SOLUTIONS TO PROBLEMS

PROBLEM 4.1A

Step Analysis
Step 1: Is there a Yes, both parties have agreed to enter into a contract. The services to be provided, price, and payment
contract? terms have been agreed to and each party’s rights under the contract are clear. The contract is consistent
with both parties’ lines of business, meaning it has commercial substance. There are no indications of any
concerns regarding collectibility with Active Life Fitness Ltd.
Step 2: What The contract includes two performance obligations: the provision of a six month membership to Active’s gym
performance and the provision of a personal fitness assessment and training plan. Each of these would be considered
obligations are included distinct services.
in the contract?
Step 3: What is the The transaction price is $51,600. (215 x $240)
transaction price?
Step 4: How should the Because there are multiple (two) Stand-Alone Selling % of Contract Allocation of
transaction price be performance obligations, the transaction Price Total Price Contract Price
allocated to the price must be allocated to each of them. Stand-
performance The allocation will be done on the basis Alone
obligations? of the stand-alone selling price of each Selling
performance obligation. Price
Performance Obligation

Six month membership 215 x $260 = $55,900 80.0% × $51,600 $41,280

Personal fitness assessment and 215 x $65 = $13,975 20.0% × $51,600 $10,320
training plan
Combined stand alone selling price $69,875 100.0% $51,600

PROBLEM 4.1A (CONTINUED)

 Step 5: Has a The first performance obligation, the six month membership fee will be recognized evenly over the six
performance obligation month period. An amount of $6,880 ($41,280 ÷ 6) will be recognized as revenue by January 31.
been satisfied? The second performance obligation: providing a personal fitness assessment and training plan to each
member, is satisfied by January 31. The revenue related to this obligation in the amount of $10,320 would
be recognized at this point.

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 PROBLEM 4.2A

1. a. Feb. 2 Prepaid Insurance................................... 12,000

Cash.................................................. 12,000

b. Dec. 31 Insurance Expense ($12,000 x 11/12 months) 11,000

Prepaid Insurance.............................. 11,000

2 a. Mar. 15 Cash........................................................ 76,500

Deferred Revenue............................. 76,500

b. Dec. 31 Deferred Revenue ($76,500 × 9/12)........ 57,375

Service Revenue............................... 57,375

3.a. Jul. 1 Equipment ............................................. 100,000

Cash.................................................. 20,000
Bank Loan Payable............................ 80,000

b. Dec. 31 Depreciation Expense............................. 12,500

Accumulated Depreciation—Equipment 12,500
($100,000 ÷ 4 years × 6/12 months)
Dec. 31 Interest Expense..................................... 2,000
Interest Payable................................. 2,000
($80,000 x 5% × 6/12)

4. a. Nov. 1 Prepaid Advertising................................. 96,000

Cash.................................................. 48,000
Accounts Payable ............................ 48,000

b. Dec. 31 Advertising Expense ($96,000 × 1/6 months) 16,000

Prepaid Advertising............................ 16,000

5. a. Dec.1 Cash.......................................................... 10,000

Deferred Revenue............................. 10,000

b. Dec. 31 Deferred Revenue ($10,000 × 60%)...... 6,000

Service Revenue............................... 6,000

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 PROBLEM 4.3A

1. a. Oct. 31 Accounts Receivable........................... 5,000

Service Revenue............................... 5,000

b. Nov. 15 No entry required

Nov. 30 Cash.................................................. 2,500

Accounts Receivable......................... 2,500

2. a. Oct. 31 Income Tax Expense............................. 15,000

Income Tax Payable .......................... 15,000

b. Nov. 15 Income Tax Payable.............................. 15,000

Cash.................................................... 15,000

3. a. Oct. 31 Interest Receivable............................ 500

Interest Income ($50,000 x 12% x 1/12) 500

b. Nov. 15 Cash....................................................... 50,500

Interest Receivable............................ 500
Accounts Receivable ………………... 50,000

4. a. Oct. 31 Interest Expense................................ 1,000

Interest Payable (400,000 x 3% x 1/12) 1,000

b. Nov. 1 Interest Payable..................................... 1,000

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

5. a. Oct. 31 Salaries Expense............................... 20,000

Salaries Payable (4 x $500 x 10 days) 20,000

Nov. 3 Salaries Payable ................................... 20,000

Cash.................................................. 20,000

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 PROBLEM 4.4A

1. a. June 1, 2024 Vehicles...................................................... 80,000

Cash................................................... 80,000

b. Nov. 30, 2024 Depreciation Expense................................ 8,000

Accumulated Depreciation—Vehicles . 8,000
($80,000 ÷ 5 years x 6/12)

2. a. Oct. 1, 2024 Cash (400 × $320)...................................... 128,000

Deferred Revenue.............................. 128,000

b. Nov. 30, 2024 Deferred Revenue...................................... 32,000

Ticket Revenue ($128,000 × 2/8 plays) 32,000

3. a. Feb. 16, 2024 Supplies...................................................... 2,100

Cash................................................... 2,100

b. Nov. 30, 2024 Supplies Expense ($1,000 + $2,100 – $500) 2,600

Supplies............................................. 2,600

4. a. June 1, 2024 Cash........................................................... 100,000

Bank Loan Payable............................ 100,000

b. Nov. 30, 2024 Interest Expense......................................... 500

Interest Payable................................. 500
($100,000 × 6% × 1/12 months)

c. Dec. 1, 2024 Interest Payable ......................................... 500

Cash................................................... 500

5. a. Nov. 2, 2024 Cash........................................................... 40

Deferred Revenue.............................. 40
PROBLEM 4.4A (CONTINUED)

5. b. Nov. 30, 2024 Deferred Revenue...................................... 40

Accounts Receivable.................................. 360
Rent Income....................................... 400

c. Dec. 4, 2024 Cash........................................................... 360

Accounts Receivable.......................... 360

6. b. Nov. 30, 2024 Salaries Expense........................................ 7,000

Salaries Payable [$7,000 × 7/7 days
(Sunday through Saturday)]............ 7,000

c. Dec. 2, 2024 Salaries Payable......................................... 7,000

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

7. b. Nov. 30, 2024 Income Tax Expense.................................. 1,250

Income Tax Payable.......................... 1,250

c. Dec. 14, 2024 Income Tax Payable................................... 1,250

Cash................................................... 1,250

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 PROBLEM 4.5A

a.

1. June 30 Rent Income............................................................. 57,000

Deferred Revenue............................................ 57,000

2. 30 Supplies Expense ($8,200 - $800).......................... 7,400

Supplies.......................................................... 7,400

3. 30 Insurance Expense ($14,400 x 3/12)...................... 3,600

Prepaid Insurance........................................... 3,600

4. 30 Advertising Expense............................................... 110

Repairs and Maintenance Expense........................ 4,450
Utilities Expense...................................................... 215
Accounts Payable........................................... 4,775

5. 30 Salaries Expense ($300 x 5)................................... 1,500

Salaries Payable............................................. 1,500

6. 30 Interest Expense..................................................... 1,875

Interest Payable.............................................. 1,875

7. 30 Income Tax Expense.............................................. 8,000

Income Tax Payable....................................... 8,000
PROBLEM 4.5A (CONTINUED)

b.

ROADSIDE TRAVEL COURT LTD.

Statement of Income
Quarter Ended June 30, 2024

Revenues
Rent income ($212,000 – $57,000)................................. $155,000

Expenses
Salaries expense ($80,500 + $1,500)............................. $82,000
Repairs and maintenance expense ($4,300 + $4,450)... 8,750
Supplies expense............................................................ 7,400
Advertising expense ($3,800 + $110)............................. 3,910
Insurance expense.......................................................... 3,600
Depreciation expense..................................................... 2,700
Interest expense............................................................. 1,875
Utilities expense ($900 + $215)...................................... 1,115
Total expenses....................................................... 111,350
Income before income tax........................................................ 43,650
Income tax expense................................................................. 8,000
Net income............................................................................... $ 35,650

[Revenues – Expenses = Net Income or (Loss)]

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 PROBLEM 4.6A

a. Prepaid Insurance

1. After 8 months of insurance coverage the balance in the Prepaid Insurance

account is $9,600. The remaining balance is for 16 months of coverage (24
months less 8 used in the previous fiscal year). $9,600 divided by 16
months equals $600 per month.

2. The policy was taken out on December 1, 2022. When the company made
adjusting entries at the end of the prior fiscal year, on July 31, 2023,
insurance expense for the period December 1, 2022 to July 31, 2023,
which covers 8 months, would have been recorded. The entry would have
been in the amount of $600 × 8 = $4,800. This would have reduced the
Prepaid Insurance account to $9,600 ($14,400 – $4,800). During this past
fiscal year ended July 31, 2024, this balance would have remained
unchanged as no adjusting entries would have been prepared and
recorded.

3. The insurance policy cost $14,400 and covers a 24-month period. The
original purchase price of the policy was $14,400 ($600 per month part 1.
above X 24 months).

4. By July 31, 2024, the adjusted balance in the Prepaid Insurance account
will be $2,400 representing 4 months of insurance coverage from August 1
to November 30, 2024, the end of the term of the insurance policy.
Remaining Months of
Original Period of (3) Monthly Policy at Prepaid
Cost Coverage Cost July 31, 2024 Insurance
(1) (2) (1) ÷ (2) (4) (3) × (4)

$14,400 24 months $600 4 months $2,400

(Dec. 1, 2022 to
Nov. 30, 2024)
PROBLEM 4.6A (CONTINUED)

b. Depreciation Expense

1. The annual depreciation expense on the building is calculated as follows:

($252,000 ÷ 30 years) = $ 8,400

2. The purchase date of the building was September 1, 2017. From

September 1, 2017 to July 31, 2018, the depreciation expense recorded
would have been $8,400 x 11/12 or $7,700. For the fiscal years 2019 to
2023, the depreciation expense recorded would have been $42,000
($8,400 x 5). Consequently, the balance of the Accumulated Depreciation–
Buildings account (unadjusted) at July 31, 2024 would be $49,700 ($7,700
+ $42,000).

3. After an additional year’s depreciation expense ($8,400) is recorded, the

adjusted balance of the Accumulated Depreciation–Buildings account at
July 31, 2024 would be $58,100 ($49,700 + $8,400).

c. Deferred Revenue

1. The amount of monthly revenue earned on digital magazine subscriptions

is calculated as follows: 1,000 subscriptions x $60 divided by 24 months =
$2,500

2. By July 31, 2023, the company has earned 7 of the 24 months of

subscription revenue. This covers the period from January 1, 2023 to July
31, 2023. Initially the Deferred Revenue account received $60,000 from the
sale of subscriptions. Of this amount 7/24 had been earned and an
adjustment was made to reduce the balance by $17,500 ($2,500 x 7) and
so the adjusted balance of Deferred Revenue at July 31, 2023 was
$42,500, ($60,000 - $17,500). This balance represents 17 months at
$2,500 per month of subscription service remaining. During this past fiscal
year ended July 31, 2024, this balance would have remained unchanged
since adjusting entries are only made annually.
PROBLEM 4.6A (CONTINUED)

c. (continued)

3. By July 31, 2024, the company has earned a further 12 of the 24 months of
subscription revenue or $30,000. Consequently, the adjusted balance in
the Deferred Revenue account is $12,500 ($42,500 - $30,000). This
balance represents 5 months of subscription service remaining at $2,500
per month for the period August 1 - December 31.

d. Salaries Payable

1. The total salary paid on the last payday, Monday July 29 was in the amount
of:
6 × $625 = $3,750
3 × $750 = 2,250
$6,000

2. The amount of salaries expense to be accrued at July 31, 2024 for three
days (Monday to Wednesday) is:
6 × $625 x 3/5 = $2,250
3 × $750 x 3/5= 1,350
$3,600

3. The total salary that will be paid on Monday, August 5 will be the same as
that of Monday July 29, $6,000.
PROBLEM 4.6A (CONTINUED)

e. 2024
1. July 31 Insurance Expense ($600 x 12)......................... 7,200
Prepaid Insurance..................................... 7,200

2. 31 Depreciation Expense........................................ 8,400

Accumulated Depreciation—Buildings...... 8,400

3. 31 Deferred Revenue.............................................. 30,000

Subscription Revenue............................... 30,000

4. 31 Salaries Expense............................................... 3,600

Salaries Payable....................................... 3,600
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 PROBLEM 4.7A

a. Cash Balance, December 31, 2024 = $177,600 cash receipts – $150,440

cash payments = $27,160.

b. (1)
CREATIVE DESIGNS LTD.
Statement of Income
Year Ended December 31, 2024

Revenues
Fees earned ($157,600 + $2,400)............................ $160,000
Expenses
Salaries expense ($59,800 + $3,050)...................... $62,850
Rent expense ($20,000 – $2,000)............................ 18,000
Supplies expense ($8,600 – $1,260)....................... 7,340
Advertising expense................................................. 6,800
Depreciation expense ($35,400 ÷ 6)........................ 5,900
Insurance expense ($3,840 × 11/12) ...................... 3,520
Total expenses................................................ 104,410
Income before income tax................................................. 55,590
Income tax expense ($6,000 + $7,000)............................. 13,000
Net income........................................................................ $ 42,590
[Revenues – Expenses = Net income or (Loss)]
PROBLEM 4.7A (CONTINUED)

b. (2)
CREATIVE DESIGNS LTD.
Statement of Changes in Equity
Year Ended December 31, 2024

Common Retained Total

Shares Earnings Equity

Balance, January 1.......................... $ 0 $ 0 $ 0

Issued common shares.................... 20,000 20,000
Net income......................................................... 42,590 42,590
Dividends declared........................... 000 000 (10,000) (10,000)
Balance, December 31..................... $20,000 $32,590 $52,590

(Beginning equity ± Changes to equity = Ending equity)

PROBLEM 4.7A (CONTINUED)

b. (3)
CREATIVE DESIGNS LTD.
Statement of Financial Position
December 31, 2024

Assets
Current assets
Cash.................................................................. $27,160
Accounts receivable .......................................... 2,400
Supplies............................................................. 1,260
Prepaid rent....................................................... 2,000
Prepaid insurance ($3,840 – $3,520)................. 320
Total current assets................................... 33,140
Property, plant, and equipment
Equipment........................................................... $35,400
Less: Accumulated depreciation—equipment..... 5,900 29,500
Total assets.................................................................. $62,640

Liabilities and Shareholders’ Equity

Current liabilities
Salaries payable.................................................. $ 3,050
Income tax payable........................................... 7,000
Total current liabilities................................. 10,050
Total liabilities................................................................ 10,050
Shareholders’ equity
Common shares.................................................. $20,000
Retained earnings............................................... 32,590
Total shareholders’ equity........................... 52,590
Total liabilities and shareholders’ equity....................... $62,640

(Assets = Liabilities + Shareholders’ equity)

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 PROBLEM 4.8A

a. Revenue (total fees collected) ....................... $157,600

Expenses
Salaries expense .................................... $59,800
Equipment............................................... 35,400
Rent expense ......................................... 20,000
Supplies expense ................................... 8,600
Advertising expense................................ 6,800
Insurance expense.................................. 3,840
Income tax expense................................ 6,000 140,440
Cash-based net income................................. $ 17,160

b. Cash-based net income.................................................. $ 17,160

Accrual-based net income (from P4.7A)......................... 42,590
Difference........................................................................
$(25,430)

c. I recommend the accrual basis of reporting because the accrual-based

statement of income fairly portrays the performance of the business, with
revenues and expenses measured in the financial period they were earned
and incurred.

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 PROBLEM 4.9A

a.
2024
1. Jan. 31 Interest Expense...................................................... 3,000
Interest Payable
($200,000 x 9% × 2/12 months)........................ 3,000

2. 31 Advertising Expense................................................ 1,000

Accounts Payable........................................... 1,000

3. 31 Income Tax Expense............................................... 1,700

Income Tax Payable....................................... 1,700

4. 31 No entry needed

5. 31 Accounts Receivable............................................... 12,250

Fees Earned................................................... 12,250

6. 31 Insurance Expense ($6,000 ÷ 12)............................ 500

Prepaid Insurance........................................... 500

7. 31 Salaries Expense..................................................... 5,000

Salaries Payable............................................. 5,000

8. 31 Depreciation Expense.............................................. 59,700

Accumulated Depreciation—Equipment
($237,000 ÷ 10 yrs)....................................... 23,700
Accumulated Depreciation—Vehicles
($288,000 ÷ 8 yrs) ........................................ 36,000

9. 31 Deferred Revenue................................................... 3,500

Fees Earned ($35,000 x 10%)........................ 3,500

10. 31 Supplies Expense.................................................... 1,850

Supplies ($2,100 - $250) ................................ 1,850
 PROBLEM 4.9A (CONTINUED)
b. Jan. 31 Bal.
Cash 96,000
Jan. 31 Bal. 17,800 Jan. 31 Adj. 23,700
Jan. 31 Bal.
119,700
Accounts Receivable
Jan. 31 Bal. 12,700 Vehicles
Jan. 31 Adj. 12,250 Jan.31 Bal. 288,000
Jan. 31 Bal. 24,950
Accumulated Depreciation—Vehicles
Jan. 31 Bal. 42,000
Supplies Jan. 31 Adj. 36,000
Jan. 31 Bal. 2,100 Jan. 31 Bal. 78,000
Jan. 31 Adj. 1,850
Jan. 31 Bal. 250 Accounts Payable
Jan. 31 Bal. 24,000
Prepaid Rent Jan. 31 Adj. 1,000
Jan. 31 Bal. 12,000 Jan. 31 Bal.25,000

Bank Loan Payable

Jan. 31 Bal. 200,000
Prepaid Insurance
Jan. 31 Bal. 6,000 Interest Payable
Jan. 31 Adj. 500 Jan. 31 Adj. 3,000
Jan. 31 Bal. 5,500
Salaries Payable
Equipment Jan. 31 Adj. 5,000
Jan. 31 Bal. 237,000

Accumulated Depreciation—Equipment
PROBLEM 4.9A (CONTINUED) Income Tax Payable
Jan. 31 Adj. 1,700
b. (continued)
 Deferred Revenue
Jan. 31 Bal. 35,000
Jan. 30 Adj. 3,500
Jan. 31 Bal. 31,500 Rent Expense
Jan. 31 Bal 144,000

Common Shares
Jan. 31 Bal. 128,000
Interest Expense
Retained Earnings Jan. 31 Bal 48,000
Jan. 31 Bal. 167,900 Jan. 31 Adj. 3,000
Jan. 31 Bal 51,000
Fees Earned
Jan. 31 Bal. 265,000 Advertising Expense
Jan. 31 Adj. 12,250 Jan. 31 Bal. 75,000
Jan. 31 Adj. 3,500 Jan. 31 Adj. 1,000
Jan. 31 Bal. 280,750 Jan. 31 Bal 76,000

Salaries Expense Depreciation Expense

Jan. 31 Bal. 89,800 Jan. 31 Adj.
Jan. 31 Adj. 5,000 59,700
Jan. 31 Bal. 94,800
Supplies Expense
Repairs and Maintenance Expense Jan. 31 Adj. 1,850
Jan. 31 Bal.
23,800
Insurance Expense
Jan. 31 Adj. 500

Income Tax Expense

Jan. 31 Bal 1,700
Jan. 31 Adj. 1,700
Jan. 31 Bal. 3,400
PROBLEM 4.9A (CONTINUED)

c. CANADIAN PHOTO TOURS LIMITED

Adjusted Trial Balance
January 31, 2024

Debit Credit
Cash.......................................................................................
$ 17,800
Accounts receivable...............................................................24,950
Supplies................................................................................. 250
Prepaid rent...........................................................................12,000
Prepaid insurance.................................................................. 5,500
Building..................................................................................237,000
Accumulated depreciation—equipment................................. $119,700
Vehicles.................................................................................288,000
Accumulated depreciation—vehicles..................................... 78,000
Accounts payable................................................................... 25,000
Deferred Revenue.................................................................. 31,500
Salaries payable.................................................................... 5,000

Income tax payable................................................................ 1,700

Interest payable ................................................................... 3,000
Bank loan payable, due 2027................................................. 200,000
Common shares..................................................................... 128,000
Retained earnings.................................................................. 167,900
Fees earned........................................................................... 280,750
Salaries expense....................................................................94,800
Depreciation expense............................................................59,700
Rent expense.........................................................................144,000
Repairs and maintenance expense........................................23,800
Insurance expense................................................................. 500
Supplies expense................................................................... 1,850
Advertising expense...............................................................76,000
Interest expense....................................................................51,000
Income tax expense............................................................... 3,400
Totals..................................................................................
$1,040,550 $1,040,550
(Total debits = Total credits)

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 PROBLEM 4.10A
a. 2024

Nov. 9 Salaries Payable........................................................... 1,000

Salaries Expense.......................................................... 1,200
Cash.................................................................... 2,200

13 Cash ............................................................................. 5,000

Common Shares.................................................. 5,000

13 Cash ............................................................................. 12,400

Accounts Receivable........................................... 12,400

19 Cash ............................................................................. 11,400

Service Revenue................................................. 11,400

20 Supplies........................................................................ 600
Accounts Payable................................................ 600

21 Accounts Payable......................................................... 4,600

Cash.................................................................... 4,600

23 Rent Expense............................................................... 600

Cash.................................................................... 600

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

Cash.................................................................... 2,400

27 Accounts Receivable.................................................... 3,800

Service Revenue................................................. 3,800

28 Dividends Declared...................................................... 500

Cash.................................................................... 500

30 Cash ............................................................................. 1,100

Deferred Revenue............................................... 1,100
 PROBLEM 4.10A (CONTINUED)

b. and d.
Cash
Nov. 1 Bal. 15,580 Accounts Payable
Nov. 13 5,000 Nov. 9 2,200 Nov. 1 Bal. 4,600
Nov. 13 12,400 Nov. 21 4,600 Nov. 21 4,600 Nov. 20 600
Nov. 19 11,400 Nov. 23 600 Nov. 30 Bal. 600
Nov. 30 1,100 Nov. 23 2,400
Nov. 28 500 Salaries Payable
Nov. 30 Bal. 35,180 Nov. 1 Bal. 1,000
Nov. 9 1,000
Accounts Receivable Nov. 30 Bal. 0
Nov. 1 Bal. 15,820 Nov. 30 Adj. 1,000
Nov. 27 3,800 Nov. 13 12,400 Nov. 30 Bal. 1,000
Nov. 30 Bal. 7,220
Income Tax Payable
Supplies Nov. 30 Adj. 1,100
Nov. 1 Bal. 4,000
Nov. 20 600 Deferred Revenue
Nov. 30 Bal. 4,600 Nov. 1 Bal. 1,000
Nov. 30 Adj. 3,600 Nov. 30 1,100
Nov. 30 Bal. 1,000 Nov. 30 Bal. 2,100
Nov. 30 Adj. 800
Equipment Nov. 30 Bal. 1,300
Nov. 1 Bal. 18,000
Common Shares
Accumulated Depreciation— Nov. 1 Bal. 10,000
Equipment Nov. 13 5,000
Nov. 1 Bal. 3,600 Nov. 30 Bal. 15,000
Nov. 30 Adj. 300
Nov. 30 Bal. 3,900
PROBLEM 4.10A
CONTINUED)
b. and d. (Continued)

Retained Earnings
Nov. 1 Bal. 33,200

Dividends Declared
Nov. 28 500

Service Revenue
Nov. 19 11,400
Nov. 27 3,800
Nov. 30 Bal. 15,200
Nov. 30 Adj. 800
Nov. 30 Bal. 16,000

Rent Expense
Nov. 23 600
 Nov. 9 1,200
Nov. 23 2,400
Nov. 30 Bal. 3,600
Nov. 30 Adj. 1,000
Income Tax Expense
Nov. 30 Bal. 4,600
Nov. 30 Adj. 1,100

Salaries Expense

Supplies Expense
Depreciation
Nov. 30 Adj. 3,600 Expense
Nov. 30 Adj. 300
PROBLEM 4.10A (CONTINUED)
c.
ALOU EQUIPMENT REPAIR CORP.
Trial Balance
November 30, 2024

Debit Credit
Cash............................................................................ $35,180
Accounts receivable..................................................... 7,220
Supplies....................................................................... 4,600
Equipment....................................................................
18,000
Accumulated depreciation—equipment....................... $ 3,600
Accounts payable........................................................ 600
Deferred revenue......................................................... 2,100
Common shares ......................................................... 15,000
Retained earnings ....................................................... 33,200
Dividends declared...................................................... 500
Service revenue........................................................... 15,200
Salaries expense......................................................... 3,600
Rent expense............................................................... 600 0000 00
Totals..................................................................... $69,700 $69,700

(Total debits = Total credits)

PROBLEM 4.10A (CONTINUED)

d.
2024
1. Nov. 30 Supplies Expense................................... 3,600
Supplies ($4,600 – $1,000) ............ 3,600

2. 30 Salaries Expense.................................... 1,000

Salaries Payable............................ 1,000

3. 30 Depreciation Expense............................. 300

Accumulated Depreciation—Equipment. 300
($18,000 ÷ 5 years x 1/12 months)

4. 30 Deferred Revenue................................... 800

Service Revenue............................ 800

5. 30 Income Tax Expense.............................. 1,100

Income Tax Payable...................... 1,100
PROBLEM 4.10A (CONTINUED)

e.
ALOU EQUIPMENT REPAIR CORP.
Adjusted Trial Balance
November 30, 2024

Debit Credit

Cash.............................................................................. $35,180
Accounts receivable...................................................... 7,220
Supplies........................................................................ 1,000
Equipment..................................................................... 18,000
Accumulated depreciation—equipment......................... $ 3,900
Accounts payable.......................................................... 600
Salaries payable............................................................ 1,000
Income tax payable....................................................... 1,100
Deferred revenue.......................................................... 1,300
Common shares............................................................ 15,000
Retained earnings......................................................... 33,200
Dividends declared........................................................ 500
Service revenue............................................................. 16,000
Salaries expense........................................................... 4,600
Rent expense................................................................ 600
Supplies expense.......................................................... 3,600
Income tax expense...................................................... 1,100
Depreciation expense................................................... 300 0,0 0
Totals......................................................................... $72,100 $72,100

(Total debits = Total credits)

 PROBLEM 4.10A (CONTINUED)
f. (1)
ALOU EQUIPMENT REPAIR CORP.
Statement of Income
Month Ended November 30, 2024

Revenues
Service revenue................................................. $16,000
Expenses
Salaries expense............................................... $4,600
Supplies expense.............................................. 3,600
Rent expense..................................................... 600
Depreciation expense........................................ 300
Total expenses......................................... 9,100
Income before income tax.......................................... 6,900
Income tax expense.................................................... 1,100
Net income ................................................................. $ 5,800

[Revenues – Expenses = Net income or (Loss)]

f. (2)
ALOU EQUIPMENT REPAIR CORP.
Statement of Changes in Equity
Month Ended November 30, 2024

Common Retained Total

Shares Earnings Equity

Balance, November 1................................ $10,000 $33,200 $43,200

Issued common shares............................. 5,000 5,000
Net income.................................................. 5,800 5,800
Dividends declared.................................... 000000 (500) (500)
Balance, November 30.............................. $15,000 $38,500 $53,500

(Beginning equity ± Changes to equity = Ending equity)

PROBLEM 4.10A (CONTINUED)

f. (3) ALOU EQUIPMENT REPAIR CORP.

Statement of Financial Position
November 30, 2024

Assets
Current assets
Cash.............................................................................. $35,180
Accounts receivable...................................................... 7,220
Supplies......................................................................... 1,000
Total current assets.............................................. 43,400
Property, plant, and equipment
Equipment................................................. $18,000
Less: Accumulated depreciation.............. 3,900 14,100
Total assets............................................................................ $57,500

Liabilities and Shareholders’ Equity

Current liabilities
Accounts payable.......................................................... $ 600
Salaries payable............................................................ 1,000
Income tax payable....................................................... 1,100
Deferred revenue.......................................................... 1,300
Total current liabilities........................................... 4,000
Shareholders’ equity
Common shares........................................ $15,000
Retained earnings..................................... 38,500
Total shareholders’ equity.................................... 53,500
Total liabilities and shareholders’ equity................................. $57,500

(Assets = Liabilities + Shareholders’ equity)

LO 2,3,4 BT: AP Difficulty: M Time: 80 min. AACSB: Analytic CPA: cpa.t001 CM: Reporting
 PROBLEM 4.11A

a. 2024
Nov. 30 Service Revenue.................................. 16,000
Income Summary........................ 16,000

30 Income Summary................................. 10,200

Salaries Expense........................ 4,600
Supplies Expense........................ 3,600
Rent Expense.............................. 600
Depreciation Expense................. 300
Income Tax Expense................... 1,100

30 Income Summary................................. 5,800

Retained Earnings....................... 5,800

30 Retained Earnings................................ 500

Dividends Declared..................... 500

(Statement of income accounts are closed to the Income Summary account)

PROBLEM 4.11A (CONTINUED)
b.

Cash Accounts Payable

Nov. 1 Bal. 15,580 Nov. 1 Bal. 4,600
Nov. 13 5,000 Nov. 9 2,200 Nov. 21 4,600 Nov. 20 600
Nov. 13 12,400 Nov. 21 4,600 Nov. 30 Bal. 600
Nov. 19 11,400 Nov. 23 600
Nov. 30 1,100 Nov. 23 2,400 Salaries Payable
Nov. 28 500 Nov. 1 Bal. 1,000
Nov. 30 Bal. 35,180 Nov. 9 1,000
Nov. 30 Bal. 0
Accounts Receivable Nov. 30 Adj. 1,000
Nov. 1 Bal. 15,820 Nov. 30 Bal. 1,000
Nov. 27 3,800 Nov. 13 12,400
Nov. 30 Bal. 7,220 Income Tax Payable
Nov. 30 Adj. 1,100
Supplies
Nov. 1 Bal. 4,000 Deferred Revenue
Nov. 20 600 Nov. 1 Bal. 1,000
Nov. 30 Bal. 4,600 Nov. 30 1,100
Nov. 30 Adj. 3,600 Nov. 30 Bal. 2,100
Nov. 30 Bal. 1,000 Nov. 30 Adj. 800
Nov. 30 Bal. 1,300
Equipment
Nov. 1 Bal. 18,000 Common Shares
Nov. 1 Bal. 10,000
Accumulated Depreciation— Nov. 13 5,000
Equipment Nov. 30 Bal. 15,000
Nov. 1 Bal. 3,600
Nov. 30 Bal. 3,600 Retained Earnings
Nov. 30 Adj. 300 Nov. 1 Bal. 33,200
Nov. 30 Bal. 3,900 Nov. 30 CE4 500 Nov. 30 CE3 5,800
Nov. 30 Bal. 38,500
PROBLEM 4.11A (CONTINUED)

b. (Continued)

Dividends Declared
Nov. 28 500
Nov. 30 CE4 500
Nov. 30 Bal. 0

Service Revenue
Nov. 19 11,400
Nov. 27 3,800
Nov. 30 Bal. 15,200
Nov. 30 Adj. 800
Nov. 30 Bal. 16,000
Nov. 30 CE1 16,000
Nov. 30 Bal.

Rent Expense
Nov. 23 600
Nov. 30 CE2 600
Nov. 30 Bal. 0

Income Tax Expense

Nov. 30 Adj. 1,100
Nov. 30 CE2 1,100
Nov. 30 Bal. 0
 Salaries Expense
Nov. 9 1,200
Nov. 23 2,400
Nov. 30 Bal. 3,600
Nov. 30 Adj. 1,000
Nov. 30 Bal. 4,600
Nov. 30 CE2 4,600
Nov. 30 Bal. 0

Supplies Expense
Nov. 30 Adj. 3,600
Nov. 30 CE2 3,600
Nov. 30 Bal. 0

Depreciation Expense
Nov. 30 Adj. 300
Nov. 30 CE2 300
Nov. 30 Bal. 0
 Income Summary
Nov. 30 CE2 10,200 Nov. 30 CE1 16,000
Bal. 5,800
Nov. 30 CE3 5,800
Nov. 30 Bal. 0
PROBLEM 4.11A (CONTINUED)

b.

ALOU EQUIPMENT REPAIR CORP.

Post-Closing Trial Balance
November 30, 2024

Debit Credit

Cash............................................................. $35,180
Accounts receivable..................................... 7,220
Supplies........................................................ 1,000
Equipment.................................................... 18,000
Accumulated depreciation—equipment........ $ 3,900
Accounts payable......................................... 600
Salaries payable........................................... 1,000
Income tax payable...................................... 1,100
Deferred revenue.......................................... 1,300
Common shares........................................... 15,000
Retained earnings........................................ 00 0000 38,500
Totals...................................................... $61,400 $61,400

(Total debits for permanent accounts = Total credits for permanent accounts)

LO 5 BT: AP Difficulty: S Time: 50 min. AACSB: Analytic CPA: cpa.t001 CM: Reporting
 PROBLEM 4.12A

a.
OZAKI CORP.
Adjusted Trial Balance
September 30, 2024

Debit Credit
Cash............................................................................................ $ 3,250
Accounts receivable.................................................................... 8,435
Supplies....................................................................................... 1,265
Equipment................................................................................... 15,040
Accumulated depreciation—equipment....................................... $ 750
Accounts payable........................................................................ 4,460
Salaries payable.......................................................................... 840
Interest payable........................................................................... 105
Income tax payable..................................................................... 200
Deferred revenue......................................................................... 550
Bank loan payable....................................................................... 7,800
Common shares.......................................................................... 7,000
Retained earnings....................................................................... 2,600
Dividends declared...................................................................... 700
Fees earned............................................................................... 22,485
Depreciation expense................................................................. 750
Interest expense.......................................................................... 105
Rent expense............................................................................. 1,500
Salaries expense ........................................................................ 13,840
Supplies expense....................................................................... 485
Utilities expense.......................................................................... 820
Income tax expense................................................................... 600
Totals.................................................................................... $46,790 $46,790
(Total debits = Total credits)
PROBLEM 4.12A (CONTINUED)
b.

2024
Sept. 30 Fees Earned................................................. 22,485
Income Summary................................. 22,485

30 Income Summary.......................................... 18,100

Salaries Expense.................................. 13,840
Rent Expense........................................ 1,500
Utilities Expense.................................... 820
Depreciation Expense........................... 750
Supplies Expense.................................. 485
Interest Expense................................... 105
Income Tax Expense............................. 600

30 Income Summary.......................................... 4,385

Retained Earnings................................. 4,385

30 Retained Earnings........................................ 700

Dividends Declared............................... 700

(Statement of income accounts are closed to the Income Summary account)

 PROBLEM 4.12A (CONTINUED)
c.
OZAKI CORP.
Post-Closing Trial Balance
September 30, 2024

Debit Credit

Cash................................................................................... $ 3,250
Accounts receivable........................................................... 8,435
Supplies.............................................................................. 1,265
Equipment.......................................................................... 15,040
Accumulated depreciation—equipment.............................. $ 750
Accounts payable............................................................... 4,460
Salaries payable................................................................. 840
Interest payable.................................................................. 105
Income tax payable............................................................ 200
Deferred revenue................................................................ 550
Bank loan payable.............................................................. 7,800
Common shares................................................................. 7,000
Retained earnings.............................................................. 0000 0 6,285
Totals............................................................................. $27,990 $27,990

(Total debits for permanent accounts = Total credits for permanent accounts)

LO 4,5 BT: AP Difficulty: M Time: 40 min. AACSB: Analytic CPA: cpa.t001 CM: Reporting
 PROBLEM 4.13A
a. 2024
1. Mar. 31 Depreciation Expense................................ 500
($54,000 ÷ 9 years × 1/12 months)
Accumulated Depreciation—Furniture
500

2. 31 Utilities Expense........................................ 2,360

Accounts Payable.............................
2,360

3. 31 Supplies Expense...................................... 2,740

Supplies ($7,240 – $4,500)...............
2,740

4. 31 Salaries Expense....................................... 10,000

Salaries Payable...............................
10,000

5. 31 Interest Expense........................................ 785

Interest Payable................................

6. 31 Accounts Receivable................................. 2,870

Rent Income......................................
2,870

7. 31 Rent Income ($4,500 × 6mths x 50%)....... 13,500

Deferred Revenue.............................
13,500

8. 31 Deferred Revenue ($250 x 300 x 20%)..... 15,000

Rent Income......................................
15,000

9. 31 Insurance Expense ($7,200 ÷ 12).............. 600

Prepaid Insurance.............................

10. 31 Depreciation Expense................................ 1,040

($187,200 ÷ 15 years × 1/12 months)
Accumulated Depreciation—Buildings
1,040

11. 31 Income Tax Expense................................. 1,750

Income Tax Payable.........................
1,750
PROBLEM 4.13A (CONTINUED Land
b. Mar 31 Bal. 230,000

Cash Buildings
Mar 31 Bal. 40,000 Mar 31 Bal. 187,200

Accumulated Depreciation—Buildings
Accounts Receivable Mar 31 Bal. 61,360
Mar 31 Adj. 1,040
Mar 31 Bal. 26,000
Mar 31 Adj. 2,870 Mar 31 Bal. 62,400
Mar 31 Bal. 28,870

Supplies
Mar 31 Bal. 7,240
Mar 31 Adj. 2,740
Mar 31 Bal. 4,500
Furniture
Mar 31 Bal. 54,000
Prepaid Insurance
Mar 31 Bal. 6,000 Accumulated Depreciation—Furniture
Mar 31 Adj. 600 Mar 31 Bal. 35,500
Mar 31 Bal. 5,400 Mar 31 Adj. 500
Mar 31 Bal. 36,000

Accounts Payable
Mar 31 Bal. 7,625
Mar 31 Adj. 2,360
Mar 31 Bal. 9,985

Salaries Payable
Mar 31 Adj. 10,000

Interest Payable
Mar 31 Adj. 785

Income Tax Payable

Mar 31 Adj. 1,750
 PROBLEM 4.13A (CONTINUED)
b. (continued)
Deferred Revenue Utilities Expense
Mar 31 Bal. 75,000 Mar 31 Bal. 45,000
Mar 31 Adj. 15,000 Mar 31 Adj. 13,500 Mar 31 Adj. 2,360
Mar 31 Bal. 73,500 Mar 31 Bal. 47,360

Interest Expense
Mortgage Payable Mar 31 Bal. 8,900
Mar 31 Bal. 147,000 Mar 31Adj. 785
Mar 31 Bal. 9,685
Common Shares
Mar 31 Bal. 75,000
Insurance Expense
Mar 31 Bal. 1,200
Retained Earnings Mar 31 Adj. 600
Mar 31 Bal. 50,000 Mar 31 Bal. 1,800

Dividends Declared
Mar 31 Bal. 15,000

Rent Income
Mar 31 Bal. 300,399
Mar 31 Adj. 13,500 Mar 31 Adj. 2,870
Mar 31 Adj. 15,000
Mar 31 Bal. 304,769

Salaries Expense
Mar 31 Bal. 99,000
Mar 31 Adj. 10,000
Mar 31 Bal. 109,000
Advertising Expense
Mar 31 Bal. 944

Supplies Expense
Mar 31 Adj. 2,740

Depreciation Expense
Mar 31 Bal. 27,900
Mar 31 Adj. 500
Mar 31 Adj. 1,040
Mar 31 Bal. 29,440

Income Tax Expense

Mar 31 Bal. 3,500
Mar 31 Adj. 1,750
Mar 31 Bal. 5,250
 PROBLEM 4.13A (CONTINUED)
c. CASA SUITES LTD.
Adjusted Trial Balance
Mar 31, 2024

Debit Credit
Cash...................................................................................
$ 40,000
Accounts receivable........................................................... 28,870
Supplies..............................................................................
4,500
Prepaid insurance............................................................... 5,400
Land...................................................................................
230,000
Buildings.............................................................................
187,200
Accumulated depreciation—buildings................................ $ 62,400
Furniture............................................................................. 54,000
Accumulated depreciation—furniture................................. 36,000
Accounts payable............................................................... 9,985
Salaries payable................................................................. 10,000
Interest payable.................................................................. 785
Income tax payable............................................................ 1,750
Deferred revenue................................................................ 73,500
Mortgage payable, due 2028.............................................. 147,000
Common shares................................................................. 75,000
Retained earnings.............................................................. 50,000
Dividends declared............................................................. 15,000
Rent income....................................................................... 304,769
Salaries expense................................................................ 109,000
Utilities expense................................................................. 47,360
Interest expense................................................................. 9,685
Insurance expense............................................................. 1,800
Advertising expense........................................................... 944
Supplies expense............................................................... 2,740
Depreciation expense......................................................... 29,440
Income tax expense........................................................... 5,250 000000 0
Totals............................................................................. $771,189 $771,189
(Total debits = Total credits)
PROBLEM 4.13A (CONTINUED)

d. (1)
CASA SUITES LTD.
Statement of Income
Year Ended Mar 31, 2024

Revenues
Rent income.............................................. $304,769
Expenses
Salaries expense....................................... $109,000
Utilities expense........................................ 47,360
Depreciation expense................................ 29,440
Interest expense........................................ 9,685
Insurance expense.................................... 1,800
Supplies expense...................................... 2,740
Advertising expense.................................. 944
Total expenses................................. 200,969
Income before income tax.................................. 103,800
Income tax expense........................................... 5,250
Net income......................................................... $ 98,550

[Revenues – Expenses = Net income or (Loss)]

 PROBLEM 4.13A (CONTINUED)

d. (2)
CASA SUITES LTD.
Statement of Changes in Equity
Year Ended Mar 31, 2024

Common Retained Total

Shares Earnings Equity

Balance, April 1, 2023...................................... $69,000 $50,000 $ 119,000

Issued common shares.................................... 6,000 6,000
Net income......................................................... 98,550 98,550
Dividends declared.......................................... 00 0000 (15,000) (15,000)
Balance, Mar 31, 2024..................................... $75,000 $133,550 $208,550

(Beginning equity ± Changes to equity = Ending equity)

PROBLEM 4.13A (CONTINUED)

d. (3)
CASA SUITES LTD.
Statement of Financial Position
Mar 31, 2024

Assets
Current assets
Cash.............................................................. $ 40,000
Accounts receivable...................................... 28,870
Supplies......................................................... 4,500
Prepaid insurance......................................... 5,400
Total current assets...................................
$ 78,770
Property, plant, and equipment
Land.............................................................. $230,000
Buildings........................................................ $187,200
Less: Accumulated depreciation.................. 62,400 124,800
Furniture........................................................ $54,000
Less: Accumulated depreciation.................. 36,000 18,000
Total property, plant, and equipment......... 372,800
Total assets............................................................ $451,570
PROBLEM 4.13A (CONTINUED)

d. (3) (continued)

Liabilities and Shareholders’ Equity

Current liabilities
Accounts payable.......................................... $9,985
Salaries payable............................................ 10,000
Interest payable............................................. 785
Income tax payable....................................... 1,750
Deferred revenue.......................................... 73,500
Total current liabilities................................
$ 96,020
Non-current liabilities
Mortgage payable..........................................
147,000
Total liabilities............................................
243,020
Shareholders’ equity
Common shares............................................ $75,000
Retained earnings......................................... 133,550
Total shareholders’ equity........................
208,550
Total liabilities and shareholders’ equity.................
$451,570

(Assets = Liabilities + Shareholders’ equity)

PROBLEM 4.13A (CONTINUED)

e. The financial position and performance of a company can be

evaluated in terms of its liquidity, profitability, and solvency.

Liquidity
Casa Suites does not appear at first glance to have a healthy
liquidity position. Although it has a positive cash balance of
$40,000, the company has a current ratio of only 0.8:1 ($78,770
÷ $96,020). This seems to indicate that there are insufficient
current assets to repay the company’s current liabilities. It should
be noted that simply looking at the current ratio does not tell the
whole story and more investigation is required. For example,
accounts receivable comprises 37% of current assets—you
would want to know if they are all expected to be collected. More
importantly, of the total current liabilities, 77% ($73,500 ÷
$96,020) is made up of deferred revenue, which will not require
the payment of cash. Consequently, the current ratio is stronger
than it first appears in terms of measuring the company’s ability
to repay its current liabilities.

Profitability
According to the statement of income, Casa Suites was
profitable in 2024 with net income of $98,550. Casa also has a
positive balance in retained earnings, which indicates it has been
profitable in the past.

The company also declared dividends of $15,000 in the past

year, which maybe of interest to your friend if your friend is
considering an income investment.

Solvency
The company has a large mortgage, which is in line with the cost
of the property, plant, and equipment. Its total debt to assets is
53.8% ($243,020 ÷ $451,570). One would want to determine if
that ratio is comparable to Casa Suites’ competitors and
industry.

Overall, Casa Suites appears to have a good financial position.

Its liquidity and profitability appear reasonable, and its solvency
is not significantly high. However, a more complete analysis
should be performed. Reviewing prior years’ financial statements
and some industry information would enable us to perform some
comparative analysis to better evaluate Casa’s financial health.

LO 2,3,4 BT: AN Difficulty: M Time: 80 min. AACSB: Analytic CPA: cpa.t001 CM: Reporting
 PROBLEM 4.14A

a.

May 31 Rent Income................................................... 304,769

Income Summary.................................. 304,769

31 Income Summary........................................... 206,219

Salaries Expense.................................. 109,000
Utilities Expense.................................... 47,360
Interest Expense................................... 9,685
Insurance Expense................................ 1,800
Supplies Expense.................................. 2,740
Depreciation Expense........................... 29,440
Advertising Expense.............................. 944
Income Tax Expense............................. 5,250

31 Income Summary........................................... 98,550

Retained Earnings................................. 98,550

31 Retained Earnings.......................................... 15,000

Dividends Declared............................... 15,000

(Statement of income accounts are closed to the Income Summary account)

 PROBLEM 4.14A (CONTINUED) Land
Mar 31 Bal. 230,000
Cash
Mar 31 Bal. 40,000
Buildings
Mar 31 Bal. 187,200

Accounts Receivable Accumulated Depreciation—Buildings

Mar 31 Bal. 26,000 Mar 31 Bal. 61,360
Mar 31 Adj. 2,870 Mar 31 Adj. 1,040
Mar 31 Bal. 28,870 Mar 31 Bal. 62,400

Supplies
Mar 31 Bal. 7,240
Mar 31 Adj. 2,740
Mar 31 Bal. 4,500

Prepaid Insurance
Mar 31 Bal. 6,000
Mar 31 Adj. 600
Mar 31 Bal. 5,400 Furniture
Mar 31 Bal. 54,000

Accumulated Depreciation—Furniture
Mar 31 Bal. 35,500
Mar 31 Adj. 500
Mar 31 Bal. 36,000

Accounts Payable
Mar 31 Bal. 7,625
Mar 31 Adj. 2,360
Mar 31 Bal. 9,985

Salaries Payable
Mar 31 Adj. 10,000

Interest Payable
Mar 31 Adj. 785

Income Tax Payable

Mar 31 Adj. 1,750
 PROBLEM 4.14A (CONTINUED)
b. (continued)
Deferred Revenue Utilities Expense
Mar 31 Bal. 75,000 Mar 31 Bal. 45,000
Mar 31 Adj. 15000 Mar 31 Adj. 13,500 Mar 31 Adj. 2,360
Mar 31 Bal. 73,500 Mar 31 Bal. 47,360
Mar 31 CE2 47,360
Mar 31 Bal. 0
Mortgage Payable
Mar 31 Bal. 147,000
Interest Expense
Common Shares Mar 31 Bal. 8,900
Mar 31 Bal. 75,000 Mar 31 Adj. 785
Mar 31 Bal 9,685
Retained Earnings Mar 31 CE2 9,685
Mar 31 Bal. 50,000 Mar 31 Bal. 0
Mar 31 CE4 15,000 Mar 31 CE3 98,550
Mar 31 Bal. 133,550 Insurance Expense
Mar 31 Bal. 1,200
Mar 31 Adj. 600
Dividends Declared Mar 31 Bal. 1,800
Mar 31 Bal. 15,000 Mar 31 CE2 1,800
Mar 31CE4 15,000 Mar 31 Bal. 0
Mar 31 Bal. 0
Advertising Expense
Rent Income Mar 31 Bal. 944
Mar 31 Bal. 304,769 Mar 31 CE2 944
Mar 31 Adj. 13,500 Mar 31 Adj. 2,870 Mar 31 Bal. 0
Mar 31 Adj. 15,000
Mar 31 Bal. 304,769 Supplies Expense
Mar31CE1 304,769 Mar 31 Adj. 2,740
Mar 31 Bal. 0 Mar 31 CE2 2,740
Mar 31 Bal. 0
Salaries Expense
Mar 31 Bal. 99,000
Mar 31 Adj. 10,000
Mar 31 Bal. 109,000
Mar 31 CE2 109,000
Mar 31 Bal. 0
 PROBLEM 4.14A (CONTINUED)

b. (continued)

Depreciation Expense Income Tax Expense

Mar 31 Bal. 27,900 Mar 31 Bal. 3,500
Mar 31 Adj. 500 Mar 31 Adj. 1,750
Mar 31 Adj. 1,040 Mar 31 Bal. 5,250
Mar 31 Bal. 29,440 Mar 31 CE2 5,250
Mar 31 CE2 29,440 Mar 31 Bal. 0
Mar 31 Bal. 0
Income Summary
Mar 31 CE2 206,219Mar 31 CE1 304,769
Bal. 98,550
Mar 31 CE3 98,550
Mar 31 Bal. 0
PROBLEM 4.14A (CONTINUED)

c.
CASA SUITES LTD.
Post-Closing Trial Balance
March 31, 2024

Debit Credit

Cash................................................................................... $ 40,000
Accounts receivable........................................................... 28,870
Supplies.............................................................................. 4,500
Prepaid insurance............................................................... 5,400
Land................................................................................... 230,000
Buildings............................................................................. 187,200
Accumulated depreciation—buildings................................ $ 62,400
Furniture............................................................................. 54,000
Accumulated depreciation—furniture................................. 36,000
Accounts payable............................................................... 9,985
Salaries payable................................................................. 10,000
Interest payable.................................................................. 785
Income tax payable............................................................ 1,750
Deferred revenue................................................................ 73,500
Mortgage payable, due 2028.............................................. 147,000
Common shares................................................................. 75,000
Retained earnings.............................................................. 133,550

Totals......................................................................... $549,970 $549,970

(Total debits for permanent accounts = Total credits for permanent accounts)
LO 5 BT: AP Difficulty: S Time: 45 min. AACSB: Analytic CPA: cpa.t001 CM: Reporting