SOLUTIONS TO PROBLEMS

PROBLEM 3.1A
a.

Assets = Liabilities + Shareholders’ Equity

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

b. TOTAL ASSETS = $30,800

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

LO 1 BT: AN Difficulty: M Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 3.2A

a.
Assets Liabilities Shareholders’ Equity
Retained Earnings
Bank
Accounts Supplie Loan Accounts Common Revenue Dividends
Cash + Receivable + s +Equipment= Payable + Payable + Shares + Balance + s – Expenses– Declared

Jul 31 Bal.. $4,000 $1,500 $500 $5,000 $4,100 $3,500 $3,400

Aug. 2 +1,200 –1,200
3 +1,300 +1,300
6 −2,700 −2,700
7 +3,000 +3,500 +$6,500
13 –400 +1,200 +800
17 –4,675 –$3,500
–900
–275
17 +3,500 –3,500
20 –500 –$500
22 +1,000 +1,000
24 +2,000 +$2,000
28 +275 –275
31 –500 $1,300 0 0 00 00 700 000 00 000 00 000 00 000 00 000 −500 00 0
Aug. 31 Bal. $6,225 $1,300 $500 $6,200 $2,000 $2,475+ $4,800 $3,400 $7,500 $5,450 $500
+ + + + + – –
TOTAL ASSETS $14,225 = TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY $14,225
Note: The August 27th transaction does not affect the accounting equation and is therefore not recorded in the
accounting records.
PROBLEM 3.2A (CONTINUED)
b.
HILLS LEGAL SERVICES INC.
Statement of Income
Month Ended August 31, 2024

Revenues
Service revenue $7,500
Expenses
Salaries expense $3,500
Rent expense 900
Advertising expense 275
Utilities expense 275
Total expenses 4,950
Income before income tax 2,550
Income tax expense 500
Net income $2,050

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

HILLS LEGAL SERVICES INC.

Statement of Changes in Equity
Month Ended August 31, 2024

Common Retained
Shares Earnings Total Equity

Balance, August 1 $3,500 $3,400 $6,900

Issued common shares 1,300 1,300
Net income 2,050 2,050
Dividends declared 00 (500) (500)
Balance, August 31 $4,800 $4,950 $9,750
PROBLEM 3.2A (CONTINUED)

b. (continued)

HILLS LEGAL SERVICES INC.

Statement of Financial Position
August 31, 2024

Assets

Current assets
Cash $6,225
Accounts receivable 1,300
Supplies 500
Total current assets $ 8,025
Property, plant, and equipment
Equipment 6,200
Total assets $14,225

Liabilities and Shareholders' Equity

Current liabilities
Accounts payable $2,475
Bank loan payable 2,000
Total liabilities $ 4,475
Shareholders' equity
Common shares $4,800
Retained earnings 4,950
Total shareholders’ equity 9,750
Total liabilities and shareholders' equity $14,225

(Assets = Liabilities + Shareholders’ equity)

LO 1 BT: AN Difficulty: M Time: 50 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 3.3A

a.
Account Debited Account Credited
(1) (2) (3) (1) (2) (3)
Transac- Specific Specific
tion Basic Type Account Effect Basic Type Account Effect

Oct. 1 Asset Cash Increase Shareholders’ Common Increase

equity Shares

Oct. 2 Asset Prepaid Increase Asset Cash Decrease

Insurance
Oct. 7 Asset Equipment Increase Liability Accounts Increase
Payable

Asset Cash Decrease

Oct. 11 Asset Accounts Increase Shareholders’ Revenue Increase

Receivable equity

Oct. 13 Asset Cash Increase Liability Deferred Increase

Revenue
Oct. 17 Shareholders’ Repairs and Increase Asset Cash Decrease
equity Maintenance
Expense

Oct. 19 Asset Supplies Increase Liability Accounts Increase

Payable
PROBLEM 3.3A (CONTINUED)

a. (continued)

Account Debited Account Credited

(1) (2) (3) (1) (2) (3)
Transactio Specific Specific
n Basic Type Account Effect Basic Type Account Effect

Oct. 22 Liability Accounts Decrease Asset Cash Decrease

Payable

Oct. 23 Shareholders Salaries Increase Asset Cash Decrease

’ equity Expense

Oct. 26 Asset Cash Increase Liability Bank Loan Increase

Payable

Oct. 28 Shareholders Dividends Increase Asset Cash Decrease

’ equity Declared

Oct. 31 Shareholders Income tax Increase Asset Cash Decrease

’ equity Expense
PROBLEM 3.3A (CONTINUED)

b.
Normal
Date Account Balance
Oct. Cash debit
1,2,7,13,17,22,23,26,
28,31

Oct. 1 Common Shares credit

Oct. 2 Prepaid Insurance debit

Oct.7 Equipment debit

Oct. 7,19,22 Accounts Payable credit

Oct. 11 Accounts Receivable debit

Oct. 11 Revenue credit

Oct. 13 Deferred Revenue credit

Oct. 17 Repairs and Maintenance Expense debit

Oct. 19 Supplies debit

Oct. 23 Salaries Expense debit

Oct. 26 Bank Loan Payable credit

Oct. 28 Dividends Declared debit

Oct. 31 Income Tax Expense debit

LO 2 BT: AP Difficulty: M Time: 40 min. AACSB: None CPA: cpa-t001 CM: Reporting
 PROBLEM 3.4A

a.
(1) (2)
Account Increases Normal
By Balance
Accumulated depreciation Credit Credit
Administrative expenses Debit Debit
Buildings Debit Debit
Common shares, beginning of year Credit Credit
Cost of goods sold Debit Debit
Dividends declared Debit Debit
Finance income Credit Credit
Goodwill Debit Debit
Income tax expense Debit Debit
Income taxes recoverable Debit Debit
Inventories Debit Debit
Prepaid expenses Debit Debit
Retained earnings, beginning of year Credit Credit
Sales Credit Credit
Trade and other payables Credit Credit
Trade and other receivables Debit Debit
PROBLEM 3.4A (CONTINUED)

b.

Account Financial Statement

Accumulated depreciation Statement of Financial Position
Administrative expenses Statement of Income
Buildings Statement of Financial Position
Common shares, beginning of year Statement of Changes in Equity
Cost of goods sold Statement of Income
Dividends declared Statement of Changes in Equity
Finance income Statement of Income
Goodwill Statement of Financial Position
Income tax expense Statement of Income
Income taxes recoverable Statement of Financial Position
Inventories Statement of Financial Position
Prepaid expenses Statement of Financial Position
Retained earnings, beginning of year Statement of Changes in Equity
Sales Statement of Income
Trade and other payables Statement of Financial Position
Trade and other receivables Statement of Financial Position

Note: Beginning-of-the-year equity amounts such as opening common shares or

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

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

LO 2 BT: K Difficulty: S Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting
 PROBLEM 3.5A
(a)

Transaction 1 Feb.2: Purchased supplies on account for $600.

(1) Basic The asset account Supplies is increased by $600; the liability
Analysis account Accounts Payable is increased by $600.

(2) Equation
Analysis

Assets = Liabilities + Shareholders’

(3) Debit−Credit Debits increase assets: debit Supplies $600.

Analysis Credits increase liabilities: credit Accounts Payable $600.

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

loan due in three months.

(1) Basic The asset account Equipment is increased by $10,000; the

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

(2) Equation
Analysis

Assets = Liabilities + Shareholders’

(3) Debit−Credit Debits increase assets: debit Equipment $10,000.

Analysis Credits increase liabilities: credit Bank Loan Payable $10,000.
PROBLEM 3.5A (CONTINUED)

a. (continued)

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

$30,000 was received in cash. The balance was on account.

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

(2) Equation
Analysis

Assets = Liabilities + Shareholders’

Service
Cash Revenue
+$30,000 +$50,000

(3) Debit−Credit Debits increase assets: debit Cash $30,000.

Analysis Debits increase assets: debit Accounts Receivable $20,000.
Credits increase revenues: credit Service Revenue $50,000.
PROBLEM 3.5A (CONTINUED)

a. (continued)

Transaction 4 Feb.13: Declared and paid dividends of $500 to shareholders.

(1) Basic The asset account Cash is decreased by $500; the Dividends
Analysis Declared account is increased by $500.

(2) Equation
Analysis

Assets = Liabilities + Shareholders’

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

Analysis Credits decrease assets: credit Cash $500.

Transaction 5 Feb. 18: Received cash of $2,000 from a customer as a deposit for
services to be provided next month.

(1) Basic The asset account Cash is increased by $2,000; the liability
Analysis account Deferred Revenue is increased by $2,000.

(2) Equation
Analysis

Assets = Liabilities + Shareholders’

Equity

(3) Debit−Credit Debits increase assets: debit Cash $2,000.

Analysis Credits increase liabilities: credit Deferred Revenue $2,000.
PROBLEM 3.5A (CONTINUED)

a. (continued)

Transaction 6 Feb. 20: Paid amount owing from the supplies purchased on Feb.
2.

(1) Basic The asset account Cash is decreased by $600; the liability account
Analysis Accounts Payable is decreased by $600.

(2) Equation
Analysis

Assets = Liabilities + Shareholders’

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

Analysis Credits decrease assets: credit Cash $600.
PROBLEM 3.5A (CONTINUED)

a. (continued)

Transaction 7 Feb. 23: Collected $20,000 of the amount owing from the Feb. 6
transaction.

(1) Basic The asset account Cash is increased by $20,000; the asset
Analysis account Accounts Receivable is decreased by $20,000.

(2) Equation
Analysis

Assets = Liabilities + Shareholders’

Equity
Cash
+$20,000

(3) Debit−Credit Debits increase assets: debit Cash $20,000.

Analysis Credits decrease assets: credit Accounts Receivable $20,000.
PROBLEM 3.5A (CONTINUED)

a. (continued)

Transaction 8 Feb. 24: Paid office expenses for the month, $22,000.

(1) Basic The expense account Office Expense is increased by $22,000; the
Analysis asset account Cash is decreased by $22,000.

(2) Equation
Analysis

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

Analysis Credits decrease assets: credit Cash $22,000.
PROBLEM 3.5A (CONTINUED)

a. (continued)

Transaction 9 Feb.27: Recorded salaries due to employees for work performed

during the month, $14,000.

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

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

(2) Equation
Analysis

Assets = Liabilities + Shareholders’

(3) Debit−Credit Debits increase expenses: debit Salaries Expense $14,000.

Analysis Credits increase liabilities: credit Salaries Payable $14,000.

Transaction 10 Feb. 28: Paid interest of $50 on the bank loan signed on Feb. 3.

(1) Basic The expense account Interest Expense is increased by $50; the
Analysis asset account Cash is decreased by $50.

(2) Equation
Analysis

Assets = Liabilities + Shareholders’

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

Analysis Credits decrease assets: credit Cash $50.
PROBLEM 3.5A (CONTINUED)

b.
Feb. 2 Supplies........................................................... 600
Accounts Payable..................................... 600

3 Equipment........................................................ 10,000
Bank Loan Payable .................................. 10,000

6 Cash................................................................. 30,000
Accounts Receivable ....................................... 20,000 0
Service Revenue....................................... 50,000

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

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

18 Cash................................................................. 2,000
Deferred Revenue..................................... 2,000

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

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

23 Cash................................................................. 20,000
Accounts Receivable................................ 20,000

24 Office Expense................................................. 22,000

Cash......................................................... 22,000

27 Salaries Expense............................................. 14,000

Salaries Payable....................................... 14,000

28 Interest Expense.............................................. 50
Cash......................................................... 50

LO 1,2,3 BT: AN Difficulty: M Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 3.6A

April 1 Cash................................................................. 2,000,000

Bank Loan Payable................................... 2,000,000

2 Land................................................................. 1,000,000
Buildings.......................................................... 650,000
Equipment........................................................ 100,000
Cash......................................................... 750,000
Mortgage Payable..................................... 1,000,000

5 Advertising Expense........................................ 700

Cash......................................................... 700

10 Cash ................................................................ 50,000

Deferred Revenue..................................... 50,000

15 Salaries Expense............................................. 1,700

Cash......................................................... 1,700

17 Equipment........................................................ 15,000
Cash…………………………………………. 7,000
Accounts Payable..................................... 8,000

21 Utilities Expense............................................... 1,000

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

25 Prepaid Insurance............................................ 1,200

Cash......................................................... 1,200

29 Property Tax Expense...................................... 200

Cash......................................................... 200

30 Accounts Payable ........................................... 8,000

Cash......................................................... 8,000

31 Interest Expense.............................................. 2,500

Cash......................................................... 2,500

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

LO 3 BT: AP Difficulty: M Time: 25 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 3.7A

a.
Jan. 1 Cash................................................................. 7,000
Buildings.......................................................... 100,000
Common Shares....................................... 107,000

2 No entry. Not a transaction. Contingent on a

successful hire.

3 Supplies........................................................... 1,500
Accounts Payable..................................... 1,500

7 Accounts Receivable........................................ 2,000

Service Revenue....................................... 2,000

10 Cash................................................................. 4,000
Service Revenue....................................... 4,000

11 Accounts Payable............................................ 600

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

12 Professional Fees Expense............................. 500

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

15 Accounts Payable............................................ 500

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

19 Cash................................................................. 500
Deferred Revenue..................................... 500

21 Cash................................................................. 1,000
Accounts Receivable................................ 1,000

26 Income Tax Expense....................................... 500

Cash......................................................... 500
PROBLEM 3.7A (CONTINUED)

a. (continued)

Jan., 28 Salaries Expense............................................. 1,250

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

30 Dividends Declared.......................................... 150

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

31 Utilities Expense............................................... 500

Accounts Payable..................................... 500
 PROBLEM 3.7A (CONTINUED)

b.

Cash Bal. 6,000

Jan.. 1 7,000 Jan.11 600 Salaries Expense
Jan. 10 4,000 Jan. 15 500 Jan. 28 1,250
Jan. 19 500 Jan. 26 500
Jan. 21 1,000 Jan. 28 1,250 Professional Fees Expense
Jan. 30 150 Jan. 12 500

Bal. 9,500 Utilities Expense

Jan. 31 500
Accounts Receivable
Jan. 7 2,000 Jan. 21 1,000
Bal. 1,000 Income Tax Expense
Supplies Jan. 26 500
Jan. 3 1,500
Buildings
Jan. 1 100,000

Accounts Payable
Jan. 11 600 Jan. 3 1,500
Jan. 15 500 Jan. 12 500
Jan. 31 500
Bal. 1,400

Deferred Revenue
Jan. 19 500

Common Shares
Jan. 1 107,000

Dividends Declared
Jan 30. 150

Service Revenue
Jan. 7 2,000
Jan. 10 4,000
PROBLEM 3.7A (CONTINUED)

c. This suggestion is not a good idea. Journals are used to record

transactions. A general ledger is not intended to be used to capture the
recording of transactions, but to tabulate the effects of transactions in
separate accounts. The balances arrived at in the ledger are then used to
communicate information to the users of the financial statements. If one
attempted to omit the use of journal entries, one could not retrace the
transactions as they originated in the journal. One would only see one
side of a transaction at a time by looking at an account in the ledger. It
would become very confusing and unruly to try to keep track of
transactions.

LO 3,4 BT: AP Difficulty: M Time: 45 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 3.8A
a.
Apr Development Costs.......................................... 30,000
1 Accounts Payable..................................... 10,000
Cash......................................................... 20,000

3 Accounts Payable ........................................... 68,000

Cash......................................................... 68,000

5 No entry

10 Advertising Expense........................................ 18,000

Cash.......................................................... 18,000

11 Advertising Expense........................................ 50,000

Cash.......................................................... 50,000

17 Equipment........................................................ 192,000
Accounts Payable..................................... 192,000

18 Cash................................................................. 42,000
Advertising Revenue................................. 42,000

19 Loan Payable................................................... 1,500

Interest Expense.............................................. 500
Cash......................................................... 2,000

22 Utilities Expense............................................... 2,300

Cash......................................................... 2,300

23 Professional Fees Expense............................. 13,000

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

24 Advertising Expense........................................ 6,600

Cash......................................................... 6,600

30 Cash................................................................. 140,000
Deferred Revenue..................................... 140,000
PROBLEM 3.8A (CONTINUED)

a. (Continued)

30 Salaries Expense............................................. 112,000

Cash......................................................... 112,000

30 Cash................................................................. 100,000
Loan Payable............................................ 100,000
 PROBLEM 3.8A (CONTINUED)

b.
Cash
Mar. 31 Bal.220,000 Apr. 1 20,000
Apr. 18 42,000 Apr. 3 68,000
Apr. 30 140,000 Apr. 10 18,000
Apr. 30 100,000 Apr. 11 50,000
Apr. 19 2,000
Apr. 22 2,300
Apr. 23 13,000
Apr. 24 6,600
Apr. 30 112,000

Bal. 210,100

Development Costs
Mar. 31 Bal. 290,000
Apr. 1 30,000
Bal. 320,000

Land
Mar. 31 Bal. 860,000

Buildings
Mar. 31 Bal. 540,000

Accumulated Depreciation-Buildings
Mar. 31 Bal.100,000

Equipment
Mar. 31 Bal. 280,000
Apr. 17 192,000
Bal. 472,000

Accumulated Depreciation-Equipment
Mar. 31 Bal. 50,000

Accounts Payable
Apr. 3 68,000 Mar. 31 Bal. 115,000
Apr. 1 10,000
Apr. 17 192,000
Bal. 249,000
PROBLEM 3.8A (CONTINUED)

Loan Payable
Apr. 19 1,500 Mar. 31 Bal. 915,000
Apr. 30 100,000
Bal. 1,013,500

Deferred Revenue
Apr 30 140,000
Bal. 140,000

Common Shares
Mar. 31 Bal. 497,000

Retained Earnings
Mar. 31 Bal. 513,000

Advertising Revenue
Apr. 18 42,000

Advertising Expense
Apr. 10 18,000
Apr. 11 50,000
Apr. 24 6,600
Bal. 74,600

Salaries Expense
Apr. 30 112,000

Professional Fees Expense

Apr. 30 13,000

Utilities Expense
Apr. 22 2,300

Interest Expense
Apr. 19 500
PROBLEM 3.8A (CONTINUED)

c.
METAPLAY INC.
Trial Balance
April 30, 2024

Debit Credit
Cash $ 210,100
Development costs 320,000
Land 860,000
Buildings 540,000
Equipment 472,000
Accumulated depreciation-buldings $100,000
Accumulted depreciation-equipment 50,000
Accounts payable 249,000
Loan payable 1,013,500
Deferred revenue 140,000
Common shares 497,000
Retained earnings 513,000
Advertising revenue 42,000
Advertising expense 74,600
Salaries expense 112,000
Professional fees expense 13,000
Utilities expense 2,300
Interest expense 500 0
Totals $ 2,604,500 $ 2,604,500

[Liabilities (loan payable) and shareholders’ equity items such as common shares,
retained earnings, and revenue accounts (fees earned and concession revenue) have
credit balances]

LO 3,4,5 BT: AP Difficulty: M Time: 50 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 3.9A

a.
May 1 Rent Expense................................................... 1,000
Cash......................................................... 1,000
4 Accounts Payable............................................ 1,100
Cash......................................................... 1,100

7 Cash................................................................. 1,500
Deferred Revenue..................................... 1,500

15 Cash................................................................. 2,000
Service Revenue....................................... 2,000

15 Salaries Expense............................................. 1,200

Cash......................................................... 1,200

17 Deferred Revenue ........................................... 700

Service Revenue....................................... 700

18 Accounts Payable............................................ 1,000 0

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

22 Supplies........................................................... 700
Accounts Payable..................................... 700

24 Advertising Expense........................................ 500

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

25 Utilities Expense............................................... 400

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

28 Cash................................................................. 2,100
Service Revenue....................................... 2,100
PROBLEM 3.9A (CONTINUED)

a. (continued)

May 29 Deferred Revenue............................................ 600

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

30 Interest Expense.............................................. 50
Cash......................................................... 50

31 Salaries Expense............................................. 1,200

Cash......................................................... 1,200

31 Income Tax Expense....................................... 150

Cash......................................................... 150
PROBLEM 3.9A (CONTINUED)

b.
Cash May 15 2,000
Apr. 30 5,000 May 1 1,000 17 700
May 7 1,500 4 1,100 28 2,100
15 2,000 15 1,200 29 600
28 2,100 18 1,000 Bal. 5,400
25 400
30 50 Salaries Expense
31 1,200 May 15 1,200
31 150 31 1,200
Bal. 4,500 Bal. 2,400

Supplies Rent Expense

Apr. 30 500 May 1 1,000
May 22 700 Advertising Expense
Bal. 1,200 May 24 500

Equipment Utilities Expense

Apr. 30 28,000 May 25 400

Accumulated Depreciation-Equipment Interest Expense

Apr. 30 4,000 May 30 50

Accounts Payable Income Tax Expense

Apr. 30 2,100 May 31 150
May 4 1,100 May 22 700
18 1,000 24 500
Bal. 1,200

Deferred Revenue
May 17 700 Apr. 30 1,000
29 600 May 7 1,500
Bal. 1,200

Bank Loan Payable

Apr 30 10,000

Common Shares
Apr. 30 5,000

Retained Earnings
Apr. 30 11,400

Service Revenue
PROBLEM 3.9A (CONTINUED)

c.
PAMPER ME SALON INC.
Trial Balance
May 31, 2024

Debit Credit
Cash $ 4,500
Supplies 1,200
Equipment 28,000
Accumulated depreciation-equipment $ 4,000
Accounts payable 1,200
Deferred revenue 1,200
Bank loan payable 10,000
Common shares 5,000
Retained earnings 11,400
Service revenue 5,400
Salaries expense 2,400
Rent expense 1,000
Advertising expense 500
Utilities expense 400
Interest expense 50
Income tax expense 150
Totals $38,200 $38,200

(Asset and expense accounts have debit balances)

LO 3,4,5 BT: AP Difficulty: M Time: 50 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 3.10A
a.
TAGGAR ENTERPRISES INC.
Trial Balance
June 30, 2024

Debit Credit
Cash $ 1,800
Accounts receivable 3,000
Prepaid insurance 900
Long-term investments 3,550
Land 12,500
Buildings 15,000
Accumulated depreciation—buildings $ 4,000
Equipment 3,000
Accumulated depreciation—equipment 1,000
Accounts payable 3,500
Income tax payable 100
Mortgage payable, due 2028 15,000
Common shares 5,000
Retained earnings 6,250
Dividends declared 2,000
Service revenue 25,000
Salaries expense 13,700
Office expense 3,300
Interest expense 100
Income tax expense 1,000
Totals $59,850 $59,850

(Asset, dividends declared, and expense accounts have debit balances. Liability,
common shares, retained earnings, and revenue accounts have credit balances)
PROBLEM 3.10A (CONTINUED)

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

LO 5 BT: AP Difficulty: M Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 3.11A

TAGGAR ENTERPRISES INC.

Statement of Income
Year Ended June 30, 2024

Service revenue $25,000

Expenses
Salaries expense $13,700
Office expense 3,300
Interest expense 100
Total expenses 17,100
Income before income tax 7,900
Income tax expense 1,000
Net income $ 6,900

TAGGAR ENTERPRISES INC.

Statement of Changes in Equity
Year Ended June 30, 2024

Common Retained
Shares Earnings Total Equity

Balance, July 1, 2023 $3,000 $ 6,250 $ 9,250

Issued common shares 2,000 2,000
Net income 6,900 6,900
Dividends declared __ ___ (2,000) (2,000)
Balance, June 30, 2024 $5,000 $11,150 $16,150
PROBLEM 3.11A (CONTINUED)
TAGGAR ENTERPRISES INC.
Statement of Financial Position
June 30, 2024

Assets
Current assets
Cash $1,800
Accounts receivable 3,000
Prepaid insurance 900
Total current assets $5,700
Long-term investments 3,550
Property, plant, and equipment
Land $ 12,500
Buildings $15,000
Less: Accumulated depreciation 4,000 11,000
Equipment $3,000
Less: Accumulated depreciation 1,000 2,000
Total property, plant, and equipment 25,500
Total assets $34,750
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $3,500
Income tax payable 100
Current portion of mortgage payable 1,250
Total current liabilities $ 4,850
Non-current liabilities
Mortgage payable 13,750
Total liabilities 18,600
Shareholders’ equity
Common shares $ 5,000
Retained earnings 11,150
Total shareholders' equity 16,150
Total liabilities and shareholders' equity $34,750
[Ending retained earnings = Beginning retained earnings ± Net income or (loss) – dividends
declared]
LO 5 BT: AP Difficulty: M Time: 30 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 3.12A

a. (1) General: Three accounts are listed in the wrong columns: Cash (debit),
Accumulated Depreciation (credit), and Deferred Revenue (credit).

(2)
1. The trial balance totals are not affected, only the amounts appearing on the
trial balance are affected. Cash would be understated by $180 ($750 – $570)
and Accounts Receivable overstated by the same amount. Note that Cash
was one of the accounts listed in the wrong column (credit instead of debit).
2. The trial balance totals are not affected, only the accounts and amounts
appearing on the trial balance are affected. Equipment would be understated
by $360 and Supplies overstated by the same amount.
3. Trial balance is out of balance because of the slide error (wrong number of
zeros/position of decimal spot). Service Revenue would be understated by
$801 ($890 – $89) and the total for the credit column is lower by the same
amount.
4. Trial balance is out of balance because of transposition error. Salaries
Expense is understated by $900 ($4,300 – $3,400) and the total for the debit
column is lower by the same amount.
5. The trial balance totals are not affected by this omission; only the accounts
and amounts appearing on the trial balance are affected. Rent Expense
would be understated by $1,000 (should be shown on the trial balance) and
Cash overstated by the same amount. Note that Cash is one of the accounts
listed in the wrong column (credit instead of debit).
PROBLEM 3.12A (CONTINUED)

b.
CANTPOST LTD.
Trial Balance
June 30, 2024

Debit Credit

Cash ($1,241 + $750 – $570 − $1,000) $ 421

Accounts receivable ($2,630 – $750 + $570) 2,450
Supplies ($860 – $360) 500
Equipment ($3,000 + $360) 3,360
Accumulated depreciation—equipment $ 600
Accounts payable 2,665
Deferred revenue 1,200
Common shares 1,000
Dividends declared 800
Service revenue ($8,440 – $89 + $890) 9,241
Salaries expense (given) 4,300
Rent expense 1,000
Office expense 910
Depreciation expense 600
Income tax expense 365 0
Totals $14,706 $14,706

Note that the opening retained earnings balance is zero, as this is the company’s first
year of operations.

(Asset, dividends declared, and expense accounts have debit balances)

LO 5 BT: AN Difficulty: C Time: 35 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting