable Insurance Equipment = Payable + Payable Shares Balance Revenues Expenses Declared
Apr. 30 Bal. $5,000 $6,000 $2,000 $5,000 $4,000
1. +$8,000 +8,000
2. −1,600 -$1,600
3. +3,800 +$3,800
4. −300 −300
5. +20,000 +$20,000
6. −8,000 −8,000
7. −500 +$500
8. +3,000 −3,000
9. −500 −$500
10. −250 −250
May 31 Bal. $16,850 + $6,800 + $500 + $8,000 = $2,000 + $20,000 +$5,000 +$4,000 + $3,800 – $2,150 – $500


EXERCISE 3-3
(a) (b) (c)

Account Type of Account Normal Balance Financial Statement
Statement of Financial
Bank loans payable Liabilities Credit
Position
Buildings Assets Debit
Position
Cash Assets Debit
Position
Depreciation expense Expenses Debit Income Statement
Statement of Changes
Dividends declared Dividends Debit
in Equity
Finance income Revenues Credit Income Statement
Furniture, machinery, Statement of Financial
Assets Debit
and equipment Position
Income tax expense Expenses Debit Income Statement
Income taxes payable Liabilities Credit
Position
Interest expense Expenses Debit Income Statement
Inventories Assets Debit
Position
Prepaid expenses Assets Debit
Position
Receivables Assets Debit
Position
Revenues Revenues Credit Income Statement

EXERCISE 3-4
Transaction 1 March 2: Issued common shares for $11,000 cash.
(a) Basic The asset account Cash is increased by $11,000; the shareholders’
Analysis equity account Common Shares is increased by $11,000.

Analysis Equity
Common
Cash Shares
+$11,000 +$11,000

Transaction 2 March 4: Purchased used car for $1,000 cash and $9,000 on
account, for use in the business.
(a) Basic The asset account Vehicles is increased by $10,000; the liability
Analysis account Accounts Payable is increased by $9,000; the asset
account Cash is decreased by $1,000.

Analysis Equity
Account
Cash Payable
-$1,000 +$9,000
Vehicles
+$10,000
(c) Debit−Credit Debits increase assets: debit Vehicles $10,000.

Analysis Credits increase liabilities: credit Accounts Payable $9,000.
Credit decrease assets: credit Cash $1,000.

Transaction 3 March 10: Billed customers $2,300 for services performed.
(a) Basic The asset account Accounts Receivable is increased by $2,300;

Analysis the revenue account Service Revenue is increased by $2,300.

Analysis Equity
Accounts Service
Receivable Revenue
+$2,300 +$2,300
(c) Debit−Credit Debits increase assets: debit Accounts Receivable $2,300.

Analysis Credits increase revenues: credit Service Revenue $2,300.
Transaction 4 March 13: Paid $225 cash to advertise business opening.
(a) Basic The expense account Advertising Expense is increased by $225;

Analysis the asset account Cash is decreased by $225.

Analysis Equity
Advertising
Cash Expense
-$225 -$225
(c) Debit−Credit Debits increase expenses: debit Advertising Expense $225.



Transaction 5 March 25: Received $1,000 cash from customers billed on March
10.
(a) Basic The asset account Cash is increased by $1,000; the asset account
Analysis Accounts Receivable is decreased by $1,000.

Analysis Equity
Cash
+$1,000
Accounts
Receivable
-$1,000

Analysis Credits decrease assets: credit Accounts Receivable $1,000.
Transaction 6 March 27: Paid amount owing for used car purchased on March 4.
(a) Basic The liability account Accounts Payable is decreased by $9,000; the
Analysis asset account Cash is decreased by $9,000.

Analysis Equity
Accounts
Cash Payable
-$9,000 -$9,000
(c) Debit−Credit Debits decrease liabilities: debit Accounts Payable $9,000.

Analysis Credits decrease assets: credit Cash $9,000.

Transaction 7 March 30: Received $700 cash from a customer for services to be
performed in April.
(a) Basic The asset account Cash is increased by $700; the liability account
Analysis Unearned Revenue is increased by $700.

Analysis Equity
Unearned
Cash Revenue
+$700 +$700

Analysis Credits increase liabilities: credit Unearned Revenue $700.
Transaction 8 March 31: Declared and paid $300 of dividends to shareholders.
(a) Basic The asset account Cash is decreased by $300; the Dividends
Analysis Declared account is increased by $300.

Analysis Equity
Dividends
Cash Declared
-$300 -$300
(c) Debit−Credit Debits increase dividends: debit Dividends Declared $300.

LO 1,2 BT: AN Difficulty: M Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

EXERCISE 3-5
1. Equipment ............................... 8,000

Accounts Payable............... 8,000
2. Rent Expense .......................... 1,600

Cash ................................. 1,600
3. Accounts Receivable ............... 3,800

Service Revenue .............. 3,800
4. Utilities Expense ...................... 300

Cash ................................. 300
5. Cash ........................................ 20,000

Bank Loan Payable .......... 20,000
6. Accounts Payable.................... 8,000

Cash ................................. 8,000
7. Prepaid Insurance ................... 500

Cash ................................. 500
8. Cash ........................................ 3,000

Accounts Receivable........ 3,000
9. Dividends Declared ................. 500

Cash ................................. 500
10. Income Tax Expense............... 250

Cash ................................. 250

EXERCISE 3-6
Mar. 2 Cash ........................................ 11,000

Common Shares................. 11,000
4 Vehicles ................................... 10,000

Cash .................................. 1,000
Accounts Payable ............. 9,000
10 Accounts Receivable ............... 2,300

Service Revenue .............. 2,300
13 Advertising Expense ................ 225

Cash ................................. 225
25 Cash ........................................ 1,000

Accounts Receivable ........ 1,000
27 Accounts Payable .................... 9,000

Cash ................................. 9,000
30 Cash ........................................ 700

Unearned Revenue .......... 700
31 Dividends Declared ................. 300

Cash ................................. 300

EXERCISE 3-7
Transaction 1 Sept. 1: Issued common shares for $20,000 cash.
(a) Basic The asset account Cash is increased by $20,000; the shareholders’
Analysis equity account Common Shares is increased by $20,000.

Analysis Equity
Common
Cash Shares
+$20,000 +$20,000

Transaction 2 Sept. 2: Performed $9,000 of services on account for a customer.
(a) Basic The asset account Accounts Receivable is increased by $9,000;


Analysis Equity
Accounts Service
Receivable Revenue
+$9,000 +$9,000
(c) Debit−Credit Debits increase assets; debit Accounts Receivable $9,000.

Analysis Credits increase revenues; credit Service Revenue $9,000.

Transaction 3 Sept. 4: Purchased equipment for $12,000 paying $5,000 in cash

and borrowing the balance from the bank.
(a) Basic The asset account Equipment is increased by $12,000; the asset
Analysis account Cash is decreased by $5,000 and the liability account
Bank Loan Payable increased by $7,000.

Analysis Equity
Bank Loan
Cash Payable
-$5,000 +$7,000
Equipment
+$12,000
(c) Debit−Credit Debits increase assets: debit Equipment $12,000.

Analysis Credits decrease assets: credit Cash $5,000
Credits increase liabilities: credit Bank Loan Payable $7,000.

Transaction 4 Sept. 10: Purchased $500 of supplies on account.
(a) Basic The asset account Supplies is increased by $500; the liability

Analysis Equity
Accounts
Supplies Payable
+$500 +$500
(c) Debit−Credit Debits increase assets: debit Supplies $500.

Transaction 5 Sept. 25: Received $4,500 cash in advance for architectural

services to be provided next month.
(a) Basic The asset account Cash is increased by $4,500; the liability
Analysis account Unearned Revenue is increased by $4,500.

Analysis Equity
Unearned
Cash Revenue
+$4,500 +$4,500

Analysis Credits increase liabilities: credit Unearned Revenue $4,500.


Transaction 6 Sept. 30: Paid $300 on account in partial payment of amount owing
for supplies purchased Sept. 10.
(a) Basic The liability account Accounts Payable is decreased by $300; the
Analysis asset account Cash is decreased by $300.

Analysis Equity
Accounts
Cash Payable
-$300 -$300
(c) Debit−Credit Debits decrease liabilities: debit Accounts Payable $300.

Transaction 7 Sept. 30: Collected $5,000 on account owing from customer from
Sept. 2.
(a) Basic The asset account Cash is increased by $5,000; the asset account

Analysis Equity
Cash
+$5,000
Accounts
Receivable
-$5,000


(d) Sept. 1 Cash................................................... 20,000

Common Shares ......................... 20,000
2 Accounts Receivable.......................... 9,000

Service Revenue......................... 9,000
4 Equipment .......................................... 12,000

Cash ........................................... 5,000
Bank Loan Payable ..................... 7,000
10 Supplies ............................................. 500

Accounts Payable ....................... 500
25 Cash................................................... 4,500
Unearned Revenue ..................... 4,500
30 Accounts Payable .............................. 300

Cash ........................................... 300
30 Cash................................................... 5,000
Accounts Receivable .................. 5,000

(e)
Cash
Sept. 1 20,000 Sept. 4 5,000
Sept. 25 4,500 Sept. 30 300
Sept. 30 5,000
Bal. 24,200
Accounts Receivable
Sept. 2 9,000 Sept. 30 5,000
Bal. 4,000
Supplies
Sept. 10 500
Equipment
Sept. 4 12,000
Accounts Payable
Sept. 30 300 Sept. 10 500
Bal. 200
Unearned Revenue
Sept. 25 4,500
Bank Loan Payable

Sept. 4 7,000
Common Shares
Sept. 1 20,000
Service Revenue
Sept. 2 9,000
LO 1,2,3,4 BT: AN Difficulty: M Time: 35 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

EXERCISE 3-8
Cash
Mar. 2 11,000 Mar. 4 1,000
25 1,000 13 225
30 700 27 9,000
31 300
Mar. 31 Bal. 2,175
Accounts Receivable
Mar. 10 2,300 Mar. 25 1,000
Mar. 31 Bal. 1,300
Vehicles
Mar. 4 10,000
Accounts Payable
Mar. 27 9,000 Mar. 4 9,000
Mar. 31 Bal. 0
Unearned Revenue
Mar. 30 700
Common Shares
Mar. 2 11,000
Dividends Declared
Mar. 31 300
Service Revenue
Mar. 10 2,300
Advertising Expense
Mar. 13 225

EXERCISE 3-9
(1) Operating activity

(2) Investing activity
(6) Financing activity
LO 4 BT: AN Difficulty: C Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
EXERCISE 3-10
(a) Aug. 7 Provided services and was paid cash
Aug. 10 Purchased equipment with a down payment of $1,500 and the
balance from a bank loan payable
Aug. 14 Performed services on account
Aug. 16 Collected cash in advance of providing services
Aug. 28 Received a collection from a customer on account
Aug. 30 Paid salaries
Aug. 31 Declared and paid dividends

(b)
Cash Bank Loan Payable

July 31 bal. 4,000 Aug. 10 2,500
Aug. 7 1,800 Aug. 10 1,500
16 900 30 2,000
28 700 31 500 Common Shares
Bal. 3,400 July 31 bal. 2,000
Accounts Receivable Retained Earnings

July 31 bal. 2,000 July 31 bal. 5,000
Aug. 14 1,450 Aug. 28 700
Bal. 2,750
Equipment Dividends Declared

July 31 bal. 2,500 Aug. 31 500
Aug. 10 4,000
Bal. 6,500 Service Revenue
Aug. 7 1,800
Accounts Payable 14 1,450
July 31 bal. 1,500 Bal. 3,250
Salaries Expense
Unearned Revenue Aug. 30 2,000
Aug. 16 900

(c)
KANG LTD.
Trial Balance
August 31
Debit Credit
Cash $ 3,400
Equipment 6,500
Accounts payable $ 1,500
Bank loan payable 2,500
Common shares 2,000
Salaries expense 2,000 _
Totals $15,150 $15,150
(Assets, dividends, and expense accounts have debit balances)

LO 4,5 BT: AP Difficulty: M Time: 25 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

Copyright © 2017 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly
prohibited.
EXERCISE 3-11
(a) Oct. 1 Issued common shares in exchange for cash

Oct. 2 Purchased equipment using a bank loan payable
Oct. 3 Performed services on account
Oct. 4 Purchased advertising on account
Oct. 5 Purchased supplies for cash
Oct. 9 Received cash for services to be performed in the future
Oct. 12 Made a partial payment on account
Oct. 16 Declared and paid dividends
Oct. 17 Received a collection on account
Oct. 22 Performed services on account
Oct. 30 Paid rent for the month of October
Oct. 31 Paid salaries
Oct. 31 Recorded income taxes owing

prohibited.
(b) After summing the debit and credits in each account, the following
net balances would result. Note that because the Supplies,
Equipment, Income Tax Payable, Bank Loan Payable, Unearned
Revenue, Common Shares, Dividends Declared, Salaries
Expense, Advertising Expense, Rent Expense, and Income Tax
Expense accounts have only one entry, there is no need to sum
these accounts.
Balance Debit or Credit

Cash 550 Debit
Accounts receivable 2,240 Debit
Supplies 400 Debit
Equipment 3,500 Debit
Accounts payable 100 Credit
Income tax payable 180 Credit
Unearned revenue 650 Credit
Bank loan payable 3,500 Credit
Common shares 2,000 Credit
Dividends declared 300 Debit
Service revenue 2,740 Credit
Salaries expense 500 Debit
Advertising expense 250 Debit
Rent expense 1,250 Debit
Income tax expense 180 Debit

prohibited.
(c)
HOLLY CORP.
Trial Balance
October 31
Debit Credit
Cash $ 550
Supplies 400
Equipment 3,500
Accounts payable $ 100
Income tax payable 180
Common shares 2,000
Salaries expense 500
Advertising expense 250
Rent expense 1,250
Income tax expense 180 0
Totals $9,170 $9,170


prohibited.
EXERCISE 3-12
BOURQUE LTD.
Trial Balance
December 31, 2018
Debit Credit
Cash $10,000
Supplies 3,500
Equipment 10,000
Salaries payable 3,000
Unearned revenue 2,200
Common shares 5,000
Dividends declared 4,500
Office expense 4,400
Depreciation expense 2,000
Rent expense 2,000
Supplies expense 1,200
$53,700 $53,700
(Liabilities, common shares, retained earnings, and revenue accounts have credit
balances)

prohibited.
EXERCISE 3-13
BOURQUE LTD.
Income Statement
Year Ended December 31, 2018
Revenues
Expenses
Salaries expense $9,100
Rent expense 2,000
Supplies expense 1,200
Income before income tax 3,300
Net income $ 2,800
BOURQUE LTD.
Statement of Changes in Equity
Year Ended December 31, 2018
Common Retained Total

Shares Earnings Equity
Balance, January 1, 2018 $5,000 $16,000 $21,000

Net income 2,800 2,800
Dividends declared (4,500) (4,500)
Balance, December 31, 2018 $5,000 $14,300 $19,300

prohibited.
BOURQUE LTD.
Statement of Financial Position
December 31, 2018
Assets
Current assets
Cash $10,000
Supplies 3,500
Total current assets $20,000
Property, plant, and equipment
Equipment $10,000
Less: Accumulated depreciation 4,000
Total property, plant, and equipment 6,000
Total assets $26,000
Liabilities and Shareholders' Equity
Current liabilities
Salaries payable
3,000
Unearned revenue
2,200
Total liabilities 6,700
Shareholders' equity
Common shares $ 5,000
Total shareholders’ equity 19,300
Total liabilities and shareholders’ equity $26,000
[Ending retained earnings = Beginning retained earnings ± Net income or (loss) – dividends
declared]

prohibited.
EXERCISE 3-14
(a)
SPEEDY SERVICE INC.
Trial Balance
July 31, 2018
Debit Credit
Cash $ 8,000
Prepaid insurance 200
Equipment 99,000
Salaries payable 800
Bank loan payable, due 2020 39,000
Rent expense 9,000
Repairs and maintenance expense 10,450
Interest expense 3,600
Insurance expense 1,800
Income tax expense 3,000 0
Totals $204,550 $204,550
(Asset, dividends, and expense accounts have debit balances)

prohibited.
(b)
SPEEDY SERVICE INC.
Income Statement
Year Ended July 31, 2018
Revenues
Expenses
Repairs and maintenance expense 10,450
Rent expense 9,000
Insurance expense 1,800
Income tax expense 3,000
Net income $12,450
SPEEDY SERVICE INC.

Year Ended July 31, 2018

Balance, August 1, 2017 $27,000 $20,850 $47,850

Issued common shares 11,000 11,000
Net income 12,450 12,450
Dividends declared (800) (800)
Balance, July 31, 2018 $38,000 $32,500 $70,500

prohibited.
(b) (continued)
SPEEDY SERVICE INC.
July 31, 2018
Assets
Current assets
Cash $ 8,000
Total current assets $ 42,200
Equipment $99,000
Less: Accumulated depreciation 21,400
Current liabilities
Accounts payable $9,500
Salaries payable 800
Total current liabilities $ 10,300
Non-current liabilities
Bank loan payable, due 2020 39,000
Common shares $38,000
declared]

prohibited.
(c) If the amount of the retained earnings was not known, it would be
more difficult to prepare the three financial statements in part (b)
above. However, the beginning balance of retained earnings
could either be derived from the trial balance or worked
backwards by determining the ending retained earnings amount
from a complete (except for retained earnings) statement of
financial position and adjusting the ending amount by calculating
and deducting net income and adding dividends declared.
Remember that ending retained earnings = beginning retained

earnings + net income – dividends declared; so it follows
mathematically that beginning retained earnings = ending retained
earnings – net income + dividends declared
EXERCISE 3-15
(a) (b) (c)

Error In Balance Difference Larger Column
1. No $400 Debit
2. Yes 0 n/a
3. Yes 0 n/a
4. No 500 Credit
5. No 225 Debit
6. No 9 Credit

prohibited.
SOLUTIONS TO PROBLEMS
PROBLEM 3-1A
(a)

Retained Earnings
–
Trans- Accounts Accounts Bank Loan Common + – Dividends
action Cash Receivable Supplies Equipment = Payable Payable + Shares Revenues Expenses Declared
1. +$5,000 +$5,000
2. +20,000 +$20,000
3. –11,000 +$11,000
4. –1,200 –$1,200
5. –1,450 +$1,450
6. +$600 –600
7. +2,000 +$16,000 +$18,000
8. –400 –$400
9. –2,000 –2,000
10. –600 –600
11. –100 –100
12. –6,400 –6,400
13. +12,000 –12,000
14. –1,500 –1,500
Apr. 30 Bal. $14,350 + $4,000 +$1,450 + $11,000 = $0 + $20,000 + $5,000 + $18,000 –$11,800 –$400
PROBLEM 3-1A (CONTINUED)
(b) TOTAL ASSETS = $30,800

TOTAL LIABILITIES + SHAREHOLDERS’ EQUITY = $20,000 + ($5,000 + $18,000 – $11,800 – $400) = $30,800
NET INCOME = $18,000 – $11,800 = $6,200

PROBLEM 3-2A
(a)
Assets Liabilities Shareholders’ Equity
Retained Earnings
Bank
Accounts Loan Accounts Common Dividends
Cash + Receivable +Supplies+Equipment= Payable + Payable + Shares + Balance +Revenues – Expenses– Declared
Jul 31 Bal.. $4,000 $1,500 $500 $5,000 $4,100 $3,500 $3,400

Aug. 2 +1,200 –1,200
3 +1,300 +1,300
6 −2,700 −2,700
7 +3,000 +3,500 +$6,500
13 –400 +1,200 +800
17 –4,675 –$3,500
–900
–275
17 +3,500 –3,500
20 –500 –$500
22 +1,000 +1,000
24 +2,000 +$2,000
28 +275 –275
31 –500 $1,300 0 0 00 00 700 000 00 000 00 000 00 000 00 000 −500 00 0
Aug. 31 Bal. $6,225 $1,300 $500 $6,200 $2,000 $2,475+ $4,800 $3,400 $7,500 $5,450 $500
+ + + + + – –
TOTAL ASSETS $14,225 = TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY $14,225
Note: The August 27th transaction does not affect the accounting equation and is therefore not recorded in the
accounting records.

(b)
HILLS LEGAL SERVICES INC.
Income Statement
Month Ended August 31, 2018
Revenues
Expenses
Rent expense 900
Utilities expense 275
Net income $2,050

Common Retained
Shares Earnings Total Equity
Balance, August 1 $3,500 $3,400 $6,900

Dividends declared 00 (500) (500)
Balance, August 31 $4,800 $4,950 $9,750

(b) (continued)

August 31, 2018
Assets
Current assets
Cash $6,225
Supplies 500
Equipment 6,200
Current liabilities
Total liabilities $ 4,475
Total liabilities and shareholders' equity $14,225
(Assets = Liabilities + Shareholders’ equity)


PROBLEM 3-3A
(a)
(1) (2) (3) (1) (2) (3)
Specific Specific
Apr. 2 Shareholders’ Rent Increase Assets Cash Decrease

equity Expense
Apr. 3 Assets Accounts Increase Shareholders’ Sales Increase

Receivable equity
Apr. 5 Assets Cash Increase Shareholders’ Sales Increase
equity
Apr. 6 Assets Equipment Increase Liabilities Accounts Increase
Payable
Assets Cash Decrease
Apr. 12 Assets Cash Increase Assets Accounts Decrease

Receivable
Apr. 15 Shareholders’ Dividends Increase Assets Cash Decrease
equity Declared
Apr. 16 Assets Inventory Increase Liabilities Accounts Increase

Payable

(a) (continued)

(1) (2) (3) (1) (2) (3)

Specific Specific
Shareholders’ Repairs and Increase Assets Cash Decrease

Apr. 19 equity Maintenance
Expense
Assets Accounts Increase Shareholders’ Sales Increase

Apr. 20
Receivable equity
Liabilities Accounts Decrease Assets Cash Decrease

Apr. 25
Payable
Assets Cash Increase Liabilities Unearned Increase

Apr. 27
Revenue
Apr. 30 Shareholders’ Salaries Increase Assets Cash Decrease

equity Expense

(b)
Normal
Date Account Balance
Apr. 2 Rent Expense debit
Apr. 3, 12, 20 Accounts Receivable debit
Apr. 3, 5, 20 Sales credit
Apr. 2, 5, 6, 12, 15, Cash debit

19, 25, 27, 30
Apr. 6 Equipment debit
Apr. 6, 16, 25 Accounts Payable credit
Apr. 15 Dividends Declared debit
Apr. 16 Inventory debit
Apr. 19 Repairs and Maintenance Expense debit
Apr. 27 Unearned Revenue credit
Apr. 30 Salaries Expense debit

PROBLEM 3-4A
(a)
(1) (2)
Account Increases Normal
By Balance
Accumulated depreciation Credit Credit
Administrative expenses Debit Debit
Buildings Debit Debit
Common shares, beginning of year Credit Credit
Cost of goods sold Debit Debit
Dividends declared Debit Debit
Finance income Credit Credit
Goodwill Debit Debit
Income tax expense Debit Debit
Income taxes recoverable Debit Debit
Inventories Debit Debit
Prepaid expenses Debit Debit
Retained earnings, beginning of year Credit Credit
Sales Credit Credit
Trade and other payables Credit Credit
Trade and other receivables Debit Debit

(b)
Account Financial Statement

Accumulated depreciation Statement of Financial Position
Administrative expenses Income Statement
Buildings Statement of Financial Position
Common shares, beginning of year Statement of Changes in Equity
Cost of goods sold Income Statement
Dividends declared Statement of Changes in Equity
Finance income Income Statement
Goodwill Statement of Financial Position
Income tax expense Income Statement
Income taxes recoverable Statement of Financial Position
Inventories Statement of Financial Position
Prepaid expenses Statement of Financial Position
Retained earnings, beginning of year Statement of Changes in Equity
Sales Income Statement
Trade and other payables Statement of Financial Position
Trade and other receivables Statement of Financial Position
Note: Beginning-of-the-year equity amounts such as opening common shares or

opening retained earnings balances are shown on the statement of changes in
equity and do not appear on the statement of financial position. Only end-of-year
amounts for equity accounts would appear on the statement of financial position.
(c) Account Classification

Accumulated depreciation Non-current assets
Buildings Non-current assets
Goodwill Non-current assets
Income taxes recoverable Current assets
Inventories Current assets
Prepaid expenses Current assets
Trade and other payables Current liabilities
Trade and other receivables Current assets

PROBLEM 3-5A
(a)
Transaction 1 Feb.2: Purchased supplies on account for $600.
(1) Basic The asset account Supplies is increased by $600; the liability
(2) Equation Assets = Liabilities + Shareholders’

Analysis Equity
Accounts
Supplies Payable
+$600 +$600
(3) Debit−Credit Debits increase assets: debit Supplies $600.

Transaction 2 Feb.3: Purchased equipment for $10,000 by signing a bank

loan due in three months.
(1) Basic The asset account Equipment is increased by $10,000; the

Analysis liability account Bank Loan Payable is increased by $10,000.

Analysis Equity
Bank Loan
Equipment Payable
+$10,000 +$10,000
(3) Debit−Credit Debits increase assets: debit Equipment $10,000.

Analysis Credits increase liabilities: credit Bank Loan Payable $10,000.

(a) (continued)
Transaction 3 Feb.6: Earned service revenue of $50,000. Of this amount,

$30,000 was received in cash. The balance was on account.
(1) Basic The asset account Cash is increased by $30,000; the asset
Analysis account Accounts Receivable is increased by $20,000; the
shareholders’ equity account Service Revenue is increased by
$50,000.

Analysis Equity
Service
Cash Revenue
+$30,000 +$50,000
Accounts
Receivable
+$20,000
(3) Debit−Credit Debits increase assets: debit Cash $30,000.

Analysis Debits increase assets: debit Accounts Receivable $20,000.
Credits increase revenues: credit Service Revenue $50,000.

(a) (continued)
Transaction 4 Feb.13: Declared and paid dividends of $500 to shareholders.
(1) Basic The asset account Cash is decreased by $500; the Dividends
Analysis Declared account is increased by $500.

Analysis Equity
Dividends
Cash Declared
-$500 -$500
(3) Debit−Credit Debits increase dividends: debit Dividends Declared $500.

Transaction 5 Feb. 18: Received cash of $2,000 from a customer as a deposit for
services to be provided next month.
(1) Basic The asset account Cash is increased by $2,000; the liability

Analysis Equity
Unearned
Cash Revenue
+$2,000 +$2,000

(a) (continued)
Transaction 6 Feb. 20: Paid amount owing from the supplies purchased on Feb.
2.
(1) Basic The asset account Cash is decreased by $600; the liability account
Analysis Accounts Payable is decreased by $600.

Analysis Equity
Accounts
Cash Payable
-$600 -$600
(3) Debit−Credit Debits decrease liabilities: debit Accounts Payable $600.


(a) (continued)
Transaction 7 Feb. 23: Collected $20,000 of the amount owing from the Feb. 6
transaction.
(1) Basic The asset account Cash is increased by $20,000; the asset
Analysis account Accounts Receivable is decreased by $20,000.

Analysis Equity
Cash
+$20,000
Accounts
Receivable
-$20,000


(a) (continued)
Transaction 8 Feb. 24: Paid office expenses for the month, $22,000.
(1) Basic The expense account Office Expense is increased by $22,000; the

Analysis Equity
Cash Office Expense
-$22,000 -$22,000
(3) Debit−Credit Debits increase expenses: debit Office Expense $22,000.


(a) (continued)
Transaction 9 Feb.27: Recorded salaries due to employees for work performed

during the month, $14,000.
(1) Basic The expense account Salaries Expense is increased by $14,000;

Analysis the liability account Salaries Payable is increased by $14,000.

Analysis Equity
Salaries Salaries
Payable Expense
+$14,000 -$14,000
(3) Debit−Credit Debits increase expenses: debit Salaries Expense $14,000.

Analysis Credits increase liabilities: credit Salaries Payable $14,000.
Transaction 10 Feb. 28: Paid interest of $50 on the bank loan signed on Feb. 3.
(1) Basic The expense account Interest Expense is increased by $50; the

Analysis Equity
Interest
Cash Expense
-$50 -$50
(3) Debit−Credit Debits increase expenses: debit Interest Expense $50.


(b)
Feb. 2 Supplies........................................................... 600
Accounts Payable..................................... 600
3 Equipment ....................................................... 10,000

Bank Loan Payable ................................. 10,000
6 Cash ................................................................ 30,000

Accounts Receivable ...................................... 20,000 0
Service Revenue ...................................... 50,000
13 Dividends Declared ......................................... 500

Cash ......................................................... 500
18 Cash ................................................................ 2,000

Unearned Revenue .................................. 2,000
20 Accounts Payable ............................................ 600

Cash ......................................................... 600
23 Cash ................................................................ 20,000

Accounts Receivable ................................ 20,000
24 Office Expense ................................................ 22,000

Cash ......................................................... 22,000
27 Salaries Expense............................................. 14,000

Salaries Payable ...................................... 14,000
28 Interest Expense.............................................. 50
Cash ......................................................... 50
LO 1,2,3 BT: AN Difficulty: M Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

PROBLEM 3-6A
May 1 Cash ................................................................ 120,000

Common Shares ...................................... 120,000
4 Land ................................................................ 125,000

Buildings .......................................................... 100,000
Equipment ....................................................... 45,000
Cash ......................................................... 70,000
Mortgage Payable .................................... 200,000
4 Prepaid Insurance ........................................... 1,500

Cash ......................................................... 1,500
5 Advertising Expense ........................................ 800

Cash ......................................................... 800
6 Equipment ....................................................... 9,000

Accounts Payable .................................... 9,000
18 Cash ................................................................ 8,800

Fees Earned............................................. 8,800

Cash ......................................................... 500
22 Cash ................................................................ 1,200

29 Accounts Payable............................................ 9,000

Cash ......................................................... 9,000
30 Interest Expense ............................................. 800

Cash ......................................................... 800

May 30 Salaries Expense ............................................ 3,400

Cash ......................................................... 3,400
(Each journal entry must balance and reflect the actual amount of the transaction)

PROBLEM 3-7A
(a)
Apr. 1 Cash ................................................................ 10,000
Equipment ....................................................... 6,000
Common Shares....................................... 16,000
1 No entry. Not a transaction
2 Rent Expense .................................................. 950

Cash ......................................................... 950
3 Supplies ........................................................... 1,900

Accounts Payable ..................................... 1,900
10 Accounts Receivable ....................................... 1,200

Service Revenue ...................................... 1,200
13 Cash ................................................................ 800

Unearned Revenue .................................. 800
20 Cash ................................................................ 2,500

Service Revenue ...................................... 2,500
21 Cash ................................................................ 600

Accounts Receivable ................................ 600
23 Utilities Expense .............................................. 135

Accounts Payable ..................................... 135

Cash ......................................................... 160
27 Accounts Payable ............................................ 950

Cash ......................................................... 950

(a) (continued)
Apr., 30 Salaries Expense ............................................. 1,900

Cash ......................................................... 1,900
30 Income Tax Expense ....................................... 100

Cash ......................................................... 100
(b)
Cash Apr. 13 800

Apr. 1 10,000 Apr. 2 950
Apr. 13 800 Apr. 25 160 Common Shares
Apr. 20 2,500 Apr. 27 950 Apr. 1 16,000
Apr. 21 600 Apr. 30 1,900
Apr. 30 100 Dividends Declared
Bal. 9,840 Apr. 25 160
Service Revenue
Accounts Receivable Apr. 10 1,200
Apr. 10 1,200 Apr. 21 600 Apr. 20 2,500
Bal. 600 Bal. 3,700
Supplies Salaries Expense

Apr. 3 1,900 Apr. 30 1,900
Equipment Rent Expense

Apr. 1 6,000 Apr. 2 950
Accounts Payable Utilities Expense

Apr. 27 950 Apr. 3 1,900 Apr. 23 135
Apr. 23 135
Bal. 1,085 Income Tax Expense
Unearned Revenue Apr. 30 100
(c) This suggestion is not a good idea. Journals are used to record
transactions. A general ledger is not intended to be used to capture the
recording of transactions, but to tabulate the effects of transactions in
separate accounts. The balances arrived at in the ledger are then used to
communicate information to the users of the financial statements. If one
attempted to omit the use of journal entries, one could not retrace the
transactions as they originated in the journal. One would only see one
side of a transaction at a time by looking at an account in the ledger. It

would become very confusing and unruly to try to keep track of
transactions.

PROBLEM 3-8A
(a)
Mar. 1 Rent Expense .................................................. 27,000
Accounts Payable ..................................... 17,000
Cash ......................................................... 10,000
2 No entry.
5 No entry.
12 Accounts Payable ........................................... 17,000

Cash ......................................................... 17,000
13 Accounts Payable ........................................... 12,000

Cash ......................................................... 12,000
15 Cash ................................................................ 25,500

Fees Earned ............................................. 25,500

Cash ......................................................... 950
20 Rent Expense .................................................. 3,000 0

Cash ......................................................... 3,000
23 Salaries Expense ............................................. 4,200

Cash ......................................................... 4,200
26 Mortgage Payable ............................................ 1,250

Interest Expense .............................................. 750
Cash ......................................................... 2,000
28 Income Tax Expense ....................................... 3,000

Cash ......................................................... 3,000
(a) (continued)
Mar. 30 Cash ................................................................ 1,245

Accounts Receivable ($2,490 × ½) .................. 1,245
Concession Revenue ................................ 2,490
31 Cash ................................................................ 25,800 0

Fees Earned ............................................. 25,800


(b)
Cash Common Shares
Feb. 28 Bal. 15,000 Mar. 1 10,000 Feb. 28 Bal. 40,000
Mar. 15 25,500 Mar. 12 17,000
Mar. 30 1,245 Mar. 13 12,000
Mar. 31 25,800 Mar. 19 950 Retained Earnings
Mar. 20 3,000 Feb. 28 Bal. 27,000
Mar. 23 4,200
Mar. 26 2,000 Fees Earned
Mar. 28 3,000 Mar. 15 25,500
Bal. 15,395 Mar. 31 25,800
Bal. 51,300
Accounts Receivable
Mar. 30 1,245 Concession Revenue
Mar. 30 2,490
Land
Feb. 28 Bal. 85,000 Rent Expense
Mar. 1 27,000
Mar. 20 3,000
Buildings
Bal. 30,000
Feb. 28 Bal. 77,000
Equipment Salaries Expense

Feb. 28 Bal. 20,000 Mar. 23 4,200
Advertising Expense
Accounts Payable
Mar. 19 950
Mar. 12 17,000 Feb. 28 Bal. 12,000
Mar. 13 12,000 Mar. 2 17,000
Bal. 0 Interest Expense
Mar. 26 750
Mortgage Payable
Mar. 26 1,250 Feb. 28 Bal. 118,000 Income Tax Expense
Bal. 116,750 Mar. 28 3,000

(c)
STAR THEATRE INC.
Trial Balance
March 31, 2018
Debit Credit
Cash $ 15,395
Land 85,000
Buildings 77,000
Equipment 20,000
Mortgage payable $116,750
Fees earned 51,300
Concession revenue 2,490
Rent expense 30,000
Income tax expense 3,000 00
Totals $237,540 $237,540
[Liabilities (mortgage payable) and shareholders’ equity items such as common shares,
retained earnings, and revenue accounts (fees earned and concession revenue) have
credit balances]
LO 3,4,5 BT: AP Difficulty: M Time: 50 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

PROBLEM 3-9A
(a)
May 1 Rent Expense .................................................. 1,000
Cash ......................................................... 1,000
4 Accounts Payable ............................................ 1,100

Cash ......................................................... 1,100
7 Cash ................................................................ 1,500

Unearned Revenue ................................... 1,500
15 Cash ................................................................ 2,000

Service Revenue ...................................... 2,000
15 Salaries Expense ............................................. 1,200

Cash ......................................................... 1,200
17 Unearned Revenue ......................................... 700

Service Revenue ...................................... 700
18 Accounts Payable ............................................ 1,000 0

Cash ......................................................... 1,000
22 Supplies ........................................................... 700



Cash ......................................................... 400
28 Cash ................................................................ 2,100

Service Revenue ...................................... 2,100

(a) (continued)
May 29 Unearned Revenue ......................................... 600

Service Revenue...................................... 600

Cash ........................................................ 50
31 Salaries Expense ............................................ 1,200

Cash ........................................................ 1,200
31 Income Tax Expense ...................................... 150

Cash ........................................................ 150

(b)
Cash Common Shares
Apr. 30 5,000 May 1 1,000 Apr. 30 5,000
May 7 1,500 4 1,100
15 2,000 15 1,200
28 2,100 18 1,000 Retained Earnings
25 400 Apr. 30 11,400
30 50
31 1,200 Service Revenue
31 150 May 15 2,000
Bal. 4,500 17 700
28 2,100
29 600
Supplies
Bal. 5,400
Apr. 30 500
May 22 700
Salaries Expense
Bal. 1,200
May 15 1,200
31 1,200
Equipment
Bal. 2,400
Apr. 30 24,000
Rent Expense
Accounts Payable May 1 1,000
Apr. 30 2,100
Advertising Expense
May 4 1,100 May 22 700
May 24 500
18 1,000 24 500
Bal. 1,200
Utilities Expense
May 25 400
Unearned Revenue
May 17 700 Apr. 30 1,000
Interest Expense
29 600 May 7 1,500
May 30 50
Bal. 1,200
Income Tax Expense
Bank Loan Payable
May 31 150
Apr 30 10,000

(c)
PAMPER ME SALON INC.
Trial Balance
May 31, 2018
Debit Credit
Cash $ 4,500
Supplies 1,200
Equipment 24,000
Common shares 5,000
Rent expense 1,000
Interest expense 50
Totals $34,200 $34,200
(Asset and expense accounts have debit balances)


PROBLEM 3-10A
(a)
TAGGAR ENTERPRISES INC.
Trial Balance
June 30, 2018
Debit Credit
Cash $ 1,800
Inventory 5,100
Land 7,400
Buildings 15,000
Accumulated depreciation—buildings $ 4,000
Equipment 3,000
Accumulated depreciation—equipment 1,000
Long-term investments 3,550
Mortgage payable, due 2025 15,000
Common shares 5,000
Sales 25,000
Cost of goods sold 13,700
Totals $59,850 $59,850
(Asset, dividends declared, and expense accounts have debit balances. Liability,
common shares, retained earnings, and revenue (sales) accounts have credit balances)

(b) When debits equal credits in a trial balance, there is some assurance that
certain types of errors were not made. However, there is no guarantee
that other types of errors do not exist because entries may have been
omitted completely, duplicated, or recorded to incorrect accounts.

PROBLEM 3-11A

Income Statement
Year Ended June 30, 2018
Sales $25,000
Expenses
Cost of goods sold $13,700
Net income $ 6,900

Year Ended June 30, 2018
Common Retained
Balance, July 1, 2017 $3,000 $ 6,250 $ 9,250

Dividends declared __ ___ (2,000) (2,000)
Balance, June 30, 2018 $5,000 $11,150 $16,150


June 30, 2018
Assets
Current assets
Cash $1,800
Inventory 5,100
Long-term investments 3,550
Land $ 7,400
Buildings $15,000
Less: Accumulated depreciation 4,000 11,000
Equipment $3,000
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of mortgage payable 1,250
Total current liabilities $ 4,850
Mortgage payable 13,750
Shareholders’ equity
Common shares $ 5,000
Total shareholders' equity 16,150
declared]

PROBLEM 3-12A
(a) (1) General: Three accounts are listed in the wrong columns: Cash (debit),
Accumulated Depreciation (credit), and Unearned Revenue (credit).
(2)
1. The trial balance totals are not affected, only the amounts appearing
on the trial balance are affected. Cash would be understated by $180
($750 – $570) and Accounts Receivable overstated by the same
amount. Note that Cash was one of the accounts listed in the wrong
column (credit instead of debit). If Cash had not been corrected and
was still in the credit column, then the trial balance would still balance
but the total credits would be understated by $180 (since Cash is in
the credit column) and total debits would be understated by $180
(because of Accounts Receivable in the debit column).
2. The trial balance totals are not affected, only the accounts and
amounts appearing on the trial balance are affected. Equipment
would be understated by $360 and Supplies overstated by the same
amount.
3. Trial balance is out of balance because of the slide error (wrong
number of zeros/position of decimal spot). Service Revenue would be
understated by $801 ($890 – $89) and the total for the credit column
is lower by the same amount.
4. Trial balance is out of balance because of transposition error.
Salaries Expense is understated by $900 ($4,300 – $3,400) and the
total for the debit column is lower by the same amount.
5. The trial balance totals are not affected by this omission; only the
accounts and amounts appearing on the trial balance are affected.
Rent Expense would be understated by $1,000 (should be shown on
the trial balance) and Cash overstated by the same amount. Note
that Cash is one of the accounts listed in the wrong column (credit
instead of debit).

(b)
CANTPOST LTD.
Trial Balance
June 30, 2018
Debit Credit
Cash ($1,241 + $750 – $570 − $1,000) $ 421

Accounts receivable ($2,630 – $750 + $570) 2,450
Supplies ($860 – $360) 500
Equipment ($3,000 + $360) 3,360
Accumulated depreciation—equipment $ 600
Common shares 1,000
Service revenue ($8,440 – $89 + $890) 9,241
Salaries expense (given) 4,300
Rent expense 1,000
Office expense 910
Depreciation expense 600
Income tax expense 365 0
Totals $14,706 $14,706
Note that the opening retained earnings balance is zero, as this is the
company’s first year of operations.
(Asset, dividends declared, and expense accounts have debit balances)

PROBLEM 3-1B
(a)
Retained Earnings
–
Bank Loan Unearned Commo + – Dividends
Trans. Cash A/R Supplies Equipment = A/P Payable Revenue + n Shares Revenues Expenses Declared
1. +$8,000 +$8,000
2. –1,280 –$1,280
3. –4,000 +$16,000 +$12,000
4. +$700 +$700
5. +4,200 +$4,200
6. –700 –700
7. –200 –200
8. +$3,600 +3,600
9. –2,000 –2,000
10. +700 +$700
11. +1,600 –1,600
12. –500 –$500
13. –80 –80
14. –600 –600
May 31 Bal. $5,140 +$2,000 + $700 + $16,000 = $0 + $12,000 + $700 + $8,000 + $7,800 –$4,160 –$500

PROBLEM 3-1B (CONTINUED)
(b) TOTAL ASSETS = $23,840

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY = ($12,000 + $700) + ($8,000 + $7,800 – $4,160 – $500) = $23,840
NET INCOME = $7,800 – $4,160 = $3,640

PROBLEM 3-2B
(a)
Assets Liabilities Shareholders’ Equity
Retained Earnings
Bank Loan Common
Cash + A/R + Supplies + Equip. = A/P + Payable + Shares + Bal. + Rev. – Exp. – Div.
Aug. 31 Bal. $4,500 $1,800 $350 $6,500 $3,200 $2,500 $7,450

Sept. 4 –3,200 –3,200
4 –1,200 –$1,200
5 +1,450 –1,450
7 +2,300 +2,300
10 –700 +2,050 +1,350
12 +500 +$500
14 –300 –300
17 +2,500 +2,500
20 +3,000 +1,500 +4,500
21 –750 –750
26 +175 –175
27 –500 –$500
28 –350 0 0 0 0 0 0 0 0 –350 0
Sep. 30 Bal. $6,750+ $2,350 + $350 + $8,550 = $1,525+ $2,500 + $4,800 + $7,450 + $5,000 – $2,775 – $500
TOTAL ASSETS = $18,000 TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY = $18,00

Note: The transactions on September 6 (hired a part-time office assistant) and 18 (sent a statement) do not affect
the accounting equation and are therefore not recorded in the accounting records.

(b)
CORSO CARE CORP.
Income Statement
Month Ended September 30, 2018
Revenues
Expenses
Rent expense $1,200
Salaries expense 750
Total expenses 0 2,425
Net income $2,225
CORSO CARE CORP.

Month Ended September 30, 2018
Common Retained
Balance, September 1 $2,500 $7,450 $ 9,950

Balance, September 30 $4,800 $9,175 $13,975

(b) (continued)
CORSO CARE CORP.

September 30, 2018
Assets
Current assets
Cash $6,750
Supplies 350
Equipment 8,550
Current liabilities
Total liabilities $ 4,025
(Assets = Liabilities + Shareholders’ equity)


PROBLEM 3-3B
(a)

(1) (2) (3) (1) (2) (3)
Specific Specific
Mar. 1 Shareholders’ Rent Increase Assets Cash Decrease

equity Expense
Mar. 3 Assets Accounts Increase Shareholders’ Service Increase

Receivable equity Revenue
Mar. 5 Assets Cash Increase Shareholders’ Sales Increase
equity
Mar. 8 Assets Equipment Increase Liabilities Bank Loan Increase
Payable
Assets Cash Decrease
Mar. 12 Assets Cash Increase Assets Accounts Decrease
Receivable
Mar. 15 Shareholders’ Salaries Increase Assets Cash Decrease
equity Expense
Mar. 16 Assets Supplies Increase Liabilities Accounts Increase

Payable
(a) (continued)

(1) (2) (3) (1) (2) (3)

Specific Specific
Mar. 20 Shareholders’ Repairs and Increase Assets Cash Decrease

equity Maintenance
Expense
Mar. 22 Assets Accounts Increase Shareholders’ Sales Increase

Receivable equity
Mar. 26 Liabilities Bank Loan Decrease Assets Cash Decrease

Payable
Mar. 28 Assets Cash Increase Liabilities Unearned Increase

Revenue
Mar. 31 Shareholders’ Dividends Increase Assets Cash Decrease
equity Declared

(b)
Normal
Date Account Balance
Mar. 1 Rent Expense debit
Mar. 3, 12, 22 Accounts Receivable debit
Mar. 3 Service Revenue credit
Mar. 1, 5, 8, 12, 15, Cash debit

20, 26, 28, 31
Mar. 5, 22 Sales credit
Mar. 8 Equipment debit
Mar. 8, 26 Bank Loan Payable credit
Mar. 15 Salaries Expense debit
Mar. 16 Accounts Payable credit
Mar. 16 Supplies debit
Mar. 20 Repairs and Maintenance Expense debit
Mar. 28 Unearned Revenue credit
Mar. 31 Dividends Declared debit

PROBLEM 3-4B
(a)
(1) (2)
Account Increases Normal
with Balance
Accounts payable Credit Credit
Accounts receivable Debit Debit
Bank loans payable (short-term) Credit Credit
Cash Debit Debit
Common shares, beginning of year Credit Credit
Dividends declared Debit Debit
Furniture, fixtures, and production equipment Debit Debit
Income taxes expense Debit Debit
Income taxes receivable Debit Debit
Interest expense Debit Debit
Inventories Debit Debit
Prepaid expenses Debit Debit
Retained earnings, beginning of year Credit Credit
Sales Credit Credit
Selling, general, and administrative expenses Debit Debit

(b)
Account Financial Statement

Accounts payable Statement of Financial Position
Accounts receivable Statement of Financial Position
Bank loans payable (short-term) Statement of Financial Position
Cash Statement of Financial Position
Common shares, beginning of year Statement of Changes in Equity
Dividends declared Statement of Changes in Equity
Furniture, fixtures, and production equipment Statement of Financial Position
Income taxes expense Income Statement
Income taxes receivable Statement of Financial Position
Interest expense Income Statement
Inventories Statement of Financial Position
Prepaid expenses Statement of Financial Position
Retained earnings, beginning of year Statement of Changes in Equity
Sales Income Statement
Selling, general, and administrative expenses Income Statement
Note: Beginning-of-the-year equity amounts such as opening common shares

or opening retained earnings balances are shown on the statement of changes
in equity and do not appear on the statement of financial position as only end-
of-year amounts for equity accounts would appear on that statement.
(c)
Account Classification
Accounts payable Current liabilities
Accounts receivable Current assets
Bank loans payable (short-term) Current liabilities
Cash Current assets
Furniture, fixtures, and production equipment Non-current assets
Income taxes receivable Current assets
Inventories Current assets
Prepaid expenses Current assets

PROBLEM 3-5B
(a)
Transaction 1 Jan. 2: Issued $5,000 of common shares for cash.
(1) Basic The asset account Cash is increased by $5,000; the shareholders’
Analysis equity account Common Shares account is increased by $5,000.

Analysis Equity
Common
Cash Shares
+$5,000 +$5,000

Analysis Credits increase share capital: credit Common Shares $5,000.
Transaction 2 Jan. 5: Provided services on account $2,500.
(1) Basic The asset account Accounts Receivable is increased by $2,500;


Analysis Equity
Accounts Service
Receivable Revenue
+$2,500 +$2,500
(3) Debit−Credit Debits increase assets: debit Accounts Receivable $2,500.



(a) (continued)
Transaction 3 Jan. 6: Obtained a bank loan for $30,000.
Analysis account Bank Loan Payable is increased by $30,000.

Analysis Equity
Bank Loan
Cash Payable
+$30,000 +$30,000

Analysis Credits increase liabilities: credit Bank Loan Payable $30,000.
Transaction 4 Jan. 7: Paid $40,000 to purchase a hybrid car.
(1) Basic The asset account Vehicles is increased by $40,000; the asset
Analysis account Cash is decreased by $40,000.

Analysis Equity
Cash
-$40,000
Vehicles
+$40,000
(3) Debit−Credit Debits increase assets: debit Vehicles $40,000.



(a) (continued)
Transaction 5 Jan. 9: Received a $5,000 deposit from a customer for services to

be performed in the future.

Analysis Equity
Unearned
Cash Revenue
+$5,000 +$5,000

Transaction 6 Jan. 12: Billed customers $20,000 for services performed during
the month.
(1) Basic The asset account Accounts Receivable is increased by $20,000;


Analysis Equity
Accounts Service
Receivable Revenue
+$20,000 +$20,000
(3) Debit−Credit Debits increase assets: debit Accounts Receivable $20,000.



(a) (continued)
Transaction 7 Jan. 19: Paid $500 to purchase supplies.
(1) Basic The asset account Supplies is increased by $500; the asset
Analysis account Cash is decreased by $500.

Analysis Equity
Cash
-$500
Supplies
+$500
(3) Debit−Credit Debits increase assets: debit Supplies $500.

Transaction 8 Jan 20: Provided $1,500 of services for the customer who paid in
advance on January 9.
(1) Basic The liability account Unearned Revenue decreased by $1,500; the
Analysis revenue account Service Revenue is increased by $1,500.

Analysis Equity
Unearned Service
Revenue Revenue
-$1,500 +$1,500
(3) Debit−Credit Debits decrease liabilities: debit Unearned Revenue $1,500.



(a) (continued)
Transaction 9 Jan. 23: Collected $5,000 owing from customers from the January
12 transaction.
(1) Basic The asset account Cash is increased by $5,000; the asset account

Analysis Equity
Cash
+$5,000
Accounts
Receivable
-$5,000

Transaction 10 Jan 26: Received a bill for utilities of $125, due February 26.
(1) Basic The expense account Utilities Expense is increased by $125; the
Analysis liability account Accounts Payable is increased by $125.

Analysis Equity
Accounts Utilities
Payable Expense
+$125 -$125
(3) Debit−Credit Debits increase expenses: debit Utilities Expense $125.



(a) (continued)
Transaction 11 Jan. 29: Paid rent for the month, $1,500.
(1) Basic The expense account Rent Expense is increased by $1,500; the

Analysis Equity
Cash Rent Expense
-$1,500 -$1,500
(3) Debit−Credit Debits increase expenses: debit Rent Expense $1,500.

Transaction 12 Jan. 31: Paid $4,000 of salaries to employees.
(1) Basic The expense account Salaries Expense is increased by $4,000; the

Analysis Equity
Salaries
Cash Expense
-$4,000 -$4,000
(3) Debit−Credit Debits increase expenses: debit Salaries Expense $4,000.



(a) (continued)
Transaction 13 Jan 31: Paid interest of $300 on the bank loan from the January 6
transaction.
(1) Basic The expense account Interest Expense is increased by $300; the

Analysis Equity
Interest
Cash Expense
-$300 -$300
(3) Debit−Credit Debits increase expenses: debit Interest Expense $300.

Transaction14 Jan. 31: Paid income tax for the month, $3,600.
(1) Basic The expense account Income Tax Expense is increased by $3,600;
Analysis the asset account Cash is decreased by $3,600.

Analysis Equity
Income Tax
Cash Expense
-$3,600 -$3,600
(3) Debit−Credit Debits increase expenses: debit Income Tax Expense $3,600.

(b)
Jan. 2 Cash ................................................................ 5,000
Common Shares ...................................... 5,000

Service Revenue ...................................... 2,500
6 Cash ................................................................ 30,000

Bank Loan Payable .................................. 30,000
7 Vehicles ........................................................... 40,000

Cash ......................................................... 40,000
9 Cash ................................................................ 5,000


Service Revenue ...................................... 20,000
19 Supplies .......................................................... 500

Cash ......................................................... 500
20 Unearned Revenue ......................................... 1,500

Service Revenue ...................................... 1,500
23 Cash ................................................................ 5,000


Accounts Payable .................................... 125
29 Rent Expense .................................................. 1,500

Cash ......................................................... 1,500

(b) (continued)
Jan. 31 Salaries Expense ............................................ 4,000

Cash ......................................................... 4,000

Cash ......................................................... 300
31 Income Tax Expense ....................................... 03,600

Cash ......................................................... 3,600

PROBLEM 3-6B
Apr. 1 Cash ...................................................................... 100,000

Common Shares ............................................ 100,000
3 Land ...................................................................... 204,000

Buildings ................................................................ 121,000
Equipment ............................................................. 45,000
Cash ............................................................... 60,000
Bank Loan Payable ........................................ 310,000
8 Advertising Expense .............................................. 1,800

Accounts Payable .......................................... 1,800
10 Salaries Expense .................................................. 2,800

Cash ............................................................... 2,800
13 No entry as the accounting equation is not affected.
14 Prepaid Insurance ................................................ 5,500

Cash .............................................................. 5,500
17 Dividends Declared .............................................. 600

Cash .............................................................. 600
20 Cash ..................................................................... 10,600

Fees Earned.................................................. 10,600
30 Accounts Payable................................................. 1,800

Cash .............................................................. 1,800
30 Interest Expense .................................................. 2,000

Cash .............................................................. 2,000

Apr. 30 Income Tax Expense ............................................ 800

Cash .............................................................. 800
(Each journal entry must balance and reflect the actual amount of the transaction)

PROBLEM 3-7B
(a) May 1 Cash ........................................................................... 20,000

Common Shares .................................................. 20,000
1 Rent Expense ............................................................. 950

Cash .................................................................... 950
4 No entry. Not an accounting transaction.
4 Supplies .............................................................. 750

Accounts Payable ........................................ 750
11 Accounts Receivable .......................................... 2,725

Service Revenue ......................................... 2,725
12 Cash ................................................................... 3,500

Unearned Revenue...................................... 3,500
15 Cash ................................................................... 2,350

Service Revenue ......................................... 2,350
20 Cash ................................................................... 1,725

Accounts Receivable ................................... 1,725
22 Accounts Payable ($750 × 1/3) ........................... 250 ,

Cash ............................................................ 250
25 Utilities Expense ................................................. 275

Accounts Payable ........................................ 275
29 Salaries Expense ................................................ 2,000

Cash ............................................................ 2,000

(a) (continued)
May 29 Income Tax Expense .......................................... 300

Cash ............................................................ 300
29 Dividends Declared ............................................. 250

Cash ............................................................ 250

(b)
Cash Common Shares
May 1 20,000May 1 950 May 1 20,000
12 3,500 22 250
15 2,350 29 2,000
20 1,725 29 300 Dividends Declared
29 250 May 29 250
Bal. 23,825
Service Revenue
Accounts Receivable May 11 2,725
May 11 2,725May 20 1,725 15 2,350
Bal. 1,000 Bal. 5,075
Supplies Salaries Expense

May 4 750 May 29 2,000
Accounts Payable
May 22 250May 4 750 Rent Expense
25 275 May 1 950
Bal. 775
Utilities Expense
May 25 275
Unearned Revenue
May 12 3,500 Income Tax Expense
May 29 300

(c) This suggestion is a good idea. Most companies use computerized

accounting systems, which speed up the process of recording in the
journals and subsequently use summarized transactions that are posted to
the general ledger. Systems such as these can reduce errors (from posting
or calculations) and provide timely information for decision-making.
However, computerized accounting systems cannot eliminate human
errors nor can they perform the analysis of transactions needed as a first
step before entries can be recorded in the accounting system. This aspect
of the cycle needs to be performed by a person who can interpret the
information and decide which accounts are affected.

PROBLEM 3-8B
(a)
Apr. 2 Rent Expense ............................................................. 800

Cash .................................................................... 800
3 Advertising Expense ................................................... 620

Cash .................................................................... 620
5 No entry, not a transaction.
6 No entry, not a transaction.
15 Cash ........................................................................... 1,950

Fees Earned ........................................................ 1,950
16 Mortgage Payable....................................................... 2,000

Interest Expense ......................................................... 850
Cash .................................................................... 2,850
17 Accounts Payable ....................................................... 2,800

Cash .................................................................... 2,800
19 Rent Expense ............................................................. 750

Accounts Payable ................................................ 750
20 Prepaid Rent ............................................................... 700

Cash .................................................................... 700
26 Salaries Expense ........................................................ 2,900

Cash .................................................................... 2,900
27 Income Tax Expense .................................................. 1,000

Cash .................................................................... 1,000

(a) (continued)
Apr. 30 Cash ........................................................................... 560

Accounts Receivable .................................................. 560
Concession Revenue (20% × $5,600) ................. 1,120
30 Cash ........................................................................... 7,300

Fees Earned ........................................................ 7,300

(b)
Cash
Mar. 31 Bal. 6,000 Apr. 2 800 Common Shares
Apr. 15 1,950 Apr. 3 620 Mar. 31 Bal. 50,000
Apr. 30 560 Apr. 16 2,850
Apr. 30 7,300 Apr. 17 2,800 Retained Earnings
Apr. 20 700 Mar. 31 Bal.31,000
Apr. 26 2,900
Apr. 27 1,000 Fees Earned
Bal. 4,140 Apr. 15 1,950
Apr. 30 7,300
Accounts Receivable Bal. 9,250
Apr. 30 560
Concession Revenue
Prepaid Rent Apr. 30 1,120
Apr. 20 700
Salaries Expense
Land Apr. 26 2,900
Mar. 31 Bal. 100,000
Rent Expense
Buildings Apr. 2 800
Mar. 31 Bal. 80,000 Apr. 19 750
Bal. 1,550
Equipment
Mar. 31 Bal. 25,000 Advertising Expense
Apr. 3 620
Accounts Payable
Mar. 31 Bal. 5,000 Interest Expense
Apr. 17 2,800 Apr. 19 750 Apr. 16 850
Bal. 2,950
Income Tax Expense
Mortgage Payable Apr. 27 1,000
Apr. 16 2,000 Mar. 31 Bal. 125,000
Bal. 123,000

(c) LAKE THEATRE INC.

Trial Balance
April 30, 2018
Debit Credit
Cash $ 4,140
Accounts receivable 560
Prepaid rent 700
Land 100,000
Buildings 80,000
Equipment 25,000
Fees earned 9,250
Concession revenue 1,120
Rent expense 1,550
Income tax expense 1,000 0000 000
Totals $217,320 $217,320
(Liability, common shares, retained earnings, and revenue (fees earned and concession
revenue) accounts have credit balances)

PROBLEM 3-9B
(a)
Apr. 2 Rent Expense .............................................................. 5,000

Cash ..................................................................... 5,000
4 No entry. Not a transaction.
6 Advertising Expense .................................................... 500

Cash ..................................................................... 500
9 Accounts Payable ........................................................ 300

Cash ..................................................................... 300
13 Salaries Expense ........................................................ 1,000

Cash ..................................................................... 1,000
16 Rent Expense .............................................................. 5,000

Cash ..................................................................... 5,000
18 Utilities Expense .......................................................... 100

Accounts Payable................................................. 100
19 Supplies Expense ........................................................ 200

Cash ..................................................................... 200
24 Cash ............................................................................ 2,200

Unearned Revenue .............................................. 2,200
25 Income Tax Expense ................................................... 880

Cash ..................................................................... 880
27 Advertising Expense .................................................... 300

Cash ..................................................................... 300

(a) (continued)
Apr. 30 Salaries Expense ........................................................ 1,000

Cash ..................................................................... 1,000
30 Unearned Revenue ..................................................... 17,500

Fees Earned ......................................................... 17,500

(b)
Cash Retained Earnings

Mar. 31 Bal. 23,000 Apr. 2 5,000 Mar. 31 Bal. 6,000
Apr. 24 2,200 Apr. 6 500
Apr. 9 300 Fees Earned
Apr. 13 1,000 Apr. 30 17,500
Apr. 16 5,000
Apr. 19 200 Rent Expense
Apr. 25 880 Apr. 2 5,000
Apr. 27 300 Apr. 16 5,000
Apr. 30 1,000 Bal. 10,000
Bal. 11,020
Salaries Expense
Equipment Apr. 13 1,000
Mar. 31 Bal. 2,000 Apr. 30 1,000
Bal. 2,000
Accounts Payable
Mar. 31 Bal. 500 Advertising Expense
Apr. 9 300 Apr. 18 100 Apr. 6 500
Bal. 300 27 300
Bal. 800
Unearned Revenue
Mar. 31 Bal. 17,500 Supplies Expense
Apr. 30 17,500 Apr. 24 2,200 Apr. 19 200
Bal. 2,200
Utilities Expense
Common Shares Apr. 18 100
Mar. 31 Bal. 1,000
Income Tax Expense
Apr. 25 880

(c) KG SKATING SCHOOL INC.

Trial Balance
April 30, 2018
Debit Credit
Cash $11,020
Equipment 2,000
Accounts payable $ 300
Common shares 1,000
Fees earned 17,500
Rent expense 10,000
Supplies expense 200
Income tax expense 880 _
Totals $27,000 $27,000
(Asset and expenses accounts have debit balances)


PROBLEM 3-10B
(a)
ASIAN IMPORTERS LIMITED
Trial Balance
January 31, 2018
(thousands)
Debit Credit
Cash $ 10,000
Inventory 74,250
Prepaid insurance 3,950
Land 42,500
Buildings 39,500
Accumulated depreciation—buildings $ 13,000
Equipment 10,900
Accumulated depreciation—equipment 3,600
Goodwill 7,600
Other current liabilities 12,200
Bank loan payable (due 2021) 10,050
Sales 370,000
Cost of goods sold 244,200
Income tax expense 10,000 00000 0
Totals $544,850 $544,850
(Asset, dividends declared, and expense accounts have debit balances. Liability,
common shares, retained earnings, and revenue (sales) accounts have credit balances)

(b) The following are some steps to help find the error(s) in a trial balance:
1. If the error (difference between the debit and credit totals) is an

amount such as $1, $100, or $1,000, re-add the trial balance
columns and recalculate the account balances.
2. If the error can be evenly divided by two, scan the trial balance to
see if a balance equal to half the error has been entered in the
wrong column.
3. If the error can be evenly divided by nine, retrace the account
balances on the trial balance to see whether they have been
incorrectly copied from the ledger. For example, if a balance was
$12 but was listed as $21, a $9 error has been made. Reversing the
order of numbers is called a transposition error. A slide, which is
adding or deducting one or several zeros in a figure, has the same
effect.
4. If the error cannot be evenly divided by two or nine, scan the ledger
to see whether an account balance in the amount of the error has
been omitted from the trial balance. Scan the journal to see whether
a posting in the amount of the error has been omitted.
When all else fails, all of the transactions should be carefully traced
through the process again.

PROBLEM 3-11B

Income Statement
Year Ended January 31, 2018
(thousands)
Revenues
Sales $370,000
Expenses
Cost of goods sold $244,200
Net income $ 45,900

Year Ended January 31, 2018
Common Retained
Balance, February 1, 2017 $20,000 $37,050 $ 57,050

Net income 45,900 45,900
Dividends declared 000 000 (1,850) (1,850)
Balance, January 31, 2018 $32,900 $81,100 $114,000


January 31, 2018
(thousands)
Assets
Current assets
Cash $10,000
Inventory 74,250
Prepaid expenses 3,950
Land $42,500
Buildings $39,500
Equipment $10,900
Less: Accumulated depreciation 3,600 7,300 76,300
Goodwill 7,600

(a) (continued)

Liabilities
Current liabilities
Current portion of mortgage payable 6,300
Other current liabilities 12,200
Total current liabilities 64,800
Mortgage payable ($19,750 − $6,300) $13,450
Total non-current liabilities 23,500
[Ending retained earnings = Beginning retained earnings ± Net income or (loss) –

dividends declared]

PROBLEM 3-12B
(a) (1) General: Eight accounts are listed in the wrong columns:
Accumulated depreciation (credit), Accounts payable (credit),
Common Shares (credit), and all five expense accounts (debit).
(2)
1. Each of the Prepaid Insurance, Accounts Payable, and Income Tax

Expense accounts are understated by $100. Note also that the last
two accounts—Accounts Payable and Income Tax Expense—are
also listed in the wrong debit/credit column as described above in
(1). Before these errors were identified, the Prepaid Insurance
account was missing and each of the Accounts Payable and Income
Tax Expense accounts were in debit and credit columns,
respectively, and each understated $100 so one of the reasons the
trial balance did not balance was because the Prepaid Insurance
account had been omitted.
2. The trial balance is out of balance by $270 ($14,529 – $14,259)

because of the transposition error. Service Revenue is overstated by
$270, as is the total for the credit column.
3. The trial balance is not out of balance because of this recording

error. The Salaries Expense account is overstated by $750 and the
Dividends Declared account understated by the same amount. The
Dividends Declared account is not included in the incorrect trial
balance, so it needs to be included.
4. The trial balance is out of balance because of this recording error.

The total for the debit column is lower by $120 (because the Cash
account is understated) and the credit column is lower by $120
(because the Accounts Payable account is understated). Recall that
the Accounts Payable account is one of the accounts listed in the
wrong column (debit instead of credit).

(a) (continued)
5. The trial balance is not out of balance because of this omission; only
the accounts and amounts appearing on the trial balance are
affected. The Equipment and Bank Loan Payable accounts are each
understated by $2,000.

(b)
MESSED UP LTD.
Trial Balance
May 31, 2018
Debit Credit
Cash ($2,997 + $120) $ 3,117

Prepaid insurance (+$100) 100
Equipment ($9,200 + $2,000) 11,200
Accounts payable ($4,600 + $100 + $120) 4,820
Bank loan payable (+$2,000) 2,000
Common shares 4,250
Dividends declared (+$750) 750
Service revenue ($14,529 –$14,529 + $14,259) 14,259
Salaries expense ($8,150 – $750) 7,400
Advertising expense 1,132
Insurance expense 600
Income tax expense ($400 + $100) 500 0
Totals $29,529 $29,529


ACR3-1 ACCOUNTING CYCLE REVIEW
(a)
Date Account Titles Ref. Debit Credit
Jan. 2 Cash .......................................................................................................................

100 65,000
Common Shares (1,000 × $65) ......................................................................
400 65,000
4 Rent Expense .........................................................................................................

740 3,000
Cash...............................................................................................................
100 3,000
5 Equipment ..............................................................................................................
200 40,000
Cash...............................................................................................................
100 10,000
Bank Loan Payable ........................................................................................
310 30,000
8 Advertising Expense ...............................................................................................

700 500
Cash...............................................................................................................
100 500
10 Supplies ..................................................................................................................
120 1,000
Accounts Payable ..........................................................................................
300 1,000
11 Advertising Expense ...............................................................................................

700 3,000
Cash...............................................................................................................
100 3,000
12 Salaries Expense ....................................................................................................

710 7,500
Cash...............................................................................................................
100 7,500
15 Accounts Receivable .............................................................................................

110 15,000
Service Revenue ............................................................................................
500 15,000
17 Office Expense ......................................................................................................

730 1,000
Cash ...............................................................................................................
100 1,000
19 Prepaid Insurance ..................................................................................................

130 6,000
Cash ...............................................................................................................
100 6,000

ACR3-1 (CONTINUED)
(a) (continued)
Date Account Titles Ref. Debit Credit
Jan. 24 Cash ......................................................................................................................

100 10,000
Accounts Receivable ......................................................................................
110 10,000
25 Dividends Declared ................................................................................................

490 500
Cash ...............................................................................................................
100 500
26 Salaries Expense ....................................................................................................
710 7,500
Cash ...............................................................................................................
100 7,500
29 Accounts Receivable ...............................................................................................

110 18,000
Service Revenue ............................................................................................
500 18,000
30 Interest Expense .....................................................................................................

720 200
Bank Loan Payable .................................................................................................
310 700
Cash ...............................................................................................................
100 900
31 Income Tax Expense...............................................................................................

900 1,500
Cash ...............................................................................................................
100 1,500

ACR3-1 (CONTINUED)
(b)
Cash #100
Jan. 2 65,000 Jan. 4 3,000 Common Shares #400
24 10,000 5 10,000 Jan. 2 65,000
8 500
11 3,000 Dividends Declared #490
12 7,500 Jan. 25 500
17 1,000
19 6,000 Service Revenue #500
25 500 Jan. 15 15,000
26 7,500 29 18,000
30 900 Jan. 31 Bal. 33,000
31 1,500
Jan. 31 Bal. 33,600 Advertising Exepense #700
Jan. 8 500
Accounts Receivable #110 11 3,500
Jan. 15 15,000 Jan. 24 10,000 Jan. 31 Bal. 3,500
29 18,000
Jan. 31 Bal. 23,000 Salaries Expense #710
Jan. 12 7,500
Supplies #120 26 7,500
Jan. 10 1,000 Jan. 31 Bal. 15,000
Prepaid Insurance #130 Interest Expense #720

Jan. 19 6,000 Jan. 30 200
Equipment #200 Office Expense #730

Jan. 5 40,000 Jan. 17 1,000
Accounts Payable $300 Rent Expense #740

Jan. 10 1,000 Jan. 4 3,000
Bank Loan Payable #310 Income Tax Expense #900

Jan. 30 700 Jan. 5 30,000 Jan. 31 1,500
Jan 31
Bal. 29,300

ACR3-1 (CONTINUED)
(c) SOFTWARE ADVISORS LIMITED

Trial Balance
January 31, 2018
Debit Credit
100 Cash $ 33,600
110 Accounts receivable 23,000
120 Supplies 1,000
130 Prepaid insurance 6,000
200 Equipment 40,000
300 Accounts payable $ 1,000
310 Bank loan payable 29,300
400 Common shares 65,000
490 Dividends declared 500
500 Service revenue 33,000
700 Advertising expense 3,500
710 Salaries expense 15,000
720 Interest expense 200
730 Office expense 1,000
740 Rent expense 3,000
900 Income tax expense 1,500 0
$128,300 $128,300

ACR3-1 (CONTINUED)
(d) (1)
SOFTWARE ADVISORS LIMITED
Income Statement
Month Ended January 31, 2018
Revenues
Expenses
Advertising expense 3,500
Rent expense 3,000
Net income $ 8,800
(d) (2)
Month Ended January 31, 2018

Balance, January 1 $ 0 $ 0 $ 0
Net Income 8,800 8,800
Balance, January 31 $65,000 $8,300 $73,300

ACR3-1 (CONTINUED)
(d) (3)
January 31, 2018
Assets
Current assets
Cash $33,600
Supplies 1,000
Prepaid insurance 6,000 $63,600
Equipment 40,000
Current liabilities
Retained earnings 8,300 73,300
[Ending retained earnings = Beginning retained earnings ± Net income or (loss) –
dividends declared]

ACR3-2 ACCOUNTING CYCLE REVIEW
(a)
Aug. 1 Advertising Expense ........................................ 250
Cash ......................................................... 250
2 Unearned Revenue ......................................... 1,260

Service Revenue ...................................... 1,260
3 Rent Expense .................................................. 980

Cash ......................................................... 980
6 Cash ................................................................ 1,200

7 No entry, not a transaction
10 Salaries Payable ............................................. 1,420

Salaries Expense ............................................ 1,700
Cash ......................................................... 3,120
13 Cash ................................................................ 2,800

Service Revenue ...................................... 2,800
15 Equipment ....................................................... 2,000

Bank Loan Payable .................................. 2,000
20 Accounts Payable ............................................ 2,000

Cash ......................................................... 2,000
22 Supplies .......................................................... 800

Accounts Payable .................................... 800

ACR3-2 (CONTINUED)
(a) (continued)
Aug. 24 Salaries Expense ............................................ 2,900

Cash ......................................................... 2,900

Service Revenue ..................................... 3,760
29 Cash ................................................................ 780

Unearned Revenue.................................. 780
30 Bank Loan Payable ......................................... 500
Interest Expense ............................................. 50
Cash ......................................................... 550
31 Income Tax Expense ....................................... 380

Cash ......................................................... 380

Cash ......................................................... 400

ACR3-2 (CONTINUED)
(b)
Cash
July 31 8,040 Aug. 1 250 Unearned Revenue
Aug. 6 1,200 3 980 July 31 1,260
13 2,800 10 3,120 Aug. 2 1,260 Aug. 29 780
29 780 24 2,900 Aug. 29 Bal. 780
30 550
31 380 Bank Loan Payable
31 400 July 31 4,000
Aug. 31 2,240 Aug. 30 500 Aug. 15 2,000
Aug. 31 Bal. 5,500
Accounts Receivable
July 31 3,200 Aug. 6 1,200 Common Shares
27 3,960 July 31 14,000
Aug. 31 Bal. 5,760
Retained Earnings
Supplies June 30 Bal.7,290
July 31 1,030
Dividends Declared
Aug. 22 800
Aug. 31 400
Aug. 31 Bal. 1,830
Service Revenue
Equipment Aug. 2 1,260
July 31 10,000 Aug. 13 2,800
Aug. 15 2,000 Aug. 27 3,760
Aug. 31 Bal. 12,000 Aug. 31 Bal. 7,820
Accumulated Depreciation—Equipment Advertising Expense
July 31 1,000 Aug. 1 250
Vehicles Rent Expense

July 31 25,000 Aug. 3 980
Accumulated Depreciation—Vehicles Salaries Expense

July 31 5,000 Aug. 10 1,700
24 2,9000
Accounts Payable Aug. 31 4,600
July 31 2,300
Aug. 20 2,000 Aug. 22 800 Interest Expense
Aug. 31 Bal. 1,100 Aug. 30 50
Salaries Payable Income Tax Expense
Aug. 10 1,420 July 31 1,420 Aug. 31 380
Aug. 31 Bal. 0

ACR3-2 (CONTINUED)
(c)
B&B REPAIR SERVICES LTD.
Trial Balance
August 31, 2018
Debit Credit
Cash $ 2,240
Supplies 1,830
Equipment 12,000
Vehicles 25,000
Accumulated depreciation—vehicles 5,000
Rent expense 980
Interest expense 50
$53,490 $53,490

ACR3-2 (CONTINUED)
(d)

Income Statement
Revenues
Expenses
Rent expense 980
Interest expense 50
Net income $1,560


Balance, July 31 $14,000 $17,290 $31,290

Balance, August 31 $14,000 $18,450 $32,450

ACR3-2 (CONTINUED)
(d) (continued)

August 31, 2018
Assets
Current assets
Cash $2,240
Supplies 1,830 $ 9,830
Equipment $12,000
Accumulated depreciation—equipment 2,000 $10,000
Vehicles $25,000
Accumulated depreciation—vehicles 5,000 20,000 30,000
Current liabilities
Unearned revenue 780 $ 1,880
Retained earnings 18,450 32,450
[Ending retained earnings = Beginning retained earnings ± Net income or (loss) – dividends declared]

ACR3-2 (CONTINUED)
(e)
Payments:
Cash flow
Aug. 1 $ 250 Advertising Operating
3 980 Rent Operating
10 3,120 Salaries Operating
20 2,000 On account to suppliers Operating
24 2,900 Salaries Operating
30 550 Loan principal $500 Financing
Loan interest $50 Operating
31 380 Income tax Operating
31 400 Dividends declared and paid Financing
Receipts:
Aug. 6 1,200 On account from customers Operating
13 2,800 Revenue Operating
29 780 Unearned revenue Operating

CT3-1 FINANCIAL REPORTING CASE

(a) North West ($ in thousands)
Total Assets = Total Liabilities + Shareholder's Equity

$167,910 Share capital
156,664 Retained earnings
Other equity items (contributed surplus
$2,620 and accumulated other
33,038 comprehensive income $30,418)
$793,795 = $436,183 + $357,612
(b) Sobeys ($ in millions)
Total Assets = Total Liabilities + Shareholder's Equity

$ 2,752.9 Capital stock
(172.1) Retained earnings (Deficit)
Other equity items (contributed surplus
$93, accumulated other comprehensive
loss $3.2, and non-controlling interest
148.9 $59.1)
$7,960.6 = $5,230.9 + $2,729.7
(c) Sobeys has about 10 times the assets compared to North West ($7,960.6
million compared to $793.795 million). However, it also has 12 times the
liabilities ($5,230.9 million compared to $436.183 million) which is why its
shareholders’ equity is proportionately lower. Sobeys’s shareholders’
equity is less than 8 times the equity reported by North West ($2,729.7
million compared to $357.612 million).
North West’s share capital comprises about 47% of its total shareholders’
equity whereas Sobeys’s is more than 100% of its total equity. Of course,
this comparison is skewed because Sobeys reported a deficit (negative
retained earnings) rather than a positive retained earnings for its latest
fiscal year.

CT3-2 FINANCIAL REPORTING CASE

(a) Uber’s network of riders and drivers are resources available to the
business but are not assets owned or controlled by the business. Nor can
the company predict the future economic benefits to be contributed by a
person or measure the “value” of a person. Consequently, people are not
recorded in the accounting records.
(b) Uber would likely report current assets such as cash, accounts
receivable, and supplies. Its non-current assets likely consist of property,
plant, and equipment such as office furniture and equipment and
computer systems including hardware and software. It also would report
intangible assets such as the software developed to run its ride-sharing
app. In addition, this category would include technology the company
purchased from Microsoft related to street imaging and 3-D views.
(c) The valuation given by the market to Uber Technologies Inc. is not based
on the assets on its statement of financial position but on investors’
perception of its ability to produce growth and income in the future.
LO 1 BT: AN Difficulty: C Time: 15 min. AACSB: Analytic and Tech. CPA: cpa-t001 CM: Reporting

CT3-3 FINANCIAL ANALYSIS CASE

(a)
Assets = Liabilities + Shareholders' Equity
Income Retained Earnings

Accounts Prepaid Accounts Tax Unearned Common Div.
Cash + Receivable + Rent = Payable + Payable + Revenue. + Shares + Revenue - Expenses - Declared
1. +$10,000 +$10,000
2. +$229,400 +$229,400
3. +190,000 -190,000
4. -45,500 +$3,500 -$42,000
5. -120,000 -120,000
6. -32,400 +$4,000 -36,400
7. +2,000 +$2,000
8. +$6,200 -6,200
9. -1,000 00 0 000 00 000 0 00 00 0 00000 0 0 0 00 0 0 0000 0 0 0000 00 0000 -$1,000
Aug. 31 +$3,100 +$39,400 +$3,500 +$4,000 +$6,200 +$2,000 +$10,000 +$229,400 -$204,600 -$1,000
Bal.
Total assets = $46,000 Total liabilities ($12,200) + shareholders’ equity ($33,800) = $46,000
(b) A spreadsheet can help, in a small business like Bob’s Repairs, to organize information. However, it lacks
the date, specific account title for multiple expenses, and explanation for each entry that one would find in a
traditional general journal. It could assist in posting, although again it lacks any cross-referencing to allow
transactions to be traced back to the source, if required. Finally, use of a spreadsheet, while convenient for
very small businesses, would limit growth in the number of accounts and transactions.

CT3-3 (CONTINUED)
(c)
BOB'S REPAIRS LTD.
Income Statement
Year Ended August 31, 2018

Expenses
Rent expense 42,000
Office expense 36,400 198,400
Net income $ 24,800
BOB'S REPAIRS LTD.

Year Ended August 31, 2018

Balance, September 1 $ 0 $ 0 $ 0
Net income 24,800 24,800
Dividends declared 00 0000 (1,000) (1,000)
Balance, August 31 $10,000 $23,800 $33,800

CT3-3 (CONTINUED)
(c) (continued)
BOB'S REPAIRS LTD.

August 31, 2018
Current assets
Cash $ 3,100
Prepaid rent 3,500
Current liabilities
Income tax payable 6,200
Total liabilities $12,200
(d) Five of the cash transactions relate to operating activities:
Cash collected from customers $190,000

Payments to the landlord (45,500)
Salaries paid (120,000)
Payments for office expenses (32,400)
Customer advances 2,000
Total effect on cash flow $ (5,900)

CT3-3 (CONTINUED)
Uncle Bob would not be pleased to find out that operating cash flows
were not positive. This can often happen during the first year that a
company operates.
The other two cash transactions not shown above are financing activities:
the issue of common shares for $10,000 and the declaration and
payment of dividends for $1,000. The net increase to cash of $9,000
allowed the company to have a positive cash balance $3,100 (−$5,900 +
$9,000) at the end of the year.
(e) The bank would want collateral for any loan given to the company.
Usually such collateral consists of property, plant, or equipment and this
company has none of these. It may be possible to secure a loan with
accounts receivable but the company did not have this type of asset
when it was first formed.
(f) No, the company does not have enough cash to pay the income tax. The
company would have to collect some accounts receivable if it hoped to
pay the income tax.
(g) The government levies income tax on corporations, which are considered
legal entities, separate from their shareholders. Uncle Bob would pay
income tax only on the dividends he received from the company.
LO 3,4,5 BT: E Difficulty: M Time: 55 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

CT3-4 STUDENT VIEW CASE
(a) On September 1, 2018, my personal equity would be as follows:
Cash ................................................ $21,000

Cell phone ....................................... 200
Total assets ..................................... 21,200
Less: student loan ........................... (9,000)
Personal equity, Sept. 1, 2018 ........ $12,200
(b) Errors in the trial balance:

• The cash amount should be the amount in the bank account at
December 15.
• The computer was recorded at $100 rather than the actual cost of
$1,000.
• The damage deposit of $400 for the residence has been omitted.
• The travel costs are $450, not $540.

CT3-4 (CONTINUED)
(b) (continued)
Personal Trial Balance
December 15, 2018
Debit Credit
Cash ....................................................................... $ 7,400

Clothes ................................................................... 1,500
Cell phone .............................................................. 200
Computer ............................................................... 1,000
Damage deposit on residence ................................ 400
Student loan ........................................................... $ 9,000
Personal equity ...................................................... 12,200
Residence and meal plan fees ($1,100 per month) 4,400
Tuition for September to December ....................... 3,500
Textbooks .............................................................. 600
Personal costs (personal items, entertainment, eating out) 1,500
Cellphone costs ...................................................... 250
Travel to go home at Christmas ............................. 450 ____ __
$21,200 $21,200
(c) Expenses
Clothes..................................................................... $ 1,500
Residence and meal plan fees ($1,100 per month) . 4,400
Tuition for September to December ......................... 3,500
Textbooks ............................................................... 600
Personal costs (personal items, entertainment, eating out) 1,500
Cellphone costs ....................................................... 250
Travel to go home at Christmas ............................... 450
Total expenses September to December ................. $12,200
Personal equity, September 1 .................................. $12,200

Total expenses......................................................... (12,200)
Personal equity, December 15 ................................. $ 0
By December 31, 2018, the personal equity is nil.

CT3-4 (CONTINUED)
(d) Balance of cash December 15, 2018 ....................... $ 7,400

Assumed expenses for second term same as first... (12,200)
Shortfall in cash ....................................................... $ 4,800
(e) Personal expenses in the first term are far too high. Some expenses that
can be reduced in the second term include personal costs for
entertainment and eating out. If half as much is spent in the second term,
$750 can be saved. In addition, clothes expenses could be reduced to
$300, saving another $1,200. Travel to go home can be eliminated.
Finally, if the residence room is kept in good condition and with no
damages, $400 for the damage deposit will be returned in cash.
Personal expenses savings ..................................... $ 750

Reduced clothing costs ............................................ 1,200
Travel costs ............................................................. 450
Return of residence damage deposit ....................... 400
Additional cash made available ............................... $2,800
(f) Cash shortfall ........................................................... $4,800

Additional cash from spending changes .................. 2,800
Ask parents for extra cash ....................................... $2,000

CT3-5 ETHICS CASE

Note to instructors: All of the material supplementing this group activity,
including a suggested solution, can be found in the Collaborative Learning
section of the Instructor Resource site accompanying this textbook as well as in
the Prepare and Present section of WileyPLUS.
(a) Ron, here are some tips to help you find the $810 error in the trial
balance assuming it is a single error:
1. If the error is an amount such as $1, $100, or $1,000, re-add the trial
balance columns and recalculate the account balances. This tip
does not apply in this case because the difference between the debit
and credit columns is $810.
2. If the error can be evenly divided by two (which it can be in this case
$810 ÷ 2 = $405), scan the trial balance to see if a balance equal to
half the error has been entered in the wrong column.
3. If the error can be evenly divided by nine (which it can be in this
case $810 ÷ 9 = $90), retrace the account balances on the trial
balance to see whether they have been incorrectly copied from the
ledger. For example, if a balance was $12 but was listed as $21, a
$9 error has been made. Reversing the order of numbers is called a
transposition error. A slide, which is adding or deducting one or
several zeros in a figure, has the same effect.
4. If the error cannot be evenly divided by two or nine, scan the ledger
to see whether an account balance in the amount of the error has
been omitted from the trial balance. Scan the journal to see whether
a posting in the amount of the error has been omitted.
Note that these suggestions will not always work, especially if there is
more than one error and sometimes, the only way to find an error is to
retrace all of the work carefully.

CT3-5 (CONTINUED)
(b) The stakeholders in this situation are:
Ron Hollister
The other students in the group who will be graded for Ron’s work
The other students in the class
The professor
The College or University attended by Ron
Future employers of the graduates of the school
(c) By adding $810 to the Salaries Expense account, the account total has
been deliberately misstated. By not locating the error causing the
imbalance, some other account or accounts may also be misstated by a
net amount of $810. Ron did not advise his fellow team members of the
action he has taken to avoid detection. While his motivation was most
likely to meet the deadline for handing in the assignment, he also “hoped
no one would notice the difference” so he made this change with
deliberate intent. It was inappropriate not to offer the other group
members an opportunity to find the error in one or more of their parts of
the assignment, or to take action without advising them. The entire group
will be affected by Ron’s actions and had no means of agreeing to the
strategy taken to address the problem. As an aside, it is important for
students to agree as a group on “behavioural norms” ahead of time to
help reduce the likelihood of unintended consequences affecting one or
more of the group.
The adding of the $810 to the Salaries Expense account is not by itself
unethical in a classroom situation but it does not adhere to the qualitative
characteristic of faithful representation of the numbers. The professor
would obviously catch this error and grade the assignment accordingly.
However, Ron’s failure to inform other group members that he was
changing amounts that they had prepared would be considered by many
to be both inappropriate and unethical.

CT3-5 (CONTINUED)
(c) (continued)
Although the assignment will not affect external users of a real financial
report, it is important to understand that if this had been a real life
situation, Ron’s actions—both the changing of an account balance and
the failure to inform—would be considered to be unethical because
financial information was intentionally altered and done deliberately to
mislead users. [See also the answer to part (e).]
While Ron is not likely in breach of any rule or directive issued by the
school concerning academic integrity, the professor and the other group
members will not agree with the strategy used by Ron. They will wonder if
this is the type of action Ron would take while at a future job. Such
actions would then affect others who are not part of the school community
and the reputation of the school would be diminished. This in turn could
affect society’s opinion of the past and future graduates of the school.
(d) Ron's alternatives are:

1. Discuss the situation with the teammates and reach a consensus
that it is better to miss the deadline but find the error causing the
imbalance and suffer the corresponding penalty for submitting the
assignment late.
2. Discuss the situation with teammates and reach a consensus to tell
the professor of the imbalance and ask for an extension of time or
suffer the consequences.
3. Discuss the situation with teammates and potentially get their
assistance to locate the error causing the imbalance as a team effort
so that the assignment can still submitted by the deadline.

CT3-5 (CONTINUED)
(c) (continued)
(e) External users of the financial information prepared by Ron could

potentially be affected by the errors that remain undetected. It is highly
likely that another account may also be wrong on the financial
statements. The consequences are more far reaching and so the
behaviour is more serious. Deliberate deception for this purpose would be
viewed as unethical.
LO 5 BT: S Difficulty: M Time: 20 min. AACSB: Analytic and Ethics CPA: cpa-t001, cpa-e001
CM: Reporting and Ethics

CT3-6 SERIAL CASE
(a)
June 5 Supplies ........................................................................

2,500
Accounts Payable .................................................... 2,500
14 Equipment.....................................................................
2,520
Cash ........................................................................ 2,520
16 Cash .............................................................................
1,000
Unearned Revenue .................................................. 1,000
19 Cash .............................................................................300
Unearned Revenue .......................................................100
Sales ........................................................................ 400
21 Accounts Receivable .................................................... 2,040

Sales ........................................................................ 2,040
27 Utilities Expense ...........................................................200

Accounts Payable .................................................... 200
29 No entry, not a transaction
30 Salaries Expense .......................................................... 3,250

Cash ........................................................................ 3,250
30 Accounts Receivable .................................................... 2,550

Sales ........................................................................ 2,550

CT3-6 (CONTINUED)
(b)
Cash
June Bal. 39,004 June 1 42,520 Equipment
16 1,000 30 3,250 June Bal. 42,000
19 300 14 2,520
Bal. 34,534 Bal. 44,520
Accounts Receivable Accumulated Depreciation—Equipment

June Bal. 5,900 June Bal. 14,000
21 2,040
30 2,550 Vehicles
Bal. 10,490 June Bal. 52,500
Inventory Accounts Payable

5 2,500
Supplies 27 200
June Bal. 1,875 Bal. 6,240
5 2,500
Bal. 4,375 Unearned Revenue
June 19 100 June Bal. 100
Prepaid Insurance 16 1,000
June Bal. 12,000 Bal. 1,000
Land Bank Loan Payable

Buildings Mortgage Payable

Accumulated Depreciation—Buildings Common Shares

June Bal. 137,500 June Bal. 300

CT3-6 (CONTINUED)
(b) (continued)
Retained Earnings Office Expense

Dividends Declared Utilities Expense

27 200
Rent Revenue Bal. 12,200
June Bal. 6,000
Sales Advertising Expense
19 400
21 2,040 Property Tax Expense
30 2,550 June Bal. 5,950
Bal. 638,758
Interest Expense
Cost of Goods Sold June Bal. 5,299
June Bal. 102,386
Income Tax Expense
Salaries Expense June Bal. 13,000
June Bal. 387,532
30 3,250
Bal. 390,782

CT3-6 (CONTINUED)
(c)
ANTHONY BUSINESS COMPANY LTD.
Trial Balance
June 30, 2017
Debit Credit
Cash.................................................................. $ 34,534
Accounts receivable .......................................... 10,490
Inventory ........................................................... 16,250
Supplies ............................................................ 4,375
Prepaid insurance ............................................. 12,000
Land .................................................................. 100,000
Buildings ........................................................... 165,000
Accumulated depreciation—buildings ............... $ 137,500
Equipment ......................................................... 44,520
Accumulated depreciation—equipment............. 14,000
Vehicles ............................................................ 52,500
Accounts payable .............................................. 6,240
Unearned revenue ............................................ 1,000
Bank loan payable ............................................ 22,500
Mortgage payable ............................................. 53,200
Common shares................................................ 300
Retained earnings ............................................. 146,788
Dividends declared ........................................... 30,000
Rent revenue .................................................... 6,000
Sales ................................................................. 638,758
Cost of goods sold ............................................ 102,386
Salaries expense .............................................. 390,782
Office expense .................................................. 18,000
Utilities expense ................................................ 12,200
Advertising expense .......................................... 9,000
Property tax expense ........................................ 5,950
Interest expense ............................................... 5,299
Income tax expense .......................................... 13,000 00
Totals ................................................................ $1,026,286 $1,026,286
(Liabilities, common shares, retained earnings, and revenue (sales) accounts have credit balances)

Legal Notice
Copyright © 2017 by John Wiley & Sons Canada, Ltd. or related companies. All
rights reserved.
The data contained in these files are protected by copyright. This manual is
furnished under licence and may be used only in accordance with the terms of
such licence.
The material provided herein may not be downloaded, reproduced, stored in a

retrieval system, modified, made available on a network, used to create
derivative works, or transmitted in any form or by any means, electronic,
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(MMXVII vi F2)


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Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES

Solutions Manual 3-1 Chapter 3

Solutions Manual 3-2 Chapter 3

2. Accounting transactions that affect the accounting equation (assets =

Solutions Manual 3-3 Chapter 3

4. The structure of the accounting equation matches the debit-credit rules in

5. Shareholders' equity consists of different components, and they do not all

Solutions Manual 3-4 Chapter 3

7. (a) A general journal is a book of original entry, in which transactions

8. While the account title choices suggested by Meghan provide details of

Solutions Manual 3-5 Chapter 3

10. Posting should be done on a timely basis, at least monthly, so that

Solutions Manual 3-6 Chapter 3

13. Cash, Accounts Receivable, Supplies, Prepaid Insurance, Accounts

Solutions Manual 3-7 Chapter 3

1. If the difference between the debit and credit totals is an amount

Solutions Manual 3-8 Chapter 3

17. The first four steps in the accounting cycle are:

Solutions Manual 3-9 Chapter 3

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-1

Items 2, 3, and 5 should not be recorded in the accounting equation.

Solutions Manual 3-10 Chapter 3

BRIEF EXERCISE 3-2

TOTAL ASSETS = $5,400 TOTAL LIABILITIES + SHAREHOLDERS’ EQUITY = $5,400

Solutions Manual 3-11 Chapter 3

BRIEF EXERCISE 3-3

(a) (b) (c) (d)

Solutions Manual 3-12 Chapter 3

Solutions Manual 3-13 Chapter 3

BRIEF EXERCISE 3-5

Transaction 1 June 1: Issued common shares to shareholders in exchange

(a) Basic The asset account Cash is increased by $2,500; the

(b) Equation Assets = Liabilities + Shareholders’

(c) Debit−Credit Debits increase assets: debit Cash $2,500.

Transaction 2 June 4: Purchased supplies on account for $250.

(b) Equation Assets = Liabilities + Shareholders’

(c) Debit−Credit Debits increase assets: debit Supplies $250.

Solutions Manual 3-14 Chapter 3

BRIEF EXERCISE 3-5 (CONTINUED)

Transaction 3 June 7: Billed J. Kronsnoble $300 for welding work done.

(a) Basic The asset account Accounts Receivable is increased by $300;

(b) Equation Assets = Liabilities + Shareholders’

(c) Debit−Credit Debits increase assets; debit Accounts Receivable $300.

(b) Equation Assets = Liabilities + Shareholders’

(c) Debit−Credit Debits increase assets: debit Cash $200.

Solutions Manual 3-15 Chapter 3

BRIEF EXERCISE 3-5 (CONTINUED)

(a), (b), and (c) (continued)

Transaction 5 June 25: Hired new employee to start work on July 3.

(a) Basic An accounting transaction has not occurred. There is only an

(b) Equation Assets = Liabilities + Shareholders’

(c) Debit−Credit Debits increase assets: debit Cash $200.

Solutions Manual 3-16 Chapter 3

BRIEF EXERCISE 3-5 (CONTINUED)

(a), (b), and (c) (continued)

Transaction 7 June 28: Paid for supplies purchased on June 4.

(b) Equation Assets = Liabilities + Shareholders’

(c) Debit−Credit Debits decrease liabilities: debit Accounts Payable $250.

(a) Basic The expense account Income Tax Expense is increased by

(b) Equation Assets = Liabilities + Shareholders’

Solutions Manual 3-17 Chapter 3