Financial Accounting Transactions

Chapter 2 Financial Statements and

Accounting TransactionsQUESTIONSEXERCISES

Exercise 2-1 (10 minutes)

a) $80,000 – $65,000 = $15,000 net income

b) $92,000 – $149,000 = $57,000 net loss

c) $10,000 + 0 – 0 + x = $86,000x = $86,000 – $10,000

x = $76,000 net income

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

x = –$13,000 or a $13,000 Net loss


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

Answers $ (24,750

) $36,000

$12,000

$21,500

$92,000

Proofs: Owner’s equity, January 1 $ 0 $ 0 $ 0 $ 0 $92,00

0

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 3 1

1

Owner’s investments

during the year 60,000 36,000 31,500 37,000 150,000

Net income (loss) for the year

15,750 40,500 (4,500) 21,500 (8,000)

Owner’s withdrawals

during the year (24,750) (27,000) (15,000) (15,750) (63,000)

Owner’s equity, December 31

$51,000 $49,500 $12,000

$42,750 $171,000


2


THE DOBBS GROUPIncome Statement

For Month Ended November 30, 2011

Revenues:Consulting fees earned..........

$18,000Operating expenses:

Salaries expense................... $6,000Rent expense........................ 2,550Telephone expense............ 1,680Utilities expenses.............. 660 Total operating expenses....

10,890Net income................................ $ 7,110


THE DOBBS GROUPStatement of Owner’s Equity


Jean Dobbs, capital, November 1 $ 0Add:.....Investments by owner 84,000 Net income...................... 7,110 91,110

Total .................................. $91,110Less: Withdrawals by owner.... 3,360Jean Dobbs, capital, November 30

$87,750

Analysis component:

The owner, Jean Dobbs, invested $84,000 of assets during the month, which caused equity to increase. Also, net income earned during the month was $7,110 also causing equity to increase during November. The total increases in equity during the month were a total of $91,110 ($84,000 + $7,110).


3

NOTE: Students might point out that equity decreased by a total of $3,360 in withdrawals which in combination with the total increase of $91,110 caused a net increase in equity of $87,750.


THE DOBBS GROUPBalance Sheet

November 30, 2011

Assets LiabilitiesCash..........................$12,000 Accounts payable.........................$ 7,500Accounts receivable.... 17,000Office supplies............ 2,250 Owner’s EquityAutomobiles............... 36,000 Jean Dobbs, capital. 87,750Office equipment........ 28,000 Total liabilities andTotal assets...............$95,250 owner’s equity.........................$95,250

Analysis component:

$87,750 (or 92.13% calculated as $87,750/$95,250 × 100) of the total $95,250 assets are owned by Jean Dobbs, the owner of The Dobbs Group.


EXCEL LEARNING SERVICESIncome Statement

For Month Ended July 31, 2011

Revenues:Tutoring fees earned.............

$4,200


4

Textbook rental revenue........ 300

Total revenues.................... $ 4,500

Operating expenses:Office rent expense................ $2,500Tutors wages expense.......... 1,540Utilities expense............... 580 Total operating expenses....

4,620Net loss..................................... $ 120


EXCEL LEARNING SERVICESStatement of Owner’s Equity


George Pelzer, capital, July 1... $ 7,400Add:.....Investments by owner 1,200

Total .................................. $ 8,600Less: Withdrawals by owner.... $ 1,000 Net loss......................... 120 1,120George Pelzer, capital, July 31. $ 7,480

Analysis component:

Withdrawals of $1,000 by the owner, George Pelzer, caused equity to decrease during July, 2011. Also, the net loss of $120 caused equity to decrease in July. The total decrease in equity during the month of July was $1,120 (calculated as $1,000 + $120).


5

NOTE: Students might point out that equity increased by $1,200 of owner investments which, in combination with the total decrease of $1,120, caused a net increase in equity of $80.


EXCEL LEARNING SERVICESBalance SheetJuly 31, 2011

Assets LiabilitiesCash..........................$ 1,600 Accounts payable.........................$ 1,400Accounts receivable.... 2,680Supplies..................... 600 Owner’s EquityFurniture................... 1,800 George Pelzer, capital....................... 7,480 Computer equipment. . 2,200 Total liabilities andTotal assets........................ $8,880 owner’s equity...........................................$8,880

Analysis component:

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


6

Exercise 2-9 (10 minutes)Description

B 1. Requires every business to be accounted for separately from its owner or owners.

D 2. Requires financial statement information to be supported by evidence other than someone’s opinion or imagination.

A 3. Requires financial statement information to be based on costs incurred in transactions.

E 4. Requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold.

C 5. Requires revenue to be recorded only when the earnings process is complete.


a. Assets – Liabilities=Owner’s Equity

Beginning of the year. . .$ 150,000 –$60,000..................................=$90,000End of the year.............$240,000–$92,000 = 148,000Net increase in owner’s equity..................................................................................$58,000Net income...............................................................................................................$58,000

(Because there were no additional investments or withdrawals, the net income for the year equals the net increase in owner’s equity.)

b. Net increase in owner’s equity....... $58,000Add: Withdrawals (12 months @ $3,500) 42,000Net income....................................$100,000

An alternative calculation:

$90,000 + x - $42,000 = $148,000; x = $100,000

c. Net increase in owner’s equity....... $58,000Less: Additional investment........... 65,000 Net loss......................................... $ 7,000


7


$90,000 + $65,000 + x = $148,000; x = ($7,000) where the negative represents a loss.

d. Net increase in owner’s equity....... $58,000Add: Withdrawals (12 months @ $3,500) 42,000Gross increase in owner’s equity....$100,000Less: Additional investment........... 50,000 Net income.................................... $50,000


$90,000 + $50,000 - $42,000 + x = $148,000; x = $50,000


a.

If assets decreased by $5,000 during August, then

$20,000 + $5,000 = $25,000 Assets at August 1, 2011.

Therefore, Owner’s Equity at August 1, 2011 = $25,000 - $1,000 = $24,000

b.

If liabilities increased by $3,000 during August, then

$1,000 + $3,000 = $4,000 Liabilities at August 31, 2011.



Assets Liabilities + Owner’s Equity

Cash +Accounts

Receivable +Office

Supplies =Accounts Payable +

Noel Bridges, Capital


8

a) + $2,500

+ $2,500

Totals 2,500 2,500

b) + $200 + $200

Totals 2,500 200 200 2,500

c) + 600 + 600

Totals 3,100 200 200 3,100

d)*

Totals 3,100 200 200 3,100

e) – 1,500 – 1,500

Totals 1,600 200 200 1,600

f) + $1,250

+ 1,250

Totals $1,600 $1,250 $200 $200 $2,850

$3,050 = $3,050

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


9



Cash +Accounts

Receivable +Parts

Supplies +Equipmen

t =Accounts Payable +

Janine Commry, Capital

a) + $7,000 + $ 7,000

b) - 2,500 - 2,500

Totals $4,500 $ 4,500

c) + $1,200 + $1,200

Totals $4,500 $1,200 $1,200 $ 4,500

d) + $3,400 + $ 3,400

Totals $4,500 $3,400 $1,200 $1,200 $7,900

e) – $ 950 + $950

Totals $3,550 $3,400 $1,200 $950 $1,200 $7,900

f)*

Totals $3,550 $3,400 $1,200 $950 $1,200 $ 7,900

g) – $1,200 – $1,200

Totals $2,350 $3,400 $1,200 $950 $ 0 $7,900

h) + $1,400 + $ 1,400

Totals $3,750 $3,400 $1,200 $950 $ 0 $9,300

i) – $2,700 – $ 2,700

Totals $1,050 $3,400 $1,200 $950 $ 0 $6,600

$6,600 = $6,600

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

Exercise 2-14: (15 minutes)


10

b. Office Supplies were purchased paying cash of $500.

c. Office Furniture was purchased paying cash of $8,000.

d. Completed work for a client on credit; $1,000.e. Purchased office supplies on credit; $400.f. Paid $250 to a creditor.g. Collected $750 cash from a credit customer.


11


a) The business purchased land paying $3,000.b) $400 of office supplies were purchased on credit (or on account).c) Paid $700 for the purchase of office suppliesd) $1,050 of revenue on account (or on credit) was earned.e) Collected $1,000 cash for revenue performed.f) Paid $400 to a creditor.g) Collected $1,050 from a credit customer.h) The owner invested $5,000 of land.


+Accounts + Equip-= Accounts + Ellen Manson, Explanation

Cash Receivable ment Payable Capital of Change

a. $25,000 $5,000 $30,000Investment

b. – 1,300 –$1,300Rent Expense

$23,700 $5,000 $28,700

c. +6,000 +6,000

$23,700 $11,000 $6,000 $28,700

d. + 500 + 500Revenue

$24,200 $11,000 $6,000 $29,200

e. +$1,000 + 1,000Revenue

$24,200 $1,000 $11,000 $6,000 $30,200

f. – 4,000 + 4,000

$20,200 $1,000 $15,000 $6,000 $30,200

g. – 1,200 – 1,200Wages Expense

$19,000 $1,000 $15,000 $6,000 $29,000


12

h. + 250 – 250

$19,250 $750 $15,000 $6,000 $29,000

i. –6,000 – 6,000

$13,250 $750 $15,000 $ 0 $29,000

j. – 250 – 250Withdrawal

$13,000 $750 $15,000 $ 0 $28,750

$28,750 = $28,750

Revenue – Expenses = Net loss($500 + $1,000) – ($1,300 + $1,200) = $1,000


13

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

Possible examples include:

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

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

c. The business incurs an expense on credit.

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

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

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


Assets Liabilities

+ Owner’s Equity

Cash + Accounts Receivable

+ Supplies + Equipment

= Accounts Payable

+ Annie Deweerd,

Capital

Explanation

a) + $2,500 +$2,500Owner Investment

b) + $4,000 +$4,000 Revenue

Totals $4,000 $ 0 $ 0 $2,500 $ 0 $6,500

c) + $150 + $150

Totals $4,000 $ 0 $150 $2,500 $150 $6,500

d) – $ 450 – $ 450 Sal. Expense

Totals $3,550 $ 0 $150 $2,500 $150 $6,050

e)*

Totals $3,550 $ 0 $150 $2,500 $150 $6,050


14

f) – $ 1,400

– $ 1,400 Rent Expense

Totals $2,150 $ 0 $150 $2,500 $150 $4,650

g) + $2,000 +$2,000 Revenue

Totals $2,150 $2,000 $150 $2,500 $150 $6,650

$6,800 = $6,800

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


15


Annie Deweerd – Freelance Writing

Income Statement

For Month Ended March 31, 2011

Revenues:

Freelance writing revenue $6,000

Operating expenses:

Salaries expense $ 450

Rent expense 1,400

Total operating expenses 1,850

Net income $4,150

Annie Deweerd – Freelance WritingStatement of Owner’s Equity


Annie Deweerd, capital, March 1 $ 0

Add: Investment by owner $2,500

Net income 4,150

6,650

Annie Deweerd, capital, March 31 $6,650


16


Balance SheetMarch 31, 2011

Assets Liabilities

Cash $2,150

Accounts payable $ 150

Accounts receivable 2,000

Supplies 150

Equipment 2,500

Owner’s Equity

Annie Deweerd, capital 6,650

Total assets $6,800

Total liabilities and owner’s equity

$6,800


17

Exercise 2-19 (concluded)

Analysis component:

a. Supplies of $150 were financed by accounts payable, a liability.b. Equipment of $2,500 was financed by owner investment, an

equity transaction.c. Cash of $2,150 and Accounts receivable of $2,000 were financed

by net income of $4,150. Net income includes the equity transactions of revenues and expenses (revenues of $6,000 less expenses of $1,850).


Assets Liabilities

+ Owner’s Equity



= Accounts Payable

+ Pete Jong, Capital

Explanation

a) + $500 +$15,000 +$15,500Owner Investment

b) +$400 +$400

Totals $500 $ 0 $400 $15,000 $400 $15,500

c) +$600 +$600

Totals $500 $ 0 $1,000 $15,000 $1,000 $15,500

d)*

Totals $500 $ 0 $1,000 $15,000 $1,000 $15,500

e) +$550 +$550 Revenue

Totals $500 $550 $1,000 $15,000 $1,000 $16,050

f) +$600 +$600 Revenue

Totals $500 $1,150 $1,000 $15,000 $1,000 $16,650

g) -$200 -$200

Totals $300 $1,150 $1,000 $15,000 $800 $16,650

h) -$250 -$250 Adv. Expense


18

Totals $50 $1,150 $1,000 $15,000 $800 $16,400

$17,200 = $17,200



19


Pete’s Yard Care

Income Statement


Revenues:

Yard care revenue $1,150

Operating expenses:

Advertising expense 250

Net income $ 900

Pete’s Yard Care

Statement of Owner’s Equity


Pete Jong, capital, March 1 $ 0


Net income 900 16,400

Pete Jong, capital, March 31 $16,400

Pete’s Yard Care


Assets Liabilities

Cash $ 50 Accounts payable $ 800



20

Supplies 1,000

Equipment 15,000

Owner’s EquityPete Jong, capital 16,400

Total assets $17,200

Total liabilities and

owner’s equity $17,200

Analysis component:

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


21


Assets Liabilities

+ Owner’s Equity



= Accounts Payable

+ Otto Ingles, Capital

Explanation

Bal. $4,000 $1,200 $900 $7,500 $4,000 $9,600

a) +$1,000 -$1,000

Totals $5,000 $200 $900 $7,500 $4,000 $9,600

b) -$2,000 -$2,000

Totals $3,000 $200 $900 $7,500 $2,000 $9,600

c) +$700 +$700 Revenue

Totals $3,700 $200 $900 $7,500 $2,000 $10,300

d) -$500 -$500 Wage Exp.

Totals $3,200 $200 $900 $7,500 $2,000 $9,800

e) -$1,200 -$1,200 Rent Exp.

Totals $2,000 $200 $900 $7,500 $2,000 $8,600

f) -$600 -$600 Utilities Exp.

Totals $1,400 $200 $900 $7,500 $2,000 $8,000

g) +$400 +$400 Revenue

Totals $1,400 $600 $900 $7,500 $2,000 $8,400

h)*

Totals $1,400 $600 $900 $7,500 $2,000 $8,400

$10,400 = $10,400

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


22


Otto’s Wrecking Service

Income Statement


Revenues:

Wrecking revenue $1,100

Operating expenses:

Rent expense $ 1,200

Wages expense 500

Utilities expense 600


Net loss $1,200




Otto Ingles, capital, July 1 $ 9,600

Less: Net loss 1,200



Balance SheetJuly 31, 2011


23

Assets Liabilities

Cash $1,400 Accounts payable $ 2,000

Accounts receivable 600

Supplies 900

Equipment 7,500

Owner’s EquityOtto Ingles, capital 8,400




Analysis component:

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




e) $80,000 – $65,000 = $15,000 net income

f) $92,000 – $149,000 = $57,000 net loss

g) $10,000 + 0 – 0 + x = $86,000


24

x = $86,000 – $10,000


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

x = –$13,000 or a $13,000 Net loss


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

Answers $ (24,750

) $36,000

$12,000

$21,500

$92,000


0


during the year 60,000 36,000 31,500 37,000 150,000


15,750 40,500 (4,500) 21,500 (8,000)


during the year (24,750) (27,000) (15,000) (15,750) (63,000)


$51,000 $49,500 $12,000

$42,750 $171,000


25







10,890Net income................................ $ 7,110






$87,750

Analysis component:



26




November 30, 2011


Analysis component:






$4,200


27


Total revenues.................... $ 4,500


4,620Net loss..................................... $ 120






Analysis component:



28





Analysis component:



29













$90,000 + x - $42,000 = $148,000; x = $100,000



30





$90,000 + $50,000 - $42,000 + x = $148,000; x = $50,000


a.


$20,000 + $5,000 = $25,000 Assets at August 1, 2011.


b.






Cash +Accounts

Receivable +Office




31

a) + $2,500

+ $2,500

Totals 2,500 2,500

b) + $200 + $200

Totals 2,500 200 200 2,500

c) + 600 + 600

Totals 3,100 200 200 3,100

d)*

Totals 3,100 200 200 3,100

e) – 1,500 – 1,500

Totals 1,600 200 200 1,600

f) + $1,250

+ 1,250

Totals $1,600 $1,250 $200 $200 $2,850

$3,050 = $3,050



32



Cash +Accounts

Receivable +Parts

Supplies +Equipmen



a) + $7,000 + $ 7,000

b) - 2,500 - 2,500

Totals $4,500 $ 4,500

c) + $1,200 + $1,200

Totals $4,500 $1,200 $1,200 $ 4,500

d) + $3,400 + $ 3,400

Totals $4,500 $3,400 $1,200 $1,200 $7,900

e) – $ 950 + $950

Totals $3,550 $3,400 $1,200 $950 $1,200 $7,900

f)*

Totals $3,550 $3,400 $1,200 $950 $1,200 $ 7,900

g) – $1,200 – $1,200

Totals $2,350 $3,400 $1,200 $950 $ 0 $7,900

h) + $1,400 + $ 1,400

Totals $3,750 $3,400 $1,200 $950 $ 0 $9,300

i) – $2,700 – $ 2,700

Totals $1,050 $3,400 $1,200 $950 $ 0 $6,600

$6,600 = $6,600




33





34


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




a. $25,000 $5,000 $30,000Investment


$23,700 $5,000 $28,700

c. +6,000 +6,000

$23,700 $11,000 $6,000 $28,700

d. + 500 + 500Revenue

$24,200 $11,000 $6,000 $29,200

e. +$1,000 + 1,000Revenue

$24,200 $1,000 $11,000 $6,000 $30,200

f. – 4,000 + 4,000

$20,200 $1,000 $15,000 $6,000 $30,200


$19,000 $1,000 $15,000 $6,000 $29,000


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h. + 250 – 250

$19,250 $750 $15,000 $6,000 $29,000

i. –6,000 – 6,000

$13,250 $750 $15,000 $ 0 $29,000


$13,000 $750 $15,000 $ 0 $28,750

$28,750 = $28,750



36










Assets Liabilities

+ Owner’s Equity



= Accounts Payable

+ Annie Deweerd,

Capital

Explanation


b) + $4,000 +$4,000 Revenue

Totals $4,000 $ 0 $ 0 $2,500 $ 0 $6,500

c) + $150 + $150

Totals $4,000 $ 0 $150 $2,500 $150 $6,500

d) – $ 450 – $ 450 Sal. Expense

Totals $3,550 $ 0 $150 $2,500 $150 $6,050

e)*

Totals $3,550 $ 0 $150 $2,500 $150 $6,050


37

f) – $ 1,400


Totals $2,150 $ 0 $150 $2,500 $150 $4,650

g) + $2,000 +$2,000 Revenue

Totals $2,150 $2,000 $150 $2,500 $150 $6,650

$6,800 = $6,800



38



Income Statement


Revenues:


Operating expenses:


Rent expense 1,400


Net income $4,150





Net income 4,150

6,650



39



Assets Liabilities

Cash $2,150



Supplies 150

Equipment 2,500

Owner’s Equity


Total assets $6,800


$6,800


40


Analysis component:

d. Supplies of $150 were financed by accounts payable, a liability.e. Equipment of $2,500 was financed by owner investment, an

equity transaction.f. Cash of $2,150 and Accounts receivable of $2,000 were financed



Assets Liabilities

+ Owner’s Equity



= Accounts Payable


Explanation


b) +$400 +$400

Totals $500 $ 0 $400 $15,000 $400 $15,500

c) +$600 +$600

Totals $500 $ 0 $1,000 $15,000 $1,000 $15,500

d)*

Totals $500 $ 0 $1,000 $15,000 $1,000 $15,500

e) +$550 +$550 Revenue

Totals $500 $550 $1,000 $15,000 $1,000 $16,050

f) +$600 +$600 Revenue

Totals $500 $1,150 $1,000 $15,000 $1,000 $16,650

g) -$200 -$200

Totals $300 $1,150 $1,000 $15,000 $800 $16,650



41

Totals $50 $1,150 $1,000 $15,000 $800 $16,400

$17,200 = $17,200



42


Pete’s Yard Care

Income Statement


Revenues:


Operating expenses:


Net income $ 900

Pete’s Yard Care







Pete’s Yard Care


Assets Liabilities




43

Supplies 1,000

Equipment 15,000





Analysis component:



44


Assets Liabilities

+ Owner’s Equity



= Accounts Payable


Explanation

Bal. $4,000 $1,200 $900 $7,500 $4,000 $9,600

a) +$1,000 -$1,000

Totals $5,000 $200 $900 $7,500 $4,000 $9,600

b) -$2,000 -$2,000

Totals $3,000 $200 $900 $7,500 $2,000 $9,600

c) +$700 +$700 Revenue

Totals $3,700 $200 $900 $7,500 $2,000 $10,300

d) -$500 -$500 Wage Exp.

Totals $3,200 $200 $900 $7,500 $2,000 $9,800

e) -$1,200 -$1,200 Rent Exp.

Totals $2,000 $200 $900 $7,500 $2,000 $8,600


Totals $1,400 $200 $900 $7,500 $2,000 $8,000

g) +$400 +$400 Revenue

Totals $1,400 $600 $900 $7,500 $2,000 $8,400

h)*

Totals $1,400 $600 $900 $7,500 $2,000 $8,400

$10,400 = $10,400



45



Income Statement


Revenues:


Operating expenses:


Wages expense 500



Net loss $1,200










46

Assets Liabilities



Supplies 900

Equipment 7,500





Analysis component:





i) $80,000 – $65,000 = $15,000 net income

j) $92,000 – $149,000 = $57,000 net loss

k) $10,000 + 0 – 0 + x = $86,000


47

x = $86,000 – $10,000


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

x = –$13,000 or a $13,000 Net loss


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

Answers $ (24,750

) $36,000

$12,000

$21,500

$92,000


0


during the year 60,000 36,000 31,500 37,000 150,000


15,750 40,500 (4,500) 21,500 (8,000)


during the year (24,750) (27,000) (15,000) (15,750) (63,000)


$51,000 $49,500 $12,000

$42,750 $171,000


48







10,890Net income................................ $ 7,110






$87,750

Analysis component:



49




November 30, 2011


Analysis component:






$4,200


50


Total revenues.................... $ 4,500


4,620Net loss..................................... $ 120






Analysis component:



51





Analysis component:



52













$90,000 + x - $42,000 = $148,000; x = $100,000



53





$90,000 + $50,000 - $42,000 + x = $148,000; x = $50,000


a.


$20,000 + $5,000 = $25,000 Assets at August 1, 2011.


b.






Cash +Accounts

Receivable +Office




54

a) + $2,500

+ $2,500

Totals 2,500 2,500

b) + $200 + $200

Totals 2,500 200 200 2,500

c) + 600 + 600

Totals 3,100 200 200 3,100

d)*

Totals 3,100 200 200 3,100

e) – 1,500 – 1,500

Totals 1,600 200 200 1,600

f) + $1,250

+ 1,250

Totals $1,600 $1,250 $200 $200 $2,850

$3,050 = $3,050



55



Cash +Accounts

Receivable +Parts

Supplies +Equipmen



a) + $7,000 + $ 7,000

b) - 2,500 - 2,500

Totals $4,500 $ 4,500

c) + $1,200 + $1,200

Totals $4,500 $1,200 $1,200 $ 4,500

d) + $3,400 + $ 3,400

Totals $4,500 $3,400 $1,200 $1,200 $7,900

e) – $ 950 + $950

Totals $3,550 $3,400 $1,200 $950 $1,200 $7,900

f)*

Totals $3,550 $3,400 $1,200 $950 $1,200 $ 7,900

g) – $1,200 – $1,200

Totals $2,350 $3,400 $1,200 $950 $ 0 $7,900

h) + $1,400 + $ 1,400

Totals $3,750 $3,400 $1,200 $950 $ 0 $9,300

i) – $2,700 – $ 2,700

Totals $1,050 $3,400 $1,200 $950 $ 0 $6,600

$6,600 = $6,600




56





57


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




a. $25,000 $5,000 $30,000Investment


$23,700 $5,000 $28,700

c. +6,000 +6,000

$23,700 $11,000 $6,000 $28,700

d. + 500 + 500Revenue

$24,200 $11,000 $6,000 $29,200

e. +$1,000 + 1,000Revenue

$24,200 $1,000 $11,000 $6,000 $30,200

f. – 4,000 + 4,000

$20,200 $1,000 $15,000 $6,000 $30,200


$19,000 $1,000 $15,000 $6,000 $29,000


58

h. + 250 – 250

$19,250 $750 $15,000 $6,000 $29,000

i. –6,000 – 6,000

$13,250 $750 $15,000 $ 0 $29,000


$13,000 $750 $15,000 $ 0 $28,750

$28,750 = $28,750



59










Assets Liabilities

+ Owner’s Equity



= Accounts Payable

+ Annie Deweerd,

Capital

Explanation


b) + $4,000 +$4,000 Revenue

Totals $4,000 $ 0 $ 0 $2,500 $ 0 $6,500

c) + $150 + $150

Totals $4,000 $ 0 $150 $2,500 $150 $6,500

d) – $ 450 – $ 450 Sal. Expense

Totals $3,550 $ 0 $150 $2,500 $150 $6,050

e)*

Totals $3,550 $ 0 $150 $2,500 $150 $6,050


60

f) – $ 1,400


Totals $2,150 $ 0 $150 $2,500 $150 $4,650

g) + $2,000 +$2,000 Revenue

Totals $2,150 $2,000 $150 $2,500 $150 $6,650

$6,800 = $6,800



61



Income Statement


Revenues:


Operating expenses:


Rent expense 1,400


Net income $4,150





Net income 4,150

6,650



62



Assets Liabilities

Cash $2,150



Supplies 150

Equipment 2,500

Owner’s Equity


Total assets $6,800


$6,800


63


Analysis component:

g. Supplies of $150 were financed by accounts payable, a liability.h. Equipment of $2,500 was financed by owner investment, an

equity transaction.i. Cash of $2,150 and Accounts receivable of $2,000 were financed



Assets Liabilities

+ Owner’s Equity



= Accounts Payable


Explanation


b) +$400 +$400

Totals $500 $ 0 $400 $15,000 $400 $15,500

c) +$600 +$600

Totals $500 $ 0 $1,000 $15,000 $1,000 $15,500

d)*

Totals $500 $ 0 $1,000 $15,000 $1,000 $15,500

e) +$550 +$550 Revenue

Totals $500 $550 $1,000 $15,000 $1,000 $16,050

f) +$600 +$600 Revenue

Totals $500 $1,150 $1,000 $15,000 $1,000 $16,650

g) -$200 -$200

Totals $300 $1,150 $1,000 $15,000 $800 $16,650



64

Totals $50 $1,150 $1,000 $15,000 $800 $16,400

$17,200 = $17,200



65


Pete’s Yard Care

Income Statement


Revenues:


Operating expenses:


Net income $ 900

Pete’s Yard Care







Pete’s Yard Care


Assets Liabilities




66

Supplies 1,000

Equipment 15,000





Analysis component:



67


Assets Liabilities

+ Owner’s Equity



= Accounts Payable


Explanation

Bal. $4,000 $1,200 $900 $7,500 $4,000 $9,600

a) +$1,000 -$1,000

Totals $5,000 $200 $900 $7,500 $4,000 $9,600

b) -$2,000 -$2,000

Totals $3,000 $200 $900 $7,500 $2,000 $9,600

c) +$700 +$700 Revenue

Totals $3,700 $200 $900 $7,500 $2,000 $10,300

d) -$500 -$500 Wage Exp.

Totals $3,200 $200 $900 $7,500 $2,000 $9,800

e) -$1,200 -$1,200 Rent Exp.

Totals $2,000 $200 $900 $7,500 $2,000 $8,600


Totals $1,400 $200 $900 $7,500 $2,000 $8,000

g) +$400 +$400 Revenue

Totals $1,400 $600 $900 $7,500 $2,000 $8,400

h)*

Totals $1,400 $600 $900 $7,500 $2,000 $8,400

$10,400 = $10,400



68



Income Statement


Revenues:


Operating expenses:


Wages expense 500



Net loss $1,200










69

Assets Liabilities



Supplies 900

Equipment 7,500





Analysis component:


Chapter 3 Analyzing and Recording Transactions

EXERCISES


Cash Accounts Payable

(a) 25,500 750 (b) (e) 14,100 14,100 (c)

(d) 3,000 14,100 (e) 0 Balance

(h) 2,250 1,050

(g)

2,000 (i) Ella Tims, Capital

Balance 12,850 25,500 (a)

25,500 Balance


70

Accounts Receivable

(f) 5,400 2,250 (h) Ella Tims, Withdrawals

Balance 3,150 (i) 2,000

Balance 2,000

Office Supplies

(b) 750 Fees Earned

Balance 750 3,000 (d)

5,400 (f)

Office Equipment 8,400 Balance

(c) 14,100

Balance 14,100 Rent Expense

(g) 1,050

Balance 1,050



71

Cash Neil Simon, Capital

Jan. 31

700 4,000 Feb. 14 800 Jan. 31

Feb. 2 2,800 60 23 800 Bal.

20 2,400 1,000 25

800 26

Bal. 40 Neil Simon, Withdrawals

Jan. 31

-0-

Accounts Receivable Feb. 25

1,000

Jan. 31

1,200 2,400

Feb. 20 Bal. 1,000

Feb. 12 15,000

18 1,900 Service Revenue

Bal. 15,700 2,600 Jan. 31

2,800 Feb. 2

Prepaid Insurance 15,000 12

Jan. 31

-0- 1,900 18

Feb. 14 4,000 22,300 Bal.

Bal. 4,000

Wages Expense

Computer Equipment Jan. 31 1,080

Jan. 31

480 Feb. 26 800

Feb. 10 7,600 Bal. 1,880

Bal. 8,080

Accounts Payable

Feb. 23 60 60 Jan. 31


NOTE: There is no entry to be recorded for February 21.

72

-0- Bal.

Notes Payable

-0- Jan. 31

7,600 Feb. 10

7,600 Bal.

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


73


Cash Nels Sigurdsen, Withdrawals

Mar. 31

1,800 400 Apr. 10

Mar. 31

500

Apr. 2

780 300 15 Apr. 29

1,000

19

2,000 1,000 29 Bal. 1,500

Bal. 2,880

Repair Revenue

Accounts Receivable 14,000 Mar. 31

Mar. 31

4,800 2,000 Apr. 19

780 Apr. 2

Apr. 18

1,200 1,200 18

Bal. 4,000 15,980 Bal.

Repair Supplies Rent Expense

Mar. 31

1,400 Mar. 31

950

Apr. 9

890 Apr. 25

250

Bal. 2,290 Bal. 1,200

Equipment

Mar. 31

7,400

Apr. 15

300

Bal. 7,700

Accounts Payable

Apr.10

400 500 Mar. 31


74

890 Apr. 9

250 25

1,240 Bal.

Nels Sigurdsen, Capital

2,350 Mar. 31

2,350 Bal.

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


75


2.

GENERAL JOURNAL Page 1Date

Account Titles and Explanations

PR Debit Credit

2011July

1

Cash 101 5,000

Sue Ware, Capital 301 5,000 To record investment by owner.

10

Equipment 150 2,500

Accounts Payable 201 2,500 Purchased equipment on credit.

12

Cash 101 10,000

Revenue 401 10,000 Performed services for cash.

14

Expenses 501 3,500

Cash 101 3,500 Paid expenses.

15

Accounts Receivable 106 1,500

Revenue 401 1,500Completed services on account.

31

Sue Ware, Withdrawals 302 250


76

Cash 101 250 Owner withdrew cash.


77

Exercise 3-4 (continued)

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

1 and 3.

Cash

101July 1 5,000 3,500 July 14

12

10,000 250 31

Balance 11,250

Accts. Receivable

106July 15

1,500

Equipment

150July 10 2,500

Accounts Payable

2012,500 July 10

Sue Ware,Capital 301

5,000 July 1


78

Sue Ware,Withdrawals 302

July 31 250

Revenue

40110,000 July 12

1,500 15

11,500 Balance

Expenses

501July 14 3,500


79


1 and 3.

CashAccount No. 101

Date Explanation PR Debit Credit Balance

2011

July 1 G1 5,000 5,000

12 G1 10,000 15,000

14 G1 3,500 11,500

31 G1 250 11,250

Accounts ReceivableAccount No. 106


2011

July 15G1

1,500 1,500

EquipmentAccount No. 150


2011

July 10 G1 2,500 2,500

Accounts PayableAccount No. 201


2011

July 10 G1 2,500 2,500

Sue Ware, CapitalAccount No. 301



80

2011

July 1 G1 5,000 5,000

Sue Ware, WithdrawalsAccount No. 302


2011

July 31 G1 250 250

RevenueAccount No. 401


2011

July 12 G1 10,000 10,000

15 G1 1,500 11,500

ExpensesAccount No. 501


2011

July 14 G1 3,500 3,500


4.DelaWare

Trial BalanceJuly 31, 2011

Acct. No. Account Title Debit

Credit

101 Cash $11,250

106 Accounts receivable 1,500

150 Equipment 2,500


81

201 Accounts payable $ 2,50

0 301 Sue Ware, capital 5,00

0 302 Sue Ware, withdrawals 250 401 Revenue 11,5

00 501 Expenses 3,

500 Totals $19,

000$19,000

5.DelaWare

Income Statement


Revenue $11,500

Expenses 3,500

Net income $8,000

DelaWareStatement of Owner’s Equity

For Month Ended July 31, 2011Sue Ware, capital, July 1 $

0Add: ....Investments by owner $5,0

00Net income 8,0

00 13,000

Total 13,000

Less: Withdrawals by owner 250


82

Sue Ware, capital, July 31 $12,750


83


5. (concluded)DelaWare


Assets Liabilities



Equipment 2,500 Owner’s Equity

Sue Ware, capital 12,750


Total assets $15,250 owner’s equity $15,250

Analysis component:Accounts receivable result from credit sales to customers (debit accounts receivable and credit a revenue). Sales, or revenue, is part of equity. As revenues on account are recorded, assets on the one side of the accounting equation increase and equity on the opposite side of the accounting equation also increases. Therefore, accounts receivable are financed by, or created by, an equity transaction.


Note: Students could choose any account number within the specified range.

Account Number Account Name

110 Cash

115 Accounts Receivable

160 Office Equipment

210 Accounts Payable


84

215 Unearned Revenue

310 Wes Bosse, Capital

320 Wes Bosse, Withdrawals

410 Consulting Revenues

510 Salaries Expense

520 Rent Expense

530 Utilities Expense


85

Exercise 3-6 (30 Minutes)

2.

Cash 110

Accounts Receivable

115

Office Equipment 160

Accounts Payable

210

Bal 11,500

2,000

Feb 5

Bal 6,000

Bal 12,500

Feb 5

2,000

3,000

Bal

Feb 1

8,500

500 17 1,000

Bal

10 2,500

10,000

28

Bal 10,000

Unearned Revenue

215

Wes Bosse, Capital

310

Wes Bosse, Withdrawals

320

Consulting Revenues

410

500 Bal 9,500

Bal Bal 2,000

37,500

Bal

2,500

Feb 10

Feb 17

500 8,500

Feb 1

3,000

Bal Bal 2,500

46,000

Bal

Salaries Expense

510

Rent Expense 520

Utilities Expense 530

Bal 10,000

Bal 7,500

Bal 1,000

Feb 28

10,000

Bal 20,000

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87


1. General Journal Page G1Date

Account Titles and Explanations

PR Debit Credit

2011Feb.

1

Cash 101

8,500

Consulting Revenues

410

8,500

Performed work for cash.

5 Accounts Payable 210

2,000

Cash 101

2,000

Paid account.

10

Cash 101

2,500

Unearned Revenue 215

2,500

Received cash in advance.

12

No entry.

17

Wes Bosse, Withdrawals

320

500

Cash 101

500

Owner withdrew cash.

28

Salaries Expense 510

10,000

Cash 101

10,000

Paid salaries.

3.


88

Bosse AdvisorsTrial Balance

February 28, 2011Acct. No. Account Title Debit Credit101 Cash $

10,000115 Accounts receivable 6,000160 Office equipment 12,500210 Accounts payable $

1,000215 Unearned revenue 3,000310 Wes Bosse, capital 9,500320 Wes Bosse, withdrawals 2,500410 Consulting revenues 46,00

0510 Salaries expense 20,000520 Rent expense 7,500530 Utilities expense 1,00

0Totals $59,50

0$59,5

00


89


4.Bosse AdvisersBalance Sheet

February 28, 2011Assets Liabilities

Cash $10,000

Accounts payable $ 1,000

Accounts receivable

6,000 Unearned revenue 3,000

Office equipment 12,500

Total liabilities $ 4,000

Owner’s EquityWes Bosse, capital 24,50

0 1 Total liabilities and



1 Capital = 9,500 Opening Balance+ 46,000 Revenues– 28,500 Salaries, Rent and Utilities expenses– 2,500 Withdrawals= 24,500 Closing Balance

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


90


a. Cash................................................................................................................ 7,000

Equipment................................................................................................... 5,600

Automobiles............................................................................................... 11,000

Jerry Steiner, Capital.................... 23,600Owner invested cash, an automobile and equipment in

the business.

b. Prepaid Insurance............................. 3,600Cash...................................................................................................... 3,600

Purchased insurance coverage in advance.

c. Office Supplies.................................. 600Cash...................................................................................................... 600

Purchased supplies with cash.

d. Office Supplies.................................. 200Equipment................................................................................................... 9,400

Accounts Payable........................................................................... 9,600

Purchased supplies and equipment on credit.

e. Cash................................................. 2,500Delivery Services Revenue......................................................... 2,500

Received cash from customer.

f. Accounts Payable.............................. 2,400Cash...................................................................................................... 2,400

Made payment on payables.

g. Gas and Oil Expense.......................... 700Cash...................................................................................................... 700

Paid for gas and oil.


91

Exercise 3-8 (20 minutes)2011

April 5 Cash 1,500

Surgical Revenues 1,500

Performed surgery and collected cash.

8 Supplies 3,000

Accounts Payable 3,000

Purchased surgical supplies on credit.

15 Salaries Expense 57,000

Cash 57,000

Paid salaries.

20 Accounts Payable 3,000

Cash 3,000

Paid for the credit purchase of April 8.

21 No entry.

22 Accounts Receivable 9,000

Surgical Revenues 9,000

Performed six surgeries on credit;

$1,500 x 6 = $9,000

29 Cash 3,000

Accounts Receivable 3,000


92

Collection from credit customers of April 22.

30 Utilities Expense 1,800

Cash 1,800

Paid the April utilities.


93


b. Accounts Receivable........................... 2,700Services Revenue.......................... 2,700

Provided services on credit.

c. Cash.................................................. 3,150Services Revenue.......................... 3,150

Provided services for cash.

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

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

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

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

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


b. Salaries Expense............................... 1,125Cash............................................ 1,125

Paid the salary of the receptionist.

d. Utilities Expense............................... 930Cash............................................ 930

Paid the utilities for the office.

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

a. This transaction decreased assets in settlement of a previously existing liability. Thus, the using up of assets did not reduce owner’s equity.


94

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

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


95


Parts a and b:

CashAccount No. 101


2010

Dec.31 Beginning balance 850

2011

Jan. 1 G1 3,500 4,350

20 G1 2,000 2,350

31 G1 5,000 7,350

31 G1 3,000 4,350

31 G1 750 3,600

Accounts ReceivableAccount No. 106


2010


2011

Jan.12 G1 9,000 9,300

31 G1 5,000 4,300


96

EquipmentAccount No. 167


2010

Dec.31 Beginning balance 1,500

2011

Jan.20 G1 12,000 13,500

Accounts PayableAccount No. 201


2010


2011

Jan.20 G1 10,000 10,325

Jay Walker, CapitalAccount No. 301


2010


2011

Jan. 1 G1 3,500 5,825


97

Exercise 3-11 (Parts a and b continued)

Jay Walker, WithdrawalsAccount No. 302


2010


2011

Jan.31 G1 750 1,050

Fees Earned Account No. 401


2010


2011

Jan.12 G1 9,000 10,800

Salaries Expense Account No. 622


2010


2011

Jan.31 G1 3,000 4,500


98

Exercise 3-11 (Parts a and b continued)

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

General Journal Page 1

Date Account Titles and Explanations PR Debit Credit

2011

Jan. 1 Cash 101

3,500

Jay Walker, Capital 301

3,500

Additional owner investment.

12 Accounts Receivable 106

9,000

Fees Earned 401

9,000

Performed work for a customer on account.

20 Equipment 167

12,000

Cash 101

2,000

Accounts Payable 201

10,000

Purchased equipment paying cash and the

balance on credit.

31 Cash 101

5,000

Accounts Receivable 106

5,000

Collected cash from credit customer.

31 Salaries Expense 62 3,000


99

2

Cash 101

3,000

Paid month end salaries.

31 Jay Walker, Withdrawals 302

750

Cash 101

750

Jay Walker withdrew cash for personal use.


Analysis component:All of the details regarding a transaction, such as serial numbers or invoice numbers, form part of the journal entry recorded in the journal. The general ledger does not accommodate these kind of very necessary details. Therefore, we need to journalize to ensure important details are readily available.

The general ledger summarizes by account all of the transactions recorded in the journal. For example, without the ledger, we would not be able to determine the balance in cash without going through the journal and adding/subtracting all of the individual transactions. The ledger allows us to have account balance information.

In summary, although it appears that journalizing and posting are recording the same information twice, the journal and ledger each serve different and important functions in the accounting system.

Exercise 3-12 (25 minutes)General Journal Page G1

Date Account Titles and Explanations

PR Debit Credit


100

2011

Aug. 1 Cash 101

15,000

Photography Equipment 167

17,000

Tara Harper, Capital 301

32,000

Owner invested in the business.

1 Prepaid Rent 131

6,500

Cash 101

6,500

Rented studio space.

5 Office Supplies 124

1,800

Cash 101

1,800

Purchased office supplies.

20 Cash 101

9,200

Photography Fees Earned 401

9,200

Collected photography fees.

31 Utilities Expense 690

1,100

Cash 101

1,100

Paid for August utilities.

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


101


Cash Account No. 101


2011Aug. 1 G1 15,000 15,000

1 G1 6,500 8,500

5 G1 1,800 6,700

20 G1 9,200 15,900

31 G1 1,100 14,800

Office SuppliesAccount No. 124


2011

Aug.5

G11,800 1,800

Prepaid RentAccount No. 131


2011

Aug. 1G1

6,500 6,500

Photography EquipmentAccount No. 167


2011

Aug.1 G1 17,000 17,000


102

Tara Harper, CapitalAccount No. 301


2011

Aug. 1 G1 32,000 32,000

Photography Fees EarnedAccount No. 401


2011

Aug.20 G1 9,200 9,200

Utilities Expense Account No. 690


2011

Aug.31 G1 1,100 1,100


103


THE PIXEL SHOPTrial Balance

August 31, 2011

AcctNo. Account Title Debit Credit101 Cash........................................................ $ 14,800

124 Office supplies................................... 1,800

131 Prepaid rent....................................... 6,500

167 Photography equipment............... 17,000

301 Tara Harper, capital........................ $32,000

401 Photography fees earned............. 9,200

690 Utilities expense............................... 1,100

Totals..................................................... $41,200 $41,200

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


104


Cash 101 Office Supplies

124 Prepaid Rent

131

Aug. 1

15,000

6,500

Aug. 1 Aug. 5

1,800

Aug. 1

6,500

20

9,200 1,800

5

1,100

31

Bal 14,800

Photography Equipment

167

Tara Harper, Capital 301

Aug. 1

17,000

32,000

Aug. 1

Photography Fees Earned

401

Utilities Expense

690

9,200

Aug. 20

Aug. 31

1,100

THE PIXEL SHOPTrial Balance

August 31, 2011

Acct.No. Account Title Debit Credit101 Cash........................................................................... $ 14,800

124 Office supplies....................................................... 1,800

131 Prepaid rent........................................................... 6,500

167 Photography equipment.................................. 17,000

301 Tara Harper, capital........................................... $32,000

401 Photography fees earned................................. 9,200

690 Utilities expense................................................... 1,100

Totals........................................................................ $41,200 $41,200


105

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


106


Hogan’s Consulting

Income Statement

For Year Ended December 31, 2011

Consulting fees earned $46,000

Operating expenses: Wages expense $37,

000 Rent expense 14,0

00 Total operating expenses 51,0

00Net loss $

5,000

Hogan’s ConsultingStatement of Owner’s Equity


Lisa Hogan, capital, January 1 $ 0

Add: ....Investments by owner 50,000

Total $50,000

Less: Withdrawals by owner $2,000

Net loss 5,000

7,000

Lisa Hogan, capital, December 31

$43,000

Hogan’s ConsultingBalance Sheet

December 31, 2011Assets Liabilities


107

Cash $12,000 Accounts payable $ 800

Cleaning supplies 8,300 Notes payable 53,500

Prepaid rent 5,000 Total liabilities $54,300

Equipment 72,000 Owner’s Equity

Lisa Hogan, capital 43,000


Total assets $97,300 owner’s equity $97,300


Analysis component:Losses cause equity to decrease. If equity decreases, either assets have to decrease and/or liabilities must increase to keep the balance sheet in balance. Therefore, if Hogan’s Consulting continues to experience losses, there are two short-term alternatives available to prevent a decrease in assets. First, the business could borrow which would increase liabilities and temporarily increase assets until payments had to be made. Longer term, the cash to make the payments cannot be borrowed. Second, Lisa Hogan, the owner, could invest additional assets into the business which would increase equity and assets. However, for the long-term, the owner does not want to support the business through continual investments; the

108


JenCoIncome Statement


Revenues:

Service revenue $1,900

Operating expenses:


Interest expense 10

Total operating expenses 810

Net income $1,090

JenCo



Marie Jensen, capital, March 1 $ 0


Net income 1,090 $3,140

Total $3,140

Less: Withdrawal by owner 1,500

Marie Jensen, capital, March 31 $1,640

JenCo

Balance Sheet

March 31, 2011

Assets Liabilities

Cash $1,000 Accounts payable $ 260

Accounts receivable 950 Unearned service revenues 250


109

Prepaid insurance 300 Notes payable 800

Equipment 700 Total liabilities $1,310

Owner’s Equity

Marie Jensen, capital 1,640

Total assets $2,950 Total liabilities and owner’s equity $2,950


110


Bentley Marketing Services

Income StatementFor Month Ended March 31, 2011

Revenues:

Fees earned $170,000

Operating expenses:

Wages expense $166,000

Office supplies expense 7,000


Net loss $ 3,000


Statement of Owner’s EquityFor Month Ended March 31, 2011

Dee Bentley, capital, March 1 $112,000*

Add: Investment by owner 10,000

Total $122,000

Less: Withdrawal by owner $ 18,000

Net loss 3,000 21,000

Dee Bentley, capital, March 31 $101,000



Assets Liabilities

Cash $ 30,000 Accounts payable $ 46,000

Accounts receivable 14,000 Notes payable 146,000


111

Office supplies 3,000 Total liabilities $ 192,000

Building 80,000

Land 116,000 Owner’s Equity

Machinery 50,000 Dee Bentley, capital 101,000

Total assets $293,000 Total liabilities and owner’s equity $293,000

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


112


Description

(1)Difference

between Debit and Credit Columns

(2)Column with the Larger Total

(3)Identify

account(s) incorrectly

stated

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

a. A $2,400 debit to Rent Expense was posted as a $1,590 debit.

$810 Credit Rent Expense

Rent Expense is understated by

$810

b. A $42,000 debit to Machinery was posted as a debit to Accounts Payable.

$0 — Machinery

Accounts Payable

Machinery is understated by

$42,000 and Accounts Payable is understated by

$42,000

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

$4,455 Debit Services Revenue

Services Revenue is understated by

$4,455

d. A $1,440 debit to Store Supplies was not posted at all.

$1,440 Credit Store Supplies

Store Supplies is understated by

$1,440

e. A $2,250 debit to Prepaid Insurance was posted as a debit to Insurance Expense.

$0 — Prepaid Insurance

Insurance Expense

Prepaid Insurance is understated by

$2,250 and Insurance Expense

is overstated by $2,250

f. A $4,050 credit to Cash was posted twice as two credits to the Cash account.

$4,050 Credit Cash Cash is understated by

$4,050

g. A $9,900 debit to the owner’s withdrawals account was debited to the owner’s capital account.

$0 — Owner’s Capital

Owner’s Withdrawals

Owner’s Capital account is

understated by $9,900

Owner’s Withdrawals is understated by

$9,900


113


114


a. 1. Dr = Cr2. Accounts Receivable is understated (too low) by

$3,500 and Revenue is understated by $3,500.

b. 1. Dr = Cr2. Accounts Payable is overstated (too high) by

$600 and Cash is overstated by $600.

c. 1. Dr Cr 2. Cash is overstated by $180.

d. 1. Dr Cr 2. Accounts Receivable is overstated.

e. 1. Dr = Cr 2. Accounts Payable is understated by $2,000 and

Equipment is understated by $2,000.

Exercise 3-20 (15 minutes)Case A:

1. Subtract total debits in the trial balance from total credits5,010 – 4,290 = 720

2. Divide the difference by 9720 9 = 80

3. The quotient equals the difference between the two transposed numbers.The difference between the correct number and the incorrect number is 80.

4. The number of digits in the quotient tells us the location of the transposition.Look for a difference of 8 between the second number from the right and the third number from the right.

Through a process of elimination, the incorrect value is Accounts Payable of $190. The correct value must be $910.

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


115


Case B:

1. Subtract total debits in the trial balance from total credits34,400 – 28,100 = 6,300

2. Divide the difference by 9 to reveal a slide error6,300 9 = 700

3. The quotient identifies a slide error and equals the correct value.

Through a process of elimination, the incorrect value is Withdrawals for $7,000. The correct value must be $700.

Proof: Recalculate the trial balance replacing $700 for the incorrect $7,000 and the trial balance now balances at $28,100.

Case C:

1. Subtract total debits in the trial balance from total credits942 – 906 = 36

2. Divide the difference by 936 9 = 4

3. The quotient equals the difference between the two transposed numbers.The difference between the correct number and the incorrect number is 4.

4. The number of digits in the quotient tells us the location of the transposition.Look for a difference of 4 between the first number from the right and the second number from the right.

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


116

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

Chapter 4 Adjusting Accounts for

Financial StatementsEXERCISES


1. a 7. c

2. e 8. f

3. c 9. f

4. b 10. f

5. f 11. d

6. b 12. f



117

2011

a)

Dec.

31 Amortization Expense, Equipment 32,000

Accumulated Amortization, Equipment

32,000

To record amortization expense for the year.

b)

31 Insurance Expense 11,920

Prepaid Insurance 11,920 To record insurance coverage that expired during the year; $14,000 – $2,080.

c)

31 Office Supplies Expense 5,252

Office Supplies 5,252 To record office supplies consumed during the year; $600 + $5,360 – $708.

d)

31 Unearned Fee Revenue 20,000

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

e)


Prepaid Insurance 9,200 To record insurance coverage that expired during the year.

f) 31 Wages Expense 8,000 Wages Payable 8,000 To record wages accrued but not yet paid.

2012

g)

Jan. 6 Wages Payable 8,000

Wages Expense 12,000


118

Cash 20,000 To record the payment of wages.


119


2011

a) Dec. 31 Unearned Revenue 16,000

Revenue 16,000

To record earned revenue;

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

b) 31 Amortization Expense, Building 10,500

Accumulated Amortization, Building 10,500

To record amortization expense.

c) 31 Spare Parts Expense 350

Spare Parts Inventory 350

To record the use of spare parts inventory;

$450 - $100 = $350.

d) 31 Accounts Receivable 3,550

Revenue 3,550

To record accrued revenue.

e) 31 Utilities Expense 1,300

Utilities Payable (or Accounts Payable) 1,300

To record accrued utilities.

2012


120

f) Jan. 4 Cash 3,550


To record collection of accrued revenues.

g) 14 Utilities Payable (or Accounts Payable) 1,300

Cash 1,300

To record payment of accrued utilities.


2011

a) Sept. 30 Unearned Revenue 12,000

Revenue 12,000

To record earned revenue.

b) 30 Amortization Expense, Furniture 150

Accumulated Amortization, Furniture 150

To record amortization for one month;

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


c) Sept.


Office Supplies 5,000

To record the use of office supplies.


Revenue 28,000


121


e) 30 Rent Expense 7,000

Rent Payable (or Accounts Payable) 7,000

To record accrued rent.

f) Oct. 3 Cash 28,000


To record collection of accrued revenue.

g) 4 Rent Payable (or Accounts Payable) 7,000

Cash 7,000

To record payment of accrued rent.


a) Mar. 31 Unearned Rent 7,500

Rent Earned 7,500

Earned five months’ rent previously paid in advance; $1,500 x 5 = $7,500.

b) 31 Rent Receivable 2,700

Rent Earned 2,700

Earned two months’ rent that has not yet

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


122

c) Apr. 22 Cash 4,050

Rent Receivable 2,700

Rent Earned 1,350

Collected rent for February, March, and April.


123


2011

a) Dec. 31 Accounts Receivable 2,000

Fees Earned (or Revenue) 2,000

To record accrued fees earned.

b) 31 Rent Expense 8,000

Prepaid Rent 8,000

To record expired rent.

c) 31 Amortization Expense, Machinery 400

Accumulated Amortization, Machinery 400


d) 31 Unearned Fees 2,800


To record fees earned.

e) 31 Salaries Expense 5,000

Salaries Payable 5,000

To record accrued salaries.

Exercise 4-7 (15 minutes)a. $1,650 (300 + 2,100 – 750 = 1,650)b. $5,700 (1,600 + 5,400 – 1,300 = 5,700)c. $10,080 (9,600 + 1,840 – 1,360 = 10,080)d. $1,375 (6,575 + 800 – 6,000 = 1,375)


124

Proof:(a) (b) (c) (d)

Supplies on hand—January 1 $ 300 $1,600 $ 1,360 $1,375

Supplies purchased during the year 2,100 5,400 10,080

6,000

Total supplies available $2,400 $7,000 $11,440 $7,375

Supplies on hand—December 31 (750) (5,700) (1,840) (800)

Supplies expense for the year $1,650 $1,300 $ 9,600 $6,575


125


Adjusting entry:

2012Dec.31 Wages Expense.......................................... 1,000

Wages Payable.....................................1,000

Adjusting entry to record accrued wages for one day; 5 × $200.

Payday entry:

2013Jan. 4 Wages Expense.......................................... 3,000

Wages Payable........................................... 1,000Cash......................................................

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


2011

a) Apr. 30 Interest Expense 2,080

Interest Payable 2,080

To record accrued interest expense;

0.8% × $780,000 × 10/30.

May 20 Interest Payable 2,080

Interest Expense 4,160

Cash 6,240

To record payment of accrued and current

expense; 0.8% × $780,000 × 20/30.

201


126

1

b) Apr. 30 Salaries Expense 3,600


To record accrued salaries;

$9,000/5 days = $1,800/day;

2 days x $1,800 = $3,600.

May 3 Salaries Payable 3,600

Salaries Expense 5,400

Cash 9,000

To record payment of accrued and current salaries; 3 days x $1,800 = $5,400.


2011

c) Apr. 30 Legal Fees Expense 2,500

Legal Fees Payable 2,500

To record accrued legal fees.

May 12 Legal Fees Payable 2,500

Cash 2,500

To pay accrued legal fees.


2011

Dec.31 Accounts Receivable.................................. 3,600Fees Earned..........................................

3,600To record unbilled fees; 30% × $12,000.


127

31 Unearned Fees........................................... 8,400Fees Earned..........................................

8,400To record earned fees that had been collected in advance; 70% × $12,000.

31 Amortization Expense, Computers............. 3,000Accumulated Amortization, Computers

3,000To record amortization on computers.

31 Amortization Expense, Office Furniture...... 3,500Accumulated Amortization,

Office Furniture..................................3,500

To record amortization on office furniture.

31 Salaries Expense........................................ 4,900Salaries Payable....................................

4,900To record accrued salaries.

31 Insurance Expense..................................... 2,600Prepaid Insurance.................................

2,600To record expired prepaid insurance.

31 Office Supplies Expense............................. 960Office Supplies......................................

960To record use of office supplies.

31 Utilities Expense.......................................... 140Utilities Payable......................................

140 To record unpaid utility costs.


Analysis component:

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


128


Ayotte Music

Partial Work Sheet

February 28, 2011

Account

Unadjusted Trial Balance

Adjustments

Adjusted Trial Balance

Debit Credit Debit Credit Debit Credit

Cash 5,000 5,000

Accounts receivable 4,500 c)

1,400

5,900

Prepaid insurance 700 b)250

450

Equipment 12,000 12,000

Accumulated amortization, equipment

6,000 a)2,400 8,400

Accounts payable 1,200 1,200

Jane Adams, capital 9,000 9,000

Jane Adams, withdrawals 3,000 3,000

Revenues 45,000 c)1,400 46,400

Amortization expense, equipment 0 a)2,400 2,400

Salaries expense 29,000 29,000

Insurance expense 7,000 b) 250 7,250

Totals 61,200 61,200 4,050 4,050 65,000 65,000


129


Ayotte Music

Income Statement

For Year Ended February 28, 2011

Revenue $46,400

Operating expenses:

Salaries expense $29,000

Insurance expense 7,250

Amortization expense, equipment 2,400


Net income $ 7,750

Ayotte Music



Jane Adams, capital, March 1 $ 9,000

Add: Net income 7,750

Total $16,750


Jane Adams, capital, February 28 $13,750

Ayotte Music

Balance Sheet

February 28, 2011

Assets


130

Cash $ 5,000


Prepaid insurance 450

Office equipment $12,000

Less: Accumulated amortization, office equipment 8,400 3,600


Liabilities


Owner’s Equity

Jane Adams, capital 13,750

Total liabilities and owner’s equity $14,950


131


Analysis component:

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

*Exercise 4-13

a) Cash 1,800



132

To correct the original entry.

OR

Cash

1,800

Office Supplies

1,800

To reverse the incorrect entry.

Office Supplies

1,800


133

Accounts Payable

1,800

To journalize the correct entry.

b) Revenue 4,500



134


OR

Revenue

4,500

Cash

4,500


Cash

4,500


135

Accounts Receivable

4,500


c) Withdrawals 1,500



136


OR

Cash 1,500



Withdrawals 1,500


137

Cash 1,500



138

*Exercise 4-13 (concluded)

d) Accounts Receivable 750

Revenue 750


OR


Cash 750


Cash 750

Revenue 750


Analysis component:

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

*Exercise 4-14 (30 minutes)

2011a) Dec. 1 Supplies Expense.................................. 6,000

Cash...............................................6,000

Purchased supplies.b) 2 Insurance Expense................................ 2,880

Cash...............................................2,880

Paid insurance premiums.c) 15 Cash......................................................24,000

Remodelling Fees Earned...............24,000

Received fees for work to be done.Adjusting entries:

2011d) Dec. 31 Supplies................................................ 3,840


139

Supplies Expense............................3,840

Adjusted expense for unused supplies on hand.e) 31 Prepaid Insurance................................. 2,400

Insurance Expense.........................2,400

Adjusted expense for unexpired coverage; $2,880 – $480.

f) 31 Remodelling Fees Earned.....................16,800 Unearned Remodelling Fees...........

16,800 Adjusted revenues for unfinished projects; $24,000 – $7,200.


140


a) Initial credit recorded in Unearned Fees account:

July 1 Cash................................................ 2,000Unearned Fees...........................

2,000Received fees for work to be done.

6 Cash................................................ 8,400Unearned Fees...........................


12 Unearned Fees................................ 2,000Fees Earned...............................

2,000Completed work for customer.





31 No entry.

b) Initial credit recorded in Fees Earned account:

July 1 Cash................................................ 2,000Fees Earned...............................


6 Cash................................................ 8,400Fees Earned...............................


12 No entry.

18 Cash................................................ 7,500


141

Fees Earned...............................7,500

Received fees for work to be done.

27 No entry.

31 Fees Earned..................................... 7,500Unearned Fees...........................

7,500Adjusting entry to reflect unearned fees for

unfinished job.


c) Under the first method:Unearned fees = $2,000 + $8,400 – $2,000 + $7,500 – $8,400 = $7,500Fees earned = $2,000 + $8,400 = $10,400

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

$10,400

Chapter 4 Adjusting Accounts for

Financial StatementsEXERCISES


1. a 7. c

2. e 8. f

3. c 9. f

4. b 10. f

5. f 11. d

6. b 12. f


142



143

2011

a)

Dec.

31 Amortization Expense, Equipment 32,000

Accumulated Amortization, Equipment

32,000

To record amortization expense for the year.

b)


Prepaid Insurance 11,920 To record insurance coverage that expired during the year; $14,000 – $2,080.

c)


Office Supplies 5,252 To record office supplies consumed during the year; $600 + $5,360 – $708.

d)

31 Unearned Fee Revenue 20,000

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

e)


Prepaid Insurance 9,200 To record insurance coverage that expired during the year.

f) 31 Wages Expense 8,000 Wages Payable 8,000 To record wages accrued but not yet paid.

2012

g)

Jan. 6 Wages Payable 8,000



144

Cash 20,000 To record the payment of wages.


145


2011

a) Dec. 31 Unearned Revenue 16,000

Revenue 16,000

To record earned revenue;

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

b) 31 Amortization Expense, Building 10,500

Accumulated Amortization, Building 10,500


c) 31 Spare Parts Expense 350

Spare Parts Inventory 350

To record the use of spare parts inventory;

$450 - $100 = $350.


Revenue 3,550


e) 31 Utilities Expense 1,300

Utilities Payable (or Accounts Payable) 1,300

To record accrued utilities.

2012


146

f) Jan. 4 Cash 3,550


To record collection of accrued revenues.

g) 14 Utilities Payable (or Accounts Payable) 1,300

Cash 1,300

To record payment of accrued utilities.


2011

a) Sept. 30 Unearned Revenue 12,000

Revenue 12,000

To record earned revenue.

b) 30 Amortization Expense, Furniture 150

Accumulated Amortization, Furniture 150

To record amortization for one month;

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


c) Sept.


Office Supplies 5,000

To record the use of office supplies.


Revenue 28,000


147


e) 30 Rent Expense 7,000

Rent Payable (or Accounts Payable) 7,000

To record accrued rent.

f) Oct. 3 Cash 28,000


To record collection of accrued revenue.

g) 4 Rent Payable (or Accounts Payable) 7,000

Cash 7,000

To record payment of accrued rent.


a) Mar. 31 Unearned Rent 7,500

Rent Earned 7,500

Earned five months’ rent previously paid in advance; $1,500 x 5 = $7,500.

b) 31 Rent Receivable 2,700

Rent Earned 2,700

Earned two months’ rent that has not yet

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


148

c) Apr. 22 Cash 4,050

Rent Receivable 2,700

Rent Earned 1,350

Collected rent for February, March, and April.


149


2011

a) Dec. 31 Accounts Receivable 2,000


To record accrued fees earned.

b) 31 Rent Expense 8,000

Prepaid Rent 8,000

To record expired rent.

c) 31 Amortization Expense, Machinery 400

Accumulated Amortization, Machinery 400


d) 31 Unearned Fees 2,800


To record fees earned.

e) 31 Salaries Expense 5,000


To record accrued salaries.

Exercise 4-7 (15 minutes)a. $1,650 (300 + 2,100 – 750 = 1,650)b. $5,700 (1,600 + 5,400 – 1,300 = 5,700)c. $10,080 (9,600 + 1,840 – 1,360 = 10,080)d. $1,375 (6,575 + 800 – 6,000 = 1,375)


150

Proof:(a) (b) (c) (d)

Supplies on hand—January 1 $ 300 $1,600 $ 1,360 $1,375

Supplies purchased during the year 2,100 5,400 10,080

6,000

Total supplies available $2,400 $7,000 $11,440 $7,375

Supplies on hand—December 31 (750) (5,700) (1,840) (800)

Supplies expense for the year $1,650 $1,300 $ 9,600 $6,575


151


Adjusting entry:

2012Dec.31 Wages Expense.......................................... 1,000

Wages Payable.....................................1,000

Adjusting entry to record accrued wages for one day; 5 × $200.

Payday entry:

2013Jan. 4 Wages Expense.......................................... 3,000

Wages Payable........................................... 1,000Cash......................................................

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


2011

a) Apr. 30 Interest Expense 2,080

Interest Payable 2,080

To record accrued interest expense;

0.8% × $780,000 × 10/30.

May 20 Interest Payable 2,080

Interest Expense 4,160

Cash 6,240

To record payment of accrued and current

expense; 0.8% × $780,000 × 20/30.

201


152

1

b) Apr. 30 Salaries Expense 3,600


To record accrued salaries;

$9,000/5 days = $1,800/day;

2 days x $1,800 = $3,600.

May 3 Salaries Payable 3,600


Cash 9,000

To record payment of accrued and current salaries; 3 days x $1,800 = $5,400.


2011

c) Apr. 30 Legal Fees Expense 2,500

Legal Fees Payable 2,500

To record accrued legal fees.

May 12 Legal Fees Payable 2,500

Cash 2,500

To pay accrued legal fees.


2011

Dec.31 Accounts Receivable.................................. 3,600Fees Earned..........................................

3,600To record unbilled fees; 30% × $12,000.


153

31 Unearned Fees........................................... 8,400Fees Earned..........................................

8,400To record earned fees that had been collected in advance; 70% × $12,000.

31 Amortization Expense, Computers............. 3,000Accumulated Amortization, Computers

3,000To record amortization on computers.

31 Amortization Expense, Office Furniture...... 3,500Accumulated Amortization,

Office Furniture..................................3,500

To record amortization on office furniture.

31 Salaries Expense........................................ 4,900Salaries Payable....................................

4,900To record accrued salaries.

31 Insurance Expense..................................... 2,600Prepaid Insurance.................................

2,600To record expired prepaid insurance.

31 Office Supplies Expense............................. 960Office Supplies......................................

960To record use of office supplies.

31 Utilities Expense.......................................... 140Utilities Payable......................................

140 To record unpaid utility costs.


Analysis component:

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


154


Ayotte Music

Partial Work Sheet

February 28, 2011

Account

Unadjusted Trial Balance

Adjustments


Debit Credit Debit Credit Debit Credit

Cash 5,000 5,000

Accounts receivable 4,500 c)

1,400

5,900

Prepaid insurance 700 b)250

450

Equipment 12,000 12,000

Accumulated amortization, equipment

6,000 a)2,400 8,400


Jane Adams, capital 9,000 9,000

Jane Adams, withdrawals 3,000 3,000

Revenues 45,000 c)1,400 46,400

Amortization expense, equipment 0 a)2,400 2,400

Salaries expense 29,000 29,000

Insurance expense 7,000 b) 250 7,250

Totals 61,200 61,200 4,050 4,050 65,000 65,000


155


Ayotte Music

Income Statement


Revenue $46,400

Operating expenses:

Salaries expense $29,000


Amortization expense, equipment 2,400


Net income $ 7,750

Ayotte Music



Jane Adams, capital, March 1 $ 9,000

Add: Net income 7,750

Total $16,750


Jane Adams, capital, February 28 $13,750

Ayotte Music

Balance Sheet

February 28, 2011

Assets


156

Cash $ 5,000




Less: Accumulated amortization, office equipment 8,400 3,600


Liabilities


Owner’s Equity

Jane Adams, capital 13,750



157


Analysis component:

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

*Exercise 4-13

a) Cash 1,800



158


OR

Cash

1,800

Office Supplies

1,800


Office Supplies

1,800


159

Accounts Payable

1,800


b) Revenue 4,500



160


OR

Revenue

4,500

Cash

4,500


Cash

4,500


161

Accounts Receivable

4,500


c) Withdrawals 1,500



162


OR

Cash 1,500



Withdrawals 1,500


163

Cash 1,500



164


d) Accounts Receivable 750

Revenue 750


OR


Cash 750


Cash 750

Revenue 750


Analysis component:

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


2011a) Dec. 1 Supplies Expense.................................. 6,000

Cash...............................................6,000

Purchased supplies.b) 2 Insurance Expense................................ 2,880

Cash...............................................2,880

Paid insurance premiums.c) 15 Cash......................................................24,000

Remodelling Fees Earned...............24,000

Received fees for work to be done.Adjusting entries:

2011d) Dec. 31 Supplies................................................ 3,840


165

Supplies Expense............................3,840

Adjusted expense for unused supplies on hand.e) 31 Prepaid Insurance................................. 2,400

Insurance Expense.........................2,400

Adjusted expense for unexpired coverage; $2,880 – $480.

f) 31 Remodelling Fees Earned.....................16,800 Unearned Remodelling Fees...........

16,800 Adjusted revenues for unfinished projects; $24,000 – $7,200.


166


a) Initial credit recorded in Unearned Fees account:

July 1 Cash................................................ 2,000Unearned Fees...........................










31 No entry.

b) Initial credit recorded in Fees Earned account:

July 1 Cash................................................ 2,000Fees Earned...............................


6 Cash................................................ 8,400Fees Earned...............................


12 No entry.

18 Cash................................................ 7,500


167

Fees Earned...............................7,500

Received fees for work to be done.

27 No entry.

31 Fees Earned..................................... 7,500Unearned Fees...........................

7,500Adjusting entry to reflect unearned fees for

unfinished job.


c) Under the first method:Unearned fees = $2,000 + $8,400 – $2,000 + $7,500 – $8,400 = $7,500Fees earned = $2,000 + $8,400 = $10,400

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

$10,400

Chapter 5 Completing the Accounting

Cycle and Classifying Accounts

EXERCISES


1. C 5. C 9. C 13. C

2. B 6. A 10. C 14. A

3. D 7. A 11. D 15. A

4. B 8. D 12. D 16. C


168


Balance SheetAdjusted andTrial Income Statement ofBalance Statement Owner’s Equity

No. TitleDebit Credit Debit Credit DebitCredit

101 Cash ...............3,000 3,000106 Accounts receivable. 13,100 13,100153 Trucks....................... 41,000 41,000154 Accum. amortization, trucks 16,500 16,500193 Franchise.................. 15,000 15,000201 Accounts payable..... 7,000 7,000209 Salaries payable....... 1,600 1,600233 Unearned fees.......... 1,300 1,300301 Bo Webber, capital. . . 37,750 37,750302 Bo Webber, withdrawals….. 7,200 7,200401 Plumbing fees earned 49,000 49,000611 Amortization expense, trucks 5,500 5,500622 Salaries expense...... 18,500 18,500640 Rent expense............ 6,000 6,000677 Misc. expenses......... 3,850 3,850

Totals.....................113,150113,15033,85049,00079,300...........64,150Net income............... 15,150 15,150 Totals..................... 49,000 49,000 79,300 79,300


169

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

Musical SensationsWork Sheet


Account

Unadjusted Trial Balance Adjustments


Income Statement

Balance Sheet & Statement of

Owner’s Equity

Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

Cash 14,000 14,000 14,000

Accounts receivable 26,000 26,000 26,000

Office supplies 950 d) 430

520 520

Musical equipment 212,000

212,000

212,000

Accum. amort. musical equip. 16,200 b)

16,20032,400 32,400

Accounts payable 3,350 3,350 3,350

Unearned performance revenue

12,400 a) 10,600

1,800 1,800

Jim Daley, capital 272,000

272,000

272,000

Jim Daley, withdrawals

52,000 52,000 52,000

Performance revenue 119,00 a) 129,60 129,60


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0 10,600 0 0

Salaries expense 76,000 c) 13,800

89,800 89,800

Travelling expense 42,000 42,000 42,000

Totals 422,950

422,950

Amortization expense, musical equip.

b) 16,200

16,200 16,200

Salaries payable c) 13,800

13,800 13,800

Office supplies expense

d) 430

430 430

Totals 41,030 41,030 452,950

452,950

148,430

129,600

304,520

323,350

Net loss 18,830 18,830

Totals 148,430

148,430

323,350

323,350


171


Part 4

$272,000 – $52,000 – $18,830 = $201,170

or

Jim Daley, Capital

272,000 (Beg. bal.)

(With.) 52,000

(Net Loss) 18,830

201,170 (End. bal.)


1. (a) Income = $36,800

2. (a)

Mar. 31 Income Summary 36,800

Capital 36,800

To close the income summary account to capital.

3. (a) Capital

63,000 (Beg. bal.)

$63,000 + $36,800 – $17,000 = $82,800 OR (With.)

17,000 36,800 (Net income)

82,800 (End. bal.)


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

2. (b)

June 30 Capital 60,000

Income Summary 60,000

To close the income summary account to capital.

3. (b) Capital

114,000 (Beg. bal.)

$114,000 – $60,000 = $54,000 OR (Net loss)

60,000

54,000 (End. bal.)


173


Debit Credit

Rent earned 99,000

Salaries expense 35,300


Dock rental expense 12,000

Boat supplies expense 6,220

Amortization expense, boats 21,500

Totals 79,420 99,000

Net income 19,580

Totals 99,000 99,000

2011 Closing entries:

Dec. 31 Rent Earned 99,000


To close the revenue account.

31 Income Summary 79,420


Insurance Expense 4,400

Dock Rental Expense 12,000

Boat Supplies Expense 6,220

Amortization Expense, Boats 21,500

To close the expense accounts.


Carl Winston, Capital 19,580


174

To close Income Summary.

31 Carl Winston, Capital 18,000

Carl Winston, Withdrawals 18,000

To close the withdrawals account.


175



Apr. 30

Plumbing Fees Earned 39,500


To close revenue to the income summary.

30


Amortization Expense, Trucks 5,500


Rent Expense 6,000

Advertising Expense 3,850

To close expense accounts to income

summary.

30


Frank Block, Capital 8,400

To close income summary to capital.

30

Frank Block, Capital 7,200

Frank Block, Withdrawals 7,200

To close withdrawals to capital.

Block Plumbing Co.

Post-Closing Trial Balance

April 30, 2011


176

Acct.

No. AccountDebit Credit

101 Cash $ 4,100

106 Accounts receivable 12,000

153 Trucks 20,500

154 Accumulated amortization, trucks $ 8,250

193 Franchise 15,000

201 Accounts payable 7,000

209 Salaries payable 1,600

233 Unearned fees 1,300

301 Frank Block, capital 33,450*

Totals $51,600 $51,600

*Calculated as:

32,250 + 8,400 – 7,200 = 33,450 or


Frank Block, Capital

32,250

(Adj. Bal,

Apr. 30)

(Withdrawals)

7,200 8,400 (Net income)

(Post-closing

177



January 31 Subscription Revenues 62,000

Interest Revenue 450


To close revenues to the income summary.


Amortization Expense, Equipment 2,000

Rent Expense 7,400


To close expense accounts to income

summary.

31 Kate Goldberg, Capital 2,950



31 Kate Goldberg, Capital 4,000

Kate Goldberg, Withdrawals 4,000



178


2011 Closing entries:Dec.31 Services Revenue .................... 72,000

Income Summary ................ 72,000To close the revenue account to the income summary.

31 Income Summary .................... 73,400Amortization Expense, Equipment

4,000Salaries Expense ................ 42,000Insurance Expense .............. 3,000Rent Expense ..................... 22,000Supplies Expense ................ 2,400

To close the expense accounts to the income summary.

31 Jo Weller, Capital..................... 1,400Income Summary ................ 1,400

To close the income summary to capital.

31 Jo Weller, Capital .................... 12,000Jo Weller, Withdrawals ........ 12,000




Sept. 30

Consulting Fees Earned 68,000


To close revenues to the income summary.


Amortization Expense, Office Equipment 3,500

Rent Expense 1,750


To close expense accounts to


179

income summary.


Sandra Sloley, Capital 49,250


30 Sandra Sloley, Capital 19,000

Sandra Sloley, Withdrawals 19,000



Closing entries:2011

(1) Dec. 31 Services Revenue 73,000


To close the revenue account to the

Income Summary.

(2) 31 Income Summary 48,100

Rent Expense 8,600


Insurance Expense 3,500

Amortization Expense 16,000

To close the expense accounts to the

income summary.


Marcy Jones, Capital 24,900


180


(4) 31 Marcy Jones, Capital 24,000

Marcy Jones, Withdrawals 24,000



181


Posted accounts:

Assets Rent Expense

Dec. 31 80,000 Dec. 31 8,600 8,600 (2)

Balance 0

Liabilities

38,100

Dec. 31 Salaries Expense

Dec. 31 20,000 20,000 (2)

Marcy Jones, Capital Balance 0

(4) 24,000 41,000

Dec. 31

24,900

(3) Insurance Expense

41,900

Balance Dec. 31 3,500 3,500 (2)

Balance 0

Marcy Jones, Withdrawals

Dec. 31 24,000 24,000

(4) Amortization Expense

Balance 0 Dec. 31 16,000 16,000 (2)

Balance 0

Income Summary

(2) 48,100 73,000

(1)

(3) 24,900 24,900

Balance

0 Balance


182

Services Revenue

(1) 73,000 73,000

Dec. 31

0 Balance


Jones’ Consulting

Post-Closing Trial Balance

December 31, 2011

AccountDebit Credit

Assets $ 80,000

Liabilities $ 38,100

Marcy Jones, Capital 41,900

Totals $80,000 $80,000


183


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

2.

2011

June 30 Bill Duggan, Capital 71,000

Interest Revenue 1,150

Bill Duggan, Withdrawals 72,000

Other Expenses 150

To close interest earned, withdrawals and other expenses directly to capital.

Bill Duggan, Capital

216,200

3. $216,200 – $71,000 = $145,200

OR 71,000

145,200

(Balance)


184

Exercise 5-13 (15 minutes) Part A

Account TitleAdjusted Trial

Balance Debit Credit


Accounts receivable $ 59,00

0Accumulated amortization, equipment 9,000Accumulated amortization, truck 21,000

X Amortization expense 3,800Cash 29,00

0Equipment 13,00

0Franchise 17,80

0X Gas and oil expense 7,500X Interest expense 4,500

Interest payable 750Land not currently used in business operations

52,000

Long-term notes payableNote 1 35,000Notes payable, due February 1, 2012 7,000Notes receivableNote 2 6,000Patent 7,000Prepaid rent 14,00

0X Rent expense 39,00

0X Repair revenue 247,00

0Repair supplies 17,00

0X Repair supplies expense 14,00

0X Sid Whimsly, capital 24,050


185

X Sid Whimsly, withdrawals 49,000

Truck 26,000

Unearned repair revenue 3,800

Totals $358,600

$358,600

b. $24,050 -$3,800 - $7,500 - $4,500 - $39,000 + $247,000 - $14,000 - $49,000 = $153,250.

Analysis component:

Amortization expense, gas and oil expense, interest expense, rent expense, repair revenue, repair supplies expense, and withdrawals are all temporary accounts and do not appear on the post-closing trial balance because their balances were transferred to capital during the closing process leaving each with a zero post-closing balance. The adjusted balance of $24,050 in capital is the balance prior to closing all temporary accounts into it. A capital account balance does appear on the post-closing trial balance but it is the post-closing balance of $153,250 as determined in part (b) above. Therefore, the adjusted capital balance of $24,050 will not appear on the post-closing trial balance

Note to instructor: Reinforce to the student that the question asks which account balances from the adjusted trial balance will not appear on the post-closing trial balance.


186


a. Current assets = $59,000 + $29,000 + $2,000 + $14,000 + $17,000 = $121,000.

b. Property, plant and equipment = -$9,000 - $21,000 + $13,000 + $26,000 = $9,000.

c. Intangible assets = $17,800 + 7,000 = $24,800.d. Long-term investments = $4,000 + $52,000 = $56,000.e. Total assets = $121,000 + $9,000 + $24,800 + $56,000 =

$210,800.f. Current liabilities = $11,000 + $750 + $5,000 + $7,000 + $3,800

= $27,550g. Long-term liabilities = $30,000.h. Total liabilities = $27,550 + $30,000 = $57,550.i. Total liabilities and owner’s equity = $210,800.


187


DOVER PACIFIC TOURS

Balance Sheet

November 30, 2011

Assets

Current assets:

Cash $ 5,000



Prepaid rent 9,000

Supplies 2,250

Current portion of notes receivable 7,500

Total current assets $ 37,450

Long-term investments:

Notes receivable, less $7,500 current portion 13,000

Property, plant and equipment:

Vehicles $64,000

Less: Accumulated amortization 17,000 $47,000

Office furniture $ 6,500

Less: Accumulated amortization 3,600 2,900

Total property, plant and equipment 49,900

Intangible assets:

Copyright 1,000



188

0

Liabilities

Current liabilities:


Salaries payable 900

Unearned touring revenue 23,000

Notes payable 4,000

Current portion of long-term notes payable 10,000

Total current liabilities $ 48,900

Long-term liabilities:

Long-term notes payable, less $10,000 current portion

10,500

Total liabilities $59,400

Owner’s Equity

Pat Dover, capital* 41,950


*Calculated as Total assets of $101,350 less Total liabilities of $59,400 = $41,950.


189

Exercise 5-16 (20 minutes)HANSON TRUCKING COMPANY

Balance SheetDecember 31, 2011

Assets

Current assets:

Cash $ 7,000


Office supplies 2,000



Land $ 75,000

Trucks $170,000


Total property, plant and equipment $210,000


Liabilities



Interest payable 3,000

Total current liabilities $ 14,000

Long-term notes payable 52,000

Total liabilities $ 66,000

Owner’s Equity

Stanley Hanson, capital 169,500



190


a. Withdrawals, tutoring fees earned, rent expense, amortiza-tion expense, and advertising expense have zero balances because each account was closed at December 31, 2011 resulting in each balance being transferred to capital leav-ing a zero balance behind.

b.2012

Jan. 15 Accounts Receivable 8,000

Tutoring Fees Earned 8,000

To record revenues earned on

account.

Feb. 20 Advertising Expense 2,000

Cash 2,000

To record payment for advertising.

July 7 Cash 9,000


To record collection from customers.

Dec. 10 Leda Svenson, Withdrawals 3,000

Cash 3,000

To record cash withdrawals by owner.


191


b.Cash Accounts Receivable Prepaid Rent

Dec 31/11

Jul 07/12

2,0009,000

2,000

3,000

Feb 20/12

Dec 10/12

Dec 31/11

Jan. 15/12

5,000

8,000

9,000 Jul 07/12

Dec 31/11

3,000

Unadj Bal

6,000

Unadj Bal 4,000

Office Equip. Accum. Amort., Office Equipment Unearned Fees

Dec 31/11

20,000

10,000

Dec 31/11

2,900

Dec 31/11

Leda Svenson, Capital Leda Svenson, Withdrawals Tutoring Fees Earned

17,100

Dec 31/11

Dec 31/11

Dec 10/12

-0-

3,000

-0-

8,000

Dec 31/11

Jan. 15/12

Unadj Bal 3,000 8,000

Unadj Bal

Rent Expense Amortization Expense Advertising Expense

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Dec 31/11

-0- Dec 31/11 -0- Dec 31/11

Feb 20/12

-0-

2,000

Unadj Bal

2,000

193


c.Svenson’s Tutoring ClinicUnadjusted Trial Balance

December 31, 2012Account Debit Credit

Cash $ 6,000

Accounts receivable 4,000Prepaid rent 3,000Office equipment 20,000Accumulated amortization, office equipment

$10,000

Unearned fees 2,900Leda Svenson, capital 17,100Leda Svenson, withdrawals 3,000Tutoring fees earned 8,000Advertising expense 2,000Totals $38,00

0$38,00

0

d. Journalize adjustments:2012

Dec. 31 Amortization Expense 2,000

Accum. Amort., office equipment 2,000

To record annual amortization.

31 Unearned Fees 2,400

Tutoring Fees Earned 2,400

To record earned fees.

31 Rent Expense 3,000

Prepaid Rent 3,000

To record expired prepaid rent.



195


d. Post adjustments:

Cash Accounts Receivable Prepaid Rent

Dec 31/11

Jul 07/12

2,0009,000

2,000

3,000

Feb 20/12

Dec 10/12

Dec 31/11

Jan. 15/12

5,000

8,000

9,000 Jul 07/12 Dec 31/11

3,000 3,000 Dec 31/12

Unadj Bal 6,000 Unadj Bal 4,000 Adj Bal -0-

Office Equip. Accum. Amort., Office Equipment Unearned Fees

Dec 31/11

20,000 10,000

2,000

Dec 31/11

Dec 31/12

Dec 31/12

2,400 2,900 Dec 31/11

12,000 Adj Bal 500 Adj Bal


17,100 Dec 31/11

Dec 31/11

Dec 10/12

-0-

3,000

-0-

8,000

Dec 31/11

Jan 15/12

Unadj Bal 3,000 8,000

2,400

Unadj Bal

Dec 31/12

10,400 Adj Bal

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Dec 31/11Dec 31/12

-0-

3,000

Dec 31/11

Dec 31/12

-0-

2,000

Dec 31/11

Feb 20/12

-0-

2,000

Adj Bal 3,000 Adj Bal 2,000 Unadj Bal 2,000

197

Exercise 5–17 (continued)

e.

Svenson’s Tutoring ClinicAdjusted Trial Balance


Cash $ 6,000

Accounts receivable 4,000Office equipment 20,00

0Accumulated amortization, office equipment

$12,000

Unearned fees 500Leda Svenson, capital 17,100Leda Svenson, withdrawals 3,000Tutoring fees earned 10,400Rent expense 3,000Amortization expense 2,000Advertising expense 2,000Totals $40,0

00$40,00

0



f.

Svenson’s Tutoring Clinic

Income Statement


Revenue $10,400

Operating expenses:

Rent expense $3,000

Advertising expense 2,000

Amortization expense 2,000


Net income $ 3,400




Leda Svenson, capital, January 1 $17,100

Add: Investments by owner $ 0

Net income 3,400 3,400

Total $20,500

Less: Withdrawals by owner 3,000

Leda Svenson, capital, December 31 $17,500


Balance Sheet

December 31, 2012


199

Assets

Current assets:

Cash $ 6,000







Liabilities


Unearned fees $ 500

Owner’s Equity

Leda Svenson, capital 17,500



g. Journalize the closing entries:

2012

(1) Dec. 31 Tutoring Fees Earned 10,400


To close the revenue account to

the income summary.



200

Rent Expense 3,000

Amortization Expense 2,000

Advertising Expense 2,000

To close the expense accounts

to the income summary.


Leda Svenson, Capital 3,400


(4) 31 Leda Svenson, Capital 3,000

Leda Svenson, Withdrawals 3,000



201


g. Post the closing entries:

Cash Accounts Receivable Prepaid Rent

Dec 31/11

Jul 07/12

2,0009,000

2,000

3,000

Feb 20/12

Dec 10/12

Dec 31/11

Jan. 15/12

5,000

8,000

9,000 Jul 07/12

Dec 31/11 3,00

0

3,000 Dec 31/12

Unadj Bal 6,000 Unadj Bal 4,000 Adj Bal -0-

Office Equip. Accum. Amort., Office Equip. Unearned Fees

Dec 31/11 20,000 10,000

2,000

Dec 31/11

Dec 31/12

Dec 31/12 2,40

0

2,900 Dec 31/11

12,000

Adj Bal 500 Adj Bal


(4) 3,000 17,100

3,400

Dec 31/11

(3)

Dec 31/11

Dec 10/12

-0-

3,000

-0-

8,000

Dec 31/11

Jan 15/12

17,500 Post-closing

balance

Unadj Bal 3,000 3,000 (4) 8,000 Unadj Bal

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-0- (1)10,400

10,400

Adj Bal

-0-


Dec 31/11Dec 31/12

-0-

3,000

Dec 31/11

Dec 31/12

-0-

2,000

Dec 31/11

Feb 20/12

-0-

2,000

Adj Bal 3,000 3,000 (2) Adj Bal 2,000 2,000 (2) Unadj Bal 2,00

0

2,000 (2)

-0- -0- -0-

Income Summary

(2) 7,000 10,400 (1)

(3) 3,400 3,400 Bal.

-0-


203

Exercise 5–17 (concluded)

h.

Svenson’s Tutoring ClinicPost-Closing Trial Balance


Cash $ 6,000

Accounts receivable 4,000Office equipment 20,000Accumulated amortization, office equipment

$12,000

Unearned fees 500Leda Svenson, capital 17,500Totals $30,00

0$30,00

0

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

Solutions Manual for Chapter 6 204

204


Reversing entries are appropriate for adjustments (a) and (e): 2011

Sept.1 Service Fees Earned........................ 5,000Accounts Receivable............

5,000To reverse accrued

revenues.1 Salaries Payable.............................. 2,400

Salaries Expense.................2,400

To reverse accrued salaries.

*Exercise 5-19 (30 minutes)1. Adjusting entries: 2011Oct.31 Rent Expense........................... 3,200

Rent Payable.......................3,200

To record accrued rent expense.31 Rent Receivable............................... 750

........................................Rent Earned750

To record accrued rent revenue.

2. Subsequent entries without reversing:

Nov.5 Rent Payable..........................3,200Rent Expense........................... 3,200Cash................................. 6,400

To record payment of two months’ rent.

8Cash.........................................1,500Rent Receivable................ 750........................................Rent Earned

750To record

collection of two months’ rent.

3. Reversing entries and subsequent entries:



205

Nov.1 Rent Payable..........................3,200Rent Expense.................... 3,200

To reverse the accrual of rent expense.

1Rent Earned..............................750Rent Receivable................ 750

To reverse the accrual of rent revenue.

5Rent Expense............................6,400Cash................................. 6,400

To record payment of two months’ rent.

8Cash.........................................1,500........................................Rent Earned

1,500To record collection

of two months’ rent.

Chapter 6 Accounting for Merchandising Activities

EXERCISES


a b c d e

Sales $ 240,000 $ 140,000 $ 75,000 $462,000 $85,000

Cost of goods sold 126,000 86,000 42,000 268,000 46,000

Gross profit from sales $ 114,000 $ 54,000 $33,000 $194,000 $ 39,000

Operating expenses 95,000 82,000 41,000 146,000 53,000

Net Income (Loss) $ 19,000 $ (28,000)

($ 8,000) $ 48,000 ($ 14,000)

Exercise 6-2 (25 minutes)Feb. 1 Merchandise Inventory 7,000


To record purchase; terms 1/10, n30.



206

5 Merchandise Inventory 2,400

Cash 2,400

To record purchase for cash.






To record purchase; n15.

10

No entry.

11


Cash 6,930

Merchandise Inventory 70

To record payment within discount period;

$7,000 x 1% = $70 discount.

24


Cash 900

To record payment.



207

Mar. 23


Cash 10,000

To record payment.



208


2011Mar. 2 Merchandise Inventory ............ 3,600

Accounts Payable — Blanton Company3,600

Purchased merchandise on credit.

3 Merchandise Inventory ............ 200Cash................................... 200

Paid shipping charges on purchased merchandise.

4 Accounts Payable — Blanton Company 600Merchandise Inventory ....... 600

Returned unacceptable merchandise.

17 Accounts Payable — Blanton Company3,000

Merchandise Inventory........ 60Cash...................................

2,940Paid balance within the discount period;3,600 – 600 = 3,000; 3,000 x 2% = 60.

18 Merchandise Inventory ............ 7,500Accounts Payable — Fleming Corp.

7,500Purchased merchandise on credit.

21 Accounts Payable — Fleming Corp.2,100

Merchandise Inventory .......2,100

Received an allowance on purchase.

28 Accounts Payable — Fleming Corp.5,400

Merchandise Inventory........ 108Cash...................................

5,292Paid balance within the discount period;

7,500 – 2,100 = 5,400; 5,400 x 2% = 108.



209

Exercise 6-4 (25 minutes)Jan. 5 Accounts Receivable 4,000

Sales 4,000

To record sale; terms 1/10, n30.

5 Cost of Goods Sold 3,200

Merchandise Inventory 3,200

To record cost of sales.

7 Cash 3,600

Sales 3,600

To record cash sale.





Sales 9,600





15

Cash 3,960



210

Sales Discounts 40


To record collection within discount period;

$4,000 x 1% = $40 discount.

Feb. 4 Cash 9,600


To record collection.



211

Exercise 6-5 (30 minutes)Feb. 1 Accounts Receivable 2,400

Sales 2,400

To record sale; terms 2/10, n30, FOB destination.




2 Delivery Expense or Freight-Out 150

Cash 150

To record delivery expenses for goods sold.

3 Sales Returns and Allowances 1,200


To record return of merchandise.


Cost of Goods Sold 1,000

To return merchandise to inventory.


Sales 3,800






212


11

Cash 1,176

Sales Discounts 24


To record collection, less return and discount;

$2,400 - $1,200 = $1,200 x 2% = $24 discount.

23

Cash 1,200

Sales 1,200


23

Cost of Goods Sold 950



28

Cash 3,800





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a.Mar. 1 Merchandise Inventory .......................... 11,000

Accounts Payable - Raintree..............11,000


11 Accounts Payable - Raintree................... 11,000Merchandise Inventory....................... 330Cash...................................................

10,670Paid account payable within the discount

period;11,000 x 3% = 330.

b.Mar. 1 Accounts Receivable – Sundown Company11,000

Sales..................................................11,000

Sold merchandise on account.

1 Cost of Goods Sold ................................ 7,500Merchandise Inventory ......................

7,500To record cost of sale.

11 Cash....................................................... 10,670Sales Discounts...................................... 330

Accounts Receivable – Sundown Company11,000

Collected account receivable.

Analysis component:

Amount borrowed to pay the balance owing $10,670.00Annual rate of interest ................................. × 8% Interest per year...........................................$ 853.60

Interest per day ($853.60/365).....................$ 2.34

Discount taken..............................................$ 330.00Interest paid on the 50-day* loan (50 $2.34)

(117.00)Net savings from borrowing to pay within

the discount period....................................$ 213.00



215

*60 days in credit period – 10 days in discount period = 50 days.



216


a.

2011

May11 Merchandise Inventory ............ 30,000Accounts Payable – Hostel Sales

30,000Purchased merchandise on credit.

11 Merchandise Inventory ............ 335Cash................................... 335


12 Accounts Payable – Hostel Sales. 1,200Merchandise Inventory ..........

1,200Returned unacceptable merchandise.

20 Accounts Payable – Hostel Sales. 28,800Merchandise Inventory........... 864Cash......................................

27,936Paid balance within the discount period;

30,000 – 1,200 = 28,800; 28,800 x 3% = 864.

b.

2011

May11 Accounts Receivable – Wilson Purchasing30,000

Sales.....................................30,000


11 Cost of Goods Sold..................... 20,000Merchandise Inventory...........


12 Sales Returns and Allowances..... 1,200Accounts Receivable – Wilson Purchasing

1,200



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Accepted a return from a customer.

12 Merchandise Inventory .............. 800Cost of Goods Sold................. 800

Returned goods to inventory.

21 Cash.......................................... 27,936Sales Discounts.......................... 864

Accounts Receivable – Wilson Purchasing28,800

Collected account receivable; 30,000 – 12,000 = 28,800; 28,800 x 3% =

864.



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Analysis Component

Amount borrowed to pay the amount owing$27,936.00Annual rate of interest ................................ × 5% Interest per year..........................................$ 1,396.80

Interest per day ($1,396.80/365).................$ 3.83

Discount taken.............................................$ 864.00Interest paid on the 80-day* loan (80 $3.83) (306.40)Net savings from borrowing to pay within

the discount period..................................$ 557.60

*90 days in credit period – 10 days in discount period = 80 days.


1. d. 6. e.

2. c. 7. j.

3. f. 8. i.

4. a. 9. b.

5. h. 10. g.



219

Exercise 6-9 (30 minutes)Merchandise Inventory

Balance, Dec. 31, 2010 37,000 Purchase discounts received 1,600

Invoice cost of purchases 190,500 Purchase returns and

Returns by customers 2,200 allowances received 4,100

Transportation-in 1,900 Cost of sales transactions 186,000

Shrinkage 32,000

Balance, Dec. 31, 2011 7,900

Cost of Goods Sold

Represents all entries to record the cost component of sales transactions

186,000

Represents all entries to record merchandise returned by customers and restored to inventory during 2011

2,200

Inventory shrinkage recorded in December 31, 2011, adjusting entry

32,000

Balance 215,800

Analysis component:

The shrinkage was $32,000. The cost of merchandise actually sold to customers was $186,000. The cost of goods sold was $215,800. Shrinkage therefore was 17% of the actual cost of merchandise sold ($32,000/$186,000 × 100) or 15% of the total cost of goods sold ($32,000/$215,800 × 100). As the inventory manager, I would want to know the cause of this significant shrinkage. Is it breakage or spoilage that can be controlled? Is it theft caused by weak internal controls? Reviewing the numbers allows the inventory manager to ask appropriate questions for the purpose of making good decisions.


a) 500,000 – 17,000 – 3,000 = 480,000 net sales



220

b) 28,000 + 124,000 = 152,000 total operating expensesc) 480,000 – 124,000 = 356,000 cost of goods soldd) (124,000/480,000) × 100 = 25.83%

Analysis component:

The change in the gross profit ratio for the year ended May 31, 2010 was 2.83% (from 23% to 25.83%). This is a favourable change because Westlawn is generating more gross profit per sales dollar that will contribute towards the covering of operating expenses.



221


Company A Company B

2011 2010 2011 2010

Sales256,00

0160,00

0110,00

0 50,000

Sales discounts 2,560 1,600 1,100 500

Sales returns and allowances 51,200 16,000 5,500 2,500

Net sales202,24

0142,40

0103,40

0 47,000

Cost of goods sold153,60

0 88,000 55,000 25,000

Gross profit from sales 48,640 54,400 48,400 22,000

Selling expenses 17,920 16,000 24,200 9,000

Administrative expenses 25,600 24,000 29,700 11,000

Total operating expenses 43,520 40,000 53,900 20,000

Net income (loss) 5,120 14,400 (5,500) 2,000

Gross profit ratio24.05

% 1 38.20

% 2 46.81

% 3 46.81

% 4

Calculations:

1. (48,640/202,240) × 100 = 24.05%2. (54,400/142,400) × 100 = 38.20%3. (48,400/103,400) × 100 = 46.81%4. (22,000/47,000) × 100 = 46.81%

Analysis component:

Company B has more favourable gross profit ratios for both 2010 and 2011. Company A is showing a lower gross profit ratio than Company B and decreasing gross profit as a percentage of net sales.



222

Note to instructor:

You may wish to engage students in a discussion of other interesting comparisons in this information. For example:

— COGS as a percentage of sales is lower for Company B than Company A.

— Sales discounts as a percentage of sales is constant for both companies.

— Sales returns and allowances are higher as a percentage of sales for Company A than Company B (which is particularly interesting considering that Company A has a higher COGS than Company B … you might assume higher quality but then why the higher returns/allowances?).

— Company B has higher operating expenses as a percentage of sales than Company A.

Company B has more than doubled its sales from 2010 to 2011 in comparison to the growth for Company A.



223


(a) (b) (c)Purchases $

90,000

$ 160,00

0

$ 122,000

Purchases discounts (4,000) (10,000) (2,600)

Purchases returns and allowances (3,000) (6,000) (4,400)

Transportation-in 6,400

14,000 16,000

Cost of goods purchased $ 89,400 $ 158,000 $ 131,000

Beginning inventory $ 7,000 $38,400 $ 36,000

Cost of goods purchased 89,400 158,000 131,000

Ending inventory (4,400) (30,000) (30,480)

Cost of goods sold $92,000

$ 166,400 $ 136,520

a. Transportation-in is calculated as the amount needed to make cost of goods purchased equal the given amount. Cost of goods sold is calculated the usual way.

b. Purchases discounts is calculated as the amount needed to make cost of goods purchased equal the given amount. The beginning inventory is calculated as the amount needed to make cost of goods sold equal the given amount.

c. Cost of goods purchased is calculated the usual way. Then, that amount is transferred to the lower section and the ending inventory is calculated as the amount needed to make cost of goods sold equal the given amount.



224


Company A Company B

2011 2010 2011 2010

Sales 120,000 180,000 90,000 45,000

Cost of goods sold:

Merchandise inventory (beginning) 18,700 22,300 9,875 9,000

Net cost of merchandise purchases 72,000 104,400 49,500 26,100

Merchandise inventory (ending)

(16,400)

(18,700) (8,920) (9,875)

Cost of goods sold 74,300 108,000 50,455 25,225

Gross profit from sales 45,700 72,000 39,545 19,775

Operating expenses 36,000 54,000 27,000 13,500

Net income (loss) 9,700 18,000 12,545 6,275

Gross profit ratio 38.08% 1 40.00% 2 43.94% 3 43.94% 4

Calculations:

1. (45,700/120,000) × 100 = 38.08%2. (72,000/180,000) × 100 = 40.00%3. (39,545/90,000) × 100 = 43.94%4. (25,225/45,000) × 100 = 43.94%

Analysis component:

Company B has a stable and more favourable gross profit ratio than Company A. Company A’s gross profit ratio decreased from 2010 to 2011 which is unfavourable.



225


(a) (b) (c)

Invoice cost of merchandise purchases

$ 45,00

0

$ 20,000

$ 15,25

0Purchase discounts received (2,000) (1,250) (325)

Purch. returns and allow. received (1,500) (750) (550)

Cost of transportation-in 3,200 1,750 2,000

Total cost of merchandise purchases $ 44,700 $ 19,750 $ 16,375

Merchandise inventory (beginning) $ 3,500 $ 4,800 $ 4,500

Total cost of merchandise purchases 44,700 19,750 16,375

Merchandise inventory (ending) (2,200) (3,750) (3,810)


$ 20,800 $ 17,065

a. Transportation-in is calculated as the amount needed to make cost of merchandise purchased equal the given amount. Cost of goods sold is calculated the usual way.

b. Purchase discounts is calculated as the amount needed to make cost of merchandise purchases equal the given amount. The merchandise inventory (beginning) is calculated as the amount needed to make cost of goods sold equal the given amount.

c. Total cost of merchandise purchases is calculated the usual way. Then, that amount is transferred to the lower section and the merchandise inventory (ending) is calculated as the amount needed to make cost of goods sold equal the given amount.



226


a) Multiple-step income statement:

COMPU-SOFTIncome StatementFor Month Ended November 30, 2011

Net sales $26,935*

Cost of goods sold 14,800

Gross profit from sales $12,135

Operating expenses:

Wages expense $4,200

Utilities expense 2,100

Amortization expense, store equipment 120


Income from operations $ 5,715

Other revenues and expenses:

Rent revenue 850

Net income $ 6,565

*Calculated as: 27,700 – 45 – 720 = 26,935

b)


Nov. 30

Rent Revenue 850

Sales 27,700


To close temporary credit balance accounts.



227

30


Sales returns and allowances 720

Sales discounts 45


Amortization expense, store equipment 120

Wages expense 4,200


To close temporary debit balance accounts.

30


Peter Delta, capital 6,565


30

Peter Delta, capital 3,500

Peter Delta, withdrawals 3,500



c)

Peter Delta, Capital

1,635 (Beg. bal.)

$1,635 – $3,500 + $6,565 = $4,700 OR

(With.)

3,500 6,565 (Net income)

4,700 (End. bal.)



228

Analysis component:

The gross profit ratio for October is 40% ($32,000 - $19,200 = $12,800 gross profit; $12,800/$32,000 × 100 = 40%). The gross profit ratio for November is 45% ($12,135/$26,935 × 100 = 45.05%). Compu-Soft generated a higher gross profit per sales dollar in November than in October which is favourable because this represents a greater contribution towards the coverage of operating expenses.



229


a) Perdu SalesWork Sheet


Account

Unadjusted

Trial BalanceAdjustments

Income Statement

Balance Sheet and Statement

of Owner’s Equity

Debit Credit Debit Credit Debit Credit Debit Credit

Cash 26,000 26,000

Merchandise inventory 2,000 2,000

Prepaid selling expenses 8,000 1,500 6,500

Store equipment 40,000 40,000

Accumulated amortization, store eq. 9,000 2,500 11,500


Salaries payable 0 3,200 3,200

Eldon Perdu, capital 45,600 45,600

Eldon Perdu, withdrawals 3,600 3,600

Sales 858,000

858,000

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Sales returns and allowances 33,000 33,000

Sales discounts 8,000 8,000


424,840

Sales salaries expense 94,000 3,200 97,200

Utilities expense, store 28,000 28,000

Amortization expense, store equip. - 2,500 2,500

Other selling expenses 70,000 1,500 71,500

Other administrative expenses 190,000

190,000

Totals 927,440

927,440

7,200 7,200 855,040

858,000

78,100

75,140

Net Income 2,960 2,960

Totals 858,000

858,000

75,600

75,600

231


b) Classified multiple-step income statement:

PERDU SALES

Income Statement


Sales $858,000

Less: Sales returns and allowances $33,000

Sales discounts 8,000 41,000

Net sales $817,000


Gross profit from sales $392,160

Operating expenses:

Selling expenses:

Sales salaries expense $97,200

Other selling expenses 71,500

Utilities expense, store 28,000

Amortization expense, store 2,500

Total selling expenses $199,200

General and administrative expenses: 190,000


Net income $ 2,960

c) 2011 Closing entries:

Dec. 31

Sales 858,000




232

To close sales.

31


Sales Returns and Allowances 33,000

Sales Discounts 8,000


Sales Salaries Expense 97,200

Utilities Expense 28,000

Selling Expenses 71,500

Amortization Expense, Store Equipment 2,500

Administrative Expenses 190,000


31


Eldon Perdu, Capital 2,960

To close the Income Summary account to capital.

31

Eldon Perdu, Capital 3,600

Eldon Perdu, Withdrawals 3,600




233


Analysis component:

The gross profit ratio for 2011 is $392,160/$817,000 × 100 = 48%. The gross profit ratio for 2010 was $330,000*/$600,000 × 100 = 55%. The gross profit ratio decreased from 2010 to 2011 which is unfavourable since the gross profit generated per net sales dollar has decreased thereby contributing less towards the coverage of operating expenses in 2011 than in 2010.

*Sales – COGS = GP – Operating Expenses = Net Loss, therefore, $600,000 - ? = ? - $344,000 = -$14,000; GP - $344,000 = -$14,000 so GP = $330,000.


a) 531,000 – 14,000 – 7,000 = 510,000

b) Single-step income statement:

SABBA CO.Income Statement

For Year Ended January 31, 2011

Revenues:

Net sales $510,000

Expenses:


Selling expenses 117,000

General and administrative expenses 109,000

Interest expense 750

Total expenses 527,750



234

Net loss $ 17,750



235


1) Periodic Perpetual

Nov.

1 Purchases 2,800


Accounts Payable 2,800 Accounts Payable 2,800

To record purchases on

account.

To record purchases on

account.

2)

Nov.

5 Accounts Payable 2,800


Purchases Discount 56 Merchandise Inventory 56

Cash 2,744 Cash 2,744

To record cash payment within discount period;

2,800 x 2% = 56.

To record cash payment within

discount period;

2,800 x 2% = 56.

3)

Nov.

7 Cash 196 Cash 196

Purchases Returns and Allowances

196

Merchandise Inventory

To record cheque received for

196

To record cheque received for return of purchases previously paid for with discount already taken; 200 – 2% = 196.

return of merchandise previously paid for with discount already taken;

200 – 2% = 196.

4)



236

Nov.

10

Transportation-In 160 Merchandise Inventory 160

Cash 160 Cash 160

To record payment of freight charges.

To record payment of freight charges.

5)

Nov.

13



Sales 3,000 Sales 3,000

To record sale of merchandise on credit.

To record sale of merchandise on credit.

13

No entry. Cost of Goods Sold 1,500


To record cost of merchandise sold.



237


6)

Nov.

16

Sales Returns and Allowances

400 Sales Returns and Allowances

400

Accounts Receivable 400 Accounts Receivable 400

To record return of merchandise bought on account.

To record return of merchandise bought on account.

16

No entry. Merchandise Inventory 200


To record return of merchandise by customer.

*Exercise 6-19

Feb. 1 Purchases 7,000



5 Purchases 2,400

Cash 2,400

To record purchase for cash.

6 Purchases 10,000






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To record purchase; n15.

10

No entry.

11


Cash 6,930

Purchase Discounts 70

To record payment within discount period;

$3,500 x 1% = $35 discount.

24


Cash 900

To record payment.

Mar. 23


Cash 10,000

To record payment.


2011

Mar 2 Purchases 3,600

Accounts Payable — Blanton Company 3,600




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3 Transportation-in 200

Cash 200


4 Accounts Payable — Blanton Company 600

Purchase Returns and Allowances 600


17 Accounts Payable — Blanton Company 3,000


Cash 2,940

Paid balance within the discount period;

3,600 – 600 = 3,000; 3,000 x 2% = 60.

18 Purchases 7,500

Accounts Payable — Fleming Corp. 7,500


21 Accounts Payable — Fleming Corp. 2,100

Purchase Returns and Allowances 2,100

Received an allowance on purchase.

28 Accounts Payable — Fleming Corp. 5,400


Cash 5,292

Paid balance within the discount period;

7,500 – 2,100 = 5,400; 5,400 x 2% = 108.



240


Jan. 5 Accounts Receivable 4,000

Sales 4,000


7 Cash 3,600

Sales 3,600



Sales 9,600


15

Cash 3,960

Sales Discounts 40


To record collection within discount period;

$2,000 x 1% = $20 discount.

Feb. 4 Cash 9,600





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Feb. 1 Accounts Receivable 2,400

Sales 2,400


2 Delivery Expense or Freight-Out 150

Cash 150

To record delivery expenses for goods sold.





Sales 3,800


11

Cash 1,176

Sales Discounts 24


To record collection, less return and discount;

$2,400 - $1,200 = $1,200 x 2% = $24 discount.

23

Cash 1,200

Sales 1,200



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28

Cash 3,800





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a)

2011

Mar. 1 Purchases 11,000

Accounts Payable – Raintree 11,000


11 Accounts Payable – Raintree 11,000


Cash 10,670

Paid account payable within the discount period;

11,000 x 3% = 330.

b)

2011

Mar. 1 Accounts Receivable – Sundown Company 11,000

Sales 11,000


11 Cash 10,670

Sales Discounts 330

Accounts Receivable – Sundown Company 11,000

Collected account receivable.



244


a)

2011

May 11 Purchases 30,000

Accounts Payable – Hostel Sales 30,000


11 Transportation-In 335

Cash 335


13 Accounts Payable – Hostel Sales 1,200



20 Accounts Payable – Hostel Sales 28,800


Cash 27,936

Paid balance within the discount period; 30,000 – 1,200 = 28,800; 28,800 x 3% = 864.

b)

2011

May 11 Accounts Receivable – Wilson Purchasing 30,000



245

Sales 30,000



Accounts Receivable – Wilson Purchasing 1,200

Accepted a return from a customer.

21 Cash 27,936

Sales Discounts 864


Collected account receivable;

30,000 – 1,200 = 28,800; 28,800 x 3% = 864.



246


a. Gross profit from sales...............$145,000Less: Operating expenses..........

? Net income................................ $

65,000Therefore:Total operating expenses........... $

80,000

b. Sales.........................................$340,000Less:..................Sales discounts $ 5,500

Sales returns....................... 14,000 19,500

Net sales...................................$320,500Less: Cost of goods sold.............

? Gross profit from sales...............$145,000Therefore:Cost of goods sold.....................$175,500

c. Merchandise inventory (beginning) $ 30,000

Invoice cost of merchandise purchases $175,000Less:............Purchase discounts 3,600

Purchase returns................. 6,000Net purchases .......................... $165,400Add: Transportation-in .............. 11,000Total cost of merchandise purchased

176,400Goods available for sale ............$206,400Less: Merchandise inventory (ending)

? Cost of goods sold (from b)........$175,500Therefore:Merchandise inventory (ending). $

30,900



247

d. (145,000/320,500) x 100 = 45.24% Gross Profit Ratio (rounded to two decimal places)

Analysis component:

The gross profit ratio for 2011 is 45.24%. In comparison with the 2010 gross profit ratio of 47%, this represents an unfavourable change. This is unfavourable because the gross profit generated per net sales dollar decreased in 2011 from 2010 thereby contributing less towards the coverage of operating expenses in 2011 than in 2010.



248


DEWER’S STOP‘N SHOP

Work Sheet


Unadjusted Trial

Balance Adjustments Income

Statement

Balance Sheet and Statement of Owner’s

EquityNo. Account Debit Credi

tDebit Credit Debi

tCredit Debi

tCredit

101 Cash 7,400

7,400

106 Accounts receivable

3,600

3,600

119 Merchandise inventory

2,400

2,400

2,720 2,720

125 Store supplies 1,200

(a) 300

900

201 Accounts payable 280 280209 Salaries payable (b)

120120

301 Mi Dewer, capital 11,570

11,570

302 Mi Dewer, withdrawals

750 750

413 Sales 12,000

12,000

414 Sales returns and allowances

290 290

505 Purchases 6,40 6,40

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0 0506 Purchase discounts 250 250507 Transportation-in 160 160622 Salaries expense 1,40

0(b)

1201,52

0640 Rent expense 500 500651 Store supplies

expense (a) 300

30 0

Totals 24,100

24,100

420

420 11,570

14,970

15,370

11,970

Net income 3,400

3,400

Totals 14,970

14,970

15,370

15,370

250


a)

Net Sales:

Sales $445,000 Sales returns and allowances (25,000) Sales discounts (16,000) Net sales $404,000

b)

Cost of goods purchased:

Purchases $286,000Purchases returns and allowances (22,000)Purchase discounts (11,400)Transportation-in 8,800Cost of goods purchased $261,400

c) Cost of goods sold:Beginning inventory $ 15,000Cost of goods purchased 261,400Goods available for sale $276,400Ending inventory (11,000)Cost of goods sold $265,400

d) Multiple-step income statement:

FOX FIXTURES CO.Income StatementFor Year Ended March 31, 2011

Net sales ............................................. $404,000Cost of goods sold................................. 265,400Gross profit from sales..........................

$138,600Operating expenses: Selling expenses................................ $69,000 General and administrative expenses 33,500 Total operating expenses............... 102,500Income from operations........................ $ 36,100

251

Other revenues and expenses: Interest revenue................................ 1,200Net income........................................... $ 37,300

252


a)

$33,700 – $1,740 = $31,960 Net sales

b)

$6,200 + $16,676 – $110 – $28 + $380 – $2,460 = $20,658 Cost of goods sold

c) Classified multiple-step income statement:

JOHN’S ELECTRONICS

Income Statement

For Month Ended April 30, 2011

Sales $33,700

Less: Sales returns and allowances 1,740

Net sales $31,960

Cost of goods sold:

Merchandise inventory, March 31, 2011 $ 6,200

Purchases..................................$16,676

Less: Purchase discounts................................................ 28

Purchase returns and allowances...................... 110

Net purchases.................................................................................$16,538 Add: Transportation-in............ 380

Cost of goods purchased 16,918

Cost of goods available for sale $23,118

Less: Merchandise inventory, April 30, 2011 2,460


253

Gross profit from sales $ 11,302

Operating expenses:.

Selling expenses:

Wages expense, selling............... $8,000

Amortization expense, delivery trucks...................... 640

Telephone expense, store............................................... 340

Total selling expenses $8,980

General and administrative expenses:

Wages expense, office................ 2,800

Telephone expense, office............................................... 150

Total general and administrative expenses 2,950


Operating loss $ 628

Other revenues and expenses:

Interest expense 130

Net loss $ 758

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d)


Apr. 30


Purchases Returns and Allowances 110

Purchases Discounts 28

Sales 33,700


To close temporary credit balance accounts.

30



Sales Returns and Allowances 1,740

Purchases 16,676

Transportation-In 380

Amortization Expense, Delivery Trucks 640

Wages Expense, Office 2,800

Wages Expense, Selling 8,000

Telephone Expense, Office 150

Telephone Expense, Store 340

Interest Expense 130


30

John Yu, Capital 758

Income Summary 758

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30

John Yu, Capital 9,200

John Yu, Withdrawals 9,200


Part e:

John Yu, Capital

(Net loss) 758 30,300 (Beg. bal.)

$30,300 – $9,200 - $758 = $20,342 OR

(With.) 9,200

20,342 (End. bal.)

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June 1 Merchandise Inventory ............ 2,000GST Receivable ....................... 120

Accounts Payable ...............2,120

To record credit purchase; $2,000 x 6% = 120 GST.

5 Accounts Receivable ............... 1,596PST Payable ....................... 112GST Payable ....................... 84Sales ..................................

1,400To record credit sale; $1,400 x 8% = 112

PST; $1,400 x 6% = $84 GST.

5 Cost of Goods Sold................... 1,000Merchandise Inventory .......



June 1 Purchases ............................... 2,000GST Receivable ....................... 120

Accounts Payable ...............2,120

To record credit purchase; $2,000 x 6% = $120 GST.

5 Accounts Receivable ............... 1,596PST Payable ....................... 112GST Payable ....................... 84Sales ..................................

1,400To record credit sale; $1,400 x 8% = 112

PST; $1,400 x 6% = $84 GST.

257

Chapter 7 Merchandise Inventory and Cost of Sales

EXERCISES


(a) FIFO perpetual

Date Purchases Sales (at cost) Inventory Balance

UnitsUnit Cost

Total Cost

Units

Unit Cost

Cost of Goods Sold Units

Unit Cost

Total Cost

Jan. 1 Beginning inventory

100 @$10.00

= $ 1,000 100 @ $10.00

= $ 1,000

10

90 @$10.00

= $ 900 10 @ $10.00

= $ 100

10 @ $10.00

= $ 100

Mar.

14

250 @$15.00

= $ 3,750 250 @ 15.00

= 3,750

10 @$10.00

= $ 100

15

130 @ 15.00

= 1,950 120 @ $15.00

= $ 1,800

120 @ $15.00

= $ 1,800

Jul. 30

400 @$20.00

= $ 8,000 400 @ 20.00

= 8,000

120 @$15.00

= $ 1,800

Oct. 5 180 @ 20.00

= 3,600 220 @ $20.00

= $ 4,400

Total 750 $12,750

530

$8,350 220 $4,400

258

Cost of goods available for sale

= Cost of goods sold + Ending inventory

Gross profit calculation under FIFO:

Sales (530 units × $40)

$21,200


Gross profit $12,850

259


(b) Moving weighted-average perpetualInventory Balance

Date Purchases Sales (at cost) (a) (b) (a) (b)

UnitsUnit Cost

Total Cost Units

Unit Cost

Cost of Goods

Sold

Total

UnitsAverage

Cost/UnitTotal Cost Inventory Balance

CalculationsBeginning inventory

Jan.

1 100 @ $10 = $ 1000 100 $10.00 $ 1,000.00

100 $ 1,000.00

10 90 @ $10.00 = $ 900.00 –90 @ $10.00 = –900.00

10 $10.00 $ 100.00

10 $ 100.00

10 $ 100.00

Mar.

14 250 @ $15 = $ 3,750 250 @ $15.00 = 3,750.00

260 $14.81 $ 3,850.00

260 $ 3,850.00

260 $ 3,850.00

15 140

@ $14.81 = $ 2,073.40 –140 @ $14.81 = –2,073.40

120 $14.81 $ 1,776.60

120 $ 1,776.60

120 $ 1,776.60

July

30 400 @ $20 = $ 8,000 400 @ $20.00 = 8,000.00

520 $18.80 $ 9,776.60

520 $ 9,776.60

520 $ 9,776.60

Oct.

5 300

@ $18.80 = $ 5,640.00 –300 @ $18.80 = –5,640.00

220 $18.80 $ 4,136.60

220 $ 4,136.60

Total 750 $12,750 530

$8,613.40

220 $ 4,136.60

260

Cost of goods available for sale

= Cost of goods sold + Ending inventory

Gross profit calculation under Weighted-average:


$21,200.00

Cost of goods sold 8,613.40

Gross profit $12,586.60

261


(c) LIFO perpetual


Units

Unit Cost

Total Cost

Units

Unit Cost


Unit Cost

Total Cost


100 @$10.00

= $ 1,000

100 @ $10.00

= $ 1,000

10

90 @$10.00

= $ 900 10 @ $10.00

= $ 100

10 @ $10.00

= $ 100

Mar.

14

250 @$15.00

= $ 3,750

250 @ 15.00

= 3,750

10 @ $10.00

= $ 100

15

140 @$15.00

= $ 2,100 110 @ 15.00

= 1,650

10 @ $10.00

= $ 100

110 @ 15.00

= 1,650

Jul. 30

400 @$20.00

= $ 8,000

400 @ 20.00

= 8,000

10 @ $10.00

= $ 100

110 @ 15.00

= 1,650

Oct. 5 300 @$20.00

= $ 6,000 100 @ 20.00

= 2,000

Total 750 $12,7 53 $9,000 220 $3,75

262

50 0 0

Cost of goods available for sale =

Cost of goods sold + Ending inventory

Gross profit calculation under LIFO:


$21,200



263


Specific identification


Units

Unit Cost

Total Cost

Units

Unit Cost


Unit Cost

Total Cost


100 @$10.00

= $ 1,000

100 @ $10.00

= $ 1,000

10

90 @$10.00

= $ 900 10 @ $10.00

= $ 100

10 @ $10.00

= $ 100

Mar.

14

250 @$15.00

= $ 3,750

250 @ 15.00

= 3,750

10 @$10.00

= $ 100

15

130 @ 15.00

= 1,950 120 @ $15.00

= $ 1,800

120 @ $15.00

= $ 1,800

Jul. 30

400 @$20.00

= $ 8,000

400 @ 20.00

= 8,000

60 @$15.00

= $ 900 60 @$15.00

= $ 900

Oct. 5 240 @ 20.00

= 4,800 160 @ 20.00

= 3,200

Total 750 $12,750

530

$8,650 220 $4,100


Cost of goods sold +

Ending inventory

Gross profit calculation under Specific Identification:

264


$21,200



265


1.

Jan. 1 120 units @ $6.00 = $720

Mar. 7 250 units @ 5.60 = 1,400

July

28

500 units @ 5.00 = 2,500

Oct. 3 450 units @ 4.60 = 2,070

Totals 1,320 units $6,690

available for cost of goods

sale available for sale

2.

Units sold: Units remaining in ending inventory:

Jan.

10

70 units 1,320 units available for sale less 795 units sold

Mar.

15

125 units = 525 units remaining in ending inventory.

Oct. 5 600 units

Totals 795 units

3.(a) Moving weighted-average perpetualInventory Balance

Date Purchases Sales (at cost) (a) (b) (a)

(b)

Units

Unit Cost

Total Cost Units

Unit Cost

Cost of Goods Sold

Total

Units

Average Cost/

UnitTotalCost Inventory Balance

CalculationsBeginning inventory

Jan. 1 120 @ $6.00

= $ 720.00

120 $6.00 $ 720.00

120 $ 720.00

10 70 @ $6.00

= $ 420.00

–70 @ $6.00

= –420.00

50 $6.00 $ 300.00

50 $ 300.00

266

50 $ 300.00

Mar. 7 250 @ $5.60

= $ 1,400.00

250 @ 5.60 = 1,400.00

300 $5.67 $ 1,700.00

300 $1,700.00

300 $1,700.00

15 125 @ $5.67

= $ 708.75

–125

@ 5.67 = –708.75

175 $5.66* $ 991.25

175 $ 991.25

175 $ 991.25

July 28 500 @ $5.00

= $ 2,500.00

500 @ 5.00 = 2,500.00

675 $5.17 $ 3,491.25

675 $3,491.25

675 $3,491.25

Oct. 3 450 @ $4.60

= $ 2,070.00

450 @ 4.60 = 2,070.00

1,125

$4.94 $ 5,561.25

1,125

$5,561.25

1,125

$5,561.25

5 600 @ $4.94

= $ 2,964.00

–600

@ 4.96 = –2,964.00

525 $4.95* $ 2,597.25

525 $2,597.25

Total 1,320

$6,690.00

795 $4,092.75

525 $2,597.25



*cost/unit changed due to rounding

267


3.(b) FIFO perpetual


Units

Unit Cost

Total Cost Units

Unit Cost


Unit Cost

Total Cost


120 @ $6.00

= $ 720 120 @ $6.00 = $ 720

10

70 @ $6.00

= $ 420

50 @ $6.00 = $ 300

50 @ $6.00 = $ 300

Mar. 7 250 @ $5.60

= $ 1,400 250 @ 5.60 = 1,400

50 @ $6.00

= $ 300

15

75 @ 5.60 = 420 175 @ $5.60 = $ 980

175 @ $5.60 = $ 980

Jul. 28

500 @ $5.00

= $ 2,500 500 @ 5.00 = 2,500

175 @ $5.60 = $ 980

500 @ 5.00 = 2,500

Oct. 3 450 @ $4.60

= $ 2,070 450 @ 4.60 = 2,070

175 @ $5.60

= $ 980

75 @ $5.00 = $ 375

5 425

@ 5.00 = 2,125

450 @ 4.60 = 2,070

268

Total 1,320

$6,690 795

$4,245

525 $2,445



Ending inventory

269


3.(c) LIFO perpetual


Units

Unit Cost

Total Cost

Units

Unit Cost


Unit Cost

Total Cost


120 @ $6.00

= $ 720 120 @ $6.00

= $ 720

10

70 @ $6.00

= $ 420 50 @ $6.00

= $ 300

50 @ $6.00

= $ 300

Mar.

7 250 @ $5.60

= $ 1,400 250 @ 5.60 = 1,400

50 @ $6.00

= $ 300

15

125 @ $5.60

= $ 700 125 @ 5.60 = 700

50 @ $6.00

= $ 300

125 @ 5.60 = 700

Jul. 28

500 @ $5.00

= $ 2,500 500 @ 5.00 = 2,500

50 @ $6.00

= $ 300

125 @ 5.60 = 700

500 @ 5.00 = 2,500

Oct. 3 450 @ $4.60

= $ 2,070 450 @ 4.60 = 2,070

50 @ $6.00

= $ 300

270

450 @ $4.60

= $ 2,070 125 @ 5.60 = 700

5 150 @ 5.00 = 750 350 @ 5.00 = 1,750

Total 1,320

$6,690 795

$3,940 525 $2,750



271


Specific identification — perpetual


Units

Unit Cost

Total Cost

Units

Unit Cost


Unit Cost

Total Cost


120 @ $6.00 = $ 720

120 @ $6.00

= $ 720

10

70 @$6.00 = $ 420 50 @ $6.00

= $ 300

50 @ $6.00

= $ 300

Mar.

7 250 @ $5.60 = $ 1,400

250 @ 5.60 = 1,400

25 @$6.00 = $ 150 25 @ $6.00

= $ 150

15

100 @ 5.60 = 560 150 @ 5.60 = 840

25 @ $6.00

= $ 150

150 @ 5.60 = 840

Jul. 28

500 @ $5.00 = $ 2,500

500 @ 5.00 = 2,500

25 @ $6.00

= $ 150

150 @ 5.60 = 840

500 @ 5.00 = 2,500

Oct. 3 450 @ $4.60 = $ 2,070

450 @ 4.60 = 2,070

25 @ $6.00

= $ 150

272

150 @ 5.60 = 840

320 @$5.00 = $ 1,600 180 @ 5.00 = 900

5 280 @ 4.60 = 1,288 170 @ 4.60 = 782

Total 1,320

$6,690

795

$4,018 525 $2,672

Cost of goods available for sale = Cost of goods sold + Ending inventory

273

Exercise 7-5 (30 minutes)TROUT COMPANYIncome Statement

For year ended December 31, 2011

Moving Specific Weighted Identification Average FIFO LIFO

Sales ...................... $11,925$11,925.00$11,925.....$11,925

(795 units × $15 selling price)Cost of goods sold.... 4,018 4,092 .75 4,245 3,940Gross profit.............. $ 7,907 $ 7,832.25$ 7,680 $ 7,985Operating expenses. 1,250 1,250 .00 1,250 1,250Net income.............. $ 6,657 $ 6,582 .25

$ 6,430 $ 6,735

1) The LIFO method results in the highest net income with $6,735.

2) The weighted average net income of $6,582.25 does fall between FIFO net income ($6,430) and LIFO net income ($6,735).

3) If costs were rising instead of falling then the FIFO method would probably result in the highest net income.

Exercise 7-6Purchases/

Transportation-In/ (Purchase

Returns/Discounts)

Cost of Goods Sold/

(Returns to Inventory) Balance in Inventory

Date UnitsCost/Unit Total $ Units

Cost/Unit Total $

Units

Avg Cost/Unit Total $

Mar. 1

Brought Forwar

d 50 $95.00$4,750.0

0

2 25 $97.00 $2,425.00 75 95.67 7,175.00

3 12 95.67 1,148.04

63 95.67 6,026.96

274

4 (2) 95.67(191.34

) 65 95.67 6,218.30

7 48 95.674,592.1

6 17 95.66 1,626.14

17 15 92.00 1,380.00 32 93.94 3,006.14

28 25 93.94

2,348.50 7 93.95 657.64

Analysis component:

The gross profit ratio for Product W506 for March 2011 is 35.71% calculated as net March sales of $12,284 (83 units × $148) less March cost of goods sold of $7,897.36 = $4,386.64 gross profit ÷ $12,284 = .3571 × 100.

275


a. LCM applies to inventory as a whole: $14,260b. LCM applied separately to each product: $13,792

Calculations: Per Unit LCM applied

to:a. b.

Inventor

y

Units

Total

Total

Inventory

Each

Items

on Hand

Cost

NRV

Cost

NRV

as a Whol

e

Product

BB 22 $100

$108

$2,200

$2,376

$2,200

FM 15 156

144

2,340

2,160

2,160

MB 36 190

182

6,840

6,552

6,552

SL 40 72 87 2,880

3,480

2,880

$14,260

$14,568

$14,260

$13,792

c. 2011

Dec. 31 Cost of Goods Sold 468


To write inventory down to market;

14,260 – 13,792 = 468


1. $900,000 – $500,000 = $400,000

276

2.For years ended Income statement information

actually reported foryears ended December 31,

December 31, 2011, 2012, and 2013

income statement information

should have been reported as: 2011 2012 2013

Sales $900,000 $900,000

$900,000

$900,000

Cost of goods sold:

Beginning inventory

$200,000 $200,000

$180,000

$200,000

Add: Purchases 500,000 500,000 500,000 500,000

Less: Ending inventory

200,000 180,000

200,000

200,000

Cost of goods sold 500,000 520,000

480,000

500,000

Gross profit $400,000 $380,000

$420,000

$400,000

277


Goods available for sale:Inventory, January 1 .... $ 450,000Purchases $1,590,000Purchase returns (23,100)Transportation-in 37,600

1,604,500Goods available for sale .... $2,054,500

Less: Estimated cost of goods sold:Sales $2,000,000Estimated cost of goods sold

[$2,000,000 × (1 – 30%)] .... (1,400,000)

Estimated March 31 inventory $ 654,500


At Cost At RetailGoods available for sale:

Beginning inventory $63,800.00$ 128,400.00Net purchases 115,620.00 196,800.00Goods available for sale $179,420.00$325,200.00

Deduct net sales at retail 260,000.00Ending inventory at retail $ 65,200.00Cost ratio: ($179,420/$325,200) × 100 = 55.17%Ending inventory at cost ($65,200 × 55.17%)

$35,970.84


a. $54,600 × 55.17% = $30,122.82

b.

At Cost At Retail

278

Estimated inventory that should have been on hand ....................... $35,970.84$65,200.00

Physical inventory................................. 30,122.8254,600.00

Inventory shrinkage.............................. $ 5,848.02 $ 10,600.00

279


Ending Cost ofInventoryGoods

Sold

a. Weighted-average cost ($6,600/1,320 = $5.00):$5.00 × 50 .......................................... 250$6,600 – $250 ..................................... 6,350

b. FIFO:50 × $4.40 .......................................... 220$6,600 – $220 ..................................... 6,380

c. LIFO:50 × $6.00 .......................................... 300$6,600 – $300 ..................................... 6,300

FIFO provides the lowest net income because it has the highest cost of goods sold due to decreasing unit costs.


Ending Cost ofInventoryGoods

Sold

a. FIFO:(50 × $2.86) + (100 × $2.50) ............ 393(120 × $2.00) + (250 × $2.30) + (400 × $2.50)1,815

b. LIFO:(120 × $2.00) + (30 × $2.30) ............ 309(50 × $2.86) + (500 × $2.50) + (220 × $2.30) 1,899

c. Weighted-average cost ($2,208/920 = $2.40):$2.40 × 150 ........................................ 360$2.40 × 770 ........................................ 1,848

LIFO provides the lowest net income because it has the highest cost of goods sold due to rising unit costs.

280


Ending inventory:

Units Cost/Unit Total Cost

Beginning inventory 80 @ $2.00 = $160.00

March 7 purchase 22 @ 2.30 = 50.60

July 28 purchase 48 @ 2.50 = 120.00

150 $330.60

Cost of goods sold:

Cost of goods available for sale less Ending inventory = Cost of goods sold

$2,208.00 – $330.60 = $1,877.40


Merchandise turnover2012:

$ 643,825 = 7.0 times($96,400 + $86,750)/2

2011:$ 426,650 = 4.8 times

($86,750 + $91,500)/2

Days’ sales in inventory2012:

$ 96,40

0

× 365

= 54.7 days

$643,825

2011:

281

$ 86,75

0

× 365

= 74.2 days

$426,650

It appears that Russo has lower levels of merchandise inventory on hand which is generally favourable provided customers are not being turned away because of out-of-stock items.

Chapter 8 Accounting Information Systems

EXERCISES


Sales Journal Page 1

Date Account DebitedInvoice Number PR

Accounts Receivable Dr. Sales Cr.

Cost of Goods Sold Dr. Merchandise Inventory

Cr.

2011

Feb. 7 J. Eason 5704 1,150 700

12 P. Lathan 5705 320 170

25 S. Summers 5706 550 300


SALES JOURNAL Page 2Invoice A/R Dr.

Date Account Debited Number

PR Sales Cr.

2011

Feb.

7 J. Eason 5704 1,150

12 P. Lathan 5705 320

25 S. Summers 5706 550

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Cash Receipts Journal

DateAccount Credited PR Explanation

Cash Dr.

Sales Discount Dr.

Accounts Receivabl

e Cr.Sales

Cr.

Other Account

2011

Sept. 9 Notes payable Note to bank 5,500 5,500

13 Dale Trent, capital

Owner investment

7,000 7,000

18 Sales Cash sale 460 460

27 J. Namal Invoice, Sept. 7 1,764 36 1,800

283


CASH RECEIPTS JOURNAL Page 2Sales Accts. Other

Account Cash Disc. Rec. Sales Accts.

Date Credited Explanation PR Debit Debit Credit Credit Credit

2011

Sept.

9 Notes payable Note to bank 5,500 5,500

13

Dale Trent, capital

Owner investment

7,000 7,000

18

Sales Cash sale 460 460

27

J. Namal Invoice, Sept. 7 1,764 36 1,800


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Purchases Journal Page 1

Date Account CreditedDate of Invoice Terms PR

Accounts Payable Cr.

Merchandise

Inventory Dr.

Office Supplies

Dr.

Other Accounts

Dr.

2011

July 1 Angler, Inc. Jul

1 n/30 8,100 8,100

14 Store Supplies/ Steck Company

Jul

14 2/10, n/30

240 240

17 Marten Company Jul

17 n/30 2,600 2,600


PURCHASES JOURNAL Page 2

Accounts Office Other

Date of

Payable Purchases Supplies

Accounts

Date Account Credited Invoice

Terms PR Credit Debit Debit Debit

2011

July 1 Angler, Inc. July 1

n/30 8,100 8,100

285

14 Store Supplies/Steck Company July 14

2/10,n/30

240 240

17 Marten Company July 17

n/30 2,600 2,600

286


Cash Disbursements Journal Page 1

DateCh. No. Payee Account Debited PR Cash Cr.

Merchandise Inventory Cr.

Other Accounts Dr.

Accounts Payable Dr.

2011

Mar. 9 210 Narlin Corp. Store Supplies 900 900

17 211 City Bank Notes Payable 3,000 3,000

29 212 LeBaron LeBaron 6,860 140 7,000

31 213 E. Brandon Salaries Expense

3,400 3,400

31 214 Pace, Inc. Pace, Inc. 5,500 5,500


CASH DISBURSEMENTS JOURNAL Page 2Purchas

eOther Accts.

Ch. Cash Discount

Accts. Payable

Date No. Payee Account Debited PR Credit Credit Debit Debit

2011

Mar. 9 210

Narlin Corp. Store Supplies 900 900


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7 1

29

212

LeBaron LeBaron 6,860 140 7,000

31

213

E. Brandon Salaries Expense 3,400 3,400

31

214

Pace, Inc. Pace, Inc. 5,500 5,500

288


Part 1 – Wilson Purchasing




Merchandise

Inventory Dr.

Office Supplies

Dr.

Other Accounts

Dr.

2011

May 11

Hostel Sales May 11 3/10, n/90

30,000 30,000




Other Accounts Dr.


2011

May 11

84 Express Shipping

Merchandise Inv.

335 335

20 85 Hostel Sales Hostel Sales 27,9361 864 28,800

General Journal Page: 1


2011

May 12 Accounts Payable – Hostel Sales 1,200

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Calculations:

1. 30,000 – 1,200 = 28,800; 28,800 x 3% = 864; 28,800 – 864 = 27,936.

290


Part 2 – Hostel Sales





Cr.

2011

May 11

Wilson Purchasing

1601 30,000 20,000

Cash Receipts Journal Page 1


Cash Dr.

Sales Discount Dr.

Accounts Receivabl

e Cr.Sales

Cr.

Other Account

s Cr.

Cost of Goods Sold Dr.


2011

May 21

Wilson Purchasing

Wilson Purchasing

27,9361

864 28,800



2011

May 12 Sales Returns and Allowances 1,200

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To record sales return.

12 Merchandise Inventory 800


To record cost of merchandise returned to inventory.

Calculations:

1. 30,000 – 1,200 = 28,800; 28,800 x 3% = 864; 28,800 – 864 = 27,936.

292





Date Payable Purchases Supplies

Accounts

Date Account Credited Invoic Terms PR Credit Debit Debit Debit

2011

Ma 11 Hostel Sales May 3/10,n/90

30,000 30,000


eOther Accts.

Ch. Cash Discount

Accts. Payable


2011

May 1 84 Express Shipping

Transportation-In 335 335

2 85 Hostel Sales A/P – Hostel Sales 27,936 864 28,800

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2011



To record return of merchandise purchased.

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PR Sales Cr.

2011

May

11 Wilson Purchasing 1601 30,000




2011

May 21

Wilson Purchasing

Sale of May 11 27,936 864 28,800



2011


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296


The June 5 purchase would have been recorded in the Purchases Journal and the June 14 payment would have been recorded in the Cash Disbursements Journal. The error in journalizing the June 14 transaction should be discovered in the process of crossfooting the Cash Disbursements Journal at the end of the month.


a. When the schedule of accounts payable is prepared.

b. When crossfooting the Purchases Journal.

c. When the trial balance is prepared.

d. When the schedule of accounts payable is prepared.

e. When the schedule of accounts payable is prepared.


297


Part 1

ACCOUNTS RECEIVABLE SUBLEDGER

Sanders Farrell Don Holland Brad Smithers

May 171,700

May 20 500 May 103,880

25 680

May 6 5,760

Bal. 1,200 Bal.4,560

Part 2

GENERAL LEDGER

Accounts Receivable SalesSales Returns

and Allowances

May 3112,020

May 20 500 May 3112,020 May 20500

Bal. 11,520

Part 3

VALUE-MART GOODS

Schedule of Accounts Receivable

May 31, 2011

Sanders Farrell................................................... $ 1,200

Dan Holland.................................................... 4,560Brad Smithers..................................................... 5,760

Total accounts receivable............................... $11,520

Accounts Receivable Controlling Account

Total debit........................................................... $12,020


298

Credit for return................................................ (500)

Balance as of May 31, 2011............................ $11,520


299


GENERAL LEDGER

Cash Accounts Payable Sales Discounts

38,878 23,044 1,500

18,300

23,200 472

Accounts Receivable Notes Payable Purchases

26,200 600

23,600

9,000 23,200

Prepaid Insurance SalesPurchase Returns

and Allowance

1,700 26,200

5,750

1,500

Store EquipmentSales Returns

and Allowances Purchase Discounts

3,500 1,000 600 456


Jack Hertz Trudy Stone Dave Waylon

7,400 600

6,800

16,800 16,800 2,000

ACCOUNTS PAYABLE SUBLEDGER

Grass Corp. McGrew Company Sulter, Inc.

1,500 10,800 3,400 9,000 9,000


300

9,300


301


Part 1

ACCOUNTS RECEIVABLE SUBLEDGERAdrian Carr Lisa Mack

Jan. 8 7,076 Jan. 14 23,780

Jay Newton Kathy Olivias

Jan. 2

29

4,176

8,468

Jan. 10

20

15,544

12,992

Part 2

Jan. 31 Accounts Receivable....................... 72,036 Sales.......................................... 62,100 GST Payable............................... 3,726 PST Payable............................... 6,210

Part 3

GENERAL LEDGERAccounts Receivable Sales

Jan. 31 72,036 62,100 Jan. 31

Part 4

SKILLERN COMPANY


January 31, 2011

Adrian Carr .................... $ 7,076Lisa Mack .................................................... 23,780

Jay Newton ................................................. 12,644

Kathy Olivas ............................................... 28,536


302

Total accounts receivable...................... $72,036


303


Sales Journal Page X

Date Account DebitedInvoice

No. PR A/R DrPST

Payable CRGST

Payable CR Sales Cr

COGS DR Merchandise Inventory CR

2011

Aug.5

Jay Smith 50 50,160 3,520 2,640 44,000 21,000

11 Dee Oliver 51 38,760 2,720 2,040 34,000 16,200

Cash Receipts Journal Page X

DateAccount Credited

Explanation PR

Other Account

s CR A/R CR

PST Payabl

e CR

GST Payabl

e CRSales CR Cash DR

Sales Disc Dr

COGS/DR Merchandise

Inventory/ CR

2011

Aug. 20

Jay Smith Inv. 50 50,160

50,160

21 Dee Oliver Inv. 51 38,760

38,420 340*

Purchases Journal Page X

Date Account Credited Terms PR A/P CR


DROther

Accounts DRGST Rec’ble

DR

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2011

Aug.1

Arden Sheet Metal

2/10, n/30

10,600 10,000 600

7 JayCee Equipment

n/30

6,360 6,000 360

Cash Disbursements Journal Page X

Date Ch # Account Debited PR

Other Accounts

DRGST Rec’ble

DR A/P DR


CR Cash CR

2011

Aug. 10

28 A/P – Arden Sheet Metal 10,600 200 10,400

*Discount on sales amount only

305


SALES JOURNALAccts. PST GST

Invoice Rec. Payable PayableDate Account Debited Number PR Debit Credit Credit201

1Aug. 5 Jay Smith 50 50,160 3,520 2,640

11 Dee Oliver 51 38,760 2,720 2,040

CASH RECEIPTS JOURNALPage X

Other Accts. PST GSTAccts. Rec. Payable Payable Sales

Date Account Credited

Explanation PR Credit Credit Credit Credit Credit

2011Aug.2

0A/R – Jay Smith

Inv. 50 50,160

21 A/R – Dee Oliver

Inv. 51 38,760

PURCHASES JOURNAL Page X

Accts.Date of Payable Purchases

Date Account Credited Invoice Terms PR Credit Debit2011Aug. 1 Arden Sheet Metal Aug. 1 2/10,n/30 10,600 10,000

7 JayCee Equipment Aug. 7 n/30 6,360

CASH DISBURSEMENTS JOURNALPage X

Other GST Accts.

Ch. Accts. Rec’ble Payable

Date No. Payee Account Debited PR Debit Debit Debit

2011

Aug.10 28 A/P – Arden Arden Sheet Metal 10,600

Current/Old edition

CAMOSUN COLLEGE 73050199 BAYE MP MGRL ECON/BUS STRAT


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W/DD

70877386BUCKWOLD CDN INCOME TAX/8CE

Chapter 9 Internal Control and CashEXERCISES


Lombard Company’s internal control system failed to require a separation of asset custody and recordkeeping. The bookkeeper should not have been allowed to sign the company’s cheques. In addition, since a loss was incurred, the company apparently had not bonded its employee. Otherwise, the loss would have been insured by the bonding company. Finally, if regular, independent reviews of the accounting records had been done, the payments of salary cheques to a nonemployee may have been discovered sooner.


You have several concerns. First, there is no mechanism in the parking meters to track the input of coins (a meter reading that could be documented and subsequently verified against the collection); this means there is no verifiable means by which to reconcile the contents of each meter. Second, because of the first shortcoming, the employee emptying the contents of the meters could withhold some of the coins since the dollar value cannot be verified. Third, the canvas bag is not secure; it can be opened at any time by an unauthorized individual. Fourth, after emptying several parking meters, the contents of each canvas bag can easily exceed a thousand dollars; there is a safety risk to a lone employee carrying a canvas bag of money.

To correct the situation, optimally, the parking meters should be mechanized such that the contents can be reconciled. However, a major investment in new parking meters seems unlikely, therefore, civic employees collecting coins from parking meters should operate in pairs; there is


307

less risk of fraud if two employees are responsible for emptying the parking meters (unless there is collusion). The canvas bag used to collect the coins is also problematic. It should be redesigned so that coins can go in but cannot be removed unless done so by an authorized individual. Finally, for safety of the individuals involved and for security over the coins, full moneybags should not be stored in an unattended vehicle. Full moneybags should be transferred to a secure location immediately; arrangements could be made with an armored vehicle to rendezvous with the pair of employees regularly at specified points along the route.


308


a. If a cash register cannot be used, the total sales value of the shirts and sunglasses given to the employee each day should be calculated. Then, the employee should sign a receipt for the merchandise and the amount of cash that he or she has been given. At the end of each day, the employee should be required to return cash plus remaining shirts and sunglasses equal to the amount taken to the stand.

b. The employee should sign a receipt for the total amount of cash he or she is given each weekend. Then, each time the employee makes a purchase, he or she should obtain a signed sales receipt for the payment. The sales receipt should list the items purchased and the prices paid. When the employee returns to the business office, the total value of the signed sales receipts plus any remaining cash should equal the amount of cash originally given to the employee. Also, the merchandise brought back by the employee should be the same as the items listed on the signed sales receipts.


The internal control problem is that the bookkeeper has physical control over the cash receipts and also has control over the accounting records. Nothing in the system prevents the bookkeeper from taking cash from the mail and using it personally. The bookkeeper might delay recording the cash receipt from a customer until more cash comes in at a later date from a second customer. Then, the new cash receipt would be deposited and recorded as a payment made by the first customer. No entry would be made in the second customer’s account until cash was received from a third customer. (This type of fraud is called “lapping.”) Also, the bookkeeper may pocket cash and claim that a payment was never received and apparently lost in the mail.

If only one person is present when the mail is opened, that person may steal cash and claim it was never received. If possible, two people should be present. Otherwise, the honesty and integrity of the person chosen to open the mail is critical. Most importantly, the bookkeeper should not have physical control over cash.


309


Part 1a.Jan. 1 Petty Cash........................................... 200.00

Cash...............................................200.00

To establish the fund.b.

Eanes Co.

Petty Cash Payments Report

January 1 – 8, 2011

Receipts:

Postage expense $64.00

Merchandise inventory 19.00

Store supplies 36.50

Jim Eanes, Withdrawals 53.00

Total receipts $172.50

Fund total $200.00

Less: Cash remaining 27.50

Equals: Cash required to replenish petty cash 172.50

Cash over/(short) $ -0-

Jan. 8 Postage Expense................................. 64.00Merchandise Inventory........................ 19.00Store Supplies Expense*...................... 36.50Jim Eanes, Withdrawals....................... 53.00

Cash...............................................172.50

To reimburse the fund.

Part 2Jan. 8 Postage Expense................................. 64.00

Merchandise Inventory........................ 19.00Store Supplies Expense*...................... 36.50Jim Eanes, Withdrawals....................... 53.00


310

Petty Cash........................................... 300.00Cash...............................................

472.50To reimburse the fund and increase it by $300.

Analysis ComponentIf the January 8 entry to reimburse the fund was not recorded, net income would be overstated.

* Either Store Supplies Expense (an expense) or Store Supplies (an asset) could be debited. However, if supplies are being purchased through Petty Cash it is likely that they are for immediate use which justifies using an expense account over an asset.


311


a.Sept. 9 Petty Cash........................................... 400.00

Cash...............................................400.00


Brady Company


September 9 – 30, 2011

Receipts:

Merchandise inventory $ 32.45

Office supplies 113.55

Repairs expense 87.60

Total receipts $233.60)

Fund total $400.00


Equals: Cash required to replenish petty cash 253.60)

Cash over/(short) ($ 20.00)

Sept.30 Merchandise Inventory........................ 32.45Office Supplies Expense*..................... 113.55Repairs Expense.................................. 87.60Cash Over and Short........................... 20.00

Petty Cash......................................100.00

Cash...............................................153.60

To reimburse the fund and decrease it by $100.

Analysis component:


312

There are several things that could be done. The Marketing Manager should review the prior month’s petty cash journal entries to determine if the shortage is an anomaly or a recurring event. Hopefully it is an anomaly but, regardless, the manager will need to question the Petty Cash Custodian about the $20 cash shortage recorded in September. It is important to recognize that honest errors do occur. It is also possible that the Petty Cash Custodian requires training to help him manage the petty cash fund. If it is determined that the error was based on dishonesty, appropriate action will have to be taken (which normally results in the dismissal of the employee as a minimum).

* Either Office Supplies Expense (an expense) or Office Supplies (an asset) could be debited. However, if supplies are being purchased through Petty Cash it is likely that they are for immediate use which justifies using an expense account over an asset.


313


a. Oct. 31.................................Cleaning Expense

120.00Postage Expense................................... 79.00Delivery Expense.................................. 60.00 Cash Over and Short................... 4.00 Cash............................................

255.00 To reimburse the fund.

b. Nov. 30...................Computer Repair Expense

75.00Entertainment Expense........................ 156.00Cash Over and Short............................. 2.00 Cash.............................................


c. Dec. 31........................................Gas Expense

80.00Office Supplies Expense*...................... 140.00Entertainment Expense........................ 62.00Petty Cash............................................. 100.00 Cash.............................................

382.00 To reimburse and increase the fund.



314


Oct. 1 Cash.................................................... 104,475Debit Card Expense............................. 525

Service Revenue............................105,000

To record sale of services less debit card expense; 0.5% x 105,000 = 525.

7 Cash.................................................... 37,000Service Revenue............................

37,000To record sale of services provided for cash.

8 Cash.................................................... 59,780Credit Card Expense............................ 1,220

Service Revenue............................61,000

To record sale of services less credit card expense; 2% x 61,000 = 1,220.

10 Accounts Receivable – Edson CHC....... 84,000Service Revenue............................

84,000To record sale of services.

25 Cash.................................................... 80,320Sales Discounts................................... 3,680

Accounts Receivable – Edson CHC.84,000

To record collection of Oct. 10 credit sale;2% x 84,000 = 3,680.


315


Jan. 15 Cash.................................................... 56,000Sales..............................................

56,000To record sale of merchandise to cash

customers.

15 Cost of Goods Sold.............................. 36,400Merchandise Inventory...................

36,400To record cost of sales.

17 Accounts Receivable............................ 15,800Sales..............................................

15,800To record sale of merchandise on terms 2/10,

n30.




Sales..............................................114,000

To record sale of merchandise less credit card expense; 114,000 x 2% = 2,280.



25 Cash.................................................... 71,640Debit Card Expense............................. 360

Sales..............................................72,000

To record sale of merchandise less debit card expense; 0.5% x 72,000 = 360.


46,800


316



317


Analysis component

Cash sales would be preferable, however, often it is not convenient for customers. The inconvenience of cash might prevent customers from making purchases if that was the only means of payment accepted by LenCon. Credit sales allow customers to purchase on impulse. However, two disadvantages: receipt of cash by LenCon is delayed and credit sales require administrative time to monitor the timely collection from credit customers. Debit cards have the advantage of allowing customers to make impulse purchases but only if the cash balance is available in their bank account. Debit cards are also comparable to cash (no subsequent collection required) but the bank does charge a fee for this service although it is normally significantly less than the fee charged by banks for credit card transactions. Bank credit cards have the advantages of cash being collected by LenCon immediately (positive effect on cash flow) and customers are limited only to their credit card limit (not their bank account balance); customers are buying on credit but the risk of collection is transferred to the credit card company. The disadvantage of credit cards is the fee charged by the administering bank. LenCon will likely accept all forms of payment to enhance sales and in so doing recognize the costs and risks of each.


318


1.

PELZER HOLDINGS

Bank Reconciliation

July 31, 2011

Bank statement balance $9,848 Book balance $9,740

Add:

Outstanding deposit

Bank error (Peltza cheque)

572

560

$10,980

Deduct:

Outstanding cheques:

#14: $ 600

#54: 140 1,480

Deduct:

NSF — Jim Anderson 240

Adjusted bank balance $9,500 Adjusted book balance $9,500

2.July 31 Accounts Receivable – Jim Anderson 240

Cash 240

To reinstate customer account.

Analysis component

If the journal entry in (2) is not recorded, net income, liabilities, and owner’s equity would not be affected. Assets would be increased and decreased by the same amount causing a net change of zero.



319

MEDLINE SERVICE CO.Bank Reconciliation

July 31, 2011

Bank statement balance ............... $10,332 Book balance of cash..........................................................$11,352Add:..................................................... Add:

Deposit of July 31................... 2,724 Error on Ch. No. 919......... 9

$13,056 $11,361

Deduct:.............................................. Deduct:

Outstanding cheques............ 1,713 Bank service charge......... 18

Adjusted bank balance................. $11,343 Adjusted book balance...........................................................$11,343


b.

July 31 Cash.................................................... 9Utilities Expense.............................

9To correct error.

31 Bank Service Charges Expense........... 18Cash...............................................

18To record bank service charges.

Analysis component

If the journal entries in part (a) were not recorded, net income, assets, and owner’s equity would each be overstated by a net amount of $9 ($18 - $9 = $9); liabilities are not affected by the entries in (a).


320


Not Shown

Bank Balance Book Balance on the

MustReconcil-

Add Deduct Add DeductAdjustiation

1. Interest earned on the account. x Dr.

2.Deposit made on September 30 after the bank was closed. x

3.Cheques outstanding on August 31 that cleared the bank in September. x

4.NSF cheque from customer returned on September 15 but not recorded by the company. xCr.

5.Cheques written and mailed to payees on September 30. x

6.Deposit made on September 5 that was processed on September 8. x

7.Bank service charge. x Cr. 8.Cheques written and mailed to

payees on October 5. x

9.Cheque written by another depositor but charged against the company's account. x

10.Principal and interest collected by the bank but not recorded by the company. x Dr.

11.Special charge for collection of note in No. 10 on company's


321

behalf. x Cr. 12.Cheque written against the

account and cleared by the bank; erroneously omitted by the bookkeeper. x Cr.


322

*Exercise 9-13 (15 minutes)Case X Case Y Case Z

Cash $ 800 $ 910 $1,100

Short-term investments -0- -0- 500

Accounts receivable -0- 990 800

Quick assets $ 800 $1,900 $2,400

Current liabilities $2,200 $1,100 $3,650

Acid-test ratio 0.36 1.73 0.66

Case Y exhibits the superior ability to meet short-term obligations as they come due. The acid-test ratio of 1.73 exceeds the common benchmark of 1.0. Cases X and Z fall short of the 1.0 benchmark.

Chapter 9 Internal Control and CashEXERCISES


Lombard Company’s internal control system failed to require a separation of asset custody and recordkeeping. The bookkeeper should not have been allowed to sign the company’s cheques. In addition, since a loss was incurred, the company apparently had not bonded its employee. Otherwise, the loss would have been insured by the bonding company. Finally, if regular, independent reviews of the accounting records had been done, the payments of salary cheques to a nonemployee may have been discovered sooner.



323

You have several concerns. First, there is no mechanism in the parking meters to track the input of coins (a meter reading that could be documented and subsequently verified against the collection); this means there is no verifiable means by which to reconcile the contents of each meter. Second, because of the first shortcoming, the employee emptying the contents of the meters could withhold some of the coins since the dollar value cannot be verified. Third, the canvas bag is not secure; it can be opened at any time by an unauthorized individual. Fourth, after emptying several parking meters, the contents of each canvas bag can easily exceed a thousand dollars; there is a safety risk to a lone employee carrying a canvas bag of money.

To correct the situation, optimally, the parking meters should be mechanized such that the contents can be reconciled. However, a major investment in new parking meters seems unlikely, therefore, civic employees collecting coins from parking meters should operate in pairs; there is less risk of fraud if two employees are responsible for emptying the parking meters (unless there is collusion). The canvas bag used to collect the coins is also problematic. It should be redesigned so that coins can go in but cannot be removed unless done so by an authorized individual. Finally, for safety of the individuals involved and for security over the coins, full moneybags should not be stored in an unattended vehicle. Full moneybags should be transferred to a secure location immediately; arrangements could be made with an armored vehicle to rendezvous with the pair of employees regularly at specified points along the route.


324


a. If a cash register cannot be used, the total sales value of the shirts and sunglasses given to the employee each day should be calculated. Then, the employee should sign a receipt for the merchandise and the amount of cash that he or she has been given. At the end of each day, the employee should be required to return cash plus remaining shirts and sunglasses equal to the amount taken to the stand.

b. The employee should sign a receipt for the total amount of cash he or she is given each weekend. Then, each time the employee makes a purchase, he or she should obtain a signed sales receipt for the payment. The sales receipt should list the items purchased and the prices paid. When the employee returns to the business office, the total value of the signed sales receipts plus any remaining cash should equal the amount of cash originally given to the employee. Also, the merchandise brought back by the employee should be the same as the items listed on the signed sales receipts.


The internal control problem is that the bookkeeper has physical control over the cash receipts and also has control over the accounting records. Nothing in the system prevents the bookkeeper from taking cash from the mail and using it personally. The bookkeeper might delay recording the cash receipt from a customer until more cash comes in at a later date from a second customer. Then, the new cash receipt would be deposited and recorded as a payment made by the first customer. No entry would be made in the second customer’s account until cash was received from a third customer. (This type of fraud is called “lapping.”) Also, the bookkeeper may pocket cash and claim that a payment was never received and apparently lost in the mail.

If only one person is present when the mail is opened, that person may steal cash and claim it was never received. If possible, two people should be present. Otherwise, the honesty and integrity of the person chosen to open the mail is critical. Most importantly, the bookkeeper should not have physical control over cash.


325


Part 1a.Jan. 1 Petty Cash........................................... 200.00

Cash...............................................200.00


Eanes Co.


January 1 – 8, 2011

Receipts:

Postage expense $64.00

Merchandise inventory 19.00

Store supplies 36.50

Jim Eanes, Withdrawals 53.00

Total receipts $172.50

Fund total $200.00


Equals: Cash required to replenish petty cash 172.50

Cash over/(short) $ -0-

Jan. 8 Postage Expense................................. 64.00Merchandise Inventory........................ 19.00Store Supplies Expense*...................... 36.50Jim Eanes, Withdrawals....................... 53.00

Cash...............................................172.50

To reimburse the fund.

Part 2Jan. 8 Postage Expense................................. 64.00

Merchandise Inventory........................ 19.00Store Supplies Expense*...................... 36.50Jim Eanes, Withdrawals....................... 53.00


326

Petty Cash........................................... 300.00Cash...............................................

472.50To reimburse the fund and increase it by $300.

Analysis ComponentIf the January 8 entry to reimburse the fund was not recorded, net income would be overstated.

* Either Store Supplies Expense (an expense) or Store Supplies (an asset) could be debited. However, if supplies are being purchased through Petty Cash it is likely that they are for immediate use which justifies using an expense account over an asset.


327


a.Sept. 9 Petty Cash........................................... 400.00

Cash...............................................400.00


Brady Company


September 9 – 30, 2011

Receipts:

Merchandise inventory $ 32.45

Office supplies 113.55

Repairs expense 87.60

Total receipts $233.60)

Fund total $400.00


Equals: Cash required to replenish petty cash 253.60)

Cash over/(short) ($ 20.00)

Sept.30 Merchandise Inventory........................ 32.45Office Supplies Expense*..................... 113.55Repairs Expense.................................. 87.60Cash Over and Short........................... 20.00

Petty Cash......................................100.00

Cash...............................................153.60

To reimburse the fund and decrease it by $100.

Analysis component:


328

There are several things that could be done. The Marketing Manager should review the prior month’s petty cash journal entries to determine if the shortage is an anomaly or a recurring event. Hopefully it is an anomaly but, regardless, the manager will need to question the Petty Cash Custodian about the $20 cash shortage recorded in September. It is important to recognize that honest errors do occur. It is also possible that the Petty Cash Custodian requires training to help him manage the petty cash fund. If it is determined that the error was based on dishonesty, appropriate action will have to be taken (which normally results in the dismissal of the employee as a minimum).



329


a. Oct. 31.................................Cleaning Expense

120.00Postage Expense................................... 79.00Delivery Expense.................................. 60.00 Cash Over and Short................... 4.00 Cash............................................


b. Nov. 30...................Computer Repair Expense

75.00Entertainment Expense........................ 156.00Cash Over and Short............................. 2.00 Cash.............................................


c. Dec. 31........................................Gas Expense

80.00Office Supplies Expense*...................... 140.00Entertainment Expense........................ 62.00Petty Cash............................................. 100.00 Cash.............................................

382.00 To reimburse and increase the fund.



330


Oct. 1 Cash.................................................... 104,475Debit Card Expense............................. 525

Service Revenue............................105,000

To record sale of services less debit card expense; 0.5% x 105,000 = 525.

7 Cash.................................................... 37,000Service Revenue............................

37,000To record sale of services provided for cash.


Service Revenue............................61,000

To record sale of services less credit card expense; 2% x 61,000 = 1,220.

10 Accounts Receivable – Edson CHC....... 84,000Service Revenue............................

84,000To record sale of services.

25 Cash.................................................... 80,320Sales Discounts................................... 3,680

Accounts Receivable – Edson CHC.84,000

To record collection of Oct. 10 credit sale;2% x 84,000 = 3,680.


331


Jan. 15 Cash.................................................... 56,000Sales..............................................

56,000To record sale of merchandise to cash

customers.



17 Accounts Receivable............................ 15,800Sales..............................................

15,800To record sale of merchandise on terms 2/10,

n30.




Sales..............................................114,000

To record sale of merchandise less credit card expense; 114,000 x 2% = 2,280.



25 Cash.................................................... 71,640Debit Card Expense............................. 360

Sales..............................................72,000

To record sale of merchandise less debit card expense; 0.5% x 72,000 = 360.


46,800


332



333


Analysis component

Cash sales would be preferable, however, often it is not convenient for customers. The inconvenience of cash might prevent customers from making purchases if that was the only means of payment accepted by LenCon. Credit sales allow customers to purchase on impulse. However, two disadvantages: receipt of cash by LenCon is delayed and credit sales require administrative time to monitor the timely collection from credit customers. Debit cards have the advantage of allowing customers to make impulse purchases but only if the cash balance is available in their bank account. Debit cards are also comparable to cash (no subsequent collection required) but the bank does charge a fee for this service although it is normally significantly less than the fee charged by banks for credit card transactions. Bank credit cards have the advantages of cash being collected by LenCon immediately (positive effect on cash flow) and customers are limited only to their credit card limit (not their bank account balance); customers are buying on credit but the risk of collection is transferred to the credit card company. The disadvantage of credit cards is the fee charged by the administering bank. LenCon will likely accept all forms of payment to enhance sales and in so doing recognize the costs and risks of each.


334


1.

PELZER HOLDINGS

Bank Reconciliation

July 31, 2011

Bank statement balance $9,848 Book balance $9,740

Add:

Outstanding deposit

Bank error (Peltza cheque)

572

560

$10,980

Deduct:

Outstanding cheques:

#14: $ 600

#54: 140 1,480

Deduct:

NSF — Jim Anderson 240

Adjusted bank balance $9,500 Adjusted book balance $9,500

2.July 31 Accounts Receivable – Jim Anderson 240

Cash 240

To reinstate customer account.

Analysis component

If the journal entry in (2) is not recorded, net income, liabilities, and owner’s equity would not be affected. Assets would be increased and decreased by the same amount causing a net change of zero.



335

MEDLINE SERVICE CO.Bank Reconciliation

July 31, 2011

Bank statement balance ............... $10,332 Book balance of cash..........................................................$11,352Add:..................................................... Add:

Deposit of July 31................... 2,724 Error on Ch. No. 919......... 9

$13,056 $11,361

Deduct:.............................................. Deduct:

Outstanding cheques............ 1,713 Bank service charge......... 18

Adjusted bank balance................. $11,343 Adjusted book balance...........................................................$11,343


b.

July 31 Cash.................................................... 9Utilities Expense.............................

9To correct error.

31 Bank Service Charges Expense........... 18Cash...............................................

18To record bank service charges.

Analysis component

If the journal entries in part (a) were not recorded, net income, assets, and owner’s equity would each be overstated by a net amount of $9 ($18 - $9 = $9); liabilities are not affected by the entries in (a).


336


Not Shown

Bank Balance Book Balance on the

MustReconcil-

Add Deduct Add DeductAdjustiation

1. Interest earned on the account. x Dr.

2.Deposit made on September 30 after the bank was closed. x

3.Cheques outstanding on August 31 that cleared the bank in September. x

4.NSF cheque from customer returned on September 15 but not recorded by the company. xCr.

5.Cheques written and mailed to payees on September 30. x

6.Deposit made on September 5 that was processed on September 8. x

7.Bank service charge. x Cr. 8.Cheques written and mailed to

payees on October 5. x

9.Cheque written by another depositor but charged against the company's account. x

10.Principal and interest collected by the bank but not recorded by the company. x Dr.

11.Special charge for collection of note in No. 10 on company's


337

behalf. x Cr. 12.Cheque written against the

account and cleared by the bank; erroneously omitted by the bookkeeper. x Cr.


338

*Exercise 9-13 (15 minutes)Case X Case Y Case Z

Cash $ 800 $ 910 $1,100

Short-term investments -0- -0- 500

Accounts receivable -0- 990 800

Quick assets $ 800 $1,900 $2,400

Current liabilities $2,200 $1,100 $3,650

Acid-test ratio 0.36 1.73 0.66

Case Y exhibits the superior ability to meet short-term obligations as they come due. The acid-test ratio of 1.73 exceeds the common benchmark of 1.0. Cases X and Z fall short of the 1.0 benchmark.

Chapter 10 ReceivablesaaExercises


Apr. 6 Cash........................................ 8,832.00Credit Card Expense ($9,200 .04)

368.00Sales...................................

9,200.00

6 COGS....................................... 5,300.00Merchandise Inventory........

5,300.00

10 Accounts Receivable—Colonial.. 310.00Sales...................................

310.00


339

10 COGS....................................... 160.00Merchandise Inventory........

160.00

17 No entry required.

28 Cash........................................ 5,370.40Credit Card Expense ($5,480 × .02)

109.60Accounts Receivable—Colonial

5,480.00


340


1.GENERAL LEDGER

Accounts Receivable

SalesSales Returns

and Allowances

Nov. 3 8,834 Nov. 19 378 Nov. 3 8,834 Nov. 19 378

8 2,500 8 2,500

11 1,466 11 1,466

28 5,212 28 5,212

Bal. 17,634 18,012


ABC Shop Colt Enterprises Red McKenzie

Nov. 3 8,834 Nov. 8 2,500 Nov. 11 1,466 Nov. 19

378

28 5,212 Bal. 1,088

Bal. 14,046

2. Subledger proof:

ABC Shop..................................... $14,046Colt Enterprises............................ 2,500Red McKenzie............................... 1,088Balance of the Accounts Receivable account$17,634


a.Oct. 31Allowance for Doubtful Accounts1,000

Accounts Receivable—Gwen Rowe1,000


341

b.Dec. 9 Accounts Receivable—Gwen Rowe 200Allowance for Doubtful Accounts

200

9 Cash........................................ 200Accounts Receivable—Gwen Rowe

200


342


Dec. 31 Bad Debt Expense.................... 8,750Allowance for Doubtful Accounts

8,750Expense = .005 × $1,750,000 = $8,750.

Feb. 1 Allowance for Doubtful Accounts1,800

Accounts Receivable—Catherine Hicks1,800

June 5 Accounts Receivable—Catherine Hicks 1,800

Allowance for Doubtful Accounts1,800

5 Cash........................................ 1,800Accounts Receivable—Catherine Hicks

1,800


a.Dec. 31 Bad Debt Expense.................. 3,615Allowance for Doubtful Accounts

3,615

Accounts ReceivableAllowance for

Doubtful Accounts2,745

Unadjusted balance

? = 3,615 Adjustment

Bal. 159,000× 4%$ 6,360

6,360

Required Adjusted Balance

b.Dec. 31 Bad Debt Expense.................. 10,356Allowance for Doubtful Accounts

10,356

Accounts ReceivableAllowance for

Doubtful AccountsUnadjusted balance

3,996


343

? = 10,356 Adjustment

Bal. 159,000× 4%$ 6,360

6,360

RequiredBalance


344


a)$345,000b) $356,000c) $2,900d) $170e) $2,550


LISTEL

Partial Balance SheetMarch 31, 2011

Assets

Current assets:

Cash $ 29,000

Accounts receivable $102,000

Less: Allowance for doubtful accounts 2,100 99,900

Notes receivable, due November 30, 2011 17,000

Merchandise inventory 65,000

Supplies 4,500

Total current assets $215,400

Note:Bad Debt Expense is an income statement account and is therefore not listed on the balance sheet. Notes Receivable due May 1, 2013, Building and Accumulated Amortization, Building are asset accounts shown on the balance sheet but they are not current assets.


345


a.

2011

Dec. 31 Bad Debt Expense 7,314

Allowance for Doubtful Accounts 7,314

To record estimate for uncollectible accounts;

492,500 – 4,900 = 487,600 x 1.5% = 7,314.

b.

2012


Sales 620,000

To record credit sales during 2012.



To record cost of sales during 2012.

Cash 491,300



To record collections less sales discounts.



To record the write-off of uncollectible accounts.


346

c.

2012




620,000 – 6,200 = 613,800 x 1.5% = 9,207.


347


d.Assets

Current assets:

Accounts receivable1 $180,050

Less: Allowance for doubtful accounts2 4,971 $175,079

OR

Accounts receivable (net) $175,079

Calculations:1. 2.

Accounts Receivable Allowance for Doubtful Accounts

Bal. Dec 31/11

2012 sales

70,000

620,000

497,500

12,450

2012 collections

2012 write-offs

900

7,314

Unadj.Bal. Dec 31/11

Adjustment

Dec 31/11

Bal. Dec 31/12

180,050

2012 write-

offs 12,450

8,214

9,207

Adj. Bal. Dec 31/11

Adjustment

Dec 31/12

4,971 Adj. Bal. Dec 31/12

Analysis component:


348

The main advantage of the income statement approach is its simplicity. Like the balance sheet approach, it satisfies the generally accepted accounting principles of matching and conservatism. The main disadvantage is that it does not compensate for over or under estimations from year to year because it is not focused on the element that is uncollectible, namely, the accounts receivable.


349


a.

2011

Dec. 31 Bad Debt Expense 500

Allowance for Doubtful Accounts 500


70,000 x 2% = 1,400; 1,400 – 900 = 500.

b.

2012


Sales 620,000

To record credit sales during 2012.



To record cost of sales during 2012.

Cash 491,300



To record collections less sales discounts.



To record the write-off of uncollectible accounts.


350

c.

2012




180,050 x 2% = 3,601;

3,601 – 1,400 + 12,450 = 14,651.


351


d.

Assets

Current assets:


Less: Allowance for doubtful accounts 3,601 $176,449

OR


Calculations:Accounts Receivable Allowance for Doubtful Accounts

Bal. Dec 31/11

2012 sales

70,000

620,000

497,500

12,450

2012 collections

2012 write-offs

900

Unadj. Bal. Dec 31/11

Adjustment

Dec 31/11

Bal. Dec 31/12

180,050

2012 write-

offs 12,450

1,400 Adj. Bal. Dec 31/11

Adjustment

Dec 31/12

3,601Adj. Bal. Dec 31/12

Analysis component


500

14,651

352

The main advantage of the balance sheet approach is that it adjusts the allowance for doubtful accounts to the estimated amount of uncollectibles. Like the income statement approach, it satisfies the generally accepted accounting principles of matching and conservatism. The main disadvantage is that it does require more effort in terms of calculations.


353

Exercise 10-10 (30 minutes)a.

2011




(95,000 x 1% = 950) + (35,000 x 4% = 1,400) +

(8,000 x 10% = 800) + (2,000 x 60% = 1,200) =

4,350; 4,350 – 2,100 = 2,250.

b.

2012




(215,000 x 1% = 2,150) + (95,000 x 4% = 3,800) +

(35,100 x 10% = 3,510) + (15,000 x 60% = 9,000) =

18,460; 18,460 – 4,350 + 24,900 = 39,010.

c.

Assets

Current assets:


Less: Allowance for doubtful accounts 18,460 $341,640

OR


354


Calculations:Accounts Receivable Allowance for Doubtful Accounts

Bal. Dec 31/11

2012 sales

140,000

1,240,000

995,000

24,900

2012 collections

2012 write-offs

2,100

Unadj.Bal. Dec 31/11

Adjustment

Dec 31/11

Bal. Dec 31/12

360,100

2012

write-offs

24,900

4,350 Adj. Bal. Dec 31/11

Adjustment

Dec 31/12

18,460 Adj. Bal. Dec 31/12


2,250

39,010

355


Analysis component One of the ways to apply the balance sheet

approach is to use an aging analysis of outstanding receivables. The main advantage of the aging analysis is that it adjusts the allowance for doubtful accounts to the estimated amount of uncollectible receivables based on a detailed analysis that considers the risk associated with the age of a receivable. Like the income statement approach, it satisfies the generally accepted accounting principles of matching and conservatism. The main disadvantage is that it does require more effort in terms of calculations. However, computerization of the accounting information system has negated that disadvantage.


May 3 Bad Debt Expense.................... 1,100Accounts Receivable – Wilma Benz

1,100To write-off an uncollectible receivable

using the direct write-off method.

Analysis component:

Using 2% of credit sales, bad debt expense would be $5,600 (280,000 × 2% = 5,600) for 2011 thereby decreasing net income by $4,500 more than the direct write-off method. Using 4% of outstanding accounts receivable would result in a bad debt expense of $2,940 (46,000 × 4% = 1,840 + 1,100 = 2,940) thereby decreasing net income by $1,840 more than the direct write-off method.


Mar. 21 Notes Receivable..................... 6,200.00Accounts Receivable—Bradley Brooks

6,200.00 To record 6-month, 10% note to replace

past-due account.


356

Sept. 21 Accounts Receivable—Bradley Brooks6,510.00

Interest Revenue.................310.00

Notes Receivable.................6,200.00

To record dishonoured note; $6,200 × 0 .10 × 6/12 = $310.00.

Dec. 31 Allowance for Doubtful Accounts6,510.00

Accounts Receivable—Bradley Brooks6,510.00

To record write-off of Brooks’ account.


357


Oct. 31 Notes Receivable—Leann Grimes5,000.00

Accounts Receivable—Leann Grimes5,000.00 To record 6-month, 8% note to replace

past-due account.

Dec. 31 Interest Receivable.................. 66.67 Interest Revenue.................

66.67To record accrued interest; $5,000 × .08 × 2/12 = $66.67.

Apr. 30 Cash........................................ 5,200.00Notes Receivable—Leann Grimes

5,000.00 ........................................... Interest Revenue 133.33................................Interest Receivable................................66.67

To record collection of note and interest; $5,000 × .08 × 4/12 = $133.33.


358


2011Dec. 16 Notes Receivable.....................17,200.00

Accounts Receivable—Carmel Karuthers17,200.00 To record 60-day, 7% note to replace

past-due account.

31 Interest Receivable.................. 49.48Interest Revenue.................

49.48To record accrued interest; $17,200 × 0.07 × 15/365 = $49.48.

31 Interest Revenue..................... 49.48Income Summary.................

49.48To record the closing of the Interest Revenue account.

2012Feb. 14 Cash........................................17,397.92

Interest Revenue.................148.44

Interest Receivable..............49.48

Notes Receivable.................17,200.00

To record collection of note plus interest; $17,200 x 0 .07 x 60/365 = 197.92; 197.92 – 49.48 = 148.44.

Mar. 2 Notes Receivable..........................8,000.00Accounts Receivable—ATW Company

8,000.00 To record 90-day, 8% note to replace

past-due account.

17 Notes Receivable..................... 3,200.00Accounts Receivable—Leroy Johnson

3,200.00 To record 30-day, 9% note to replace

past-due account.


359

May 31 Cash........................................ 8,157.81Interest Revenue.................

157.81Notes Receivable.................

8,000.00To record collection of note plus interest; $8,000 × 0.08 × 90/365 = $157.81.


360


Aug. 2 Accounts Receivable................ 6,295.00Sales...................................

6,295.00 To record sales on credit.

2 Cost of Goods Sold................... 3,150.00Merchandise Inventory...............

3,150.00 To record cost of sales.

7 Cash........................................18,488.45Factoring Fee Expense............. 281.55

Accounts Receivable..................18,770.00

To record sale of accounts receivable; $18,770 × .015.

15 Cash........................................ 3,436.00Accounts Receivable..................

3,436.00 To record collection from credit

customers.

25 Cash........................................10,000.00Notes Payable.....................

10,000.00 To record note; pledged $14,000 of

accounts receivable as security for the loan.

Note:

Accounts receivable in the amount of $14,000 are pledged as security for a $10,000 note payable to Fidelity Bank.


361


Jan. 20 Note Receivable.......................170,000.00Accounts Receivable – Steve Soetart

170,000.00Received note in settlement of account.

Feb. 19 Cash........................................170,487.58Interest Revenue.................

487.58Notes Receivable.................

170,000.00Discounted a note receivable.

Principal of Note......................$170,000.00Add: Interest from Note ($170,000 × 9% ×

90/365) 3,772.60Maturity Value.........................$173,772.60Less: Bank Discount ($173,772.60 × 11.5% ×

60/365) 3,285.02Proceeds.................................$170,487.58


Part 1

Accounts Receivable Turnover Days’ Sales Uncollected

$7,280 = 13.43 times $598 x 365 = 29.98 days

($598 + $486)/2 $7,280

Part 2


362

WestCon is not collecting its receivables as quickly as the industry average which is generally unfavourable. WestCon has more days of uncollected sales (or receivables) than the industry average, also unfavourable.

Chapter 11 Payroll LiabilitiesEXERCISES


Regular pay (172 hours @ $12.50). $2,150.00Overtime premium pay (12 hours @ $6.25)

75.00Gross pay..................................... $2,225.00EI deduction ................................ $ 41.61CPP deduction.............................. 95.70Income tax deduction ($151.00 + $201.30) 352.30Total deductions........................... 489.61Net pay........................................ $1,735.39


Deductions

Employee

Gross

Pay

EI

PremiumIncome Taxes CPP*

Health

InsuranceTotal

Deductions Net Pay

Hellena Chea 720.00 13.461 133.55 32.315 24.00 203.32 516.68

Joseph Lim 610.00 11.412 104.65 26.866 24.00 166.92 443.08

Dino Patelli 830.00 15.523 169.70 37.757 36.00 258.97 571.03

Sharl Qulnata 1,700.00 31.794 486.90 80.828 24.00 623.51 1,076.49

Totals 3,860.00 72.18 894.80 177.74 108.00 1,252.72 2,607.28

*$3,500 exemption ÷ 52 weeks = $67.31 exempt per week

1. $720 × 1.87% = $13.465. ($720 – $67.31) × 4.95% = $32.31


363

2. $610 × 1.87% = $11.416. ($610 – $67.31) × 4.95% = $26.86

3. $830 × 1.87% = $15.527. ($830 – $67.31) × 4.95% = $37.75

4. $1,700 × 1.87% = $31.79 8. ($1,700 – $67.31) × 4.95% = $80.82

May 5 Office Salaries Expense.................3,860.00Employees’ Income Taxes Payable

894.80CPP Payable........................

177.74Employees’ Health Insurance Payable

108.00EI Payable...........................

72.18Salaries Payable..................

2,607.28


364


Deductions Pay Distribution

Employee Gross EI Income United Total Net PayOffice

SalariesSales

SalariesPay Premium Taxes Way CPP Deductions

Akerley, D. 1,900.00 35.53 421.65 80.00 87.39 624.57 1,275.43 1,900.00

Nesbitt, M. 1,260.00 23.56 218.60 50.00 55.71 347.87 912.13 1,260.00

Trent, F. 1,680.00 31.42 348.35 40.00 76.50 496.27 1,183.73 1,680.00

Vacon, M. 3,000.00 56.10 815.00 300.00 141.84 1,312.94 1,687.06 3,000.00

Totals 7,840.00 146.61 1,803.60 470.00 361.44 2,781.65 5,058.35 1,900.00 5,940.00


Deductions

Pay

Net Pay

Distribution

Employee

Gross

Pay

EI

Premium

Income

Taxes

Canada

Savings Bonds CPP

United

Way

Total

DeductionsOffice

SalariesSales

Salaries

Crimson, L.1,995.0

0 37.31 276.30 150.00 84.32 99.75 647.681,347.3

2 1,995.00

Long, M.2,040.0

0 38.15 306.95 -0- 86.54102.0

0 533.641,506.3

6 2,040.00

Morris, P.2,000.0

0 37.40 295.70 -0- 84.56100.0

0 517.661,482.3

4 2,000.00

Peterson, B.

2,280.00 42.64 305.75 200.00 98.42

114.00 760.81

1,519.19 2,280.00

Totals8,315.0

0 155.501,184.7

0 350.00353.8

4415.7

5 2,459.795,855.2

1 1,995.00 6,320.00



365

Deductions Payment Distribution

EmployeeGross Pay

EI Premiu

mIncome Taxes CPP*

United Way

Total Deductions Net Pay

Office Salaries

Sales

Salaries

Crimson, L. 1,995.00 37.31 295.70 84.32 99.75 667.08 1,327.92 1,995.00

Long, M. 2,040.00 38.15 306.95 86.54 102.00 533.64 1,506.36 2,040.00

Morris, P. 2,000.00 37.40 295.70 84.56 100.00 517.66 1,482.34 2,000.00

Peterson, B. 2,350.00 43.95 380.50 101.89 117.50 843.84 1,506.16 2,350.00

Totals 8,385.00 156.81 1,278.85 357.31 419.25 2,562.22 5,822.78 1,995.00 6,390.00


366


Monthly salary..............................................$2,050.00CPP deducted.....................$ 87.04EI deducted........................ 38.34Income tax withheld........... 308.80 434.18Salary, net of deductions...............................$1,615.82......................................... × 0.02Monthly contribution.......... 32.32

Feb. 28 Salaries Expense 2,050.00

EI Payable 38.34

CPP Payable 87.04

Employees’ Income Taxes Payable 308.80

United Way Payable 32.32

Salaries Payable 1,583.50


Mar. 24 Salaries Expense 65,950.00

EI Payable 1,233.27

CPP Payable 3,097.93

Employees’ Income Taxes Payable 28,439.95

Medical Insurance Payable 1,150.00

United Way Payable 1,319.00



Mar. 24 EI Expense (1,233.27 × 1.4) 1,726.58

CPP Expense 3,097.93


367

EI Payable 1,726.58



Apr. 15 EI Payable (1,233.27 + 1,726.58) 2,959.85

CPP Payable (3,097.93 x 2) 6,195.86

Employees’ Income Taxes Payable 28,439.95

Cash 37,595.66


368


1. May5 EI Expense................................ 101.05CPP Expense............................. 177.74

EI Payable ($81.06 × 1.4)......101.05

CPP Payable.........................177.74

2. 5Benefits Expense..........................494.00Employees’ Health Insurance Payable

108.00Employees’ Retirement Program Payable

386.00


Retirement Fund Health

CPP Contribution EI Contribution ContributionsInsurance

Doherty ($36,000 – 3,500) × 4.95% = $1,608.75$36,000 × 1.87% = $ 673.20 $ 3,600.00 $1,440.00

Fane..... 1,910.70 729.30 6,100.001,440.00

Kahan. . 1,910.70 729.30 5,900.001,440.00

Martin ($37,000 – 3,500) × 4.95% = 1,658.25$37,000 × 1.87% = 691.903,700.00 1,440.00

Poon..... 1,910.70 729.30 4,800.00 1,440.00

Totals... $8,999.10 $ 3,553.00 $24,100.00 $7,200.00

Payroll taxes and fringe benefits as a percentage of salaries:

$8,999.10 + ($3,553.00 × 1.4) + $24,100 + $7,200 =

18.79%$241,000


369


Apr. 30

Salaries Expense ($2,080 × 12) 24,960.00

EI Payable ($38.90 × 12) 466.80

CPP Payable ($88.52 × 12) 1,062.24

Employees’ Income Taxes Payable (315.70 × 12) 3,788.40


30 EI Expense ($466.80 × 1.4) 653.52

CPP Expense 1,062.24

Benefits Expense – Retirement Program 1,996.80

Benefits Expense – Medical Insurance ($50 × 12) 600.00

EI Payable 653.52


Retirement Program Payable 1,996.80

Medical Insurance Payable 600.00


370


Jan.31 Benefits Expense.......................... 22,507Estimated Vacation Payable.....

22,507

$ 96,000 × (2/50) = $ 3,840 224,000 1 × (4/48) = 18,667

$320,000 $22,507

1. 320,000 x 70% = 224,00

Chapter 8 Accounting Information

Systems

Questions

1. As a purchasing agent, Greg Timko will make daily use of the purchases journal and the inventory and accounts payable subledgers. He might discuss with personnel from other areas of the store the other journals and subledgers as his area impacts them or vice versa: sales journal, cash disbursements journal, and cash receipts journal along with the accounts receivable subledger.

2. Four types of transactions recorded in separate special journals are: (a) sales on credit, (b) purchases on credit, (c) cash receipts, and (d) cash disbursements.

3. Daily recording and posting of credit sales and cash receipts from customers provides up-to-date information used in decisions about granting credit to customers. Also, up-to-date account balances are needed if customers inquire about the amount of their balances.

4. Both kinds of credits should not be placed in the same column because the sum of the credits to the customer accounts must be posted to the Accounts Receivable controlling account. Placing these credits in a separate column makes it possible to post the column total to the controlling account.

5. The double posting does not cause the trial balance to be out of balance because only one credit is posted to the General Ledger.

6. The initial and page number of the journal from which the amount was posted is entered in the Posting Reference column of the ledger account.


371

QUICK STUDY

Quick Study 8-1

1. P2. AR3. AR4. AP

Quick Study 8-2

Input (I) or

Output (O)

1. I

2. I

3. O

4. O

5. I

6. O

7. O

8. I

Quick Study 8-3

a. Sales Journal

b. Purchases Journal

c. Cash Disbursements Journal

d. Cash Disbursements Journal

e. Purchases Journal

f. Cash Receipts Journal

g. Cash Receipts Journal


372

Quick Study 8-4

Nov.12 Automobiles ............................. 15,000Capital, Jesse Cooke ........... 15,000

The owner contributed an automobile to the business.

19 Sales Returns and Allowances . 150Accounts Receivable—R. Wyder 150

Customer returned merchandise.

19 Merchandise Inventory............. 95Cost of goods sold............... 95

Merchandise returned to inventory.

28 Accounts Payable—The Ringdol Company 170Merchandise Inventory ....... 170

Returned defective merchandise.

Quick Study 8-5

Debit (DR),

Credit (CR), or No Effect (NE)

1. DR2. NE3. NE4. CR5. NE6. CR7. NE

Quick Study 8-6

Debit (DR),Credit (CR), or No Effect (NE)

1. CR2. NE3. CR4. NE5. DR6. DR7. NE


373

Quick Study 8-7





Cr.

2011

Mar. 3 T. Edson 1103 3,000 2,040

10 Willis Company 1104 10,800 7,344

25 Ellton Kingston 1105 7,400 5,032

Quick Study 8-8


DateAccount Credited PR Explanation Cash Dr.

Sales Discount

Dr.

Accounts Receivable

Cr.Sales

Cr.

Other Accounts

Cr.



2011

Mar. 18 T. Edson Invoice #1103 2,940 60 3,000

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30 Willis Company

Invoice #1104 10,800 10,800

31 ABC Company Cash sale 6,200 6,200 4,216

375

Quick Study 8-9




Merchandise Inventory Dr.

Office Supplies

Dr.

Other Accounts

Dr.

2011

Mar. 2 Tex Company Mar 2 3/10, n20

4,800 4,800

12 Littleton 12 2/15, n30

14,000 14,000

13 Worsley 13 2/15, n45

9,400 9,400

Quick Study 8-10




Other Accounts Dr.


2011

Mar. 14 101 Tex Company Tex Company 4,800 4,800

27 102 Littleton Littleton 13,720 280 14,000

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31 103 Thorn Real Estate Rent Expense 6,500 6,500

377

EXERCISES






Cr.

2011

Feb. 7 J. Eason 5704 1,150 700

12 P. Lathan 5705 320 170

25 S. Summers 5706 550 300




PR Sales Cr.

2011

Feb.

7 J. Eason 5704 1,150

12 P. Lathan 5705 320

25 S. Summers 5706 550


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Cash Dr.

Sales Discount Dr.

Accounts Receivabl

e Cr.Sales

Cr.

Other Account

s Cr.



2011

Sept. 9 Notes payable Note to bank 5,500 5,500

13 Dale Trent, capital

Owner investment

7,000 7,000

18 Sales Cash sale 460 460 280

27 J. Namal Invoice, Sept. 7 1,764 36 1,800

379





2011

Sept.

9 Notes payable Note to bank 5,500 5,500

13

Dale Trent, capital

Owner investment

7,000 7,000

18

Sales Cash sale 460 460

27

J. Namal Invoice, Sept. 7 1,764 36 1,800


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Merchandise

Inventory Dr.

Office Supplies

Dr.

Other Accounts

Dr.

2011

July 1 Angler, Inc. Jul

1 n/30 8,100 8,100

14 Store Supplies/ Steck Company

Jul

14 2/10, n/30

240 240

17 Marten Company Jul

17 n/30 2,600 2,600




Date of


Accounts



2011

July 1 Angler, Inc. July 1

n/30 8,100 8,100

381

14 Store Supplies/Steck Company July 14

2/10,n/30

240 240

17 Marten Company July 17

n/30 2,600 2,600

382





Other Accounts Dr.


2011

Mar. 9 210 Narlin Corp. Store Supplies 900 900


29 212 LeBaron LeBaron 6,860 140 7,000

31 213 E. Brandon Salaries Expense

3,400 3,400

31 214 Pace, Inc. Pace, Inc. 5,500 5,500



eOther Accts.

Ch. Cash Discount

Accts. Payable


2011

Mar. 9 210

Narlin Corp. Store Supplies 900 900


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7 1

29

212

LeBaron LeBaron 6,860 140 7,000

31

213

E. Brandon Salaries Expense 3,400 3,400

31

214

Pace, Inc. Pace, Inc. 5,500 5,500

384






Merchandise

Inventory Dr.

Office Supplies

Dr.

Other Accounts

Dr.

2011

May 11

Hostel Sales May 11 3/10, n/90

30,000 30,000




Other Accounts Dr.


2011

May 11

84 Express Shipping

Merchandise Inv.

335 335

20 85 Hostel Sales Hostel Sales 27,9361 864 28,800



2011


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Calculations:

1. 30,000 – 1,200 = 28,800; 28,800 x 3% = 864; 28,800 – 864 = 27,936.

386







Cr.

2011

May 11

Wilson Purchasing

1601 30,000 20,000



Cash Dr.

Sales Discount Dr.

Accounts Receivabl

e Cr.Sales

Cr.

Other Account

s Cr.



2011

May 21

Wilson Purchasing

Wilson Purchasing

27,9361

864 28,800



2011


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387



12 Merchandise Inventory 800


To record cost of merchandise returned to inventory.

Calculations:

1. 30,000 – 1,200 = 28,800; 28,800 x 3% = 864; 28,800 – 864 = 27,936.

388





Date Payable Purchases Supplies

Accounts

Date Account Credited Invoic Terms PR Credit Debit Debit Debit

2011

Ma 11 Hostel Sales May 3/10,n/90

30,000 30,000


eOther Accts.

Ch. Cash Discount

Accts. Payable


2011

May 1 84 Express Shipping

Transportation-In 335 335

2 85 Hostel Sales A/P – Hostel Sales 27,936 864 28,800

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2011



To record return of merchandise purchased.

390





PR Sales Cr.

2011

May

11 Wilson Purchasing 1601 30,000




2011

May 21

Wilson Purchasing

Sale of May 11 27,936 864 28,800



2011


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391



392


The June 5 purchase would have been recorded in the Purchases Journal and the June 14 payment would have been recorded in the Cash Disbursements Journal. The error in journalizing the June 14 transaction should be discovered in the process of crossfooting the Cash Disbursements Journal at the end of the month.


a. When the schedule of accounts payable is prepared.

b. When crossfooting the Purchases Journal.

c. When the trial balance is prepared.

d. When the schedule of accounts payable is prepared.

e. When the schedule of accounts payable is prepared.


393


Part 1


Sanders Farrell Don Holland Brad Smithers

May 171,700

May 20 500 May 103,880

25 680

May 6 5,760

Bal. 1,200 Bal.4,560

Part 2

GENERAL LEDGER

Accounts Receivable SalesSales Returns

and Allowances

May 3112,020

May 20 500 May 3112,020 May 20500

Bal. 11,520

Part 3

VALUE-MART GOODS


May 31, 2011

Sanders Farrell................................................... $ 1,200

Dan Holland.................................................... 4,560Brad Smithers..................................................... 5,760

Total accounts receivable............................... $11,520

Accounts Receivable Controlling Account

Total debit........................................................... $12,020


394

Credit for return................................................ (500)

Balance as of May 31, 2011............................ $11,520


395


GENERAL LEDGER

Cash Accounts Payable Sales Discounts

38,878 23,044 1,500

18,300

23,200 472

Accounts Receivable Notes Payable Purchases

26,200 600

23,600

9,000 23,200

Prepaid Insurance SalesPurchase Returns

and Allowance

1,700 26,200

5,750

1,500

Store EquipmentSales Returns

and Allowances Purchase Discounts

3,500 1,000 600 456


Jack Hertz Trudy Stone Dave Waylon

7,400 600

6,800

16,800 16,800 2,000


Grass Corp. McGrew Company Sulter, Inc.

1,500 10,800 3,400 9,000 9,000


396

9,300


397


Part 1

ACCOUNTS RECEIVABLE SUBLEDGERAdrian Carr Lisa Mack

Jan. 8 7,076 Jan. 14 23,780

Jay Newton Kathy Olivias

Jan. 2

29

4,176

8,468

Jan. 10

20

15,544

12,992

Part 2

Jan. 31 Accounts Receivable....................... 72,036 Sales.......................................... 62,100 GST Payable............................... 3,726 PST Payable............................... 6,210

Part 3

GENERAL LEDGERAccounts Receivable Sales

Jan. 31 72,036 62,100 Jan. 31

Part 4

SKILLERN COMPANY


January 31, 2011

Adrian Carr .................... $ 7,076Lisa Mack .................................................... 23,780

Jay Newton ................................................. 12,644

Kathy Olivas ............................................... 28,536


398

Total accounts receivable...................... $72,036


399




No. PR A/R DrPST

Payable CRGST

Payable CR Sales Cr

COGS DR Merchandise Inventory CR

2011

Aug.5

Jay Smith 50 50,160 3,520 2,640 44,000 21,000

11 Dee Oliver 51 38,760 2,720 2,040 34,000 16,200



Explanation PR

Other Account

s CR A/R CR

PST Payabl

e CR

GST Payabl

e CRSales CR Cash DR

Sales Disc Dr

COGS/DR Merchandise

Inventory/ CR

2011

Aug. 20

Jay Smith Inv. 50 50,160

50,160

21 Dee Oliver Inv. 51 38,760

38,420 340*




DROther

Accounts DRGST Rec’ble

DR

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2011

Aug.1

Arden Sheet Metal

2/10, n/30

10,600 10,000 600

7 JayCee Equipment

n/30

6,360 6,000 360


Date Ch # Account Debited PR

Other Accounts

DRGST Rec’ble

DR A/P DR


CR Cash CR

2011

Aug. 10

28 A/P – Arden Sheet Metal 10,600 200 10,400

*Discount on sales amount only

401


SALES JOURNAL Page XAccts. PST GST

Invoice Rec. Payable Payable SalesDate Account Debited Number PR Debit Credit Credit Credit201

1Aug. 5 Jay Smith 50 50,160 3,520 2,640 44,000

11 Dee Oliver 51 38,760 2,720 2,040 34,000

CASH RECEIPTS JOURNAL Page XOther Accts. PST GST SalesAccts. Rec. Payable Payable Sales Cash Discount


Explanation PR Credit Credit Credit Credit Credit Debit Debit

2011Aug.2

0A/R – Jay Smith

Inv. 50 50,160 50,160

21 A/R – Dee Oliver

Inv. 51 38,760 38,420 340

PURCHASES JOURNAL Page XAccts. Other GST

Date of Payable Purchases Accounts Rec’bleDate Account Credited Invoice Terms PR Credit Debit Debit Debit2011Aug. 1 Arden Sheet Metal Aug. 1 2/10,n/30 10,600 10,000 600

7 JayCee Equipment Aug. 7 n/30 6,360 6,000 360

CASH DISBURSEMENTS JOURNAL Page XOther GST Accts. Pur.

Ch. Accts. Rec’ble Payable Disc. CashDate No. Payee Account Debited PR Debit Debit Debit Credit Credit

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402

2011

Aug.10 28 A/P – Arden Arden Sheet Metal 10,600 200 10,400

403

PROBLEMS

Problem 8-1A (20 minutes)

DateTransaction

Special Journal Subledger

Mar. 1 Sold merchandise on credit. S AR/MI

2 Defective merchandise sold on March 1 was returned by the customer. It was scrapped.

G AR

3 Purchased office equipment on credit. P AP

5 Received payment regarding the March 1 sale. CR AR

10 Received a credit memorandum from the supplier regarding defective equipment purchased on March 3.

G AP

14 Sold merchandise for cash. CR MI

16 Purchased merchandise inventory on credit; terms 1/5, n/30.

P AP/MI

17 Paid the balance owing regarding the March 3 transaction.

CD AP

18 Purchased merchandise inventory for cash. CD MI

21 Paid for the merchandise purchased on March 16. CD AP/MI

22 Sold old equipment for cash. CR NE

30 Paid salaries for the month of March. CD NE

30 Accrued utilities for the month of March. G A/P

30 Closed the credit balance in the income summary to capital.

G NE


404




No. PRA/R Dr. Sales Cr.

COGS Dr.


2011

Apr. 2 Tim Bennett 306 35,000 22,750

5 Brian Kennedy 311 42,000 27,300

16 Wynne Walsh 312 14,000 9,100

24 Brian Kennedy 313 18,000 11,700

Cash Receipts Journal Page: 1

Date Account Credited PRExplanatio

nCash Dr.

Sales Disc Dr. A/R

Cr.Sales Cr.

Other Accounts

Cr.

COGS/Dr. Merchandi

se Inventory/

Cr.

2011

Apr. 3 Sales (cash sales) Inv. 307-310

15,000 15,000 9,750

12 A/R – Tim Bennett Inv. 306 34,300 700 35,000

20 A/R – Brian Kennedy

Inv. 311 42,000 42,000

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27 A/R – Wynne Walsh Inv. 312 11,000 11,000


Date Account CreditedDate of Invoice Terms PR A/P Cr.


Dr.Office

Supplies Dr.Other

Accounts Dr.

2011

Apr. 4 Wallace Brothers

Apr. 4 1/10, n/30

48,000 48,000

11 McKinley & Sons

Apr. 11 n/30 56,000 56,000

23 Zardon Co. — Equip.

Apr. 23 1/15, n/30

3,800 3,800

406

Problem 8-2A (concluded)

Cash Disbursements Journal

Page 1

Date Ch # Account Debited PR Cash Cr.

Merchandise

Inventory Cr.

Other Accounts

Dr. A/P Dr.

2011

Apr. 9 620 Office Supplies 230 230

13 621 Wallace Brothers 43,3621 438 43,800

26 622 McKinley & Sons 56,000 56,000

30 623 Salaries 36,000 36,000

Calculation:

1. 48,000 – 4,200 = 43,800 Dr to A/P; 43,800 x 1% = 438; 43,800 – 438 = 43,362 Cr to Cash



2011

Apr. 6 Accounts Payable – Wallace Brothers

4,200

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To record return of defective merchandise.


Accounts Receivable – Wynne Walsh 3,000

To record allowance granted regarding defective merchandise.

408


Note: Since posting to the General Ledger was not a requirement in this problem, posting references are shown for values posted to the subledgers only.

Part 3






2011

Apr. 3 Linda Hobart 760

3,000 1,800

5 Paul Abrams 761

8,000 4,500

11 Kelly Schaefer 762

9,500 5,000

13 Linda Hobart 763

4,100 2,400


Date Account Credited PR Explanation Cash Dr.

Sales Disc Dr.

A/R Cr.Sales Cr.

Other Account

s Cr.

COGS Dr. Merchandi

se Inventory

Cr.

2011

Apr. 13 Linda Hobart

Sale of Apr. 3 2,940 60 3,000

14 Paul Abrams

Sale of Apr. 5 7,840 160 8,000

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409

16 Sales Cash sales 50,840 50,840 28,000410

Problem 8-3A (continued)


Accts. Merchandise

Office Other

Date of

Payable Inventory Supplies

Accts.



2011 Apr.

2 Baskin Company Apr 2

2/10,n/60

13,300 13,300

3 Eau Claire Inc. Apr 2

n/10 EOM

1,380 1,380

9 Store Equip./Frank’s Supply

Apr 9

n/10 EOM

11,125 11,125

CASH DISBURSEMENTS JOURNAL Page 3

Merchandise

Other Accts.

Ch.

Cash Inventory Accts. Payable

Date No.

Payee Account Debited PR Credit Credit Debit Debit

2011Apr.

4 587

The Record Advertising Expense

999 999

12 588

Baskin Company

Baskin Company 13,034 266 13,300

16 589

Payroll Sales Salaries Expense

9,750 9,750

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GENERAL JOURNAL Page 3Date Account Titles and Explanations PR Debit Credit

2011Apr. 6 Accounts Payable—Eau Claire Inc. ...... 85

Office Supplies............................... 85Returned office supplies.

412

Problem 8-3A (concluded) Parts 1, 3


Paul Abrams


2011

Apr. 5 S3 8,000 8,000

14

CR3 8,000 0

Linda Hobart


2011

Apr. 3 S3 3,000 3,000

13

CR3 3,000 0

13

S3 4,100 4,100

Kelly Schaefer


2011

Apr. 11

S3 9,500 9,500

Parts 2, 3


Frank’s Supply


2011


413

Apr. 9 P3 11,125 11,125

Baskin Company


2011

Apr. 2 P3 13,300 13,300

12

CD3 13,300 0

Sprocket Company


2011

Eau Claire Inc.


2011

Apr. 3 P3 1,380 1,380

6 G3 85 1,295


414


Parts 2, 3, 4






2011

Apr. 3 Linda Hobart 760 3,000 1,800

5 Paul Abrams 761 8,000 4,500

11 Kelly Schaefer 762 9,500 5,000

13 Linda Hobart 763 4,100 2,400

27 Paul Abrams 764 3,070 1,600

27 Kelly Schaefer 765 5,700 3,000

30 Totals 33,370 18,300

(106/413)

(502/119)


Date Account Credited PR Explanation Cash Dr.

Sales Disc Dr.

A/R Cr.Sales Cr.

Other Account

s Cr.

COGS Dr. Merchandi

se Inventory

Cr.

2011

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Apr. 13 Linda Hobart Sale of Apr. 3 2,940 60 3,000

14 Paul Abrams Sale of Apr. 5 7,840 160 8,000

16 Sales Cash sales 50,840 50,840 28,000

18L.T. Notes Payable

251

Note to bank 50,000 50,000

20 Kelly Schaefer

Sale of Apr. 11

9,310 190 9,500

23 Linda Hobart Sale of Apr. 13

4,018 82 4,100

30 Sales Cash sales 70,975 70,975 37,000

30 Totals 195,923 492 24,600 121,815 50,000 65,000

(101) (415) (106) (413) (X) (502/119)

416



Accts. Merchandise

Office Other

Date of

Payable Inventory Supplies

Accts.



2011 Apr.

2 Baskin Company Apr 2

2/10,n/60

13,300 13,300

3 Eau Claire Inc. Apr 2

n/10 EOM

1,380 1,380

9 Store Equip./Frank’s Supply

Apr 9

n/10 EOM

165/

11,125 11,125

17

Sprocket Company Apr 16

2/10,n/30

12,750 12,750

20

Store Supplies/Frank’s Supply

Apr 19

n/10 EOM

125/

730 730

25

Baskin Company Apr 24

2/10,n/60

10,375 10,375

30

Totals 49,660 36,425 1,380 11,855

(201)

(119)

(124)

(X)


Merchandise

Other Accts.

Ch.

Cash Inventory Accts. Payable

Date No.

Payee Account Debited PR Credit Credit Debit Debit

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2011Apr.

4 587

The Record Advertising Expense

655

999 999

12 588

Baskin Company


16 589


621

9,750 9,750

26 590

Sprocket Company

Sprocket Company

12,1031 247 12,350*

30 591


621

9,750 9,750

30 Totals 45,636 513 20,499 25,650 (10

1)(119) (X) (20

1)

Calculation:

1. $12,750 – $400 credit memorandum = $12,350; $12,350 x 2% = $247; $12,350 - $247 = $12,103

418



2011Apr. 6 Accounts Payable—Eau Claire Inc. ...... 201/ 85

Office Supplies............................... 124 85Returned office supplies.

23 Accounts Payable—Sprocket Company 201/ 400Merchandise Inventory................... 119 400

Returned merchandise.

Parts 1, 2, 3, 4

GENERAL LEDGERCash Acct. No. 101


2011

Mar. 31

Balance Forward 167,000

Apr. 30

CR3 195,923 362,923

30

CD3 45,636 317,287

Accounts Receivable Acct. No. 106Date Explanation PR Debit Credit Balance

2011

Apr. 30

S3 33,370 33,370

30

CR3 24,600 8,770

Merchandise Inventory Acct. No. 119



419

2011

Mar. 31


Apr. 23

G3 400 94,600

30

S3 18,300 76,300

30

CR3 65,000 11,300

30

P3 36,425 47,725

30

CD3 513 47,212

Office Supplies Acct. No. 124


2011

Apr. 3 P3 1,380 1,380

6 G3 85 1,295

Problem 8-4A (continued)Store Supplies Acct. No. 125


2011

Apr. 20

P3 730 730

Store Equipment Acct. No. 165


2011


420

Apr. 9 P3 11,125 11,125

Accounts Payable Acct. No. 201


2011

Apr. 6 G3 85 (85)

23

G3 400 (485)

30

P3 49,660 49,175

30

CD3 25,650 23,525

Long-Term Notes Payable Acct. No. 251


2011

Mar. 31 Balance Forward 167,000

Apr. 18 CR3 50,000 217,000

Jeff Newton, Capital Acct. No. 301


2011

Mar. 31

Balance forward 95,000

Sales Acct. No. 413


2011


421

Apr. 30

S3 33,370 33,370

30

CR3 121,815 155,185

Sales Discounts Acct. No. 415


2011

Apr. 30

CR3 492 492


422


Cost of Goods Sold Acct. No. 502


2011

Apr. 30

S3 18,300 18,300

30

CR3 65,000 83,300

Sales Salaries Expense Acct. No. 621Date Explanation PR Debit Credit Balance

2011

Apr. 16

CD3 9,750 9,750

30

CD3 9,750 19,500

Advertising Expense Acct. No. 655


2011

Apr. 4 CD3 999 999


Paul Abrams


2011

Apr. 5 S3 8,000 8,000

1 CR3 8,000 0


423

4

27

S3 3,070 3,070

Linda Hobart


2011

Apr. 3 S3 3,000 3,000

13

CR3 3,000 0

13

S3 4,100 4,100

23

CR3 4,100 0

Kelly Schaefer


2011

Apr. 11

S3 9,500 9,500

20

CR3 9,500 0

27

S3 5,700 5,700



Frank’s Supply


2011


424

Apr. 9 P3 11,125 11,125

20 P3 730 11,855

Baskin Company


2011

Apr. 2 P3 13,300 13,300

12

CD3 13,300 0

25

P3 10,375 10,375

Sprocket Company


2011

Apr. 17

P3 12,750 12,750

23

G3 400 12,350

26

CD3 12,350 0

Eau Claire Inc.


2011

Apr. 3 P3 1,380 1,380

G3 85 1,295


425

Problem 8-4A (continued) Part 5

NEWTON COMPANY


April 30, 2011

Paul Abrams ............................................ $3,070

Kelly Schaefer.......................................... 5,700

Total accounts receivable ................... $8,770

NEWTON COMPANYSchedule of Accounts Payable

April 30, 2011

Frank’s Supply ......................... $11,855Baskin Company ...................... 10,375Eau Claire Inc. .......................... 1,295Total accounts payable ............ $23,525

NEWTON COMPANYTrial BalanceApril 30, 2011

Account.........Debit CreditCash .........................................$317,287Accounts receivable.................. 8,770Merchandise inventory............. 47,212Office supplies ......................... 1,295Store supplies .......................... 730Store equipment ...................... 11,125Accounts payable .................... $ 23,525Long-term notes payable ......... 217,000Jeff Newton, capital................... 95,000Sales......................................... 155,185Sales discounts......................... 492Cost of goods sold.................... 83,300Sales salaries expense ............. 19,500Advertising expense ................ 999 Totals .......................................$490,710 $490,710


426


Analysis component:

To find the error(s),

first re-add the account balances on the schedule of accounts receivable to confirm that the addition was correct.

trace the balances listed on the schedule of accounts receivable back to the subsidiary accounts to confirm that they were listed correctly on the schedule.

recalculate the balance of each subsidiary account to confirm that the additions and subtractions were correct.

trace the postings from each subsidiary account and from the controlling account back to the appropriate journals.

Since the sales and cash receipts journals were footed and crossfooted before posting, the previous steps should disclose the error.


427


Parts 1, 2, 3

SALES JOURNAL Page 3

Date Account Debited

Invoice

Number

PR

A/R. Dr.Sales Cr.

Cost of Goods Sold Dr. Merchandise Inventory Cr.

2011

Oct. 6 Marge Craig 913 3,300 1,600

12 Vickie Foresman 914 3,650 1,900

15 Amy Ihrig 915 3,100 1,700

16 Vickie Foresman 916 7,700 3,900

24 Bill Grigsby 917 1,200 700

31 Totals 18,950 9,800

(106/413)

(502/119)

CASH RECEIPTS JOURNAL Page 3

Date

AccountCredited Explanati

on

PR

Cash Debit

SalesDiscount

Debit

Acct. Rec. Credit

Sales Credit

Other

Accts. Credit



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2011Oct. 2

Bill Grigsby

Invoice Nov 23

4,116 84 4,200

15 Sales Cash sales

38,830 38,830

21,400

15 Marge Craig

Invoice Dec 6

2,401 49 2,450*

22 Vickie Foresman

Invoice Dec 12

3,577 73 3,650

25 Amy Ihrig Invoice Dec 15

2,548 52 2,600**

29 Office Supplies

Sold supplies

124

50 50

31 Sales Cash sales

29,600 29,600

16,300

31 Totals 81,122 258 12,900

68,430

50 37,700

(101)

(415)

(106) (413)

(X) (502/119)

* $3,300 – $850 return = $2,450** $3,100 – $500 allowance = $2,600

429



Date Account CreditedDate

of Invoice Terms PR

Accounts

Payable

Credit

Merchandise

Inventory Debit

Office Suppli

es Debit

Other Accts. Debit

2011Oct.

2 Shore Company Oct 2

2/10, n/60

3,200 3,200

5 Brown Supply Co. Oct 3

n/10 EOM

1,300 1,300

15

Shore Company Oct 15

2/10, n/60

3,990 3,990

15

Sunshine Company Oct 15

2/10, n/60

2,650 2,650

17

Brown Supply Co. Oct 16

n/10 EOM

615 615

21

Store Equip./Brown Supply Co.

Oct 21

n/10 EOM

165/

6,700 6,700

26


2/10, n/60

8,100 8,100

31

Totals 26,555 19,240 615 6,700

(201)

(119)

(124)

(X)

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Date

Ch. No.

Payee Account Debited

PRCash Credi

t

Merchandise

Inventory.

Credit

Other Accts. Debit

Accts.

Payable

Debit.2011

Oct.

2 619

Omni Realty Co.

Rent Expense 640

2,250

2,250

6 620

Fireside Company

Fireside Company

3,724

76 3,800

12

621

Shore Company

Shore Company

3,136

64 3,200

15

622

Jamie Green Sales Salaries Expense

621

2,020

2,020

23

623

Sunshine Company

Sunshine Company

2,597

53 2,650

24

624

Shore Company

Shore Company

2,891

59 2,950*

30

625

Ken Shaw Ken Shaw, Withdrawals

302

2,500

2,500

31

626

Jamie Green Sales Salaries Expense

621

2,020

2,020

31

627

Countrywide Elec.

Utilities Expense

690

710

710

31

Totals 21,848

252 9,500 12,600

(101)

(119) (X)

(201)

* $3,990 – $1,040 return = $2,950

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GENERAL JOURNAL Page 2

Date

Account Titles and Explanations PR Debit

Credit

2011Oct.

4 Accounts Payable—Fireside Company 201/

460

Merchandise Inventory 119 460 Returned merchandise to supplier.

9 Sales Returns and Allowances 414 850 Accounts Receivable—Marge Craig

106/

850

Merchandise Inventory 119 430 Cost of Goods Sold 502 430 Customer Marge Craig returned merchandise that was returned to merchandise inventory.

17

Accounts Payable—Shore Company 201/

1,040

Merchandise Inventory 119 1,040 Returned merchandise.

18

Accounts Payable—Brown Supply Co. 201/

40

Office Supplies 124 40 Returned office supplies.

20

Sales Returns and Allowances 414 500

Accounts Receivable—Amy Ihrig 106/

500

Customer Amy Ihrig returned defective merchandise.


432



Marge CraigDate Explanation PR Debit Credit Balanc

e2011

Oct.

6 S3 3,300 3,300

9 G2 850 2,45015 CR

32,450 0

Vickie ForesmanDate Explanation PR Debit Credit Balanc

e2011

Oct.

12

S3 3,650 3,650

16

S3 7,700 11,350

22

CR3

3,650 7,700

Bill GrigsbyDate Explanation PR Debit Credit Balanc

e2011Sept

23

S2 4,200 4,200

Oct.

2 CR3

4,200 0

24

S3 1,200 1,200

Amy IhrigDate Explanation PR Debit Credit Balanc

e2011

Oct.

15

S3 3,100 3,100

20

G2 500 2,600

25

CR3

2,600 0


433

Part 2ACCOUNTS PAYABLE SUBLEDGER

Fireside CompanyDate Explanation PR Debit Credit Balanc

e2011Sept

28

P1 4,260 4,260

Oct.

4 G2 460 3,800

6 CD4

3, 800 0


434

Problem 8-5A (continued) Part 2

Brown Supply CompanyDate Explanation PR Debit Credit Balan

ce2011

Oct.

5 P2 1,300 1,300

17 P2 615 1,91518 G2 40 1,87521 P2 6,700 8,575

Sunshine CompanyDate Explanation PR Debit Credit Balan

ce2011

Oct. 15

P2 2,650 2,650

23

CD4

2,650 0

26

P2 8,100 8,100

Shore CompanyDate Explanation PR Debit Credit Balan

ce2011

Oct. 2 P2 3,200 3,20012

CD4

3,200 0

15

P2 3,990 3,990

17

G2 1,040 2,950

24

CD4

2,950 0

Parts 2, 3GENERAL LEDGER

Cash Acct. No. 101Date Explanation PR Debit Credit Balan

ce2011


435

Sept

30

Balance 5,361

Oct. 31

CR3

81,122 86,483

31

CD4

21,848 64,635

Accounts Receivable Acct. No. 106Date Explanation PR Debit Credit Balan

ce2011

Sept

30

Balance 4,200

Oct. 9 G2 850 3,35020

G2 500 2,850

31

S3 18,950 21,800

31

CR3

12,900 8,900


436

Problem 8-5A (continued) Parts 2, 3

Merchandise Inventory Acct. No. 119Date Explanation PR Debit Credit Balan

ce2011

Sept

30 Balance 66,970

Oct.

4 G2 460 66,510

9 G2 430 66,940

17 G2 1,040 65,900

31 S3 9,800 56,100

31 P2 19,240 75,340

31 CR3

37,700 37,640

31 CD4

252 37,388

Office Supplies Acct. No. 124Date Explanation PR Debit Credit Balan

ce2011

Sept

30 Balance 607

Oct.

18 G2 40 567

29 CR3

50 517

31 P2 615 1,132

Store Supplies Acct. No. 125Date Explanation PR Debit Credit Balan

ce2011

Oct.

30 Balance 346

Store Equipment Acct. No. 165Date Explanation PR Debit Credit Balan

ce2011


437

Sept

30 Balance 42,129

Oct.

21 P2 6,700 48,829

Accumulated Amortization, Store Equipment

Acct. No. 166


2011Oct

.30 Balance 9,153


438


Accounts Payable Acct. No. 201Date Explanation PR Debit Credit Balan

ce2011

Sept

30 Balance 4,260

Oct.

4 G2 460 3,800

17 G2 1,040 2,76018 G2 40 2,72031 P2 26,555 29,27

531 CD

412,600 16,67

5

Ken Shaw, Capital Acct. No. 301Date Explanation PR Debit Credit Balan

ce2011

Oct.

30 Balance 106,200

Ken Shaw, Withdrawals Acct. No. 302Date Explanation PR Debit Credit Balan

ce2011

Oct.

30 CD4

2,500 2,500

Sales Acct. No. 413Date Explanation PR Debit Credit Balan

ce2011

Oct.

31 S3 18,950 18,950

31 CR3

68,430 87,380

Sales Returns and Allowances Acct. No. 414Date Explanation PR Debit Credit Balan

ce2011

Oct.

9 G2 850 850


439

20 G2 500 1,350

Sales Discounts Acct. No. 415Date Explanation PR Debit Credit Balan

ce2011

Oct.

31 CR3

258 258


440


Cost of Goods Sold Acct. No. 502Date Explanation PR Debit Credit Balan

ce2011

Oct.

9

G2 430 (430 )

31

S3 9,800 9,370

31

CR3

37,700 47,070

Sales Salaries Expense Acct. No. 621Date Explanation PR Debit Credit Balan

ce2011

Oct.

15 CD4

2,020 2,020

31 CD4

2,020 4,040

Rent Expense Acct. No. 640Date Explanation PR Debit Credit Balan

ce2011

Oct.

2 CD4

2,250 2,250

Utilities Expense Acct. No. 690Date Explanation PR Debit Credit Balan

ce2011

Oct.

31 CD4

710 710


441


Part 4

SASKAN ENTERPRISESTrial Balance

October 31, 2011

Account Debit CreditCash $

64,635Accounts receivable 8,900Merchandise inventory 37,388Office supplies 1,132Store supplies 346Store equipment 48,829Accumulated amortization, store equipment $

9,153Accounts payable 16,675Ken Shaw, capital 106,20

0Ken Shaw, withdrawals 2,500Sales 87,380Sales returns and allowances 1,350Sales discounts 258Cost of goods sold 47,070Sales salaries expense 4,040Rent expense 2,250Utilities expense 7

10Totals $219,4

08$219,4

08

SASKAN ENTERPRISESSchedule of Accounts Receivable

October 31, 2011

Vickie Foresman $7,700Bill Grigsby 1,200Total accounts receivable $8,900

SASKAN ENTERPRISESSchedule of Accounts Payable


442

October 31, 2011

Brown Supply Company $ 8,575

Sunshine Company 8,100

Total accounts payable $16,675


443




Invoice No.

PR

A/R Dr.Sales Cr.

PR

COGS Dr.


2011

Jan. 7 G. Little 103 500 160

19 B. Moore 104 375 130

24 C. Woudstra 105 375 135

29 D. Isla 106 800 302


Date Account CreditedDate of Invoice Terms PR A/P Cr. P

R

Merchandise

Inventory

Dr.Office

Supplies Dr.

Other Accounts

Dr.

2011

Jan. 3 Curtis & Sons Jan. 3 n/30 450 450

20 Norton IndustriesJan. 20 n/30 330 330

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NOTE: An additional PR column has been added to facilitate the referencing of inventory entries into the

inventory subledger.

445


Inventory Subledger Record — FIFO perpetual

Date

PR Purchases Sales (at cost) Inventory Balance

UnitsUnit Cost

Total Cost

Units

Unit Cost

Total Cost Units

Unit Cost

Total Cost


25 @$8.00 = $200 25 @ $ 8.00

= $ 200

25 @ $ 8.00

= $ 200

3 P1 50 @$9.00 = $450 50 @ 9.00 = 450

7 S1 20 @ $ 8.00 = $ 160 5 @ $ 8.00

= $ 40

50 @ 9.00 = 450

19 S1 5 @ $ 8.00 = $ 40

10 @ 9.00 = 90 40 @ $ 9.00

= $ 360

40 @ $ 9.00

= $ 360

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20 P1 30 @$11.00

= $330 30 @ 11.00 = 330

24 S1 15 @ $ 9.00 = $ 135 25 @ $ 9.00

= $ 225

30 @ 11.00 = 330

29 S1 25 @ $ 9.00

= $ 225

7 @ 11.00 = 77 23 @ $11.00

= $ 253

Total

105 $980

82 $727 23 $253



Note: An additional PR column has been added to the Inventory Subledger Record to facilitate referencing of inventory entries.

447

*Problem 8-7A (40 minutes)




PR Sales Cr.

2011

Apr.

3 Linda Hobart 760 3,000

5 Paul Abrams 761 8,000

11 Kelly Schaefer 762 9,500





2011

Apr. 1 Linda Hobart Sale of Apr. 3 2,940 60 3,000

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3

14

Paul Abrams Sale of Apr. 5 7,840 160 8,000

16

Sales Cash sales 50,840 50,840



Date of


Accounts



2011

Apr. 2 Baskin Company Apr. 2

2/10,n/60

13,300 13,300

3 Eau Claire Inc. Apr. 2

n/10 EOM

1,380 1,380

9 Store Equip./Frank’s Supply Apr. 9

n/10 EOM

11,125 11,125

449

*Problem 8-7A (continued)


eOther Accts.

Ch. Cash Discount

Accts. Payable


2011

Apr. 4 587 The Record Advertising Expense 999 999

12

588 Baskin Company


16

589 Payroll Sales Salaries Expense 9,750 9,750

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81

450


GENERAL JOURNAL Page 3Date Account Titles and Explanations PR DebitCredit2011Apr. 6 Accounts Payable – Eau Claire Inc. 85

Office Supplies.................... 85 Returned office supplies.


Paul Abrams


2011

Apr. 5 S3 8,000 8,000

14

CR3 8,000 0

Linda Hobart


2011

Apr. 3 S3 3,000 3,000

13

CR3 3,000 0

13

S3 4,100 4,100

Kelly Schaefer


2011

Apr. 1 S3 9,500 9,500


451

1


452

*Problem 8-7A (concluded) Parts 2, 3


Frank’s Supply


2011

Apr. 9 P3 11,125 11,125

Baskin Company


2011

Apr. 2 P3 13,300 13,300

12

CD3 13,300 0

Sprocket Company


2011

Eau Claire Inc.


2011

Apr. 3 P3 1,380 1,380

6 G3 85 1,295


453




PR Sales Cr.

2011

Apr.







30 Totals 33,370

(106/413)




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2011

Apr. 13

Linda Hobart Sale of Apr. 3 2,940 60 3,000

14

Paul Abrams Sale of Apr. 5 7,840 160 8,000

16


18

L.T. Notes Payable

Note to bank 251

50,000 50,000

20

Kelly Schaefer Sale of Apr. 11 9,310 190 9,500

23

Linda Hobart Sale of Apr. 13 4,018 82 4,100

30

Sales Cash sales 70,975

70,975

30

Totals 195,923

492 24,600 121,815

50,000

(101) (415) (106) (413) (X)

455




Date of


Accounts



2011

Apr. 2 Baskin Company Apr. 2

2/10,n/60

13,300 13,300

3 Eau Claire Inc. Apr. 2

n/10 EOM

1,380 1,380

9 Store Equip./Frank’s Supply Apr. 9

n/10 EOM

165/ 11,125 11,125

17 Sprocket Company Apr. 16

2/10,n30 12,750 12,750

20 Store Supplies/Frank’s Supply Apr. 19

n/10 EOM

125/ 730 730

25 Baskin Company Apr. 24

2/10,n/60

10,375 10,375

30 Totals 49,660 36,425 1,380 11,855

(201) (505) (124) (X)

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456


eOther Accts.

Ch. Cash Discount

Accts. Payable


2011

Apr. 4 587 The Record Advertising Expense 655 999 999

12

588 Baskin Company


16

589 Payroll Sales Salaries Expense 621 9,750 9,750

26

590 Sprocket Company

Sprocket Company 12,103 247 12,350*

30

591 Payroll Sales Salaries Expense 621 9,750 9,750

30

Totals 45,636 513 20,499 25,650

(101) (506) (X) (201)

*$12,750 - $400 credit memorandum = $12,350.

457



2011Apr. 6 Accounts Payable—Eau Claire Inc. ...... 201/ 85

Office Supplies............................... 124 85Returned office supplies.

23 Accounts Payable—Sprocket Company 201/ 400Purchase Returns and Allowances. 507 400


Parts 1, 2, 3, 4



2011

Mar. 31


Apr. 30

CR3 195,923 362,923

30

CD3 45,636 317,287

Accounts Receivable Acct. No. 106Date Explanation PR Debit Credit Balance

2011

Apr. 30

S3 33,370 33,370

30

CR3 24,600 8,770




458

2011

Mar. 31




2011

Apr. 3 P3 1,380 1,380

6 G3 85 1,295


459

*Problem 8-8A (continued)Store Supplies Acct. No. 125


2011

Apr. 20

P3 730 730



2011

Apr. 9 P3 11,125 11,125



2011

Apr. 6 G3 85 (85)

23

G3 400 (485)

30

P3 49,660 49,175

30

CD3 25,650 23,525



2011

Mar. 31 Balance Forward 167,000

Apr. 18 CR3 50,000 217,000


460

Jeff Newton, Capital Acct. No. 301


2011

Mar. 31

Balance forward 95,000

Sales Acct. No. 413


2011

Apr. 30

S3 33,370 33,370

30

CR3 121,815 155,185



2011

Apr. 30

CR3 492 492


461


Purchases Acct. No. 505


2011

Apr. 30

P3 36,425 36,425

Purchase Discounts Acct. No. 506


2011

Apr. 30

CD3 513 513

Purchase Returns and Allowances Acct. No. 507


2011

Apr. 30

G3 400 400


2011

Apr. 16

CD3 9,750 9,750

30

CD3 9,750 19,500




462

2011

Apr. 4 CD3 999 999


463



Paul Abrams


2011

Apr. 5 S3 8,000 8,000

14

CR3 8,000 0

27

S3 3,070 3,070

Linda Hobart


2011

Apr. 3 S3 3,000 3,000

13

CR3 3,000 0

13

S3 4,100 4,100

23

CR3 4,100 0

Kelly Schaefer


2011

Apr. 11

S3 9,500 9,500

20

CR3 9,500 0


464

27

S3 5,700 5,700


465



Frank’s Supply


2011

Apr. 9 P3 11,125 11,125

20 P3 730 11,855

Baskin Company


2011

Apr. 2 P3 13,300 13,300

12

CD3 13,300 0

25

P3 10,375 10,375

Sprocket Company


2011

Apr. 17

P3 12,750 12,750

23

G3 400 12,350

26

CD3 12,350 0

Eau Claire Inc.



466

2011

Apr. 3 P3 1,380 1,380

G3 85 1,295


467

*Problem 8-8A (concluded) Part 5

NEWTON COMPANYSchedule of Accounts Receivable

April 30, 2011

Paul Abrams ................................................................................. $3,070

Kelly Schaefer............................................................................... 5,700

Total accounts receivable ....................................................... $8,770

NEWTON COMPANYSchedule of Accounts Payable

April 30, 2011

Frank’s Supply ......................... $11,855Baskin Company ...................... 10,375Eau Claire Inc. .......................... 1,295Total accounts payable ............ $23,525

NEWTON COMPANYTrial BalanceApril 30, 2011

Account.........Debit CreditCash .........................................$317,287Accounts receivable.................. 8,770Merchandise inventory............. 95,000Office supplies ......................... 1,295Store supplies .......................... 730Store equipment ...................... 11,125Accounts payable .................... $ 23,525Long-term notes payable ......... 217,000Jeff Newton, capital................... 95,000Sales......................................... 155,185Sales discounts......................... 492Purchases................................. 36,425Purchase discounts................... 513Purchase returns and allowances...........................................400Sales salaries expense ............. 19,500


468

Advertising expense ................ 999 Totals .......................................$491,623 $491,623


469

*Problem 8-9A - Perpetual (100 minutes) Part 4

SALES JOURNAL Page 2Accts. PST GST COGS

Invoice

Rec. Payable Payable

Sales Dr./

Date

Account Debited Number

PR Debit Credit Credit Credit MI Cr.

2011Mar.

2 Leroy Hackett 854 18,328.00

1,580.00

948.00 15,800.00

1,027

3 Sam Snickers 855 10,672.00

920.00 552.00 9,200.00

5,980

10

Marjorie Coble 856 5,336.00

460.00 276.00 4,600.00

2,990

27

Marjorie Coble 857 16,135.60

1,391.00

834.60 13,910.00

9,040

28

Sam Snickers 858 6,165.40

531.50

318.90

5,315.0

0

3,455

31

Totals 56,637.00

4,882.50

2,929.50

48,825.00

22,492

(106) (224) (225) (413) (502/119)


Sales Accts. Other PST GST COGSCash Discou

ntRec. Sales Accts. Payable Payable Dr./

Dat Account Explanation PR Debit Debit Credit Credit Credit Credit Credit MI Cr.

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e Credited2011

Mar 6

L.T. Notes Pay.

Note to bank

251

72,000.00

72,000.00

12 Leroy Hackett

Invoice, Mar 2

18,012.00

316.00 18,328.00

13 Sam Snickers Invoice, Mar 3

10,488.00

184.00 10,672.00

15 Sales Cash sales 191,028.80

164,680.00

16,468.00

9,880.80

107,042

20 Marjorie Coble

Invoice, Mar 10

5,244.00

92.00 5,336.00


174,590.00

17,459.00

10,475.40

113,480

31 Totals 499,297.20

592.00 34,336.00

339,270.00

72,000.00

33,927.00

20,356.20

220,522

(101) (415)

(106)

(413) () (224) (225)

(502/119)

471

*Problem 8-9A - Perpetual (continued)

PURCHASES JOURNAL Page 2Accts. Merch. Other GST

Date of

Payable Inventory

Accounts

Rec’ble

Date

Account Credited Invoice


2011Mar.

3 Office Supplies/Arndt Company

Mar 3 n/10 EOM

124/

1,187.20

1,120.00

67.20

5 Defore Industries Mar 3 2/10, n/30

45,156.00

42,600.00

2,556.00

9 Office Equip./Jett Supply Mar 9 n/10 EOM

163/

22,101.00

20,850.00

1,251.00

14 The Welch Company Mar 13

2/10, n/30

33,522.50

31,625.00

1,897.50

16 Store Supplies/Arndt Company

Mar 16

n/10 EOM

125/

1,770.20

1,670.00

100.20

31 Totals 103,736.90

74,225.00

23,640.00

5,871.90

(201) (119) (X) (108)


Merch. Other GST Accts.Ch.

Cash Inv. Accts. Rec’ble

Payable

Date No.

Payee Account Debited PR Credit Credit Debit Debit Debit

2011

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472

Mar. 13

416

Defore Industries1

Defore Industries 44,304.00

852.00 45,156.00

15 417


621 15,900.00

15,900.00

23 418

The Welch Co. 2 The Welch Company 30,368.00

584.00 30,952.00

31 419


621 15,900.00

15,900.00

31 Totals 106,472.00

1,436.00 31,800.00

76,108.00

(101) (119) (X) (201)

1. 42,600 x 2% = 852 discount2. 31,625 – 2,425 = 29,200; 29,200 x 2% = 584 discount

473


GENERAL JOURNAL Page 2 Date Account Title and Explanations PR Debit

Credit 2011Mar.

17

Accounts Payable—The Welch Company

201/

2,570.50

GST Payable 225 145.50 Merchandise Inventory 119 2,425.

00 Returned merchandise.

19

Accounts Payable—Jett Supply 201/

667.80

GST Payable 225 37.80 Office Equipment 163 630.00 Returned office equipment.

Parts 2 and 4ACCOUNTS RECEIVABLE SUBLEDGER

Marjorie Coble


2011

Mar. 10 S2 5,336.00 5,336.00

20 CR2 5,336.00 0.00

27 S2 16,135.60 16,135.60

Leroy Hackett


2011

Mar. 2 S2 18,328.00 18,328.00

12 CR2 18,328.00 0.00


474

Sam Snickers


2011

Mar. 3 S2 10,672.00 10,672.00

13 CR2 10,672.00 0.00

28 S2 6,165.40 6,165.40

Parts 3 and 4ACCOUNTS PAYABLE SUBLEDGER

Arndt Company


2011

Mar.

3 P2 1,187.20 1,187.20

16 P2 1,770.20 2,957.40


Defore Industries


2011

Mar. 5 P2 45,156.00 45,156.00

13 CD3 45,156.00 0.00

Jett Supply


2011


475

Mar. 9 P2 22,101.00 22,101.00

19 G2 667.80 21,433.20

The Welch Company


2011

Mar. 14 P2 33,522.50 33,522.50

17 G2 2,570.50 30,952.00

23 CD3 30,952.00 0.00

Parts 1 and 4GENERAL LEDGER

Cash Acct. No. 101


2011

Mar.

31 CR2 499,297.20 499,297.20

31 CD3 106,472.00

392,825.20

Accounts Receivable Acct. No. 106


2011

Mar. 31 S2 56,637.00 56,637.00

31 CR2 34,336.00 22,301.00

GST Receivable Acct. No. 108


476


2011

Mar. 31 P2 5,871.90 5,871.90


477




2011

Mar. 1 Beginning balance 250,000.00

17 G2 2,425.00 247,575.00

31 S2 22,492.00 225,083.00

31 CR2 220,522.00

4,561.00

31 P2 74,225.00 78,786.00

31 CD3 1,436.00 77,350.00



2011

Mar. 31 P2 1,120.00 1,120.00

Store Supplies Acct. No. 125


2011

Mar. 16 P2 1,670.00 1,670.00

Office Equipment Acct. No. 163


2011


478

Mar. 9 P2 20,850.00 20,850.00

19 G2 630.00 20,220.00


479




2011

Mar.

17 G2 2,570.50 (2,570.50)

19 G2 667.80 (3,238.30)

31 P2 103,736.90

100,498.60

31 CD3 76,108.00 24,390.60

PST Payable Acct. No. 224


2011

Mar. 31 S2 4,882.50 4,882.50

31 CR2 33,927.00 38,809.50

GST Payable Acct. No. 225


2011

Mar. 17 G2 145.50 145.50

19 G2 37.80 183.30

31 S2 2,929.50 3,112.80

31 CR2 20,356.20 23,469.00




480

2011

Mar. 6 CR2 72,000.00 72,000.00

George Bledsoe, Capital Acct. No. 301


2011


Sales Acct. No. 413


2011

Mar. 31 S2 48,825.00 48,825.00

31 CR2 339,270.00

388,095.00



2011

Mar. 31 CR2 592.00 592.00




2011

Mar. 31 S2 22,492.00 22,492.00

31 CR2 220,522.00

243,014.00


481

Sales Salaries Expense Acct. No. 621


2011

Mar. 15 CD3 15,900.00 15,900.00

31 CD3 15,900.00 31,800.00

Part 5THE BLEDSOE COMPANY

Trial Balance

March 31, 2011

Account Debit CreditCash ............................................................ $392,825.20

Accounts receivable .............................. 22,301.00

GST receivable......................................... 5,871.90

Merchandise inventory........................ 77,350.00

Office supplies......................................... 1,120.00

Store supplies ......................................... 1,670.00

Office equipment ................................... 20,220.00

Accounts payable ................................... $ 24,390.60

PST payable ............................................. 38,809.50

GST payable ............................................. 23,469.00

Long-term notes payable .................... 72,000.00

George Bledsoe, capital ....................... 250,000.00

Sales ........................................................... 388,095.00

Sales discounts ....................................... 592.00


482

Cost of goods sold .................................. 243,014.00

Sales salaries expense........................... 31,800.00

Totals.......................................................... $796,764 .10 $796,764.10


483

*Problem 8-9A - Perpetual (concluded)

THE BLEDSOE COMPANY


March 31, 2011

Marjorie Coble ...................................... $16,135.60

Sam Snickers.......................................... 6,165 .40

Total accounts receivable ................. $22,301 .00

THE BLEDSOE COMPANY

Schedule of Accounts Payable

March 31, 2011

Arndt Company .................................... $ 2,957.40

Jett Supply............................................... 21,433 .20

Total accounts payable ...................... $24,390 .60


484

*Problem 8-9A - Periodic (100 minutes) Part 4

SALES JOURNAL Page 2Accts. PST GST

Invoice Rec. Payable Payable

Sales

Date

Account Debited Number

PR Debit Credit Credit Credit

2011Mar.

2 Leroy Hackett 854 18,328.00

1,580.00

948.00 15,800.00

3 Sam Snickers 855 10,672.00

920.00 552.00 9,200.00

10 Marjorie Coble 856 5,336.00

460.00 276.00 4,600.00

27 Marjorie Coble 857 16,135.60

1,391.00

834.60 13,910.00

28 Sam Snickers 858 6,165.40

531.50

318.90

5,315.0

031 Totals 56,637.

004,882.5

02,929.5

048,825.

00(106) (224) (225) (413)


Sales Accts. Other PST GSTCash Discount Rec. Sales Accts. Payable Payable


Explanation PR Debit Debit Credit Credit Credit Credit Credit

2011

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Mar. 6

L.T. Notes Pay.

Note to bank

251

72,000.00

72,000.00

12 Leroy Hackett Invoice, Mar 2

18,012.00

316.00 18,328.00

13 Sam Snickers Invoice, Mar 3

10,488.00

184.00 10,672.00


164,680.00

16,468.00

9,880.80

20 Marjorie Coble

Invoice, Mar 10

5,244.00 92.00 5,336.00


174,590.00

17,459.00

10,475.40

31 Totals 499,297.20

592.00 34,336.00

339,270.00

72,000.00

33,927.00

20,356.20

(101) (415)

(106) (413) () (224) (225)

486

*Problem 8-9A - Periodic (continued)

PURCHASES JOURNAL Page 2Accts. Other GST

Date of

Payable Purchases

Accounts

Rec’ble

Date

Account Invoice


2011Mar.

3 Office Supplies/Arndt Company

Mar 3 n/10 EOM

124/

1,187.20

1,120.00

67.20

5 Defore Industries Mar 3 2/10, n/30

45,156.00

42,600.00

2,556.00

9 Office Equip./Jett Supply Mar 9 n/10 EOM

163/

22,101.00

20,850.00

1,251.00

14 The Welch Company Mar 13

2/10, n/30

33,522.50

31,625.00

1,897.50

16 Store Supplies/Arndt Company

Mar 16

n/10 EOM

125/

1,770.20

1,670.00

100.20

31 Totals 103,736.90

74,225.00

23,640.00

5,871.90

(201) (505) (X) (108)


Pur. Other GST Accts.Ch.

Cash Disc. Accts. Rec’ble

Payable

Date No.

Payee Account Debited PR Credit Credit Debit Debit Debit

2011

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Mar. 13

416

Defore Industries

Defore Industries 44,304.00 852.00 45,156.00

15 417


621 15,900.00 15,900.00

23 418

The Welch Co. The Welch Company

30,368.00 584.00 30,952.00

31 419


621 15,900.00

15,900.00

31 Totals 106,472.00

1,436.00 31,800.00 76,108.00

(101) (507) (X) (201)

488


GENERAL JOURNAL Page 2 Date Account Title and Explanations PR Debit

Credit 2011Mar.

17


201/

2,570.50

GST Payable 225 145.50 Purchases Returns and Allowances

506 2,425.00


19


667.80

GST Payable 225 37.80 Office Equipment 163 630.00 Returned office equipment.

Parts 2 and 4ACCOUNTS RECEIVABLE SUBLEDGER

Marjorie Coble


2011

Mar. 10 S2 5,336.00 5,336.00

20 CR2 5,336.00 0.00

27 S2 16,135.60 16,135.60

Leroy Hackett


2011

Mar. 2 S2 18,328.00 18,328.00

12 CR2 18,328.00 0.00


489

Sam Snickers


2011

Mar. 3 S2 10,672.00 10,672.00

13 CR2 10,672.00 0.00

28 S2 6,165.40 6,165.40


490

*Problem 8-9A - Periodic (continued)Parts 3 and 4


Arndt Company


2011

Mar.

3 P2 1,187.20 1,187.20

16 P2 1,770.20 2,957.40

Defore IndustriesDate Explanation PR Debit Credit Balance

2011

Mar. 5 P2 45,156.00 45,156.00

13 CD3 45,156.00 0.00

Jett Supply


2011

Mar. 9 P2 22,101.00 22,101.00

19 G2 667.80 21,433.20

The Welch Company


2011

Mar. 14 P2 33,522.50 33,522.50


491

17 G2 2,570.50 30,952.00

23 CD3 30,952.00 0.00


492

*Problem 8-9A - Periodic (continued)Parts 1 and 4



2011

Mar.

31 CR2 499,297.20 499,297.20

31 CD3 106,472.00

392,825.20



2011

Mar. 31 S2 56,637.00 56,637.00

31 CR2 34,336.00 22,301.00



2011

Mar. 31 P2 5,871.90 5,871.90



2011




493


2011

Mar. 31 P2 1,120.00 1,120.00



2011

Mar. 16 P2 1,670.00 1,670.00


494




2011

Mar. 9 P2 20,850.00 20,850.00

19 G2 630.00 20,220.00



2011

Mar.

17 G2 2,570.50 (2,570.50)

19 G2 667.80 (3,238.30)

31 P2 103,736.90

100,498.60

31 CD3 76,108.00 24,390.60



2011

Mar. 31 S2 4,882.50 4,882.50

31 CR2 33,927.00 38,809.50



2011

Mar. 17 G2 145.50 145.50


495

19 G2 37.80 183.30

31 S2 2,929.50 3,112.80

31 CR2 20,356.20 23,469.00



2011

Mar. 6 CR2 72,000.00 72,000.00

George Bledsoe, Capital Acct. No. 301


2011


Sales Acct. No. 413


2011

Mar. 31 S2 48,825.00 48,825.00

31 CR2 339,270.00

388,095.00




2011

Mar. 31 CR2 592.00 592.00


496



2011

Mar. 31 P2 74,225.00 74,225.00

Purchases Returns and Allowances Acct. No. 506


2011

Mar. 17 G2 2,425.00 2,425.00

Purchases Discounts Acct. No. 507


2011

Mar. 31 CD2 1,436.00 1,436.00



2011

Mar. 15 CD2 15,900.00 15,900.00

31 CD2 15,900.00 31,800.00


497

*Problem 8-9A - Periodic (concluded)

Part 5THE BLEDSOE COMPANY

Trial Balance

March 31, 2011

Account Debit CreditCash ............................................................ $392,825.20

Accounts receivable .............................. 22,301.00

GST receivable ........................................ 5,871.90

Merchandise inventory ........................ 250,000.00

Office supplies......................................... 1,120.00

Store supplies ......................................... 1,670.00

Office equipment ................................... 20,220.00

Accounts payable ................................... $ 24,390.60

PST payable ............................................. 38,809.50

GST payable ............................................. 23,469.00

Long-term notes payable .................... 72,000.00

George Bledsoe, capital ....................... 250,000.00

Sales ........................................................... 388,095.00

Sales discounts ....................................... 592.00

Purchases ................................................. 74,225.00

Purchases returns and allowances... 2,425.00

Purchases discounts.............................. 1,436.00

Sales salaries expense........................... 31,800.00

Totals.......................................................... $800,625 .10 $800,625.10


498

THE BLEDSOE COMPANY


March 31, 2011

Marjorie Coble ...................................... $16,135.60

Sam Snickers.......................................... 6,165 .40

Total accounts receivable ................. $22,301 .00

THE BLEDSOE COMPANY


March 31, 2011

Arndt Company .................................... $ 2,957.40

Jett Supply............................................... 21,433 .20

Total accounts payable ...................... $24,390 .60


499




Invoice No.

PR A/R Dr.

PST Payable

Cr.

GST Payable

Cr. Sales Cr

COGS Dr.


2011

Oct 12

K-Company 106 6,840 480 360 6,000 4,200

17 CanCor 107 7,980 560 420 7,000 4,600

30 Delton Hardware 108 4,560 320 240 4,000 2,900



Explanation PR

Cash Dr.

Sales

DiscDr A/R

Cr.Sales Cr.

Other Accounts

Cr.

PST Payable

Cr.

GST Payabl

e Cr.

COGS/Dr. Merchandis

eInventory/

Cr.

2011

Oct 9 Sales Inv #105 1,368 1,200 96 72 740

24 CanCor 7,910 70 7,980

26 K-Company 6,840 6,840

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Date Account Credited Terms PR A/P Cr.

Merchandise

Inventory Dr.

Other Accounts Dr.

GST Rec’ble Dr.

2011

Oct 1 Lexor Suppliers 2/10,n/30

4,240 4,000 240

27 Milton Suppliers n/30 8,480 8,000 480



MerchandiseInventory Cr. Other

Accounts Dr.

GST Rec’ble Dr.

A/P Dr.

2011

Oct 5 13 Merchandise inventory

2,120 2,000 120

10 14 Lexor Suppliers 4,160 80 4,240

501

*Problem 8-11A (30 minutes)SALES JOURNAL Page X

Accts. PST GSTInvoice Rec. Payable Payable Sales

Date Account Debited Number PR Debit Credit Credit Credit201

1Oct. 12 K-Company 106 6,840 480 360 6,000

17 CanCor 107 7,980 560 420 7,000

30 Delton Hardware 108 4,560 320 240 4,000

CASH RECEIPTS JOURNAL Page XOther Accts. PST GST SalesAccts. Rec. Payable Payable Sales Cash Discount


Explanation PR Credit Credit Credit Credit Credit Debit Debit

2011Oct.

9Sales Inv #105 96 72 1,200 1,368

24 CanCor 7,980 7,910 7026 K-Company 6,840 6,840


Date of Payable Purchases Accounts Rec’bleDate Account Credited Invoice Terms PR Credit Debit Debit Debit2011Oct. 1 Lexor Suppliers Oct. 1 2/10,n/30 4,240 4,000 240

27 Milton Suppliers Oct. 27 n/30 8,480 8,000 480

CASH DISBURSEMENTS JOURNAL Page X

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Pur. Other GST Accts.Ch. Cash Disc. Accts. Rec’ble Payable

Date No. Payee Account Debited

PR Credit Credit Debit Debit Debit

2011

Oct. 5 13 Cash purchase Purchases 2,120 2,000 120

10 14 Lexor Suppliers Lexor Suppliers 4,160 80 4,240

503

ALTERNATE PROBLEMS

Problem 8-1B (20 minutes)

Date Transaction

Special Journal

Subledger

May 1 The owner invested an automobile into the business. G NE

2 Sold merchandise and received cash. CR MI

3 Purchased merchandise inventory on credit, 1/5, n/30.

P AP/MI

4 Sold merchandise on credit; terms 2/15, n30. S AR/MI

5 The customer of May 4 returned defective merchandise; the merchandise was scrapped.

G AR

6 Regarding the May 3 purchase, received a credit memorandum from the supplier granting an allowance.

G AP/MI

15 Paid mid-month salaries. CD NE

17 Purchased office supplies on credit; terms n/30. P AP

19 Paid for the balance owing regarding the May 3 purchase.

CD AP

22 Received payment regarding the May 4 sale. CR AR

25 Borrowed money from bank. CR NE

29 Purchased merchandise inventory paying cash. CD MI

30 Accrued interest revenue. G NE

30 Closed all revenue accounts to the income summary. G NE


504


Sales Journal Page: S1


Invoice No.

PR

A/R Dr.

Sales Cr.

COGS Dr.


2011

June 5 Martha Stohart 347 102,000 51,000

6 Carol Larson 348 8,200 5,700

18 Lars Wilson 349 6,000 4,900

25 Nathan Blythe 350 28,000 14,500

Cash Receipts Journal Page: CR1

Date Account Credited PRExplanatio

n Cash Dr.

Sales

DiscDr

A/R Cr.Sales Cr.

Other Accounts

Cr.

COGS/Dr. Merchandi

seInventory/

Cr.

2011

June 12

A/R – Carol Larson

Inv. 348 8,036 164 8,200

24 A/R – Martha Inv. 347 102,000 102,000

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505

Stohart

27 A/R – Lars Wilson Inv. 349 5,880 120 6,000

Purchases Journal Page: P1


Date of Invoice

Terms PR

A/P Cr.

Merchandise Inventory Dr.

Office Supplies

Dr.

Other Accounts Dr.

2011

June 1 Exeter Equip./Equipment

June 1 n30 45,000 45,000

4 Whitby Co. June 4 1/5, n15 85,000 85,000

8 Suppliers Unlimited

June 8 2/10, n30

1,800 1,800

506

Problem 8-2B (concluded)

Cash Disbursements Page: CD1


Merchandise

Inventory Cr.

Other Accounts Dr.

A/P Dr.

2011

June 11 101 Whitby Co.* 80,200 80,200

14 102 Salaries Expense 15,000 15,000

28 103 Exeter Equipment 45,000 45,000

29 104 Salaries Expense 15,000 15,000

*85,000 – 4,800 = 80,200

General Journal Page: G1


2011

June 7 Accounts Payable – Whitby Co. 4,800


To record allowance received for damages that occurred during delivery.


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Accounts Receivable – Nathan Blythe 2,800

To record unsatisfactory goods returned by customer.



Goods returned to inventory.

508



Part 3SALES JOURNAL Page 3

Date Account DebitedInvoiceNumber

PRA/R Dr. Sales.

Cr.

Cost of Goods Sold Dr. Merchandise

Inventory Cr.2011

July 5 Karen Harden 918 18,400 10,2006 Paul Kane 919 7,500 4,10013

Kelly Grody 920 8,350 4,600

14

Karen Harden 921 4,100 2,300


DateAccount Credited Explanati

on

PR

Cash Debit

Sales Discount

Debit

Accts.

Rec. Credit

Sales Credit

Other

Accts.

Credit



2011July

15

Karen Harden

Sale of Jul 5

18,032 368 18,400

15

Sales Cash sales

121,370

121,370

66,700

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509



Date of Invoice Terms PR

Accounts

Payable

Credit

Merchandise

Inventory Debit

Office Suppl

ies Debit

Other

Accts.

Debit

2011July

1 Beech Company Jun 30

2/10, n/60

6,300 6,300

7 Blackwater Inc. /Store Supp.

Jul 7 n/10 EOM

1,050 1,050

9 Poppe’s Supply /Store Equip.

Jul 8 n/10 EOM

37,710 37,710

510

Problem 8-3B (continued)


Date

Ch. No. Payee

Account Debited PR

Cash Credit

Merchandise

Inventory Credit

Other Accts. Debit

Accts.

Payable

Debit2011

July

3 300

The Weekly Journal

Advertising Expense

575 575

10

301

Beech Company

Beech Company 6,174 126 6,300

15

302

Payroll Sales Salaries Expens

30,620 30,620


Account Titles and Explanations PR Debit Credit

2011July 8 Accounts Payable—Blackwater

Inc.201/

150

Store Supplies 125 150 Returned supplies to supplier.

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Parts 1, 2, 3ACCOUNTS RECEIVABLE SUBLEDGER

Karen HardenDate Explanation PR Debit Credit Balan

ce2011

July 5 S3 18,400 18,400

14

S3 4,100 22,500

15

CR3

18,400 4,100

Kelly GrodyDate Explanation PR Debit Credit Balan

ce2011

July 13

S3 8,350 8,350

Paul KaneDate Explanation PR Debit Credit Balan

ce2011

July 6 S3 7,500 7,500


512



Beech CompanyDate Explanation PR Debit Credit Balanc

e2011

July 1 P3 6,300 6,30010

CD3

6,300 0

Blackwater Inc.Date Explanation PR Debit Credit Balanc

e2011

July 7 P3 1,050 1,0508 G3 150 900

Poppe’s SupplyDate Explanation PR Debit Credit Balanc

e2011

July 9 P3 37,710 37,710

Sprague CompanyDate Explanation PR Debit Credit Balanc

e2011


513


Parts 2, 3, 4

SALES JOURNAL Page 3

Date Account DebitedInvoiceNumber

PR

A/R Dr. Sales.

Cr.


Inventory Cr.2011

July 5 Karen Harden 918 18,400 10,2006 Paul Kane 919 7,500 4,10013

Kelly Grody 920 8,350 4,600

14

Karen Harden 921 4,100 2,300

29

Paul Kane 922 28,090 15,500

30

Kelly Grody 923 15,750 8,700

31

Totals 82,190 45,400

(106/413)

(502/119)


DateAccount Credited Explanati

on

PR

Cash Debit

Sales Discount

Debit

Accts.

Rec. Credit

Sales Credit

Other

Accts.

Credit



2011July

15

Karen Harden

Sale of Jul 5

18,032 368 18,400

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514

15

Sales Cash sales

121,370

121,370

66,700

16

Paul Kane

Sale of Jul 6

7,350 150 7,500

21

L.T. Notes Pay

Note to bank

251

20,000 20,000

23

Kelly Grody

Sale of Jul 13

8,183 167 8,350

24

Karen Harden

Sale of Jul 14

4,018 82 4,100

31

Sales Cash sales

79,020

79,020

43,500

31

Totals 257,973

767 38,350

200,390

20,000

110,200

(101)

(415)

(106)

(413)

(X) (502/119)

515




Date of Invoice Terms PR

Accounts

Payable

Credit

Merchandise

Inventory Debit

Office Suppl

ies Debit

Other

Accts.

Debit

2011July

1 Beech Company Jun 30

2/10, n/60

6,300 6,300

7 Blackwater Inc. /Store Supp.

Jul 7 n/10 EOM

125/

1,050 1,050

9 Poppe’s Supply /Store Equip.

Jul 8 n/10 EOM

165/

37,710 37,710

17

Sprague Company Jul 17

2/10, n/60

8,200 8,200

20

Poppe’s Supply Jul 19

n/10 EOM

750 750

26

Beech Company Jul 26

2/10, n/30

9,770 9,770

31

Totals 63,780 24,270 750 38,760

(201)

(119)

(124) (X)


Date

Ch. No. Payee

Account Debited PR

Cash Credit

Merchandise

Inventory Credit

Other Accts. Debit

Accts.

Payable

Debit

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2011

July

3 300

The Weekly Journal

Advertising Expense

655

575 575

10

301

Beech Company

Beech Company 6,174 126 6,300

15

302

Payroll Sales Salaries Expens e

621

30,620 30,620

27

303

Sprague Company

Sprague Company

5,684 116 5,800*

31

304


621

30,620 30,620

31

Totals 73,673 242 61,815 12,100

(101)

(119) (X)

(201)

* $8,200 – $2,400 return = $5,800

517





Inc.201/

150


24

Accounts Payable—Sprague Company

201/

2,400

Merchandise Inventory 119 2,400 Returned defective inventory to merchandise supplier.

Parts 1, 2, 3, 4GENERAL LEDGER

Cash Acct. No. 101


2011

June 30


July 31

CR3 257,973 352,973

31

CD3 73,673 279,300



2011

July 31

S3 82,190 82,190


518

31

CR3 38,350 43,840



2011

Jun. 30


Jul. 24

G3 2,400 164,600

31

S3 45,400 119,200

31

CR3 110,200 9,000

31

P3 24,270 33,270

31

CD3 242 33,028



2011

July 31

P3 750 750




2011

July 7 P3 1,050 1,050


519

8 G3 150 900



2011

July 9 P3 37,710 37,710



2011

July 8

G3 150 (150

24

G3 2,400 (2,550

31

P3 63,780 61,230

31

CD3

12,100 49,130



2011

June 30


July 21

CR3 20,000 187,000

Gene Eldridge, Capital Acct. No. 301



520

2011

Jun. 30


Sales Acct. No. 413


2011

July 31

S3 82,190 82,190

31

CR3 200,390 282,580



2011

July 31

CR3 767 767


521

Problem 8-4B (continued)Cost of Goods Sold Acct. No. 502


2011

July 31

S3 45,400 45,400

31

CR3 110,200 155,600



2011

July 15

CD3

30,620 30,620

31

CD3

30,620 61,240



2011

July 3 CD3

575 575



ce2011

July 5 S3 18,400 18,400

14

S3 4,100 22,500

15

CR3

18,400 4,100

2 CR 4,100 0


522

4 3


ce2011

July 13

S3 8,350 8,350

23

CR3

8,350 0

30

S3 15,750 15,750


ce2011

July 6 S3 7,500 7,50016

CR3

7,500 0

29

S3 28,090 28,090




e2011

July 1 P3 6,300 6,30010

CD3

6,300 0

26

P3 9,770 9,770


e


523

2011

July 7 P3 1,050 1,0508 G3 150 900


e2011

July 9 P3 37,710 37,71020

P3 750 38,460


e2011

July 17

P3 8,200 8,200

24

G3 2,400 5,800

27

CD3

5,800 0


524


Part 5

ELDRIDGE INDUSTRIES

Trial Balance

July 31, 2011

Account Debit Credit

Cash $279,300



Office supplies 750

Store supplies 900

Store equipment 37,710



Gene Eldridge, capital 95,000

Sales 282,580

Sales discounts 767


Sales salaries expense 61,240


Totals $613,710 $613,710

ELDRIDGE INDUSTRIESSchedule of Accounts Receivable

July 31, 2011

Kelly Grody $15,750


525

Paul Kane 28,090

Total accounts receivable $43,840

ELDRIDGE INDUSTRIES


July 31, 2011

Beech Company $ 9,770

Blackwater Inc. 900

Poppe’s Supply 38,460



526


Analysis component:

To find the error(s), re-add the account balances on the schedule of accounts payable to confirm that

the addition was correct. trace the balances listed on the schedule of accounts payable back to the

subsidiary accounts to confirm that they were listed correctly on the schedule. recalculate the balance of each subsidiary account to confirm that the additions

and subtractions were correct. trace the postings from each subsidiary account and from the controlling account

back to the appropriate journals.

Since the purchases and cash disbursements journals were footed and crossfooted before posting, the previous steps should disclose the error.


527


Parts 1, 2, 3SALES JOURNAL Page 3

Date Account DebitedInvoiceNumbe

r

PR

A/R Dr. Sales.

Cr.


Inventory Cr.2011

Oct.

6 Marge Craig 913 3,300 1,800

12 Heather Flatt 914 3,650 2,00015 Amy Izon 915 3,100 1,70016 Heather Flatt 916 4,290 2,46021 Jan Wildman 917 5,5

20 3,000

31 Totals 19,860

10,960

(106/413)

(502/119)


Date

AccountCredited

Explanation PR

Cash Debit

SalesDiscount

Debit

Acct. Rec. Credit

Sales Credit

Other

Acct.

Credit



2011Oct. 2

Jan Wildman

Invoice Nov 23

4,116 84 4,200*

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15 Sales Cash sales

38,830 38,830 21,400

15 Marge Craig

Invoice, Dec 6

2,401 49 2,450*

22 Heather Flatt

Invoice, Dec 12

3,577 73 3,650**

25 Amy Izon Invoice, Dec 15

2,842 58 2,900**

28 Store Supplies

Sold supplies

125

58 58

31 Sales Cash sales

66,128

66,128

36,400

31 Totals 117,952

264 13,200 **

104,958

58 57,800

(101)

(415) (106) (413)

(X) (502/119)

* $3,300 – $850 return = $2,450** $3,100 – $200 return = $2,900

529



Date Account CreditedDate of Invoice

Terms PR

Accounts

Payable

Credit

Merchandise

Inventory Debit

Office Suppl

ies Debit

Other Accts.

Debit

2011Oct.

2 Walters Company Oct 2

2/10, n/60

3,200 3,200

5 Green Supply Co. Oct 3

n/10 EOM

1,300 1,300

15

Walters Company Oct 15

2/10, n/60

3,990 3,990

15


2/10, n/60

2,650 2,650

16

Green Supply Co. Oct 16

n/10 EOM

765 765

20

Green Supply Co. /Store Equip.

Oct 19

n/10 EOM

165/

7,475 7,475

28


2/10, n/60

6,030 6,030

31

Totals 25,410 17,170 765 7,475

(201)

(119)

(124) (X)

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DateCh. No.


PRCash Credi

t

Merchandise

Inventory Credit

Other Accts. Debit

Accts.

Payable

Debit2011Oct.

2 619

Omni Realty Co.

Rent Expense 640

2,250

2,250

6 620

Fireside Company

Fireside Company

3,724

76 3,800

12

621

Walters Company

Walters Company

3,136

64 3,200

15

622

Jamie Ford Sales Salaries Expense

621

2,620

2,620

25

623

Walters Company*

Walters Company

3,283

67 3,350

25

624

Sunshine Company

Sunshine Company

2,597

53 2,650

29

625

Marlee Levin Marlee Levin, Withdrawals

302

4,000

4,000

30

626

Midwest Elec. Co.

Utilities Expense 690

990 990

30

627

Jamie Ford. Sales Salaries Expense

621

2,620

2,620

31

Totals 25,220

260 12,480

13,000

(101)

(507) (X) (201)

*3,990 – 640 return = 3,350

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GENERAL JOURNAL Page 2

Date

Account Title and Explanations PR Debit Credit

2011Oct.

4 Accounts Payable—Fireside Company

201/

460

Merchandise Inventory 119 460 Defective merchandise returned.

9 Sales Returns and Allowances 414 850 Accounts Receivable—Marge Craig

106/

850

Returned merchandise was scrapped.

18

Sales Returns and Allowances 414 200

Accounts Receivable—Amy Izon

106/

200

Returned merchandise was scrapped.

19

Accounts Payable—Walters Company

201/

640

Merchandise Inventory 119 640 Returned merchandise.

20

Accounts Payable—Green Supply Co.

201/

143

Office Supplies 124 143 Returned office supplies.


Marge CraigDate Explanation PR Debit Credit Balance

2011

Oct. 6 S3 3,300 3,300


532

9 G2 850 2,450

15

CR3 2,450 0

Heather FlattDate Explanation PR Debit Credit Balance

2011

Oct. 12

S3 3,650 3,650

16

S3 4,290 7,940

22

CR3 3,650 4,290


533

Problem 8-5B (continued)Amy Izon


2011

Oct. 15

S3 3,100 3,100

18

G2 200 2,900

25

CR3 2,900 0

Jan WildmanDate Explanation PR Debit Credit Balanc

e2011

Sept

23

S2 4,200 4,200

Oct. 2 CR3

4,200 0

21

S3 5,520 5,520

Part 2ACCOUNTS PAYABLE SUBLEDGER

Fireside CompanyDate Explanation PR Debit Credit Balanc

e2011

Sept

28

P1 4,260 4,260

Oct.

4 G2 460 3,800

6 CD4

3,800 0

Green Supply CompanyDate Explanation PR Debit Credit Balanc

e2011

Oct 5 P2 1,300 1,300


534

.16

P2 765 2,065

20

P2 7,475 9,540

20

G2 143 9,397

Sunshine CompanyDate Explanation PR Debit Credit Balanc

e2011

Oct.

15

P2 2,650 2,650

25

CD4

2,650 0

28

P2 6,030 6,030


535


Walters CompanyDate Explanation PR Debit Credit Balanc

e2011

Oct.

2 P2 3,200 3,200

12

CD4

3,200 0

15

P2 3,990 3,990

19

G2 640 3,350

25

CD4

3,350 0

Parts 2, 3GENERAL LEDGER

Cash Acct. No. 101


2011Sept

30

Balance 5,361

Oct.

31

CR3

117,952

123,313

31

CD4

25,220 98,093



2011Sept

30

Balance 4,200

Oct.

9 G2 850 3,350

18

G2 200 3,150

31

S3 19,860 23,010

3 CR 13,200 9,810


536

1 3



2011Sept

30

Balance 66,970

Oct.

4 G2 460 66,510

19

G2 640 65,870

31

S3 10,960 54,910

31

P2 17,170 72,080

31

CD4

260 71,820

31

CR3

57,800 14,020



2011Sept

30

Balance 607

Oct.

20

G2 143 464

31

P2 765 1,229




2011Sept

30

Balance 346

Oct.

28

CR3

58 288


537



2011Sept

30

Balance 42,129

Oct.

20

P2 7,475 49,604

Accumulated Amortization, Store Equipment Acct. No. 166


2011Sept

30

Balance 9,153



2011Sept

30

Balance 4,260

Oct.

4 G2 460 3,800

19

G2 640 3,160

20

G2 143 3,017

31

P2 25,410 28,427

31

CD4

13,000 15,427

Marlee Levin, Capital Acct. No. 301


2011Sept

30

Balance 106,200

Marlee Levin, Withdrawals Acct. No. 302


538


2011Oct.

29

CD4

4,000 4,000

Sales Acct. No. 413


2011Oct.

31

S3 19,860 19,860

31

CR3

104,958 124,818


539


Sales Returns and Allowances Acct. No. 414


2011Oct.

9 G2 850 850

18

G2 200 1,050



2011Oct.

31

CR3

264 264



2011Oct.

31

S3 10,960 10,960

31

CR3

57,800 68,760



2011Oct.

15

CD4

2,620 2,620

30

CD4

2,620 5,240

Rent Expense Acct. No. 640


2011Oct 2 CD 2,250 2,250


540

. 4

Utilities Expense Acct. No. 690


2011Oct.

30

CD4

990 990


541


Part 4

STARSHINE PRODUCTSTrial Balance

October 31, 2011Account Debit Credit

Cash $ 98,093

Accounts receivable 9,810Merchandise inventory 14,020Office supplies 1,229Store supplies 288Store equipment 49,604Accumulated amortization, store equipment

$ 9,153

Accounts payable 15,427Marlee Levin, capital 106,20

0Marlee Levin, withdrawals 4,000Sales 124,81

8Sales returns and allowances 1,050Sales discounts 264Cost of goods sold 68,760Sales salaries expense 5,240Rent expense 2,250Utilities expense 99

0Totals $255,59

8$255,5

98

STARSHINE PRODUCTS


October 31, 2011

Heather Flatt $4,290

Jan Wildman. 5,520



542

STARSHINE PRODUCTS


October 31, 2011

Green Supply Company

$ 9,397

Sunshine Company. 6,030Total accounts payable

$15,427


543




Invoice No.

PR

A/R Dr.Sales Cr.

PR

COGS Dr.


2011

July 9 W. Tilden 213 300.00 108.00

15 J. Samuelson 214 750.00 270.00

22 V. Nels 215 600.00 200.60

30 M. Bains 216 810.00 270.81


Date Account CreditedDate of Invoice Terms PR A/P Cr.

PR

MerchandiseInventory

Dr.

Office Supplies

Dr.

Other Accounts

Dr.

2011

July 4 Tulsco Supply July 4 n/30 450.00 450.00

18 Gentry Holdings July 18 n/30 270.00 270.00

NOTE: An additional PR column has been added to facilitate the referencing of inventory entries into the inventory subsidiary ledger.

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Inventory Subledger Record — Weighted-Average PerpetualInventory Balance

Date PR Purchases Sales (at cost) (a) (b) (a)

(b)

UnitsUnit Cost Total Cost

Units

Unit Cost

Total Cost

Total

Units

Average Cost/Un

itTotal Cost Inventory Balance

CalculationsJuly 31

Beginning inventory

30 @ $12.00

= $ 360.00

30 $12.00 $ 360.00

30 $ 360.00

4 P1 45 @ $10.00

= $ 450.00

45 @ 10.00

= 450.00

75 $10.80 $ 810.00

75 $ 810.00

75 $ 810.00

9 S1 10 @ $10.80

= $ 108.00 –10

@ 10.80

= –108.00

65 $10.80 $ 702.00

65 $ 702.00

65 $ 702.00

15 S1 25 @ $10.80

= $ 270.00 –25

@ 10.80

= –270.00

40 $10.80 $ 432.00

40 $ 432.00

40 $ 432.00

18 P1 30 @ $9.00 = $ 270.00

30 @ 9.00 = 270.00

70 $10.03 $ 702.00

70 $ 702.00

70 $ 702.00

22 S1 20 @ $10.03

= $ 200.60 –20

@ 10.03

= –200.60


545

50 $10.03 $ 501.40

50 $ 501.40

50 $ 501.40

30 S1 27 @ $10.03

= $ 270.81 –27

@ 10.03

= –270.81

23 $10.03 $ 230.59

23 $ 230.59

Total

105

$1,080.00

82 $849.41 23 $230.59



Ending inventory



546

*Problem 8-7B (40 minutes)




PR Sales Cr.

2011

July 5 Karen Harden 918 18,400

6 Paul Kane 919 7,500

13 Kelly Grody 920 8,350

14 Karen Harden 921 4,100




2011

July 15

Karen Harden Sale of July 5 18,032 368 18,400

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15


PURCHASES JOURNAL Page 3Accounts Office Other

Date of

Payable Purchases Supplies Accounts



2011

July 1 Beech Company Jun. 30

2/10,n/60

6,300 6,300

7 Blackwater Inc./Store Supplies July 7 n/10 EOM 1,050 1,050

9 Poppe’s Supply/Store Equipment July 8 n/10 EOM 37,710 37,710

548

*Problem 8-7B (continued)


eOther Accts.

Ch. Cash Discount

Accts. Payable


2011

July 3 300 The Weekly Journal

Advertising Expense 575 575

10

301 Beech Company Beech Company 6,174 126 6,300

15

302 Payroll Sales Salaries Expense

30,620 30,620




Inc.201/

150


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*Problem 8-7B (concluded)ACCOUNTS RECEIVABLE SUBLEDGER


ce2011

July 5 S3 18,400 18,400

14

S3 4,100 22,500

15

CR3

18,400 4,100


ce2011

July 13

S3 8,350 8,350


ce2011

July 6 S3 7,500 7,500



e2011

July 1 P3 6,300 6,30010

CD3

6,300 0


e2011

July 7 P3 1,050 1,050


550

8 G3 150 900


e2011

July 9 P3 37,710 37,710


e2011


551




PR Sales Cr.

2011

July 5 Karen Harden 918 18,400

6 Paul Kane 919 7,500


14 Karen Harden 921 4,100

29 Paul Kane 922 28,090


Totals 82,190

(106/413)




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2011

July 15

Karen Harden

Sale of July 5 18,032 368 18,400

15


121,370

16

Paul Kane Sale of July 6 7,350 150 7,500

21

L.T. Notes P. Note to bank 251

20,000 20,000

23

Kelly Grody Sale of July 13 8,183 167 8,350

24

Karen Harden

Sale of July 14 4,018 82 4,100

31


79,020

Totals 257,973

767 38,350 200,390

20,000

(101) (415) (106) (413) (X)

553



Date of

Payable Purchases

Supplies

Accounts



2011

July 1 Beech Company Jun. 30

2/10,n/60

6,300 6,300

7 Blackwater Inc./Store Supplies

July 7 n/10 EOM

125/ 1,050 1,050

9 Poppe’s Supply/Store Equipment

July 8 n/10 EOM

165/ 37,710 37,710

17 Sprague Company July 17

2/10,n/60

8,200 8,200

20 Poppe’s Supply July 19

n/10 EOM

750 750

26 Beech Company July 26

2/10,n/30

9,770 9,770

Totals 63,780 24,270 750 38,760

(201) (505) (124) (X)

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eOther Accts.

Ch. Cash Discount

Accts. Payable


2011

July 3 300 The Weekly Journal

Advertising Expense 655 575 575

10

301 Beech Company Beech Company 6,174 126 6,300

15


621 30,620 30,620

27

303 Sprague Company

Sprague Company 5,684 116 5,800*

31


621 30,620 30,620

Totals 73,673 242 61,815 12,100

(101) (506) (X) (201)

*$8,200 - $2,400 return = $5,800

555





Inc.201/

150


24

Accounts Payable—Sprague Company

201/

2,400

Purchase Returns and Allowances

507 2,400

Returned defective inventory to merchandise supplier.

Parts 1, 2, 3, 4GENERAL LEDGER

Cash Acct. No. 101


2011

June 30


July 31

CR3 257,973 352,973

31

CD3 73,673 279,300



2011

July 31

S3 82,190 82,190


556

31

CR3 38,350 43,840



2011

Jun. 30




2011

July 31

P3 750 750


557




2011

July 7 P3 1,050 1,050

8 G3 150 900



2011

July 9 P3 37,710 37,710



2011

July 8

G3 150 (150

24

G3 2,400 (2,550

31

P3 63,780 61,230

31

CD3

12,100 49,130



2011

June 3 Balance Forward 167,000


558

0

July 21

CR3 20,000 187,000

Gene Eldridge, Capital Acct. No. 301


2011

Jun. 30


Sales Acct. No. 413


2011

July 31

S3 82,190 82,190

31

CR3 200,390 282,580



2011

July 31

CR3 767 767


559

*Problem 8-8B (continued)Purchases Acct. No. 505


2011

July 31

P3 24,270 24,270

Purchase Discounts Acct. No. 506


2011

July 31

CD3 242 242

Purchase Returns and Allowances Acct. No. 507


2011

July 24

G3 2,400 2,400



2011

July 15

CD3

30,620 30,620

31

CD3

30,620 61,240



2011

July 3 CD 575 575


560

3



ce2011

July 5 S3 18,400 18,400

14

S3 4,100 22,500

15

CR3

18,400 4,100

24

CR3

4,100 0


ce2011

July 13

S3 8,350 8,350

23

CR3

8,350 0

30

S3 15,750 15,750


561



ce2011

July 6 S3 7,500 7,50016

CR3

7,500 0

29

S3 28,090 28,090



e2011

July 1 P3 6,300 6,30010

CD3

6,300 0

26

P3 9,770 9,770


e2011

July 7 P3 1,050 1,0508 G3 150 900


e2011

July 9 P3 37,710 37,71020

P3 750 38,460

Sprague Company


562


2011July 1

7P3 8,200 8,200

24

G3 2,400 5,800

27

CD3

5,800 0


563

*Problem 8-8B (concluded)

Part 5

ELDRIDGE INDUSTRIES

Trial Balance

July 31, 2011

Account Debit Credit

Cash $279,300



Office supplies 750

Store supplies 900

Store equipment 37,710



Gene Eldridge, capital 95,000

Sales 282,580

Sales discounts 767

Purchases 24,270

Purchase discounts 242

Purchase returns and allowances 2,400

Sales salaries expense 61,240


Totals $616,352 $616,352


564

ELDRIDGE INDUSTRIESSchedule of Accounts Receivable

July 31, 2011

Kelly Grody $15,750

Paul Kane 28,090

Total accounts receivable $43,840

ELDRIDGE INDUSTRIES


July 31, 2011

Beech Company $ 9,770

Blackwater Inc. 900

Poppe’s Supply 38,460



565

*Problem 8-9B - Perpetual (100 minutes) Part 4

SALES JOURNAL Page 2Accts. PST GST COGS

Invoice Rec. Payable Payable Sales Dr./

Date Account Debited Number PR Debit Credit Credit Credit MI Cr.

2011

Nov. 8 Leroy Holmes 439 7,366.00 635.00 381.00 6,350.00 4,445.00

10 Sam Spear 440 14,500.00 1,250.00 750.00 12,500.00

8,750.00

15 Marjorie Cook 441 4,930.00 425.00 255.00 4,250.00 2,975.00

22 Sam Spear 442 3,010.20 259.50 155.70 2,595.00 1,800.00

24 Marjorie Cook 443 3,758.40 324.00 194.40 3,240.00 2,260.00

31 Totals 33,564.60 2,893.50 1,736.10 28,935.00

20,230.00

(106) (224) (225) (413) (502/119)

CASH RECEIPTS JOURNAL Page 3Sales Accts. Other PST GST COGS

Account Cash Disc. Rec. Sales Accts Payable

Payable

Dr./

Date Credited Explanation PR Debit Debit Credit Credit Credit Credit Credit MI Cr.

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Nov.

2 L.T. Notes Pay

Note to bank 251

86,250.00

86,250.00

15

Sales Cash sales 31,517.20

27,170.00

2,717.00

1,630.20

19,000.00

18

Leroy Holmes

Invoice, Nov 8 7,239.00 127.00

7,366.00

19

Sam Spear Invoice, Nov 10

14,250.00

250.00

14,500.00

25

Marjorie Cook

Invoice, Nov 15

4,845.00 85.00 4,930.00

30


35,703.00

3,570.30

2,142.18

25,000.00

30

Totals 185,516.68

462.00

26,796.00

62,873.00

86,250.00

6,287.30

3,772.38

44,000.00

(101) (415) (106) (413) (X) (224) (225) (502/119)

567

*Problem 8-9B - Perpetual (continued)

PURCHASES JOURNAL Page 2Accts. Merchan

diseOther GST

Date of

Payable

Inventory

Accounts

Rec’ble



2011Nov.

1 Jett Supply/Office Equip.

Nov 1 n/10 EOM

163/

5,365.72

5,062.00

303.72

4 Defore Industries Nov 3 2/10, n/30

12,084.00

11,400.00

684.00

5 Atlas Company/Store Supplies

Nov 5 n/10 EOM

125/

1,081.20

1,020.00

61.20

11 The Welch Company Nov 10

2/10, n/30

3,060.22

2,887.00 173.22

16 Atlas Company/Office Supplies

Nov 16

n/10 EOM

124/

59 2.54

55 9.00

33.54

30 Totals 22,18 3.68

14,28 7.00

6,64 1.00

1,255.68

(201) (119) (X) (108)

CASH DISBURSEMENTS JOURNAL Page 3Merch. Other GST Accts.

Ch. Cash Inventory

Accts. Rec’ble Payable

Date No. Payee Account Debited PR Credit Credit Debit Debit Debit

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2011

Nov. 12

633 Defore Industries


228.00 12,084.00

15


621 8,435.00 8,435.00

19

635 The Welch Co.* The Welch Company 2,496.00 48.00 2,544.00

30


621 8,435.00

8,435.0 0

30

Totals 31,222.00

276.00 16,870.00

14,628.00

(101) (119) (X) (201)

*2,887 – 487 = 2,400; 2,400 x 2% = 48 discount



569


GENERAL JOURNAL Page 2Date Account Titles and Explanations PR Debit

Credit2011

Nov.

17


201/

516.22

GST Payable 225 29.22

Merchandise Inventory 119 487.00


26


977.32

Office Equipment 163 922.00


Returned office equipment.


Marjorie Cook


2011

Nov. 15 S2 4,930.50 4,930.50

24 S2 3,758.40 8,688.40

25 CR2 4,930.00 3,758.40

Leroy Holmes


2011

Nov. 8 S2 7,366.00 7,366.00


570

18 CR2 7,366.00 0.00

Sam Spear


2011

Nov. 10 S2 14,500.00 14,500.00

19 CR2 14,500.00

0.00

22 S2 3,010.20 3,010.20


Atlas Company


2011

Nov. 5 P2 1,081.20 1,081.20

16 P2 592.54 1,673.74


571


Defore Industries


2011

Nov. 4 P2 12,084.00

12,084.00

12 CD2 12,084.00 0.00

Jett Supply


2011

Nov. 1 P2 5,365.72 5,365.72

26 G2 977.32 4,388.40

The Welch Company


2011

Nov. 11 P2 3,060.22 3,060.22

17 G2 516.22 2,544.00

19 CD2 2,544.00 0.00

Parts 1 and 4

GENERAL LEDGER

Cash Acct. No. 101


2011

Nov. 30 CR2 185,516.6 185,516.6


572

8 8

30 CD2 31,222.00

154,294.68



2011

Nov. 30 S2 33,564.60 33,564.60

30 CR2 26,796.00

6,768.60



2011

Nov. 30 P2 1,255.68 1,255.68


573




2011

Oct. 31 210,000.00

Nov. 17 G2 487.00 209,513.00

30 S2 20,230.00

189,283.00

30 CR3 44,000.00

145,283.00

30 P2 14,287.00 159,570.00

30 CD3 276.00 159,294.00



2011

Nov. 30 P2 559.00 559.00



2011

Nov. 5 P2 1,020.00 1,020.00




574

2011

Nov. 1 P2 5,062.00 5,062.00

26 G2 922.00 4,140.00



2011

Nov. 17 G2 516.22 (516.22)

26 G2 977.32 (1,493.54)

30 P2 22,183.68

20,690.14

30 CD2 14,628.00 6,062.14



2011

Nov. 30 S2 2,893.50 2,893.50

30 CR2 6,287.30 9,180.80


575




2011

Nov. 17 G2 29.22 29.22

26 G2 55.32 84.54

30 S2 1,736.10 1,820.64

30 CR2 3,772.38 5,593.02



2011

Nov. 2 CR2 86,250.00

86,250.00

Asha Crystal, Capital Acct. No. 301


2011

Oct. 31 210,000.00

Sales Acct. No. 413


2011

Nov. 30 S2 28,935.00

28,935.00


576

30 CR2 62,873.00

91,808.00



2011

Nov. 30 CR2 462.00 462.00



2011

Nov. 30 S2 20,230.00 20,230.00

30 CR3 44,000.00 64,230.00


2011

Nov. 15 CD2 8,435.00 8,435.00

30 CD2 8,435.00 16,870.00

*Problem 8-9B - Perpetual (concluded)

Part 5

CRYSTAL COMPANYTrial Balance

November 30, 2011

Account...............................DebitCreditCash..........................................$154,294.68Accounts receivable..................6,768.60GST receivable..........................1,255.68Merchandise inventory.............159,294.00Office supplies.......................... 559.00Store supplies...........................1,020.00Office equipment......................4,140.00


577

Accounts payable..................... $ 6,062.14PST payable.............................. 9,180.80GST payable.............................. 5,593.02Long-term notes payable.......... 86,250.00Asha Crystal, capital................. 210,000.00Sales......................................... 91,808.00Sales discounts......................... 462.00Cost of goods sold....................64,230.00Sales salaries expense.............. 16,870.00 Totals........................................$408,893.96$408,893.96

CRYSTAL COMPANYSchedule of Accounts Receivable

November 30, 2011

Marjorie Cook............................................ $3,758.40

Sam Spear.................................................... 3,010.20

Total accounts receivable...................... $6,768.60

CRYSTAL COMPANYSchedule of Accounts Payable

November 30, 2011

Atlas Company........................................... $1,673.74

Jett Supply................................................... 4,388.40

Total accounts payable........................... $6,062.14


578

*Problem 8-9B - Periodic (100 minutes)

Part 4 SALES JOURNAL Page 2Accts. PST GST

Invoice Rec. Payable Payable Sales

Date Account Debited Number PR Debit Credit Credit Credit

2011

Nov. 8 Leroy Holmes 439 7,366.00 635.00 381.00 6,350.00

10 Sam Spear 440 14,500.00

1,250.00 750.00 12,500.00

15 Marjorie Cook 441 4,930.00 425.00 255.00 4,250.00

22 Sam Spear 442 3,010.20 259.50 155.70 2,595.00

24 Marjorie Cook 443 3,758.40 324.00 194.40 3,240.00

31 Totals 33,564.60

2,893.50 1,736.10 28,935.00

(106) (224) (225) (413)

CASH RECEIPTS JOURNAL Page 3Sales Accts. Other PST GST

Account Cash Discount

Rec. Sales Accts Payable Payable

Date Credited Explanation PR Debit Debit Credit Credit Credit Credit Credit

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2011

Nov. 2 L.T. Notes Pay

Note to bank 251

86,250.00

86,250.00

15


27,170.00

2,717.00

1,630.20

18

Leroy Holmes

Invoice, Nov 8

7,239.00 127.00 7,366.00

19

Sam Spear Invoice, Nov 10

14,250.00

250.00 14,500.00

25

Marjorie Cook

Invoice, Nov 15

4,845.00 85.00 4,930.00

30


35,703.00

3,570.30

2,142.18

30

Totals 185,516.68

462.00 26,796.00

62,873.00

86,250.00

6,287.30

3,772.38

(101) (415) (106) (413) (X) (224) (225)

580

*Problem 8-9B - Periodic (continued)

PURCHASES JOURNAL Page 2Accts. Other GST

Date of

Payable

Purchases

Accounts

Rec’ble



2011Nov.

1 Jett Supply/Office Equip.

Nov 1 n/10 EOM

163/

5,365.72

5,062.00

303.72

4 Defore Industries Nov 3 2/10, n/30

12,084.00

11,400.00

684.00

5 Atlas Company/Store Supplies

Nov 5 n/10 EOM

125/

1,081.20

1,020.00

61.20

11 The Welch Company Nov 10

2/10, n/30

3,060.22

2,887.00

173.22

16 Atlas Company/Office Supplies

Nov 16

n/10 EOM

124/

59 2.54

55 9.00

33.54

30 Totals 22,18 3.68

14,28 7.00

6,64 1.00

1,255.68

(201) (505) (X) (108)

CASH DISBURSEMENTS JOURNAL Page 3Pur. Other GST Accts.

Ch. Cash Disc. Accts. Rec’ble Payable

Date No. Payee Account Debited PR Credit Credit Debit Debit Debit

2011

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Nov. 12

633 Defore Industries


228.00

12,084.00

15


621 8,435.00 8,435.00

19

635 The Welch Co. The Welch Company 2,496.00 48.00 2,544.00

30


621 8,435.00

8,435.0 0

30

Totals 31,222.00

276.00

16,870.00

14,628.00

(101) (507) (X) (201)

582


GENERAL JOURNAL Page 2Date Account Titles and Explanations PR Debit

Credit2011

Nov.

17


201/

516.22


Purchases Returns and Allowances

506 487.00


26


977.32

Office Equipment 163 922.00


Returned office equipment.

Parts 2 and 4


Marjorie Cook


2011

Nov. 15 S2 4,930.00 4,930.00

24 S2 3,758.40 8,688.40

25 CR3 4,930.00 3,758.40

Leroy Holmes



583

2011

Nov. 8 S2 7,366.00 7,366.00

18 CR3 7,366.00 0.00

Sam Spear


2011

Nov. 10 S2 14,500.00 14,500.00

19 CR3 14,500.00

0.00

22 S2 3,010.20 3,010.20


584



Atlas Company


2011

Nov. 5 P2 1,081.20 1,081.20

16 P2 592.54 1,673.74

Defore Industries


2011

Nov. 4 P2 12,084.00

12,084.00

12 CD3 12,084.00 0.00

Jett Supply


2011

Nov. 1 P2 5,365.72 5,365.72

26 G2 977.32 4,388.40

The Welch Company


2011

Nov. 11 P2 3,060.22 3,060.22


585

17 G2 516.22 2,544.00

19 CD3 2,544.00 0.00


586


Parts 1 and 4GENERAL LEDGER

Cash Acct. No. 101


2011

Nov. 30 CR3 185,516.68

185,516.68

30 CD3 31,222.00

154,294.68



2011

Nov. 30 S2 33,564.60 33,564.60

30 CR3 26,796.00

6,768.60



2011

Nov. 30 P2 1,255.68 1,255.68



2011

Oct. 31 Beginning balance 210,000.0


587

0



2011

Nov. 30 P2 559.00 559.00



2011

Nov. 5 P2 1,020.00 1,020.00


588




2011

Nov. 1 P2 5,062.00 5,062.00

26 G2 922.00 4,140.00



2011

Nov. 17 G2 516.22 (516.22)

26 G2 977.32 (1,493.54)

30 P2 22,183.68

20,690.14

30 CD3 14,628.00 6,062.14



2011

Nov. 30 S2 2,893.50 2,893.50

30 CR3 6,287.30 9,180.80



2011

Nov. 17 G2 29.22 29.22

26 G2 55.32 84.54


589

30 S2 1,736.10 1,820.64

30 CR3 3,772.38 5,593.02



2011

Nov. 2 CR3 86,250.00

86,250.00

Asha Crystal, Capital Acct. No. 301


2011

Oct. 31 Beginning balance 210,000.00


590


Sales Acct. No. 413


2011

Nov. 30 S2 28,935.00

28,935.00

30 CR3 62,873.00

91,808.00



2011

Nov. 30 CR3 462.00 462.00



2011

Nov. 30 P2 14,287.00 14,287.00

Purchases Returns and Allowances Acct. No. 506


2011

Nov. 17 G2 487.00 487.00

Purchases Discounts Acct. No. 507


2011


591

Nov. 30 CD3 276.00 276.00


2011

Nov. 15 CD3 8,435.00 8,435.00

30 CD3 8,435.00 16,870.00


592

*Problem 8-9B - Periodic (concluded)

Part 5CRYSTAL COMPANY

Trial BalanceNovember 30, 2011

Account...............................DebitCreditCash..........................................$154,294.68Accounts receivable..................6,768.60GST receivable..........................1,255.68Merchandise inventory.............210,000.00Office supplies.......................... 559.00Store supplies...........................1,020.00Office equipment......................4,140.00Accounts payable..................... $ 6,062.14PST Payable.............................. 9,180.80GST Payable.............................. 5,593.02Long-term notes payable.......... 86,250.00Asha Crystal, capital................. 210,000.00Sales......................................... 91,808.00Sales discounts......................... 462.00Purchases.................................14,287.00Purchases returns and allowances......................................487.00Purchases discounts................. 276.00Sales salaries expense.............. 16,870.00 Totals........................................$409,656.96$409,656.96

CRYSTAL COMPANYSchedule of Accounts Receivable

November 30, 2011

Marjorie Cook............................................ $3,758.40

Sam Spear.................................................... 3,010.20

Total accounts receivable...................... $6,768.60

CRYSTAL COMPANYSchedule of Accounts Payable

November 30, 2011


593

Atlas Company........................................... $1,673.74

Jett Supply................................................... 4,388.40

Total accounts payable........................... $6,062.14


594




Invoice No.

PR A/R Dr

PST Payable

CR

GST Payable

CRSales Cr

COGS DR

Merchandise Inventory CR

2011

May 3 Ajax Holdings 361 6,840 480 360 6,000 3,200

30 Allendale Arena 363 4,218 296 222 3,700 1,900


Date

Account Credited Explanation

PR

Cash DR

Sales

DiscDr

A/R CR Sales

CR

Other Accoun

ts CR

PST Payable

CR

GST Payable CR

COGS/DR Merchandise Inventory/C

R

2011

May 1

John Trenton, Capital

9,000 9,000

12 A/R – Ajax 6,780 60 6,840

13 Sales Inv #362 2,052 1,800

144 108 1,100

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15 Bank Loan Payable

5,000 5,000




DR

Other Accounts

DR

GST Rec’ble DR

2011

May 7 Moore Corporation/Off. Supplies

n/30 3,392 3,200 192

16 London Company 1/15,n/30

7,632 7,200 432


Date Ch # Account Debited PR Cash CR

Merchandise

Inventory CR

Other Accounts DR

GST Rec’ble DR

A/P DR

2011

May 5 83 Merchandise Inventory 1,696 1,600 96

30 84 A/P – Moore Corporation

3,392 3,392

596


SALES JOURNAL Page XAccts. PST GST

Invoice Rec. Payable Payable SalesDate Account Debited Number PR Debit Credit Credit Credit201

1May 3 Ajax Holdings 361 6,840 480 360 6,000

30 Allendale Arena 363 4,218 296 222 3,700

CASH RECEIPTS JOURNAL Page XSales Accts. Other PST GST

Cash Discount

Rec. Sales Accts. Payable Payable

Date Account Credited Explanation

PR Debit Debit Credit Credit Credit Credit Credit

2011May

1John Trenton, Capital

9,000 9,000

12 A/R – Ajax 6,780 60 6,84013 Sales Inv #362 2,052 1,800 144 10815 Bank Loan Payable 5,000 5,000


Date of Payable Purchases Accounts Rec’bleDate Account Credited Invoice Terms PR Credit Debit Debit Debit2011May 7 Moore Corporation/Off. Supplies May 7 N/30 3,392 3,200 192

16 London Company May 16 1/15,n/30 7,632 7,200 432

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CASH DISBURSEMENTS JOURNALPageX

Ch.

Cash Pur. Disc.

Other Accts.

GST Rec’ble

Accts. Payable

Date No.


PR Credit Credit Debit Debit Debit

2011

May 5 83 Merchandise Inventory Purchases 1,696 1,600 96

30 84 A/P – Moore Corporation

Lexor Suppliers 3,424 3,424

598

ANALYTICAL & REVIEW PROBLEMS

A&R Problem 8-1



No. PR

A/R Dr.

Sales Cr. PR

COGS Dr.


2011

Oct. 9 Kitchen Club 210 1,125.00 465.75

18 Thorhild Co-op 211 2,250.00 1,090.50

24 Boyle Grocery 212 750.00 353.00



Date of Invoice Terms PR A/P CR PR


DR

Office Supplies

Dr.

Other Accounts

DR

2011

Oct. 3 Arnold Brothers Oct. 3 2/10, n/30

750.00 750.00

15 Arnold Brothers Oct. 15 2/10, n/30

1,550.00 1,550.00

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31 Arnold Brothers Oct. 31 2/10, n/30

600.00 600.00


Date Ch # Payee Account Debited PR Cash Cr. PR


Cr.

Other Accounts Dr.

A/P Dr.

2011

Oct. 19 101 Arnold Brothers A/P – Arnold Brothers 600.00 600.00

23 102 Arnold Brothers A/P – Arnold Brothers 1,519.00 31.00 1,550.00

NOTE: An additional PR column has been added to the Sales and Purchases Journals

to facilitate the referencing of inventory entries into the inventory subledger.

600

A&R Problem 8-1 (concluded)

General Journal Page: G1


2011

Oct. 4 Accounts Payable – Arnold Brothers 150.00

Merchandise Inventory 150.00

To record the return of 20 units.

Inventory Subledger Record — Weighted-Average Perpetual

Inventory Balance

Date PR Purchases Sales (at cost) (a) (b) (a)

(b)

UnitsUnit Cost Total Cost

Units

Unit Cost

Total Cost

Total

Units

Average Cost/

UnitTotal Cost Inventory Balance

CalculationsOct.

1Beginning inventory

85 @ $5.00

= $ 25.00 85 $5.00 $ 425.00

85 $ 425.00

3 P1 100 @ $7.50

= $ 50.00 100 @ 7.50

= 750.00

185 $6.35 $ 1,175.00

185 $ 1,175.00

185 $ 1,175.00

4 G1 –20 @ $7.50

= –$ 150.00

–20 @ 7.50

= –150.00

165 $6.21 $ 1,025.00

165 $ 1,025.00

165 $ 1,025.00

9 S1 75 @ $6.21 = $ 465.75

–75 @ 6.21

= –465.75


601

90 $6.21 $ 559.25

90 $ 559.25

90 $ 559.25

15 P1 200 @ $7.75

= $ 1,550.00

200

@ 7.75

= 1,550.00

290 $7.27 $ 2,109.25

290 $ 2,109.25

290 $ 2,109.25

18 S1 150

@ $7.27 = $ 1,090.50

–150

@ 7.27

= –1,090.50

140 $7.28 $ 1,018.75

140 $ 1,018.75

140 $ 1,018.75

23 G1 –$ 31.00 0 –31.00

140 $7.06 $ 987.75

140 $ 987.75

140 $ 987.75

24 S1 50 @ $7.06 = $ 353.00

–50 @ 7.06

= –353.00

90 $7.06 $ 634.75

90 $ 634.75

90 $ 634.75

31 P1 75 @ $8.00

= $ 600.00

75 @ 8.00

= 600.00

165 $7.48 $ 1,234.75

165 $ 1,234.75

Total 440 $3,144.00

275

$1,909.25

165 $1,234.75





602


603

Ethics Challenge

EC 8–1

1. Independence in fact means that the auditor maintains an objective point of view of the client. Independence in appearance means that a third party viewing the relationship between the auditor/client would have no reason to believe that the auditor is not independent of the client.

2. While auditors are hired by their clients to perform audits, auditors also have a responsibility to the public. In our society auditors provide credibility to financial reporting situations by offering professional audit opinions about companies’ financial statements. While it is sometimes difficult to be responsible to clients as well as the public, auditors must maintain their independence to keep the public trust.

3. Since John Harris is a sole practitioner it is questionable whether he can consult on the client’s accounting system and then remain objective in subsequent years when he performs the audit of the company. Large firms often separate consulting and auditing engagements for the same client by having staff stationed in two different geographic branches of the firm do the work. Or a large local firm might be able to perform consulting and auditing for the same client by assigning different personnel to the two jobs. In this scenario John would need to do both jobs himself, making it difficult to maintain independence in fact and appearance.


604

Focus on Financial Statements

FFS 8-1

Single-step income statement:

MANGO DESIGNS

Income StatementFor Month Ended June 30, 2011

Revenues:

Net sales ................................$211,404

Expenses:Cost of goods sold ................... $134,750Sales salaries expense ............ 42,000Office supplies expense ........... 13,400Advertising expense................. 600Amortization expense, store equipment 500Interest expense ..................... 200Total expenses......................... 191,450

Net income.................................. $ 19,954


605

FFS 8-1 (concluded)MANGO DESIGNS

Statement of Owner’s EquityFor Month Ended June 30, 2011

Tom Mandalay, capital, June 1 $ -0-Add: Owner investment...................... 75,000

Net income .................................... 19,954

Tom Mandalay, capital, June 30......... $94,954

MANGO DESIGNSBalance SheetJune 30, 2011

Assets

Current assets: Cash.............................................. $156,304

Accounts receivable....................... 64,000Merchandise inventory................... 36,750Office supplies .............................. 4,600Total current assets ......................$261,654

Property, plant and equipment:Store equipment............................ $32,000

Less: Accumulated amortization . 500 31,500..............................................Total assets......................................

$293,154Liabilities Current liabilities:

Accounts payable .......................... $148,000Interest payable............................ 200Total current liabilities................... $148,200

Long-term liabilities:Notes payable............................... 50,000

Total liabilities.....................................$198,200Owner’s Equity Tom Mandalay, capital .................. 94,954Total liabilities and owner’s equity....

$293,154

Analysis Component


606

Mango Designs operates under a perpetual inventory system because the special journals include the Cost of Goods Sold account.


607

FFS 8-2Danier Leather’s June 25, 2005, balance sheet includes Accounts receivable of $594 (thousand), about 0.7% of total assets (calculated as $594/$83,365 x 100). Although these accounts receivable are not significant in total, they represent amounts owed by various customers to Danier so it would help decision makers better monitor collection if the details of individual balances owed, by whom, and dates due were maintained in an accounts receivable subledger.

The same logic would apply regarding the June 25, 2005, Accounts payable and accrued liabilities balance of $8,170 (thousand), about 10% of total assets (calculated as $8,170/$83,365 x 100). Since these accounts payable are significant in total and represent amounts owed to various creditors, it would help decision makers better manage payments if the details of individual balances owed, by whom, credit terms, and dates due were maintained in an accounts payable subledger.

The June 25, 2005, balance sheet shows inventories of $29,031 (thousand), about 34.82% of total assets (calculated as $29,031/$83,365 x 100). Because Danier sells clothing and accessories, the inventory balance is significant and represents a large variety of items. It would help decision makers better manage inventory if the details of unit costs, units sold, units purchased, and units on hand along with any returns and/or allowances were detailed in an inventory subledger.


608

Critical Thinking Question

CT 8-1

Note to instructor: Student responses will vary therefore the answer here is only suggested and not inclusive of all possibilities; it is presented in point form for brevity.

Problem(s):

— Detailed information regarding mining assets is required but is not readily available given the current accounting information system

Goal(s)*:

— To ensure the accounting information system is maintained in such a way that reasonable internal requests for information can be fulfilled efficiently and effectively

Assumption(s)/Principle(s):

— That the computer system in place at Northern Outposts can accommodate special purpose reports

— The disclosure principle requires that anything of significance be reported

Facts:

— as presented

Conclusion(s)/Consequence(s):

— Internal/external reporting requirements need to be identified and matched against what is currently being provided by the accounting information system … gaps need to be identified and resolved to ensure that decisions dependent on such reports can be done efficiently and effectively

*The goal is highly dependent on “perspective.”


609


610

COMPREHENSIVE PROBLEMS

Comprehensive Problem 8.1—Alpine Company (150 minutes)

SALES JOURNAL Page 2Invoice A/R Dr. COGS Dr.


PR Sales Cr. Merch. Inv. Cr

2011

May

2 Essex Company 8785 6,100 3,660

16 Essex Company 8786 3,990 2,394

22 Oscar Services 8787 6,850 4,110

26 Deaver Corp. 8788 14,210

8,526

31 Totals 31,150

18,690

(106/413)

(502/119)

CASH RECEIPTS JOURNAL Page 2Sales Accts. Other COGS Dr.

Account Cash Disc. Rec. Sales Accts. Merch. Inv.

Date Credited Explanation PR Debit Debit Credit Credit Credit Credit

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2011

May 5 Nabors, Inc.* Sale of Apr. 28 4,459 91 4,550

9 Store Supplies

Sold store supplies 125

350 350

11

Essex Company

Sale of May 2 5,978 122 6,100

15

Sales Cash sales, May 1-15

59,220 59,220 35,532

30

Oscar Services

Sale of May 22 6,713 137 6,850

31


66,052

66,052 39,630

31

Totals 142,772

350 17,500 125,272 350 75,162

(101) (414) (106) (413) ( X ) (502/119)

*4,725 – 175 = 4,550; 4,550 x 2% = 91 discount

612

Comprehensive Problem 8.1—Alpine Company (continued)

PURCHASES JOURNAL Page 2Accounts Merchandi

seOffice Other

Date of Payable Inventory Supplies Accounts



2011

May 4 Store Supp./Thompson Supp. May 04

n/10 EOM

125/ 37,729 37,072 83 574

10 Off. Equip./Thompson Supp. May 10

n/10 EOM

163/ 4,074 4,074

11 Gale, Inc. May 10

2/10, n/30

8,800 8,800

17 Chandler Corp. May 14

2/10, n/60

13,650 13,650

24 Store Supp./Thompson Supp. May 24

n/10 EOM

125/ 9,030 8,120 280 630

25 Parkay Products May 23

2/10, n/30

3,080 3,080

31 Totals 76,363 70,722 363 5,278

(201) (119) (124) (X)

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CASH DISBURSEMENTS JOURNAL Page 2Merchandis

eOther Accts.

Ch. Cash Inventory Accts. Payable


2011

May 1 3410 S&M Mgmt. Co. Rent Expense, Selling Space

642 2,968

Rent Expense, Office Space

641 3,710 742

8 3411 Parkay Products

Parkay Products 6,174 126 6,300

15 3412 Payroll Sales Salaries Expense 621 5,320

Office Salaries Expense 620 8,470 3,150

19 3413 Gale, Inc. Gale, Inc. 8,624 176 8,800

23 3414 Chandler Corp. Chandler Corp. 13,377

273 13,650

26 3415 Trinity Power Utilities Expense 690 1,283 1,283

29 3416 Clint Barry C. Barry, Withdrawal 302 7,000 7,000

30 3417 Payroll Sales Salaries Expense 621 5,320

Office Salaries Expense 620 8,470

3,150

31 Totals 57,108

575 28,933 28,750

(119) ( X ) (201

614

(101) )615


GENERAL JOURNAL Page 3Date Account Titles and Explanations PR DebitCredit2011May 2 Sales Returns and Allowances. .415 175

Accounts Receivable—Nabors, Inc. 106/175

3 Accounts Payable—Parkay Products 201/798

Merchandise Inventory........ 119 798

12 Accounts Payable—Thompson Supply Co. 201/854

Office Equipment................. 163 854

Adjusting entries:

May31 Insurance Expense................... 637 553Prepaid Insurance............... 128 553

31 Store Supplies Expense............ 651 669Store Supplies..................... 125 669

31 Office Supplies Expense........... 650 289Office Supplies.................... 124 289

31 Amortization Expense, Store Equipment 613567

Accumulated Amort., Store Equipment 166567

31 Amortization Expense, Office Equipment 612329

Accumulated Amort., Office Equipment 164329

31 Cost of Goods Sold................... 502 4,577Merchandise Inventory........ 119 4,577


616


Closing entries: Page 4

2011

May31 Sales..................................... 413156,422 Income Summary........... 901 156,422

31 Income Summary................... 901123,294Sales Discounts................. 414 350Sales Returns and Allowances 415

175Cost of Goods Sold............ 502 98,429Amort. Expense, Office Equipment 612

329Amort. Expense, Store Equipment 613

567Office Salaries Expense..... 620 6,300Sales Salaries Expense...... 621 10,640Insurance Expense............ 637 553Rent Expense, Office Space 641 742Rent Expense, Selling Space 642

2,968Office Supplies Expense..... 650 289Store Supplies Expense..... 651 669Utilities Expense............... 690 1,283

31 Income Summary................... 901 33,128Clint Barry, Capital............ 301 33,128

31 Clint Barry, Capital................ 301 7,000Clint Barry, Withdrawals.... 302 7,000


617


GENERAL LEDGER

Cash Acct. No. 101Date Explanation PR Debit Credit Balance

2011

Apr. 30 Balance 50,247

May 31 R2 142,772 193,019

31 CD2 57,108 135,911



2011


May 2 G3 175 4,550

31 S2 31,150 35,700

31 CR2 17,500 18,200

Merchandise Inventory Acct. No. 119Date Explanation PR Debit Credit Balance

2011


May 3 G3 798 219,282

31 S2 18,690 200,592

31 P2 70,722 271,314

31 CR2 75,162 196,152

31 CD2 575 195,577


618

31 G3 4,577 191,000



2011

Apr. 30 Balance 430

May 31 P2 363 793

31 G3 289 504



2011


May 4 P2 574 3,021

9 CR2 350 2,671

24 P2 630 3,301

31 G3 669 2,632

Comprehensive Problem 8-1—Alpine Company (continued)Prepaid Insurance Acct. No. 128


2011


May 31 G3 553 2,765

Office Equipment Acct. No. 163Date Explanation PR Debit Credit Balance


619

2011


May 10 P2 4,074 26,544

12 G3 854 25,690

Accumulated Amortization, Office Equipment Acct. No. 164Date Explanation PR Debit Credit Balance

2011


May 31 G3 329 10,227



2011




2011


May 31 G3 567 18,123



2011


May 3 G3 798 6,300


620

12 G3 854 5,446

31 P2 76,363 81,809

31 CD2 28,750 53,059


621

Comprehensive Problem 8.1—Alpine Company (continued)Clint Barry, Capital Acct. No. 301


2011


May 31 G4 33,128 341,213

31 G4 7,000 334,213

Clint Barry, Withdrawals Acct. No. 302Date Explanation PR Debit Credit Balance

2011

May 29 CD2 7,000 7,000

31 G4 7,000 0

Sales Acct. No. 413


2011

May 31 S2 31,150 31,150

31 CR2 125,272 156,422

31 G4 156,422 0

Sales Discounts Acct. No. 414Date Explanation PR Debit Credit Balance

2011

May 31 CR2 350 350

31 G4 350 0



622


2011

May 2 G3 175 175

31 G4 175 0

Cost of Goods Sold Acct. No. 502Date Explanation PR Debit Credit Balance

2011

May 31 S2 18,690 18,690

31 CR2 75,162 93,852

31 G3 4,577 98,429

31 G4 98,429 0


623

Comprehensive Problem 8.1—Alpine Company (continued)Amortization Expense, Office Equipment Acct. No. 612


2011

May 31 G3 329 329

31 G4 329 0

Amortization Expense, Store Equipment Acct. No. 613Date Explanation PR Debit Credit Balance

2011

May 31 G3 567 567

31 G4 567 0

Office Salaries Expense Acct. No. 620Date Explanation PR Debit Credit Balance

2011

May 15 CD2 3,150 3,150

30 CD2 3,150 6,300

31 G4 6,300 0


2011

May 15 CD2 5,320 5,320

30 CD2 5,320 10,640

31 G4 10,640 0

Insurance Expense Acct. No. 637Date Explanation PR Debit Credit Balance


624

2011

May 31 G3 553 553

31 G4 553 0

Rent Expense, Office Space Acct. No. 641Date Explanation PR Debit Credit Balance

2011

May 1 CD2 742 742

31 G4 742 0

Rent Expense, Selling Space Acct. No. 642Date Explanation PR Debit Credit Balance

2011

May 1 CD2 2,968 2,968

31 G4 2,968 0

Comprehensive Problem 8.1—Alpine Company (continued)Office Supplies Expense Acct. No. 650


2011

May 31 G3 289 289

31 G4 289 0

Store Supplies Expense Acct. No. 651


2011

May 31 G3 669 669

31 G4 669 0


625

Utilities Expense Acct. No. 690Date Explanation PR Debit Credit Balance

2011

May 26 CD2 1,283 1,283

31 G4 1,283 0

Income Summary Acct. No. 901


2011

May 31 G4 156,422 156,422

31 G4 123,294 33,128

31 G4 33,128 0


Deaver Corp.


2011

May 26 S2 14,210 14,210

Essex Company


2011

May 2 S2 6,100 6,100

11 CR2 6,100 0

16 S2 3,990 3,990


626


627

Comprehensive Problem 8.1—Alpine Company (continued)Nabors, Inc.


2011

Apr. 28 S1 4,725 4,725

May 2 G3 175 4,550

5 CR2 4,550 0

Oscar Services


2011

May 22 S2 6,850 6,850

30 CR2 6,850 0


Chandler Corp.


2011

May 17 P2 13,650 13,650

23 CD2 13,650 0

Gale, Inc.


2011

May 11 P2 8,800 8,800


628

19 CD2 8,800 0

Parkay Products


2011

Apr. 29 P2 7,098 7,098

May 3 G3 798 6,300

8 CD2 6,300 0

25 P2 3,080 3,080

Thompson Supply Co.


2011

May 4 P2 37,729 37,729

10 P2 4,074 41,803

12 G3 854 40,949

24 P2 9,030 49,979


629


ALPINE COMPANYWork Sheet

For Month Ended May 31, 2011

Balance Sheet and

Income Statement of

Trial Balance Adjustments Statement Owner’s Equity


Cash 135,911

135,911

Accounts receivable 18,200 18,200


(f) 4,577

191,000

Office supplies 793 (c) 289

504

Store supplies 3,301 (b) 669

2,632

Prepaid insurance 3,318 (a) 553

2,765

Office equipment 25,690 25,690

Accumulated Amort., office equip.

9,898 (e) 329

10,227


Accumulated Amort., store equip.

17,556 (d) 567

18,123


Clint Barry, Capital 308,085

308,085


630

Clint Barry, Withdrawals 7,000 7,000

Sales 156,422

156,422

Sales discounts 350 350

Sales returns and allowances 175 175

Cost of goods sold 93,852 (f) 4,577

98,429

Amort. expense, office equipment

(e) 329

329

Amort. expense, store equipment

(d) 567

567

Office salaries expense 6,300 6,300

Sales salaries expense 10,640 10,640

Insurance expense (a) 553

553

Rent expense, office space 742 742

Rent expense, selling space 2,968 2,968

Office supplies expense ...... (c) 289

289

Store supplies expense (b) 669

669


1,283

Totals 545,020

545,020

6,984 6,984 123,294

156,422

422,622

389,494

Net income 33,12 8

33,128

Totals 156,422

156,422

422,622

422,622


631


ALPINE COMPANYIncome Statement


Revenue:Sales ......................................$156,422

Less:.............Sales discounts $ 350

Sales returns and allowances 175 525 Net sales ................................$155,897

Cost of goods sold....................... 98,429Gross profit on sales ................... $ 57,468Operating expenses:

Selling expenses:Sales salaries expense ......... $10,640Rent expense, selling space . 2,968Store supplies expense ........ 669Amortization expense, store equipment 567 Total selling expenses ......... $ 14,844

General and administrative expenses:Office salaries expense......... $6,300Utilities expense .................. 1,283Rent expense, office space ... 742Insurance expense ............... 553Amortization expense, office equipment 329Office supplies expense ........ 289Total general and administrative expenses

9,496 Total operating expenses......... 24,340

Net income.................................. $ 33,128


632

Comprehensive Problem 8.1— Alpine Company (continued)ALPINE COMPANY

Statement of Owner’s EquityFor Month Ended May 31, 2011

Clint Barry, Capital, April 30............... $308,085

Add: Net income ..................................... 33,128

Total ........................................................... $341,213

Less: Withdrawals.................................. 7,000

Clint Barry, Capital, May 31................. $334,213

ALPINE COMPANYBalance SheetMay 31, 2011

Assets

Current assets: Cash.............................................. $135,911

Accounts receivable....................... 18,200Merchandise inventory................... 191,000Office supplies .............................. 504Store supplies .............................. 2,632Prepaid insurance ......................... 2,765 Total current assets ......................$351,012

Property, plant and equipment:Office equipment........................$25,690

Less: Accumulated amortization 10,227 $15,463Store equipment........................$38,920

Less: Accumulated amortization 18,123 20,797Total property, plant and equipment 36,260

Total assets......................................$387,272

Liabilities Current liabilities:

Accounts payable .......................... $ 53,059

Owner’s Equity Clint Barry, Capital .......................

334,213


633

Total liabilities and owner’s equity....$387,272


634

Comprehensive Problem 8.1—Alpine Company (concluded)ALPINE COMPANY

Post-Closing Trial BalanceMay 31, 2011

Account..................DebitCreditCash..........................................$135,911Accounts receivable.................. 18,200Merchandise inventory............. 191,000Office supplies.......................... 504Store supplies........................... 2,632Prepaid insurance..................... 2,765Office equipment...................... 25,690Accumulated amortization, office equipment.................................................$ 10,227Store equipment....................... 38,920Accumulated amortization, store equipment ................................................. 18,123Accounts payable .................... 53,059Clint Barry, Capital.................... 334,213 Totals........................................$415,622 $415,622

ALPINE COMPANY


May 31, 2011

Deaver Corp.................................................... $14,210

Essex Company ............................................. 3,990

Total accounts receivable.......................... $18,200

ALPINE COMPANY


May 31, 2011

Parkay Products ........................................... $ 3,080


Thompson Supply Co. ................................. 49,979

Total accounts payable .............................. $53,059


*Comprehensive Problem 8.2—Alpine Company (150 minutes)



PR Sales Cr.

2011

May

2 Essex Company 8785 6,100

16 Essex Company 8786 3,990

22 Oscar Services 8787 6,850

26 Deaver Corp. 8788 14,210

31 31,150

(106/413)




2011

May 5 Nabors, Inc. Sale of Apr. 28 4,459 91 4,550

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9 Store Supplies

Sold store supplies 125

350 350

11

Essex Company

Sale of May 2 5,978 122 6,100

15


59,220 59,220

30

Oscar Services

Sale of May 22 6,713 137 6,850

31


66,052

66,052

31

Totals 142,772

350 17,500 125,272

350

(101) (414) (106) (413) ( X )

*Comprehensive Problem 8.2—Alpine Company (continued)


Date of


Accounts



2011

May 4 Store Supp./Thompson Supp. May 04

n/10 eom

125/ 37,729 37,072 83 574

10 Off. Equip./Thompson Supp. May 10

n/10 eom

163/ 4,074 4,074

11 Gale, Inc. May 10

2/10, n/30

8,800 8,800

17 Chandler Corp. May 14

2/10, n/60

13,650 13,650

24 Store Supp./Thompson Supp. May 24

n/10 eom

125/ 9,030 8,120 280 630

25 Parkay Products May 23

2/10, n/30

3,080 3,080

31 Totals 76,363 70,722 363 5,278

(201) (505) (124)

(X)

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85


eOther Accts.

Ch. Cash Discount

Accts. Payable


2011

May 1 3410

S&M Mgmt. Co.

Rent Expense, Selling Space

642 2,968

Rent Expense, Office Space

641 3,710 742

8 3411

Parkay Products

Parkay Products 6,174 126 6,300

15

3412

Payroll Sales Salaries Expense 621 5,320


19

3413

Gale, Inc. Gale, Inc. 8,624 176 8,800

23

3414

Chandler Corp.

Chandler Corp. 13,377 273 13,650

26

3415

Trinity Power Utilities Expense 690 1,283 1,283

29

3416

Clint Barry C. Barry, Withdrawal 302 7,000 7,000

30

3417

Payroll Sales Salaries Expense 621 5,320


31

Totals 57,108 575 28,933 28,750

(101)

(119) ( X ) (201)


GENERAL JOURNAL Page 3Date Account Titles and Explanations PR DebitCredit2011May 2 Sales Returns and Allowances. . 415 175

Accounts Receivable—Nabors, Inc. 106/175

3 Accounts Payable—Parkay Products 201/798

Purchase Returns and Allowances 507 798

12 Accounts Payable—Thompson Supply Co. 201/854

Office Equipment................. 163 854

Adjusting entries:

May31 Insurance Expense................... 637 553Prepaid Insurance............... 128 553

31 Store Supplies Expense............ 651 669Store Supplies..................... 125 669

31 Office Supplies Expense........... 650 289Office Supplies.................... 124 289

31 Amortization Expense, Store Equipment 613567

Accumulated Amort., Store Equipment 166567

31 Amortization Expense, Office Equipment 612329

Accumulated Amort., Office Equipment 164329



Closing entries: Page 4

2011May31 Merchandise Inventory........... 119191,000

Sales..................................... 413156,422Purchase Discounts................ 506 575Purchase Returns and Allowances 507

798Income Summary.............. 901

348,795

31 Income Summary................... 901315,667Merchandise Inventory...... 119

220,080Sales Discounts................. 414

350Sales Returns and Allowances 415

175Purchases......................... 505

70,722Amort. Expense, Office Equipment

612 329Amort. Expense, Store Equipment

613 567Office Salaries Expense..... 620

6,300Sales Salaries Expense...... 621

10,640Insurance Expense............ 637

553Rent Expense, Office Space 641

742Rent Expense, Selling Space 642

2,968Office Supplies Expense..... 650

289Store Supplies Expense..... 651

669Utilities Expense............... 690

1,283

31 Income Summary................... 901 33,128


Clint Barry, Capital............ 30133,128

31 Clint Barry, Capital................ 301 7,000Clint Barry, Withdrawals.... 302

7,000



GENERAL LEDGER

Cash Acct. No. 101Date Explanation PR Debit Credit Balance

2011


May 31 R2 142,772 193,019

31 CD2 57,108 135,911



2011


May 2 G3 175 4,550

31 S2 31,150 35,700

31 CR2 17,500 18,200

Merchandise Inventory Acct. No. 119Date Explanation PR Debit Credit Balance

2011


May 31 G4 220,080

31 G4 191,000 191,000




2011

Apr. 30 Balance 430

May 31 P2 363 793

31 G3 289 504



2011


May 4 P2 574 3,021

9 CR2 350 2,671

24 P2 630 3,301

31 G3 669 2,632



Prepaid Insurance Acct. No. 128Date Explanation PR Debit Credit Balance

2011


May 31 G3 553 2,765

Office Equipment Acct. No. 163Date Explanation PR Debit Credit Balance

2011


May 10 P2 4,074 26,544

12 G3 854 25,690

Accumulated Amortization, Office Equipment Acct. No. 164Date Explanation PR Debit Credit Balance

2011


May 31 G3 329 10,227



2011




2011



May 31 G3 567 18,123



2011


May 3 G3 798 6,300

12 G3 854 5,446

31 P2 76,363 81,809

31 CD2 28,750 53,059



Clint Barry, Capital Acct. No. 301Date Explanation PR Debit Credit Balance

2011


May 31 G4 33,128 341,213

31 G4 7,000 334,213

Clint Barry, Withdrawals Acct. No. 302Date Explanation PR Debit Credit Balance

2011

May 29 CD2 7,000 7,000

31 G4 7,000 0

Sales Acct. No. 413Date Explanation PR Debit Credit Balance

2011

May 31 S2 31,150 31,150

31 CR2 125,272 156,422

31 G4 156,422 0

Sales Discounts Acct. No. 414Date Explanation PR Debit Credit Balance

2011

May 31 CR2 350 350

31 G4 350 0




2011

May 2 G3 175 175

31 G4 175 0

Purchases Acct. No. 505Date Explanation PR Debit Credit Balance

2011

May 31 P2 70,722 70,722

31 G4 70,722 0



Purchase Discounts Acct. No. 506Date Explanation PR Debit Credit Balance

2011

May 31 CD2 575 575

31 G4 575 0

Purchase Returns and Allowances Acct. No. 507Date Explanation PR Debit Credit Balance

2011

May 3 CD2 798 798

31 G4 798 0

Amortization Expense, Office Equipment Acct. No. 612Date Explanation PR Debit Credit Balance

2011

May 31 G3 329 329

31 G4 329 0

Amortization Expense, Store Equipment Acct. No. 613Date Explanation PR Debit Credit Balance

2011

May 31 G3 567 567

31 G4 567 0

Office Salaries Expense Acct. No. 620Date Explanation PR Debit Credit Balance

2011

May 15 CD2 3,150 3,150


30 CD2 3,150 6,300

31 G4 6,300 0


2011

May 15 CD2 5,320 5,320

30 CD2 5,320 10,640

31 G4 10,640 0

Insurance Expense Acct. No. 637Date Explanation PR Debit Credit Balance

2011

May 31 G3 553 553

31 G4 553 0


Rent Expense, Office Space Acct. No. 641Date Explanation PR Debit Credit Balance

2011

May 1 CD2 742 742

31 G4 742 0

Rent Expense, Selling Space Acct. No. 642Date Explanation PR Debit Credit Balance

2011

May 1 CD2 2,968 2,968

31 G4 2,968 0


Office Supplies Expense Acct. No. 650Date Explanation PR Debit Credit Balance

2011

May 31 G3 289 289

31 G4 289 0

Store Supplies Expense Acct. No. 651


2011

May 31 G3 669 669

31 G4 669 0

Utilities Expense Acct. No. 690Date Explanation PR Debit Credit Balance

2011

May 26 CD2 1,283 1,283

31 G4 1,283 0

Income Summary Acct. No. 901


2011

May 31 G4 348,795 348,795

31 G4 315,667 33,128

31 G4 33,128 0




Deaver Corp.


2011

May 26 S2 14,210 14,210

Essex Company


2011

May 2 S2 6,100 6,100

11 CR2 6,100 0

16 S2 3,990 3,990

Nabors, Inc.


2011

Apr. 28 S2 4,725 4,725

May 2 G3 175 4,550

5 CR2 4,550 0

Oscar Services


2011

May 22 S2 6,850 6,850


30 CR2 6,850 0




Chandler Corp.


2011

May 17 P2 13,650 13,650

23 CD2 13,650 0

Gale, Inc.


2011

May 11 P2 8,800 8,800

19 CD2 8,800 0

Parkay Products


2011

Apr. 29 P2 7,098 7,098

May 3 G3 798 6,300

8 CD2 6,300 0

25 P2 3,080 3,080

Thompson Supply Co.


2011


May 4 P2 37,729 37,729

10 P2 4,074 41,803

12 G3 854 40,949

24 P2 9,030 49,979



ALPINE COMPANYWork Sheet


Balance Sheet and

Income Statement of

Trial Balance Adjustments Statement Owner’s Equity


Cash 135,911

135,911

Accounts receivable 18,200 18,200


220,080

191,000

191,000

Office supplies 793 (c) 289

504

Store supplies 3,301 (b) 669

2,632

Prepaid insurance 3,318 (a) 553

2,765

Office equipment 25,690 25,690

Accumulated Amort., office equip.

9,898 (e) 329

10,227


Accumulated Amort., store equip.

17,556 (d) 567

18,123


Clint Barry, Capital 308,085

308,085

Clint Barry, Withdrawals 7,000 7,000


Sales 156,422

156,422

Sales discounts 350 350

Sales returns and allowances 175 175

Purchases 70,722 70,722

Purchase discounts 575 575

Purchase returns and allowances

798 798

Amort. expense, office equipment

(e) 329

329

Amort. expense, store equipment

(d) 567

567

Office salaries expense 6,300 6,300

Sales salaries expense 10,640 10,640

Insurance expense (a) 553

553

Rent expense, office space 742 742

Rent expense, selling space 2,968 2,968

Office supplies expense ...... (c) 289

289

Store supplies expense (b) 669

669


1,283

Totals 546,393

546,393

2,407 2,407 315,667

348,795

422,622

389,494

Net income 33,12 8

33,128

Totals 348,795

348,795

422,622

422,622



ALPINE COMPANYIncome Statement


Revenue:Sales ......................................$156,422

Less: Sales discounts........... $ 350

Sales returns and allowances 175 ...................... 525 Net sales ................................$155,897

Cost of goods sold:Merchandise inventory, April 30220,080Purchases................................ $70,722

Less: ......Purchase discounts $575Purchase returns and allowances 798

1,373 Cost of goods purchased.......... 69,349 Goods available for sale...........$289,429Merchandise inventory, May 31 191,000 Cost of goods sold.................... 98,429

Gross profit on sales ...................$ 57,468

Operating expenses:Selling expenses:

Sales salaries expense ......... $10,640Rent expense, selling space . 2,968Store supplies expense ........ 669Amortization expense, store equipment 567 Total selling expenses ......... $

14,844General and administrative expenses:

Office salaries expense......... $6,300Utilities expense .................. 1,283


Rent expense, office space ... 742Insurance expense ............... 553Amortization expense, office equipment 329Office supplies expense ........ 289Total general and administrative expenses 9,496

Total operating expenses......... 24,340

Net income..................................$ 33,128


*Comprehensive Problem 8.2—Alpine Company (continued)ALPINE COMPANY

Statement of Owner’s EquityFor Month Ended May 31, 2011

Clint Barry, Capital, April 30............... $308,085

Add: Net income ..................................... 33,128

Total ........................................................... $341,213

Less: Withdrawals.................................. 7,000

Clint Barry, Capital, May 31................. $334,213

ALPINE COMPANYBalance SheetMay 31, 2011

Assets

Current assets: Cash..............................................

$135,911Accounts receivable....................... 18,200Merchandise inventory................... 191,000Office supplies .............................. 504Store supplies .............................. 2,632Prepaid insurance ......................... 2,765 Total current assets ......................$351,012

Property, plant and equipment:Office equipment...........................$25,690

Less: Accumulated amortization . 10,227 $ 15,463

Store equipment............................$38,920Less: Accumulated amortization . 18,123 20,797

Total property, plant and equipment 36,260

Total assets....................................$387,272

Liabilities Current liabilities:

Accounts payable ...................... $ 53,059

Owner’s Equity


Clint Barry, Capital ......................... 334,213

Total liabilities and owner’s equity....$387,272


*Comprehensive Problem 8.2—Alpine Company (concluded)

ALPINE COMPANYPost-Closing Trial Balance

May 31, 2011

Account..............................DebitCredit

Cash..........................................$135,911Accounts receivable.................. 18,200Merchandise inventory............. 191,000Office supplies.......................... 504Store supplies........................... 2,632Prepaid insurance..................... 2,765Office equipment...................... 25,690Accumulated amortization, office equipment................................ $ 10,227Store equipment....................... 38,920Accumulated amortization, store equipment ............................... 18,123Accounts payable .................... 53,059Clint Barry, Capital.................... 334,213 Totals........................................$415,622 $415,622

ALPINE COMPANY


May 31, 2011

Deaver Corp.................................................... $14,210

Essex Company ............................................. 3,990

Total accounts receivable.......................... $18,200

ALPINE COMPANY


May 31, 2011


Parkay Products ........................................... $ 3,080

Thompson Supply Co. ................................. 49,979

Total accounts payable............................... $53,059


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