Demonstration Problem

Chapter 1
The Demonstration Problem below includes an Action Plan. Once you've completed the problem, you can
compare to the Solution, also available below.

Problem 1
The following is a list of some users of accounting information.

(a) (b)

Internal or
User External Question

1. Canada Revenue External Is the company following the tax laws? (Can reference GST/HST,
Agency employee payroll deductions, or income tax)

2. Controller

3. Human resources

4. Provincial securities
commissions

5. Labour union

6. Information Technology
manager

7. Vice President of
Finance

8. Investors

9. Marketing manager

10. Creditor – bank loan

officer

11. Customers

12. Supplier

Instructions
a. For each type of user determine whether they are an internal or an external user. The first one has been
done for you as an example.
b. For each type of user provide an example of a question that might be asked by that user. The first one has
been done for you as an example.

Action Plan

Understand that internal users work for the company and have direct access to the business’s
accounting information.
Understand that external users are users who do not work for the company and have access to only
the accounting information available publicly and/or provided to them by the company.
Understand that users require information to make decisions.

Next: View the Solution ([Link])

Demonstration Problem

Chapter 1

Problem 1: Solution
(a) (b)

Internal or
User External Question

1. Canada Revenue External Is the company following the tax laws? (Can reference GST/HST,
Agency employee payroll deductions, or income tax)

2. Controller Internal How profitable is our company?

3. Human resources Internal How many new employees can we afford to hire this year?

Can we afford to give our employees a raise or change the

benefits package offered?

4. Provincial securities External Is the company respecting the established rules?

commissions

5. Labour union External Can the company afford to pay increased salaries and benefits
to the union members?

6. Information Technology Internal Can we afford to purchase new computers and a new system
manager this year?

7. Vice President of Internal Do we have enough cash to pay the bills?

Finance
How is our financial performance compared to the budget?

8. Investors External Should I buy shares?

Should I hold the shares I own?

Should I sell the shares I own?

9. Marketing manager Internal What selling price should we set for our products?

How profitable will our new sales campaigns be based on our

projections?

10. Creditor – bank loan External Will the company be able to pay the interest and the principal on
officer a loan?
 (a) (b)

Internal or
User External Question

11. Customers External If I buy the extended warranty, can I count on the company
being able to service the product?

12. Supplier External Should we offer credit to the company for our inventory?

Please note that there are many other questions that would be acceptable. These are example questions that the
user could ask.

Back: Problem 1 ([Link])

Demonstration Problem

Chapter 1
Once you've completed the problem, you can compare to the Solution, also available below.

Problem 2
Instructions
For each of the following descriptions, decide if the business has been formed as: a proprietorship, a partnership
or a corporation.

1. This business is responsible for its debts and paying taxes on its profits.
2. This business is owner by one owner.
3. This business is often used for service-type businesses such as lawyers and accountants.
4. This business offers its owners limited liability.
5. This business is a separate legal entity from its owners.
6. This business has two or more owners and has unlimited liability.
7. Ownership of this business is easily transferred from one owner to another.
8. This business has a single owner who pay income tax on the profit of the business.
9. This business has the best chance of having a long life.
10. This business is usually the easiest form of organization to set up.
11. This business is generally the easiest form of organization to raise capital.

Next: View the Solution ([Link])

Demonstration Problem

Chapter 1

Problem 2: Solution
1. Corporation
2. Proprietorship
3. Partnership
4. Corporation
5. Corporation
6. Partnership
7. Corporation
8. Proprietorship
9. Corporation
10. Proprietorship
11. Corporation

Back: Problem 2 ([Link])

Demonstration Problem

Chapter 1
Once you've completed the problem, you can compare to the Solution, also available below.

Problem 3
Instructions
Match the items selected from the conceptual framework shown below by entering the appropriate code letter in
the space provided.

A. Relevance
B. Comparability
C. Historical cost
D. Timeliness
E. Verifiability
F. Understandability

_____ 1. Information is classified, characterized, and presented clearly and concisely.

_____ 2. Information that has a bearing on a decision.
_____ 3. Different companies using the same accounting principles.
_____ 4. Different knowledgeable and independent users can reach consensus that the information is
faithfully represented.
_____ 5. Information must be available to decision makers before it loses its ability to influence decisions.
_____ 6. Assets are generally reported at the amount paid for the asset.

Next: View the Solution ([Link])

Demonstration Problem

Chapter 1

Problem 3: Solution
1. F Understandability
2. A Relevance
3. B Comparability
4. E Verifiability
5. D Timeliness
6. C Historical cost

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Demonstration Problem

Chapter 1
The Demonstration Problem below includes an Action Plan. Once you've completed the problem, you can
compare to the Solution, also available below.

Problem 4
Listed in alphabetical order, the following selected accounts were taking from Doolan Legal Services Company’s
April 30, 2021, financial statements:

Account Name Type of Account Financial Statement

1. Advertising Expense E IS

2. Accounts Payable

3. Accounts Receivable

4. Building

5. Cash

6. Insurance Expense

7. Interest Expense

8. Interest Payable

9. Land

10. Mortgage Payable

11. Repairs Expense

12. S. Doolan, Capital, May 1

13. S. Doolan, Drawings

14. Salaries Expense

15. Service Revenue

16. Supplies

17. Vehicles

Instructions
a. For each account, identify in the column labelled “Type of Account” whether the item is an asset (A), liability
(L), capital (C), drawings (D), revenue (R), or expense (E) item. The first one has been done for you as an
example.
b. For each account, identify in the column labelled “Financial Statement” which financial statement the item
would be reported on – income statement (IS), statement of owner’s equity (OE), or balance sheet (BS). The
first one has been done for you as an example.

Action Plan

Understand that assets are resources owned or controlled by the business.

Understand that liabilities are amounts owed by the business.
Understand that owner’s equity is the owner’s claim on the assets of the company. It is the residual
equity of assets minus liabilities. Owner’s equity is affected by profit or loss. Revenues (business
activities that are undertaken to earn profit) increase owner’s equity and expenses (costs of assets
that are consumed and services that are used) decrease owner’s equity.
Recall what information is included in each of the financial statements.

Next: View the Solution ([Link])

Demonstration Problem

Chapter 1

Problem 4: Solution
Account Name Type of Account Financial Statement

1. Advertising Expense E IS

2. Accounts Payable L BS

3. Accounts Receivable A BS

4. Building A BS

5. Cash A BS

6. Insurance Expense E IS

7. Interest Expense E IS

8. Interest Payable L BS

9. Land A BS

10. Mortgage Payable L BS

11. Repairs Expense E IS

12. S. Doolan, Capital, May 1 C OE

13. S. Doolan, Drawings D OE

14. Salaries Expense E IS

15. Service Revenue R IS

16. Supplies A BS

17. Vehicles A BS

Back: Problem 4 ([Link])

Demonstration Problem

Chapter 1
The Demonstration Problem below includes an Action Plan. Once you've completed the problem, you can
compare to the Solution, available below.

Problem 5
J. Daigle's Payroll Services Company entered into the following transactions during May 2024.

1. Purchased computers for $15,000 from Bytes of Data on account.

2. Paid $3,000 cash for May rent on storage space.
3. Received $12,000 cash from customers for contracts billed in April.
4. Performed payroll services for Magic Construction Company for $2,500 cash.
5. Paid Northern Power Co. $700 cash for energy usage in May.
6. Daigle invested an additional $25,000 in the business.
7. Paid Bytes of Data for the computers purchased in 1. above.
8. Incurred advertising expense for May of $900 on account.
9. Daigle withdrew $1,000 cash for personal use.
10. Supplies worth $400 were purchased using cash.

Instructions
Indicate with the appropriate letter whether each of the transactions above results in:

a. an increase in assets and a decrease in assets.

b. an increase in assets and an increase in owner's equity.
c. an increase in assets and an increase in liabilities.
d. a decrease in assets and a decrease in owner's equity.
e. a decrease in assets and a decrease in liabilities.
f. an increase in liabilities and a decrease in owner's equity.
g. an increase in owner's equity and a decrease in liabilities.

Note: the letters may be used more than once or not at all.

Action Plan

Analyze the effects of each transaction on the accounting equation.

Understand that assets are resources owned or controlled by the business.
Understand that liabilities are amounts owed by the business.
Understand that owner's equity is the owner's claim on the assets of the company. It is the residual
equity of assets minus liabilities. Owner's equity is affected by profit or loss. Revenues (business
activities that are undertaken to earn profit) increase owner's equity and expenses (costs of assets
that are consumed and services that are used) decrease owner's equity.
For each transaction (1 through 10) determine which letter scenario explains the transaction.

Next: View the Solution ([Link])

Demonstration Problem

Chapter 1

Problem 5: Solution
Trans. Solution Basic Analysis

1 c The asset Equipment is increased by $15,000 and the liability Accounts Payable is increased
by the same amount.

2 d The asset Cash is decreased by $3,000 and the owner's equity expense account Rent
Expense is increased by the same amount, which then decreases owner's equity.

3 a The asset Cash is increased by $12,000 and the asset Accounts Receivable is decreased by
the same amount.

4 b The asset Cash is increased by $2,500 and the owner's equity account Service Revenue is
increased by the same amount.

5 d The asset Cash is decreased by $700 and the owner's equity expense account Utilities
Expense is increased by the same amount, which then decreases owner's equity.

6 b The asset Cash is increased by $25,000 and the owner's equity account J. Daigle, Capital is
increased by the same amount.

7 e The asset Cash is decreased by $15,000 and the liability Accounts Payable is decreased by
the same amount.

8 f The liability Accounts Payable is increased by $900 and the owner's equity expense account
Advertising Expense is increased by the same amount, which then decreases owner's equity.

9 d The asset Cash is decreased by $1,000 and the owner's equity account J. Daigle, Drawings is
increased by the same amount, which then decreases owner's equity.

10 a The asset Cash is decreased by $400 and the asset Supplies is increased by the same
amount.
Problem 6
Andre Catapang, a CPA, operates an accounting office under the name Andre Catapang, Chartered
Professional Accountant. On June 30, 2024, the balance sheet showed: Cash $3,000, Accounts
Receivable $1,200, Supplies $600, Equipment $5,900, Accounts Payable $3,400, and A. Catapang,
Capital, $7,300.

During July, the following transactions occurred:

1. Collected $900 of the accounts receivable.

2. Paid $2,500 cash on accounts payable.
3. Performed services of $8,500, of which $3,000 is collected in cash and the balance is due in
August.
4. Purchased additional equipment for $1,200, paying $500 in cash and the balance on
account.
5. Paid salaries $1,500, rent for July $750, supplies $200, and advertising expenses $250.
6. Withdrew $1,200 in cash for personal use.
7. Received $3,000 from the Royal Bank representing money borrowed on a note payable.
8. Incurred utility expenses for month on account, $250.
9. Supplies on hand at the end of July were $500. (Hint: You have to add the supplies on hand
at June 30 to the supplies purchased during July and then subtract the supplies on hand at
the end of July. This will give you the amount of supplies used, which reduces the asset and
represents an expense.)

Instructions
1. Beginning with June 30 balances, prepare a tabular analysis of the July transactions.
2. Prepare an income statement for July, a statement of owner's equity for July, and a balance
sheet at July 31.
3. Currently, the business is a proprietorship. What would be the advantages of incorporating
the business?
A ANDRE CATAPANG, CHARTERED PROFESSIONAL ACCOUNTANT

Assets Liabilities + Owner's Equity

Accounts A. Catapang,
Trans: Cash + Receivable + Supplies + Equipment = Notes Payable + Accounts Payable + Capital -
Balance $3.000 $1.200 $600 $5.900 $3.400 $7.300
1 $900 -$900
2 -$2.500 -$2.500
3 $3.000 $5.500
4 -$500 $1.200 $700
5 -$1.500
-$750
-$200 $200
-$250
6 -$1.200
7 $3.000 $3.000
8 $250
9 -$300
Total $3.000 $5.800 $500 $7.100 # $3.000 $1.850 # $7.300

Assets 16.400

Liabilities 4.850
Owner's Equity 11.550
Total 16.400

FileName: Problem 1.6 (solution), Tab: Tabular Analysis, Page 1 of , 25/06/2024, 10:22 a. m.
COUNTANT

Owner's Equity
A. Catapang,
Drawings + Revenues - Expenses

$8.500

-$1.500
-$750

-$250
-$1.200

-$250
-$300
-$1.200 $8.500 -$3.050

FileName: Problem 1.6 (solution), Tab: Tabular Analysis, Page 2 of , 25/06/2024, 10:22 a. m.
Demonstration Problem

Chapter 1
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 7
Danielle Young decided to start her own home-based document translation service so that she can have more
time to spend with her children. She started her business on November 1, 2024 under the name Young Document
Translations. The following transactions were completed during the month:

Nov. 1 Deposited $18,000 cash at the Bank of Montreal in a new bank account in the name of her business.

2 Purchased equipment for $4,000. Paid $500 in cash with the balance on account.

4 Purchased office supplies for $250 cash.

7 Incurred $340 of advertising costs, on account.

10 Provided translation services for which she was paid $2,000 cash.

16 Purchased educational computer games for her children for $110 with cash from her personal
account.

25 Withdrew $1,750 cash for personal use.

27 Provided $4,000 of translation services to a client on account.

28 Paid monthly expenses: utilities $300, Internet $75, and telephone $73.

29 Received a call from a customer for a translation contract worth $8,000. Danielle will receive the
documents and start work on this contract next week.

30 Paid the amount due for the November 7 transaction.

Instructions
A. Prepare a tabular analysis of the November transactions.
B. From an analysis of the appropriate columns in the tabular analysis, calculate profit or loss for November.
C. (1) Identify two internal users of Young’s accounting information and write a question that each user might
try to answer by using the accounting information. (2) Identify one external users of Young’s accounting
information and write a question that the user might try to answer by using the accounting information.
 Action Plan

Understand that internal users work for the business and have direct access to the business’s
accounting information.
Understand that external users are users that do not work for the company and have access to only
the accounting information provided to them by the business.
Understand that users require information to make decisions.
Only transactions that change the business’s financial position are recorded.
Assets must equal liabilities plus owner's equity after each transaction.
Investments and revenues increase owner's equity.
Withdrawals and expenses decrease owner's equity.
Profit is the amount by which revenues exceed expenses. Loss is the amount by which expenses
exceed revenues.

Download the Working Papers (Excel Spreadsheet) (ch01_d7_worksheet.xls)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 1

Problem 7: Solution
A.

YOUNG DOCUMENT TRANSLATIONS

Assets = Liabilities + Owner's Equity

+ + + + + − + −

Trans. Cash Accounts Supplies Equipment Accounts D. D. Revenues Expen

Receivable Payable Young, Young,
Capital Drawings

Nov. 1 $18,000 +$18,000

2 −500 +$4,000 +$3,500

4 −250 +$250

7 +340 −$

10 +2,000 +2,000

16

22

25 −1,750 −$1,750

27 +$4,000 +4,000

28 −300 −

28 −75

28 −73

29

30 −340 −340

Total $16,712 +$4,000 +$250 +$4,000 = +$3,500 + +$18,000 −$1,750 +$6,000 −$

$24,962 = $24,962

Notes:
The November 16 transaction is not relevant to the business entity as it is a personal transaction (the reporting
entity assumption).
The November 29 transaction is not recorded because the transaction is not completed yet. Danielle has not
received any cash nor performed any services so has not earned any revenue on this contract.

B.

YOUNG DOCUMENT TRANSLATIONS

Income Statement
Month Ended November 30, 2024

Revenue

Service Revenue $6,000

Expenses

Advertising expense $340

Internet expense 75

Telephone expense 73

Utilities expense 300

Total expenses 788

Profit for the month $5,212

C.

(1)

Danielle Young — Does the business generate enough cash to live on? Is the amount charged to customers for
services appropriate such that enough profit is being generated?

Employees — How much is the business’s annual profit and salary expense? Can the business afford to pay the
employees more?

(2)

Creditor — Does the business have enough cash available to meet its obligations to pay for purchases made on
account? Should we allow the business to continue to make purchases on account, or should we demand cash
immediately for all purchases?

Back: Problem 7 ([Link])

Demonstration Problem

Chapter 2
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 1
Selected transactions for R. Song, an interior decorator, in her first month of business are as follows:

Jan. 2 Ruija Song invested $10,000 cash in her business.

3 Purchased a used car for $3,000 cash for use in business.

9 Purchased supplies on account for $600.

11 Billed customers $2,400 for services provided.

16 Paid $350 cash for advertising.

20 Received $900 cash from customers billed on January 11.

23 Paid $300 cash on balance owed from January 9 transaction.

28 Owner withdrew $1,000 cash for personal use.

31 Collected $800 cash in advance for a decorating contract to be provided February 10.

Instructions
For each transaction, indicate the following:

a. The basic type of account debited and credited (Asset, Liability, Owner's Equity).
b. The specific account debited and credited (Cash, Rent Expense, Service Revenue, etc.).
c. Whether the specific account is increasing or decreasing.
d. The normal balance of the specific account.

Use the following format, in which the January 2 transaction is given as an example.
 Account Debited Account Credited

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

Basic Specific Normal Basic Specific Normal

Date Type Account Effect Balance Type Account Effect Balance

Jan Asset Cash Increase Debit Owner's R. Song, Increase Credit

2 Equity Capital

Action Plan

Analyze the accounts being adjusted in each transaction.

Determine which account is being debited and which account is being credited.
For each account that is being adjusted, determine which basic account type it is: Asset, Liability, or
Owner's Equity.
Determine the actual account name that will be debited or credited. Accounts names are specific
names like Cash, Accounts Payable, Service Revenue, and Rent Expense.
Determine if the transaction will be increasing or decreasing the balance of the specific account.
Based on the basic type of account (in the third point above) determine if the normal balance is a
debit or credit.

Download Working Papers (Excel Spreadsheet) (ch02_d1_worksheet.xls)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 2

Problem 1: Solution
Account Debited Account Credited

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

Basic Specific Normal Basic Specific Normal

Date Type Account Effect Balance Type Account Effect Balance

Jan Asset Cash Increase Debit Owner's R. Song, Increase Credit

2 Equity Capital

3 Asset Vehicles Increase Debit Asset Cash Decrease Debit

9 Asset Supplies Increase Debit Liability Accounts Increase Credit

Payable

11 Asset Accounts Increase Debit Owner's Service Increase Credit

Receivable Equity Revenue

16 Owner's Advertising Increase Debit Asset Cash Decrease Debit

Equity Expense

20 Asset Cash Increase Debit Asset Accounts Decrease Debit

Receivable

23 Liability Accounts Decrease Credit Asset Cash Decrease Debit

Payable

28 Owner's R. Song, Increase Debit Asset Cash Decrease Debit

Equity Drawings

31 Asset Cash Increase Debit Liability Unearned Increase Credit

Revenue

Back: Problem 1 ([Link])

Demonstration Problem

Chapter 2
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 2
Thind Security Company provides security services. Selected transactions for Thind are presented below.

Oct. 1 Rasna Thind invested $66,000 cash in the business.

2 Hired a part-time security consultant. Salary will be $2,000 per month and the employee's first day
of work will be October 16.

2 Paid $500 for advertising for this month.

3 Paid the $185 monthly insurance premium.

4 Paid October rent, $950.

7 Purchased equipment for $18,000, paying $4,000 cash and signing a note payable for the balance.

10 Received the bill for equipment repair costs of $390. This is due on November 5.

12 Provided security services for an event for $3,200 on account.

16 Purchased supplies for $410 on account.

24 Received and paid the October utility bill for $148.

26 Received the payment in full from the client billed in the October 12 transaction.

26 Provided security services to a client and collected $550 cash.

28 Collected a $1,400 cash advance for a security contract that begins on November 1.

29 Received the October telephone bill for $175. It will be paid in November.

30 Paid the balance due for the purchase of supplies on October 16.

31 Made a $580 payment on the note payable. Of this amount, $80 is interest and the remainder is a
principal repayment on the note payable.

31 Paid Rasna, the owner, $2,500 cash for her personal use.

31 Paid the employee salary of $1,000.

Instructions
Prepare the journal entries to record each of the events listed.

Action Plan

Separate journal entries are made for each transaction.

In journalizing, make sure debits equal credits.
Provide an appropriate description of each journal entry.

Download Working Papers (Excel Spreadsheet) (ch02_d2_worksheet.xls)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 2

Problem 2: Solution
GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

Oct 1 Cash 66,000

R. Thind, Capital 66,000

Invested cash in business.

2 No entry – not a transaction.

2 Advertising Expense 500

Cash 500

Paid for October advertising.

3 Insurance Expense 185

Cash 185

Paid the October insurance premium.

4 Rent Expense 950

Cash 950

Paid the October office rent.

7 Equipment 18,000

Cash 4,000

Notes Payable 14,000

Purchased furniture with down payment.

 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

10 Repairs Expense 390

Accounts Payable 390

Recorded repair costs to be paid in Nov.

12 Accounts Receivable 3,200

Service Revenue 3,200

Provided service on account.

16 Supplies 410

Accounts Payable 410

Purchased supplies on account.

24 Utilities Expense 148

Cash 148

Paid October utility bill.

26 Cash 3,200

Accounts Receivable 3,200

Collected payment from client account.

26 Cash 550

Service Revenue 550

Cash collections on service provided.

28 Cash 1,400

Unearned Revenue 1,400

Collected payment in advance for Nov. service.

 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

29 Telephone Expense 175

Accounts Payable 175

Recorded October telephone bill to be paid in Nov.

30 Accounts Payable 410

Cash 410

Paid for supplies purchased on account.

31 Interest Expense 80

Notes Payable 500

Cash 580

Paid interest and portion of note payable for Oct.

31 R. Thind, Drawings 2,500

Cash 2,500

Withdrew cash for personal use.

31 Salaries Expense 1,000

Cash 1,000

Paid employee's salary for 2 weeks in Oct.

Back: Problem 2 ([Link])

Demonstration Problem

Chapter 2
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 3
Ming Wong started an editing business on June 1. The following is a list of events and transactions that occurred
concerning Ming's new business.

June 1 Ming Wong invested equipment worth $4,500 into the business.

1 Ming opened a business bank account and deposited personal cash in the amount of $5,000.

2 Paid June's rent for the office, $1,200.

7 Paid for supplies, $200.

10 Performed editing services for a client and received cash of $2,500.

15 Paid the secretary's salary of $1,100.

16 Collected a $3,500 cash advance for an editing contract that will begin in July.

18 Provided editing services for $3,700 on account.

19 Purchased supplies for $300 on account.

21 Received and paid the June cellphone bill for $130. [Hint: use Utilities Expense.]

26 Received the payment in full from the client billed in the June 18 transaction.

27 Received the June utility bill for $120. It will be paid in July.

29 Paid the balance due for the purchase of supplies on June 19.

29 Ming withdrew $600 cash for personal expenses.

30 Received the bill for equipment repair costs of $390. This is due on July 5.

30 Paid the secretary's salary of $1,100.

Instructions
Prepare the journal entries to record each of the events listed.
 Action Plan

Separate journal entries are made for each transaction.

In journalizing, make sure debits equal credits.
Provide an appropriate description of each journal entry.

Download Working Papers (Excel Spreadsheet) (ch02_d3_worksheet.xls)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 2

Problem 3: Solution
GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

June 1 Equipment 4,500

Ming Wong, Capital 4,500

Invested equipment into the business.

1 Cash 5,000

Ming Wong, Capital 5,000

Invested cash into the business.

2 Rent Expense 1,200

Cash 1,200

Paid rent.

7 Supplies 200

Cash 200

Paid for supplies.

10 Cash 2,500

Service Revenue 2,500

Received cash for services performed.

15 Salaries Expense 1,100

Cash 1,100
 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

Paid employee salaries.

16 Cash 3,500

Unearned Revenue 3,500

Collected cash in advance of performing work.

18 Accounts Receivable 3,700

Service Revenue 3,700

Performed services on account.

19 Supplies 300

Accounts Payable 300

Purchased supplies on account.

21 Utilities Expense 130

Cash 130

Paid cellphone bill.

26 Cash 3,700

Accounts Receivable 3,700

Collection on account.

27 Utilities Expense 120

Accounts Payable 120

Received utility bill.

29 Accounts Payable 300

Cash 300

Payment on account.
 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

29 Ming Wong, Drawings 600

Cash 600

Owner withdrew cash for personal use.

30 Repairs Expense 390

Accounts Payable 390

Received repair bill for equipment.

30 Salaries Expense 1,100

Cash 1,100

Paid employee salaries.

Back: Problem 3 ([Link])

Demonstration Problem

Chapter 2
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 4
Alana Tofan Legal Services was formed on March 1. The following transactions took place during the first month:

Mar 1 Alana Tofan invested $41,400 cash in the business, as its sole owner.

1 Hired a secretary-receptionist at a salary of $2,100 per month.

1 Signed a two-year rental agreement for an office and paid $24,000 cash in advance for the first year.

1 Purchased furniture and equipment costing $33,000. A cash payment of $5,000 was made
immediately; the remainder was charged on account and will be paid in six months.

1 Paid $1,800 cash for a one-year insurance policy on the equipment.

5 Purchased supplies for $1,500 on account.

7 Paid $420 cash for advertising in March.

18 Provided $20,000 of legal services. Of this amount $8,000 was collected in cash and the balance was
on account.

22 Paid $400 relating to the supplies purchased on March 5.

25 Collected $3,200 of the amount owing from the March 18 transaction.

26 Received the utility bill for March in the amount of $350, to be paid next month.

28 A customer paid $1,200 for legal services to be provided in April.

31 The owner, Alana Tofan, withdrew $3,000 for personal use.

31 Paid the employee her monthly salary of $2,100.

Instructions
A. Prepare the journal entries to record each of the events listed.
B. Post the journal entries to T accounts.

Action Plan
Separate journal entries are made for each transaction.
In journalizing, make sure debits equal credits.
Provide an appropriate description of each journal entry.
Post into T accounts in chronological order.

Download Working Papers (Excel Spreadsheet) (ch02_d4_worksheet.xls)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 2

Problem 4: Solution
A.

GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

Mar Cash 41,400

1

A. Tofan, Capital 41,400

Owner invested cash in business.

1 No entry – not a transaction.

1 Prepaid Rent 24,000

Cash 24,000

Paid first year of rent in advance.

1 Equipment 33,000

Cash 5,000

Accounts Payable 28,000

Purchased equipment on account with down payment.

1 Prepaid Insurance 1,800

Cash 1,800

Paid for a one-year insurance policy.

5 Supplies 1,500
 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

Accounts Payable 1,500

Purchased office on account.

7 Advertising Expense 420

Cash 420

Paid for March advertising.

18 Cash 8,000

Accounts Receivable 12,000

Service Revenue 20,000

Provided legal services for cash and on account.

22 Accounts Payable 400

Cash 400

Paid part of amount owing for office supplies.

25 Cash 3,200

Accounts Receivable 3,200

Cash collections on account.

26 Utilities Expense 350

Accounts Payable 350

Recorded March utility costs to be paid in April.

28 Cash 1,200

Unearned Revenue 1,200

Collected payment in advance from a customer for legal services to be provided in

April.
 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

31 A. Tofan, Drawings 3,000

Cash 3,000

Owner took a personal withdrawal of cash.

31 Salaries Expense 2,100

Cash 2,100

Paid employee salaries.

B.

Cash

Mar. 1 41,400 Mar. 1 24,000

18 8,000 1 5,000

25 3,200 1 1,800

28 1,200 7 420

22 400

31 3,000

31 2,100

Balance 17,080

Accounts Receivable

Mar. 18 12,000 Mar. 25 3,200

Balance 8,800

Supplies

Mar. 5 1,500

Prepaid Rent

Mar. 1 24,000

Prepaid Insurance

Mar. 1 1,800
 Equipment

Mar. 1 33,000

Accounts Payable

Mar. 22 400 Mar. 1 28,000

5 1,500

26 350

Balance 29,450

Unearned Revenue

Mar. 28 1,200

A. Tofan, Capital

Mar. 1 41,400

A. Tofan, Drawings

Mar. 31 3,000

Service Revenue

Mar. 18 20,000

Advertising Expense

Mar. 7 420

Salaries Expense

Mar. 31 2,100

Utilities Expense

Mar. 26 350

Back: Problem 4 ([Link])

Demonstration Problem

Chapter 2
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 5
Nesrallah's Management Consulting has the following transactions in August.

Aug 1 Adam Nesrallah, the owner, invested $19,000 cash in the business.

2 Signed a contract with a customer to provide 90 days of consulting services for $25,000.

4 Paid rent in advance for three months, $3,600.

5 Purchased $440 of supplies on account.

6 Received $950 from clients for services provided.

8 Paid $1,200 for a one-year insurance policy.

12 Paid the suppliers for supplies purchased on account on Aug. 5.

17 Performed $1,500 of services on account .

27 Paid secretary $750 salary.

28 Purchased used equipment for $4,000 in exchange for a note payable.

29 Paid the company's owner, Adam Nesrallah, $2,000 cash for personal use.

Instructions
A. Prepare the journal entries to record each of the events listed.
B. Post the journal entries to T accounts.

Action Plan

Separate journal entries are made for each transaction.

In journalizing, make sure debits equal credits.
Provide an appropriate description of each journal entry.
• Post into T accounts in chronological order.
Download Working Papers (Excel Spreadsheet) (ch02_d5_worksheet.xls)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 2

Problem 5: Solution
A.

GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

Aug 1 Cash 19,000

A. Nesrallah, Capital 19,000

Owner invested cash in business.

2 No entry – not a transaction.

4 Prepaid Rent 3,600

Cash 3,600

Paid first three months of rent in advance.

5 Supplies 440

Accounts Payable 440

Purchased supplies on account.

6 Cash 950

Service Revenue 950

Provided consulting services for cash.

8 Prepaid Insurance 1,200

Cash 1,200

Paid for a one-year insurance policy.

 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

12 Accounts Payable 440

Cash 440

Paid amount owing for supplies purchased on Aug. 5.

17 Accounts Receivable 1,500

Service Revenue 1,500

Billed clients for services performed.

27 Salaries Expense 750

Cash 750

Paid employee salary.

28 Equipment 4,000

Notes Payable 4,000

Purchased used equipment in exchange for a note.

29 A. Nesrallah, Drawings 2,000

Cash 2,000

Owner took a personal withdrawal of cash.

B.

Cash

Aug. 1 19,000 Aug. 4 3,600

6 950 8 1,200

12 440

27 750

29 2,000

Balance 11,960
 Accounts Receivable

Aug. 17 1,500

Supplies

Aug. 5 440

Prepaid Rent

Aug. 4 3,600

Prepaid Insurance

Aug. 8 1,200

Equipment

Aug. 28 4,000

Accounts Payable

Aug. 12 440 Aug. 5 440

Balance 0

Notes Payable

Aug. 28 4,000

A. Nesrallah, Capital

Aug. 1 19,000

A. Nesrallah, Drawings

Aug. 29 2,000

Service Revenue

Aug. 6 950

Aug. 17 1.500

Balance 2.450

Salaries Expense

Aug. 27 750
Back: Problem 5 ([Link])
Demonstration Problem

Chapter 2
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 6
Shawn Klaiber started his own jewellery repair business, Klaiber’s Repair Services, on August 1, 2024. The
following transactions took place during the first month:

Aug 1 Deposited $38,000 cash in a new bank account for the business.

2 Signed a lease for store space. Paid $6,800 cash in advance for the first four months. [Hint: The
portion of the cost that relates to August 2024 ($1,700) is an expense for this month.]

3 Purchased equipment costing $10,000. A cash payment of $3,000 was made immediately. The
remainder will be paid in September.

4 Paid $145 for a one-month ad in the local paper.

5 Hired his first employee to work in the workshop. The employee will be paid a salary of $1,920 per
month.

6 Paid $1,500 for a one-year insurance policy for his business. [Hint: The portion of the cost that relates
to August 2024 ($125) is an expense for this month.]

8 Supplies of $3,750 were purchased on account.

15 Withdrew $4,000 cash for personal use.

20 Total services provided to date were $6,400 ($500 in cash and $5,900 on account).

20 Supplies used during August totalled $2,100. (Hint: Debit this to Supplies Expense).

26 Collected $4,400 from customers on account.

30 Paid utility bills totalling $350 for the month of August.

31 Paid the employee's monthly salary of $1,920.

Instructions
A. Prepare the journal entries to record each of the events listed.
B. Post the journal entries to T accounts.
C. Prepare a trial balance as at August 31, 2024.
D. Prepare an income statement and a statement of owner's equity for Klaiber’s Repair Services for the month
ended August 31, 2024, and a balance sheet as at August 31, 2024.

Action Plan

Separate journal entries are made for each transaction.

In journalizing, make sure debits equal credits.
Provide an appropriate description of each journal entry.
Arrange the ledger in statement order, beginning with the balance sheet accounts.
Post into T accounts in chronological order.
The trial balance lists accounts in the order in which they appear in the ledger.
Debit balances are listed in the left column of the trial balance and credit balances in the right column.
Prepare the income statement first, then the statement of owner's equity, and then the balance sheet.

Download Working Papers (Excel Spreadsheet) (ch02_d6_worksheet.xls)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 2

Problem 6: Solution
A.

GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

Aug 1 Cash 38,000

S. Klaiber, Capital 38,000

Invested cash in business.

2 Prepaid Rent 5,100

Rent Expense ($6,800 ÷ 4 months) 1,700

Cash 6,800

Prepaid rent for four months.

3 Equipment 10,000

Cash 3,000

Accounts Payable 7,000

Purchased equipment with down payment.

4 Advertising Expense 145

Cash 145

Paid for a one-month ad.

5 No entry – not a transaction.

6 Prepaid Insurance 1,375

 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

Insurance Expense ($1,500 ÷ 12 months) 125

Cash 1,500

Paid for a one-year insurance policy.

8 Supplies 3,750

Accounts Payable 3,750

Purchased supplies on account.

15 S. Klaiber, Drawings 4,000

Cash 4,000

Withdrew cash for personal use.

20 Cash 500

Accounts Receivable 5,900

Service Revenue 6,400

Billed customers for services provided and received partial payment.

20 Supplies Expense 2,100

Supplies 2,100

Expense for supplies used.

26 Cash 4,400

Accounts Receivable 4,400

Cash collections on account.

30 Utilities Expense 350

Cash 350

Paid utilities.
 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

31 Salaries Expense 1,920

Cash 1,920

Paid employee's salary.

B.

Cash

Aug. 1 38,000 Aug. 2 6,800

20 500 3 3,000

26 4,400 4 145

6 1,500

15 4,000

30 350

31 1,920

Balance 25,185

Accounts Receivable

Aug. 20 5,900 Aug. 26 4,400

Balance 1,500

Supplies

Aug. 8 3,750 Aug. 20 2,100

Balance 1,650

Prepaid Rent

Aug. 2 5,100

Prepaid Insurance

Aug. 6 1,375

Equipment

Aug. 3 10,000
 Accounts Payable

Aug. 3 7,000

Aug. 8 3,750

Balance 10,750

S. Klaiber, Capital

Aug. 1 38,000

S. Klaiber, Drawings

Aug. 15 4,000

Service Revenue

Aug. 20 6,400

Advertising Expense

Aug. 4 145

Insurance Expense

Aug. 6 125

Rent Expense

Aug. 2 1,700

Supplies Expense

Aug. 20 2,100

Salaries Expense

Aug. 31 1,920

Utilities Expense

Aug. 30 350

C.
 KLAIBER'S REPAIR SERVICES
Trial Balance
August 31, 2024

Debit Credit

Cash $ 25,185

Accounts receivable 1,500

Supplies 1,650

Prepaid rent 5,100

Prepaid insurance 1,375

Equipment 10,000

Accounts payable $ 10,750

S. Klaiber, capital 38,000

S. Klaiber, drawings 4,000

Service revenue 6,400

Advertising expense 145

Insurance expense 125

Rent expense 1,700

Supplies expense 2,100

Salaries expense 1,920

Utilities expense 350

$ 55,150 $ 55,150

D.

KLAIBER'S REPAIR SERVICES

Income Statement
Month Ended August 31, 2024

Revenues

Service revenue $6,400

Expenses

Advertising expense $ 145

Insurance expense 125

Rent expense 1,700

Supplies expense 2,100

 KLAIBER'S REPAIR SERVICES
Income Statement
Month Ended August 31, 2024

Salaries expense 1,920

Utilities expense 350

Total expense 6,340

Profit for the month $ 60

KLAIBER'S REPAIR SERVICES

Statement of Owner's Equity
Month Ended August 31, 2024

S. Klaiber, capital, August 1, 2024 $0

Add: Investments $38,000

Profit for the month 60 38,060

Less: Drawings 4,000

S. Klaiber, capital, August 31, 2024 $34,060

KLAIBER'S REPAIR SERVICES

Balance Sheet
August 31, 2024

Assets

Cash $25,185

Accounts receivable 1,500

Supplies 1,650

Prepaid rent 5,100

Prepaid insurance 1,375

Equipment 10,000

Total assets $44,810

Liabilities and Owner's Equity

Liabilities

Accounts payable $10,750

Owner's Equity

S. Klaiber, capital 34,060

 KLAIBER'S REPAIR SERVICES
Balance Sheet
August 31, 2024

Total liabilities and owner's equity $44,810

Back: Problem 6 ([Link])

Demonstration Problem

Chapter 2
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 7
The trial balance of Garana's Bakery on June 30, 2024 is shown below:

GARANA'S BAKERY
Trial Balance
June 30, 2024

Account No. Debit Credit

101 Cash $12,620

112 Accounts receivable 2,620

126 Supplies 1,900

157 Equipment 9,600

201 Accounts payable $5,100

206 Unearned revenue 1,300

301 R. Garana, capital 20,340

$26,740 $26,740

The July transactions were as follows:

July 5 Received $1,420 cash from customers on account.

10 Billed customers for bakery services performed, $6,700.

15 Paid employee salaries, $1,800.

15 Withdrew $500 for personal use.

16 Performed $850 of services for customer who paid in advance in June.

20 Paid $2,400 to creditors on account.

21 Received $250 cash for services provided.

22 Purchased a new bakery oven and other kitchen equipment for $4,500 on account.
 23 Hired a new baker who will start working on July 28 and agreed to pay her $500 per week.

26 Purchased supplies on account, $400.

29 Invested $1,200 of personal funds into the business.

30 Received the $750 July utility bill. It is due on August 28.

Provision should be made for the following additional accounts in the ledger: No. 306 R. Garana, Drawings, No.
426 Service Revenue, No. 726 Salaries Expense, and No. 732 Utilities Expense.

Instructions
A. Journalize the transactions.
B. Post the transactions to the ledger accounts.
C. Prepare a trial balance as at July 31, 2024.

Action Plan

Prepare separate journal entries for each transaction.

In journalizing, use specific account titles taken from the chart of accounts.
Provide an appropriate description of each journal entry.
Arrange the ledger in statement order, beginning with the balance sheet accounts.
Enter the balances at June 30, 2024
Post the journal entries in chronological order.
Numbers in the reference column indicate the amount has been posted.
The trial balance lists accounts in the order in which they appear in the ledger.
List debit balances in the left column, and credit balances in the right column.

Download Working Papers (Excel Spreadsheet) (ch02_d7_worksheet.xls)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 2

Problem 7: Solution
A.

GENERAL JOURNAL J1

Date Account Titles and Explanation Ref. Debit Credit

July 5 Cash 101 1,420

Accounts Receivable 112 1,420

Cash collections on account.

10 Accounts Receivable 112 6,700

Service Revenue 426 6,700

Performed services on account.

15 Salaries Expense 726 1,800

Cash 101 1,800

Paid employee's salary.

15 R. Garana, Drawings 306 500

Cash 101 500

Withdrew cash for personal use.

16 Unearned Revenue 206 850

Service Revenue 426 850

Performed service for customer who paid in advance.

20 Accounts Payable 201 2,400

 GENERAL JOURNAL J1

Date Account Titles and Explanation Ref. Debit Credit

Cash 101 2,400

Paid creditors on account.

21 Cash 101 250

Service Revenue 426 250

Performed services for cash.

22 Equipment 157 4,500

Accounts Payable 201 4,500

Purchased kitchen equipment on account.

26 Supplies 126 400

Accounts Payable 201 400

Purchased supplies on account.

29 Cash 101 1,200

R. Garana, Capital 301 1,200

Invested cash in business.

30 Utilities Expense 732 750

Accounts Payable 201 750

Utilities recorded on account.

B.

No. 101 — Cash

Date Explanation Ref. Debit Credit Balance

July 1 Balance  12,620

5 J1 1,420 14,040

15 J1 1,800 12,240
No. 101 — Cash

Date Explanation Ref. Debit Credit Balance

15 J1 500 11,740

20 J1 2,400 9,340

21 J1 250 9,590

29 J1 1,200 10,790

No. 112 — Accounts Receivable

Date Explanation Ref. Debit Credit Balance

July 1 Balance  2,620

5 J1 1,420 1,200

15 J1 6,700 7,900

No. 126 — Supplies

Date Explanation Ref. Debit Credit Balance

July 1 Balance  1,900

26 J1 400 2,300

No. 157 — Equipment

Date Explanation Ref. Debit Credit Balance

July 1 Balance  9,600

22 J1 4,500 14,100

No. 201 — Accounts Payable

Date Explanation Ref. Debit Credit Balance

July 1 Balance  5,100

20 J1 2,400 2,700

22 J1 4,500 7,200

26 J1 400 7,600

30 J1 750 8,350
No. 206 — Unearned Revenue

Date Explanation Ref. Debit Credit Balance

July 1 Balance  1,300

16 J1 850 450

No. 301 —R. Garana, Capital

Date Explanation Ref. Debit Credit Balance

July 1 Balance  20,340

29 J1 1,200 21,540

No. 306 —R. Garana, Drawings

Date Explanation Ref. Debit Credit Balance

July 15 J1 500 500

No. 426 — Service Revenue

Date Explanation Ref. Debit Credit Balance

July 10 J1 6,700

16 J1 850 7,550

21 J1 250 7,800

No. 726 —Salaries Expense

Date Explanation Ref. Debit Credit Balance

July 15 J1 1,800 1,800

No. 732 —Utilities Expense

Date Explanation Ref. Debit Credit Balance

July 30 J1 750 750

C.

GARANA’S BAKERY
Trial Balance
July 31, 2024

Account No. Debit Credit

101 Cash $10,790

 GARANA’S BAKERY
Trial Balance
July 31, 2024

Account No. Debit Credit

112 Accounts receivable 7,900

126 Supplies 2,300

157 Equipment 14,100

201 Accounts payable $ 8,350

206 Unearned revenue 450

301 R. Garana, capital 21,540

306 R. Garana, drawings 500

426 Service Revenue 7,800

726 Salaries expense 1,800

732 Utilities expense 750

$38,140 $38,140

Back: Problem 7 ([Link])

Demonstration Problem

Chapter 2
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 8
The trial balance of Nazari Electrical Services on April 30, 2024 is shown below:

NAZARI ELECTRICAL SERVICES

Trial Balance
April 30, 2024

Debit Credit

Cash $ 14,600

Accounts receivable 1,500

Supplies 600

Equipment 10,500

Accounts payable $ 1,700

Unearned revenue 1,800

H. Nazari, capital 15,110

H. Nazari, drawings 1,000

Service revenue 11,200

Utilities expense 400

Salaries expense 950

Supplies expense 1,000

$29,810 $29,810

The May transactions were as follows:

May 4 Performed $650 of electrical services for customer who paid in advance in April.

5 Performed electrical services for a client and received cash of $1,280.

7 Purchased supplies on account for $300.

 9 Collected accounts receivable of $500.

15 Paid the receptionist a salary of $450.

16 Paid accounts payable of $1,700.

17 Received a contract for $2,000 to perform electrical work in June.

18 Performed electrical services for $1,000 on account.

20 Received a utility bill for $370 to be paid in June.

25 H. Nazari invested $1,000 into the business.

30 Paid the receptionist a salary of $450.

31 H. Nazari withdrew $300 cash for personal expenses.

Instructions
A. Journalize the transactions.
B. Post the transactions to the T accounts.
C. Prepare a trial balance as at May 31, 2024.

Action Plan

Prepare separate journal entries for each transaction.

In journalizing, use specific account titles taken from the chart of accounts.
Provide an appropriate description of each journal entry.
Arrange ledger in statement order, beginning with the balance sheet accounts.
Enter the balances at April 30, 2024.
Post the journal entries in chronological order.
Numbers in the reference column indicate the amount has been posted.
The trial balance lists accounts in the order in which they appear in the ledger.
List debit balances in the left column, and credit balances in the right column.

Download Working Papers (Excel Spreadsheet) (ch02_d8_worksheet.xls)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 2

Problem 8: Solution
A.

GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

Aug 1 Unearned Revenue 650

Service Revenue 650

Performed services for customer who had paid in advance.

5 Cash 1,280

Service Revenue 1,280

Performed services for customer for cash.

7 Supplies 300

Accounts Payable 300

Purchased supplies on account.

9 Cash 500

Accounts Receivable 500

Collection on account.

15 Salaries Expense 450

Cash 450

Paid salaries to employees.

16 Accounts Payable 1,700

 GENERAL JOURNAL J1

Date Account Titles and Explanation Debit Credit

Cash 1,700

Payment on account.

17 No journal entry; not a transaction.

18 Accounts Receivable 1,000

Service Revenue 1,000

Performed services on account.

20 Utilities Expense 370

Accounts Payable 370

Received utility bill.

25 Cash 1,000

H. Nazari, Capital 1000

Invested cash into the business.

30 Salaries Expense 450

Cash 450

Paid salaries to employees.

31 H. Nazari, Drawings 300

Cash 300

Owner withdrew cash for personal use.

B.

Cash

Apr. 30 14,600 May 15 450

May 5 1,280 16 1,700

 Cash

9 500 30 450

25 1,000 31 300

May 31 Bal. 14,480

Accounts Receivable

Apr. 30 1,500 May 9 500

May 18 1,000

May 31 Bal. 2,000

Supplies

Apr. 30 600

May 7 300

May 31 Bal. 900

Equipment

Apr. 30 10,500

May 31 Bal. 10,500

Accounts Payable

May 16 1,700 Apr. 30 1,700

May 7 300

May 20 370

May 31 Bal. 670

Unearned Revenue

May 4 650 Apr. 30 1,800

May 31 Bal. 1,150

H. Nazari, Capital

Apr.30 15,110

May 25 1,000

May 31 Bal. 16,110

 H. Nazari, Drawings

Apr.30 1,000

May 31 300

May 31 Bal. 1,300

Service Revenue

Apr.30 11,200

May 4 650

5 1,280

18 1,000

May 31 Bal. 14,130

Utilities Expense

Apr. 30 400

May 20 370

May 31 Bal. 770

Salaries Expense

Apr. 30 950

May 15 450

May 30 450

May 31 Bal. 850

Supplies Expense

Apr. 30 260

May 31 Bal. 260

C.

NAZARI ELECTRICAL SERVICES

Trial Balance
May 31, 2024

Debit Credit

Cash $14,480

Accounts receivable 2,000

 NAZARI ELECTRICAL SERVICES
Trial Balance
May 31, 2024

Debit Credit

Supplies 900

Equipment 10,500

Accounts payable $670

Unearned revenue 1,150

H. Nazari, capital 16,110

H. Nazari, drawings 1,300

Service revenue 14,130

Utilities expense 770

Salaries expense 1,850

Supplies expense 260

$32,060 $32,060

Back: Problem 8 ([Link])

Demonstration Problem

Chapter 3
The Demonstration Problem below includes an Action Plan. Once you've completed the problem, you can
compare to the Solution, also available below.

Problem 1
Gariepy Industries collected $108,000 from customers in 2024. Of the amount collected, $25,000 was for services
performed in 2023. In addition, Gariepy performed services worth $36,000 in 2024 that will not be collected until
2025.

Gariepy Industries also paid $72,000 for expenses in 2024. Of the amount paid, $30,000 was for expenses
incurred on account in 2023. In addition, Gariepy incurred $42,000 of expenses in 2024 that will not be paid until
2025.

Instructions
A. What is the difference between accrual basis accounting and cash basis accounting? Which method is in
accordance with generally accepted accounting principles?
B. Compute the 2024 cash basis profit.
C. Compute the 2024 accrual basis profit.
D. Why is the accrual basis profit more useful than the cash basis profit?

Action Plan

Review the concept of accrual versus cash basis accounting.

Next: View the Solution ([Link])

Demonstration Problem

Chapter 3

Problem 1: Solution
A.

Accrual basis accounting means that the company records business transactions in the period when they occur,
and not when the cash is received or paid. For example, a lawncare company records revenues when the
lawncare service is provided. The company may not receive the payment for this service until the following month.
The lawncare company may rent special equipment to provide spring cleanup for their clients. They would record
the cost of this rental in the month the equipment is used, even though they may not pay the rental invoice until
the following month.

Cash basis accounting means that the company records all business transactions as the cash is received or paid.
Revenues are recorded in the month when the cash is received. Expenses are recorded in the month when the
cash is paid out.

Creation of financial statements using the accrual basis accounting is the method required by generally accepted
accounting principles. This method is a bit more complex but it provides more useful information for decision
making.

B.

Cash received from revenue $108,000

Cash paid for expenses (72,000)

Cash basis profit $ 36,000

(Cash collected from customers in 2024 − Cash paid out for expenses in 2024 = Cash basis profit for 2024)

C.

Revenues [($108,000 − $25,000) + $36,000] $119,000

Expenses [($72,000 − $30,000) + $42,000] (84,000)

Accrual basis profit $ 35,000

[((Cash collected in 2024 − Cash related to 2023 services) + Services performed in 2024 but not collected until
2025) − ((Cash paid out for expenses in 2024 − Expenses incurred in 2023) + 2024 expenses incurred but not paid
until 2025) = Accrual basis profit]

D.
Profit calculated based on accrual accounting is more useful than profit calculated on a cash basis because it
reveals relationships that are likely going to be important in predicting future results. Things like trends in revenues
and expenses are shown more clearly and are more meaningful.

Back: Problem 1 ([Link])

Demonstration Problem

Chapter 3
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 2
Sharma Advertising is owned by Rashi Sharma and began operations on November 1, 2023. The company has an
October 31 fiscal year end and prepares adjustments on an annual basis. The following is a listing of all its
accounts at October 31, 2024, before adjustments. All accounts have normal balances.

Sharma Advertising
Trial Balance
October 31, 2024

Debit Credit

Cash $15,200

Accounts receivable 2,400

Supplies 2,500

Prepaid insurance 600

Prepaid rent 2,250

Equipment 6,200

Furniture 3,400

Accounts payable $2,500

Unearned revenue 3,600

Notes payable 8,400

R. Sharma, capital 10,000

R. Sharma, drawings 500

Service revenue 41,200

Salaries expense 24,400

Rent expense 8,250

$65,700 $65,700
Additional information:
1. The landlord for the property Sharma rents required a three-month rent prepayment of $2,250 on
September 1, 2024.
2. The equipment has a 4-year useful life.
3. The furniture has an 8-year useful life.
4. A physical count of the supplies shows there was $850 on hand at October 31.
5. An analysis of the unearned revenue account shows that $1,350 remains unearned at October 31.
6. Sharma purchased a one-year insurance policy on March 1, 2024 for $600. The policy came into effect on
this date.

Instructions
A. Prepare the adjusting entries at October 31.
B. What is the purpose of recording depreciation?

Action Plan

Prepare separate journal entries for each adjusting entry. Make sure debits equal credits.
Note that adjustments are being made based on an annual basis.
Each adjusting entry should affect one income statement account and one balance sheet account.
Look at how the amounts are currently recorded in the accounts before trying to determine what
adjustments are necessary.
Select account titles carefully. Use existing titles whenever possible.
Review the concept of depreciation and describe it.

Download the Working Papers (Excel Spreadsheet) (ch03_d2_worksheet_RM.xlsx)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 3

Problem 2: Solution
A.

J1

Oct. 31 Rent Expense 1,500

Prepaid Rent 1,500

$2,250 ÷ 3 months × 2 months = $1,500

31 Depreciation Expense 1,550

Accumulated Depreciation—Equipment 1,550

$6,200 ÷ 4 = $1,550

31 Depreciation Expense 425

Accumulated Depreciation—Furniture 425

$3,400 ÷ 8 = $425

31 Supplies Expense 1,650

Supplies 1,650

$2,500 − $850 = $1,650

31 Unearned Revenue 2,250

Service Revenue 2,250

$3,600 − $1,350 = $2,250

31 Insurance Expense 400

Prepaid Insurance 400

$600 ÷ 12 months × 8 months = $400

B.

Depreciation allocates the cost of an asset over the useful life of the asset. It is not a process to value the asset
but to record the cost relating to acquiring and using a long-term asset over time.
Back: Problem 2 ([Link])
Demonstration Problem

Chapter 3
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 3
Best First Aid offers first aid training to individuals and groups across the city. The following information is
available to be used in recording annual adjusting entries for the company’s October 31, 2024, year end:

Instructions
a. On October 31, 2023, the company had a balance of $800 in its supplies account. Additional supplies were
purchased during the fiscal year totalling $2,500 and were recorded to supplies. The supplies inventory on
October 31, 2024, amounts to $980.
b. On July 1, 2024, Best First Aid borrowed $28,000 and signed a nine-month, 6% note payable. Interest and
principal are payable at maturity.
c. Best First Aid purchased equipment on November 1, 2022, for $9,000. The equipment was estimated to
have a useful life of six years.
d. On October 1, 2024, Best First Aid moved to new offices. Rent is $800 per month. Best First Aid paid the
first three months’ rent that day and recorded the payment as prepaid rent.
e. Best First Aid requires a $200 deposit from clients as an advance payment for first aid training courses
when they are booked. As at October 31, 2024, Best First Aid has deposits for 15 training courses recorded
as unearned revenue. A review of the company’s records shows that the company has provided all but five
of the 15 training courses.
f. In early November, Best First Aid received an invoice for $360 from BellTel for October telephone charges.
The amount has not yet been recorded or paid.
g. On October 28, 2024, Best First Aid provided a first aid training course to MRC employees. Best First Aid
was too busy to invoice MRC that day. Instead, it prepared the $1,550 invoice on November 2, 2024. MRC
agreed to pay this amount on November 15, 2024.
h. Best First Air pays it employees a total of $3,000 every second Wednesday. Employees work a five-day
work week, Monday to Friday. October 31, 2024 is a Thursday. Employees were paid on Wednesday
October 30, 2024, up to the Friday of the prior week.

Action Plan

Calculate any unadjusted balances from the information that is given.

Where an unadjusted balance was calculated, arrive at the adjusted balance.
Prepare any accrual or deferral adjusting entries.
Make sure you consider the account that was used in the original transaction.
Download the Working Papers (Excel Spreadsheet) (ch03_d3_worksheet_RM.xlsx)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 3

Problem 3: Solution
J1

(a) Oct. 31 Supplies Expense 2,320

Supplies 2,320
($800 + $2,500 - $980)

(b) 31 Interest Expense 560

Interest Payable 560

($28,000 X 6% X 4/12)

(c) 31 Depreciation Expense 1,500

Accumulated Depreciation – Equipment 1,500

($9,000 ÷ 6)

(d) 31 Rent Expense 800

Prepaid Rent 800

(e) 31 Unearned Revenue 2,000

Service Revenue 2,000

($200 x 10)

(f) 31 Telephone Expense 360

Accounts Payable 360

(g) 31 Accounts Receivable 1,550

Service Revenue 1,550

(h) 31 Salaries Expense 1,200

Salaries Payable 1,200

($3,000 ÷ 2 x 4/5)

Back: Problem 3 ([Link])

Demonstration Problem

Chapter 3
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 4
Ricardo Hernandez, D.D.S., opened a dental practice on January 1, 2024. During the first month of operations,
the following transactions occurred requiring adjusting entries. Ricardo's bookkeeper prepares adjusting entries
monthly.

1. Performed services for patients with various dental needs. At January 31, $785 of such services were
performed but not yet recorded or paid for.
2. At the end of January, Hernandez called the local utility company to determine the cost of the utilities
outstanding. As at January 31, $450 is owing and unpaid. These costs will be due on February 12.
3. Purchased a dental chair for $125,000, paying $20,000 in cash and signing a $105,000 three-year note
payable for the balance. The note payable has a 6% interest rate and monthly interest payments are due on
the first day of the following month.
4. An independent lab creates dental appliances based on moulds. Hernandez has not yet received an invoice
but the quote for the work already completed was $3,170 for lab fees in January. (Hint: Use Lab Fee
Expense)
5. Unpaid janitorial service costs were $230.
6. The dental assistant and the receptionist are paid each Monday. The weekly payroll is $2,000. Salaries were
last paid on Monday, January 29, which provided payment up to and including January 29. Salaries are still
owing for Tuesday, January 30 and Wednesday, January 31.
7. Hernandez had an empty business office in his dental clinic that he rented out to a business consultant for
$300/month. The lease was signed on January 16, the date the tenant took occupancy, and the tenant
promised to pay the January amount outstanding on February 1.

Instructions
A. Prepare the adjusting entries at December 31.
B. Explain two generally accepted accounting principles that relate to adjusting the accounts.

Action Plan

Prepare separate journal entries for each adjusting entry. Make sure debits equal credits.
Note that adjustments are being made based on a monthly basis.
Each adjusting entry should affect one income statement account and one balance sheet account.
Look at how the amounts are currently recorded in the accounts before trying to determine what
adjustments are necessary.
Select account titles carefully. Use existing titles whenever possible.
Review the revenue and expense recognition policies and determine why accrual adjusting entries
need to be performed.

Download the Working Papers (Excel Spreadsheet) (ch03_d4_worksheet_RM.xlsx)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 3

Problem 4: Solution
A.

J1

Jan 31 Accounts Receivable 785

Service Revenue 785

31 Utilities Expense 450

Accounts Payable 450

31 Interest Expense 525

Interest Payable 525

$105,000 × .06 ÷ 12 months = $525/month

31 Lab Fee Expense 3,170

Accounts Payable 3,170

31 Janitorial Expense 230

Accounts Payable 230

31 Salaries Expense 800

Salaries Payable 800

$2,000 ÷ 5 days × 2 days outstanding = $800

31 Accounts Receivable 150

Rent Revenue 150

$300 × ½ month = $150

B.

Revenue recognition principle – revenue should be recognized based on the accrual basis of accounting. This
means that revenue is recorded when the service has been performed or the goods sold and delivered, regardless
of when cash is collected. Depending on whether the company follows ASPE or IFRS, there are a few other
requirements. Under ASPE, performance is to be substantially completed, can be measured reliably, and the
company is reasonably certain that they will be able to collect the money owing. Under IFRS, there is a five-step
process relating to the company completing the performance obligation.

Expense recognition principle – when goods or services are used or consumed, these costs should be recorded
based on the accrual basis of accounting. This means that expenses are recorded when the costs are incurred
and not when the company pays for the goods or services.

The matching principle brings the revenue recognition and expense recognition together. The company should
attempt to match revenues and costs in the same period if possible.

Back: Problem 4 ([Link])

Demonstration Problem

Chapter 3
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 5
Thind Developments opened for business on May 1, 2023, with eight cottage units. Its trial balance before
adjustments on October 31, 2024 is as follows:

THIND DEVELOPMENTS
Trial Balance
October 31, 2024

Debit Credit

Cash $ 31,400

Prepaid insurance 6,400

Supplies 3,900

Land 45,000

Cottages 180,000

Accumulated depreciation—cottages $ 4,500

Furniture 36,000

Accumulated depreciation—furniture 1,800

Accounts payable 5,200

Unearned revenue 7,500

Mortgage payable 90,000

C. Thind, capital 156,300

C. Thind, drawings 6,000

Service revenue 140,000

Repairs expense 1,900

Salaries expense 85,000

Utilities expense 9,700

 THIND DEVELOPMENTS
Trial Balance
October 31, 2024

Debit Credit

$405,300 $405,300

Other Data:
1. Insurance expires at the rate of $400 per month.
2. A count of supplies on October 31 shows $800 of supplies on hand.
3. The cottages were estimated to have a useful life of 20 years and the furniture was expected to have a
useful life of 10 years.
4. Unearned revenue of $6,000 was provided to tenants prior to October 31.
5. Salaries of $750 were unpaid at October 31.
6. Utilities of $425 were unpaid at October 31.
7. On October 31, Thind Developments determined it is owed $1,200 from tenants.
8. The mortgage interest rate is 6% per year. Interest is paid semi annually on November 1 and May 1. The
mortgage was taken out on May 1, 2024.
9. During the year the owner, Courtney Thind, invested $20,000 cash in the business.

Instructions
A. Prepare the adjusting entries at October 31 for the year ended October 31.
B. Post the adjusting entries to the ledger accounts. (Use J1 as the posting reference.)
C. Prepare an adjusted trial balance at October 31.
D. Prepare an income statement and a statement of owner's equity for the year ended October 31, and a
balance sheet as at October 31, 2024.

Action Plan

Prepare separate journal entries for each adjusting entry. Make sure debits equal credits.
Each adjusting entry should affect one income statement account and one balance sheet account.
Arrange the ledger in statement order, beginning with the balance sheet accounts.
The trial balance lists accounts in the order in which they appear in the ledger.
Prepare the income statement first; revenues are listed first then expenses.
Determine the ending balance in owner's capital by adding owner investments and profit to the
owner's capital account and subtracting drawings.
To prepare the balance sheet, assets must equal liabilities plus owner's equity.

Download the Working Papers (Excel Spreadsheet) (ch03_d5_worksheet_RM.xlsx)

Next: View the Solution ([Link])
Demonstration Problem

Chapter 3

Problem 5: Solution
A.

GENERAL JOURNAL J1

Date Account Title Debit Credit

1. Oct. 31 Insurance Expense 4,800

Prepaid Expense 4,800

$400 × 12 = $4,800

2. 31 Supplies Expense 3,100

Supplies 3,100

$3,900 − $800 = $3,100

3. 31 Depreciation Expense—Cottages 9,000

Accumulated Depreciation—Cottages 9,000

$180,000 ÷ 20 = $9,000

31 Depreciation Expense—Furniture 3,600

Accumulated Depreciation—Furniture 3,600

$36,000 ÷ 10 = $3,600

4. 31 Unearned Revenue 6,000

Service Revenue 6,000

5. 31 Salaries Expense 750

Salaries Payable 750

6. 31 Utilities Expense 425

Accounts Payable 425

7. 31 Accounts Receivable 1,200

Service Revenue 1,200

8. 31 Interest Expense 2,700

GENERAL JOURNAL J1

Interest Payable 2,700

($90,000 × 6%) × 6/12 months = $2,700

B.

Cash

Date Explanation Ref. Debit Credit Balance

Oct. 1 Balance  31,400

Accounts Receivable

Date Explanation Ref. Debit Credit Balance

Oct. 1  1,200 1,200

Prepaid Insurance

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  6,400

31 J1 4,800 1,600

Supplies

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  3,900

31 J1 3,100 800

Land

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  45,000

Cottages

Date Explanation Ref. Debit Credit Balance

Oct. 3 1 Balance  180,000

Accumulated Depreciation — Cottages

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  4,500

 31 J1 9,000 13,500

Furniture

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  36,000

Accumulated Depreciation — Furniture

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  1,800

31 J1 3,600 5,400

Accounts Payable

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  5,200

31 J1 425 5,625

Unearned Revenue

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  7,500

31 J1 6,000 1,500

Salaries Payable

Date Explanation Ref. Debit Credit Balance

Oct. 31 J1 750 750

Interest Payable

Date Explanation Ref. Debit Credit Balance

Oct. 31 J1 2,700 2,700

Mortgage Payable

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  90,000

Courtney Thind, Capital

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  156,300

Courtney Thind, Drawings

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  6,000

Service Revenue

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  140,000

31 J1 6,000 146,000

31 J1 1,200 147,200

Depreciation Expense—Cottages

Date Explanation Ref. Debit Credit Balance

Oct. 31 J1 9,000 9,000

Depreciation Expense—Furniture

Date Explanation Ref. Debit Credit Balance

Oct. 31 J1 3,600 3,600

Insurance Expense

Date Explanation Ref. Debit Credit Balance

Oct. 31 J1 4,800 4,800

Interest Expense

Date Explanation Ref. Debit Credit Balance

Oct. 31 J1 2,700 2,700

Salaries Expense

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  85,000

31 J1 750 85,750
Repair Expense

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  1,900

Supplies Expense

Date Explanation Ref. Debit Credit Balance

Oct. 31 J1 3,100 3,100

Utilities Expense

Date Explanation Ref. Debit Credit Balance

Oct. 31 Balance  9,700

31 J1 425 10,125
C.

THIND DEVELOPMENTS
Adjusted Trial Balance
October 31, 2024

Debit Credit

Cash $31,400

Accounts receivable 1,200

Prepaid insurance ($6,400 − $4,800) 1,600

Supplies ($3,900 − $3,100) 800

Land 45,000

Cottages 180,000

Accumulated depreciation—cottages ($4,500 + $9,000) $13,500

Furniture 36,000

Accumulated depreciation—furniture ($1,800 + $3,600) 5,400

Accounts payable ($5,200 + $425) 5,625

Unearned revenue ($7,500 − $6,000) 1,500

Salaries payable 750

Interest payable 2,700

Mortgage payable 90,000

C. Thind, capital 156,300

 THIND DEVELOPMENTS
Adjusted Trial Balance
October 31, 2024

C. Thind, drawings 6,000

Service revenue ($140,000 + $6,000 + $1,200) 147,200

Depreciation expense—cottages 9,000

Depreciation expense—furniture 3,600

Insurance expense 4,800

Interest expense 2,700

Repairs expense 1,900

Salaries expense ($85,000 + $750) 85,750

Supplies expense 3,100

Utilities expense ($9,700 + $425) 10,125

$422,975 $422,975

D.

THIND DEVELOPMENTS
Income Statement
Year Ended October 31, 2024

Revenues

Service revenue $147,200

Expenses

Depreciation expense—cottages $ 9,000

Depreciation expense—furniture 3,600

Insurance expense 4,800

Interest expense 2,700

Repair expense 1,900

Salaries expense 85,750

Supplies expense 3,100

Utilities expense 10,125

Total expense 120,975

Profit $ 26,225
 THIND DEVELOPMENTS
Statement of Owner’s Equity
Year Ended October 31, 2024

C. Thind, Capital, October 31, 2023 $ 136,300*

Add: Investment $ 20,000

Profit for the year 26,225 46,225

182,525

Less: Drawings 6,000

C. Thind, Capital, October 31, 2024 $176,525

* $156,300 − $20,000 = $136,300

THIND DEVELOPMENTS
Balance Sheet
October 31, 2024

Assets

Cash $31,400

Accounts receivable 1,200

Prepaid insurance 1,600

Supplies 800

Land 45,000

Cottages $180,000

Less: Accumulated depreciation—cottages 13,500 166,500

Furniture 36,000

Less: Accumulated depreciation—furniture 5,400 30,600

Total assets $277,100

Liabilities and Owner’s Equity

Liabilities

Accounts payable $ 5,625

Salaries payable 750

Interest payable 2,700

Unearned revenue 1,500

Mortgage payable 90,000

Total liabilities 100,575

 THIND DEVELOPMENTS
Balance Sheet
October 31, 2024

Owner’s equity

C. Thind, Capital 176,525

Total liabilities and owner’s equity $277,100

Back: Problem 5 ([Link])

Demonstration Problem

Chapter 3
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 6
The trial balance before adjustment of Ahmed Delivery Services at the end of its first month of operations follows:

Ahmed Delivery Services

Trial Balance
May 31, 2024

Debit Credit

Cash $ 3,000

Prepaid insurance 4,980

Supplies 650

Equipment 41,900

Notes payable $26,000

Unearned revenue 8,000

A. Ahmed, capital 13,170

A. Ahmed, drawings 2,200

Service revenue 17,400

Salaries expense 8,790

Advertising expense 800

Repairs expense 450

Rent expense 1,800

$64,570 $64,570

Instructions
a. Prepare adjusting entries at May 31, 2024, from the data and events listed below. Use any appropriate
accounts you feel are necessary.
Details of events and additional information:
1. The insurance policy has a one-year term that began May 1, 2024.
2. The annual depreciation on the equipment is $6,840.
3. The note payable was issued on May 1, 2024 to purchase the equipment and is due on May 1, 2027. It
carries interest at the rate of 6%.
4. Cash was collected from customers during the month and recorded to Unearned Revenue in advance of
delivering services. One-quarter (1/4) of the total amount received was determined as having been earned
by May 31, 2024.
5. A count of supplies at May 31, 2024 shows $350 of supplies on hand.
6. Employees are paid a combined total of $450 per day. At May 31, 2024, three days’ salaries remain unpaid.
7. Additional advertising costs of $200 have been incurred, but the invoices had not been received by May 31,
2024.
8. Customers having received services but for whom invoices had not yet been issued amounted to $1,900.

b. Prepare a statement of income for Ahmed Delivery Services for the month ended May 31, 2024.

Action Plan

Use the unadjusted balances along with the information that is given to arrive at adjusting entry
amounts.
Prepare any accrual or deferral adjusting entries. Use any appropriate accounts you feel are
necessary.
Make sure you consider the account that was used in the original transaction.
Keep in mind that you will need to summarize entries you prepare to complete the second portion of
this question, which is the preparation of the income statement for the month of May 2024.

Download the Working Papers (Excel Spreadsheet) (ch03_d6_worksheet_RM.xlsx)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 3

Problem 6: Solution
J1

Insurance Expense 415

Prepaid Insurance 415

($4,980/12)

Depreciation Expense 570

Accumulated Depreciation - Equipment 570

($6,840/12)

Interest Expense 130

Interest Payable 130

($26,000 × 6% × 1/12)

Unearned Revenue 2,000

Service Revenue 2,000

($8,000/4)

Supplies Expense 300

Supplies 300

($650 - $350)

Salaries Expense 1,350

Salaries Payable 1,350

($450 X 3)

Advertising Expense 200

Accounts Payable 200

Accounts Receivable 1,900

Service Revenue 1,900

 Ahmed Delivery Services
Statement of Income
For the Month Ended May 31, 2024

Revenues

Service revenue $ 21,300

Expenses:

Salaries expense $10,140

Advertising expense 1,000

Repairs expense 450

Rent expense 1,800

Depreciation expense 570

Insurance expense 415

Interest expense 130

Supplies expense 300 14,805

Profit for the month $ 6,495

Calculations:

Unadjusted balance $17,400

2,000

1,900

Service revenue $21,300

Unadjusted balance $8,790

1,350

Salaries expense $10,140

Unadjusted balance $800

200

Advertising expense $1,000

Back: Problem 6 ([Link])

Demonstration Problem

Chapter 4
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 1
The adjusted trial balance for Banez Industries, owned by Kristen Banez, is as follows:

BANEZ INDUSTRIES
Adjusted Trial Balance
December 31, 2024

Account no. Account Titles Debit Credit

101 Cash $ 8,800

110 Accounts receivable 10,500

120 Supplies 1,200

130 Prepaid insurance 2,700

155 Equipment 24,000

156 Accumulated depreciation—equipment $ 4,300

201 Accounts payable 9,100

210 Salaries payable 2,400

215 Interest payable 850

225 Unearned revenue 1,700

250 Notes payable 5,200

301 K. Banez, capital 29,680

305 K. Banez, drawings 12,700

400 Service revenue 65,900

705 Depreciation expense 2,800

715 Insurance expense 1,600

725 Salaries expense 30,200

 BANEZ INDUSTRIES
Adjusted Trial Balance
December 31, 2024

735 Supplies expense 630

745 Utilities expense 4,600

755 Rent expense 18,000

905 Interest expense 1,400

$119,130 $119,130

Instructions
A. Prepare the closing entries. Use account number 350 for Income Summary.
B. Create T accounts for Income Summary and K. Banez, Capital and post the closing entries to these
accounts.
C. Prepare a post-closing trial balance.

Action Plan

Debit each individual “Revenue” account for its balance and credit the total to “Income Summary.”
Credit each individual “Expense” account for its balance and debit the total to “Income Summary.”
Debit the total balance in the “Income Summary” account and credit the Owner’s Capital account by
the same amount if the company had a profit.
Credit the total balance in the “Income Summary” account and debit the Owner’s Capital account by
the same amount if the company had a loss.
Credit the balance in the “Drawings” account to the Owner’s Capital account. Drawings are closed
separately from the expenses.
Post the entries to the T accounts provided.
Prepare a post-closing trial balance.
Ensure all temporary accounts have a zero balance.
Ensure all permanent accounts (except the Owner’s Capital account) have the same balance as the
“Adjusted Trial Balance.”

Download the Working Papers (Excel Spreadsheet) (ch04_d1_worksheet_RM.xlsx)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 4

Problem 1: Solution
A.

J1

Dec. 31 400 Service Revenue 65,900

350 Income Summary 65,900

To close revenue account.

31 350 Income Summary 59,230

705 Depreciation Expense 2,800

715 Insurance Expense 1,600

725 Salaries Expense 30,200

735 Supplies Expense 630

745 Utilities Expense 4,600

755 Rent Expense 18,000

905 Interest Expense 1,400

To close expense accounts.

31 350 Income Summary 6,670

301 K. Banez, Capital 6,670

To close Income Summary account.

31 301 K. Banez, Capital 12,700

305 K. Banez, Drawings 12,700

To close drawings account.

B.
 350 Income Summary

Clos. 59,230 Clos. 65,900

Balance 6,670

Clos. 6,670

Balance 0

301 K. Banez, Capital

Balance 29,680

Clos. 12,700 Clos. 6,670

Balance 23,650

C.

BANEZ INDUSTRIES
December 31,2024

Account no. Account Titles Debit Credit

101 Cash $ 8,800

110 Accounts receivable 10,500

120 Supplies 1,200

130 Prepaid insurance 2,700

155 Equipment 24,000

156 Accumulated depreciation—equipment $ 4,300

201 Accounts payable 9,100

210 Salaries payable 2,400

215 Interest payable 850

225 Unearned revenue 1,700

250 Notes payable 5,200

301 K. Banez, capital 23,650

$47,200 $47,200

Back: Problem 1 ([Link])

Demonstration Problem

Chapter 4
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 2
Sharon Ghebreyesus, CPA, was retained by Lee Resources to audit their trial balance prior to preparing the
financial statements for April 30, 2024. The following account balances were listed:

LEE RESOURCES
Trial Balance
April 30, 2024

Account Titles Debit Credit

Cash $ 4,100

Accounts receivable 3,200

Supplies 800

Prepaid insurance 0

Equipment 10,800

Accumulated depreciation—equipment $ 1,350

Accounts payable 2,100

Salaries payable 700

Unearned service revenue 890

S. Lee, capital 14,900

S. Lee, drawings 0

Service revenue 5,650

Advertising expense 600

Depreciation expense 500

Insurance expense 1,200

Miscellaneous expense 290

Salaries expense 4,100

 LEE RESOURCES
Trial Balance
April 30, 2024

Account Titles Debit Credit

$25,590 $25,590

Sharon then reviewed the records and found the following errors:

1. Cash received from a customer on account was recorded as $950 instead of $590.
2. A payment of $75 for advertising was entered as a debit to Miscellaneous Expense $75 and a credit to
Cash $75.
3. The first salary payment in April was for $1,900, which included $700 of salaries payable on March 31. The
payment was recorded as a debit to Salaries Expense $1,900 and a credit to Cash $1,900. (No reversing
entries were made on April 1.)
4. The purchase on account of equipment costing $510 was recorded as a debit to Supplies and a credit to
Accounts Payable for $510.
5. A cash payment of repair expense on equipment for $96 was recorded as a debit to Equipment $69 and a
credit to Cash $69.
6. A customer was billed for $890 for services provided. Accounts Receivable was debited $890 and
Unearned Service Revenue was credited $890.
7. A $760 cash withdrawal for S. Lee's personal use was debited to Salaries Expense and credited to Cash.
8. A payment on account of $230 to a creditor was debited $320 to Accounts Payable and credited $320 to
Cash.
9. The prepayment of $1,200 for an annual insurance policy was posted as a debit to Insurance Expense for
$1,200 and a credit to Cash for $1,200. The policy began on April 30, 2024.
10. Received $260 cash from a customer on account. Cash was debited $260 and Service Revenue was
credited $260.

Instructions
For each transaction, prepare an analysis of each error showing (a) the incorrect entry that was posted, (b) the
correct entry that should have been posted, and (c) the correcting entry required without reversing the incorrect
entry. Use April 30 for the date on all correcting entries.

Action Plan

Based on the narrative relating to the transactions, determine what journal entry was posted.
Based on your knowledge of accounting principles, determine the correct entry that should have been
made.
Compare the incorrect entry to the correct entry and make the required correction. Your correcting
entry will adjust all the individual accounts to the proper balance in a single correcting entry.

Download the Working Papers (Excel Spreadsheet) (ch04_d2_worksheet_RM.xlsx)

Next: View the Solution ([Link])
Demonstration Problem

Chapter 4

Problem 2: Solution
Entry 1:

(a) The incorrect entry:

Apr. 30 Cash 950

Accounts Receivable 950

(b) The correct entry:

Apr. 30 Cash 590

Accounts Receivable 590

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 Accounts Receivable 360

Cash 360

Entry 2:

(a) The incorrect entry:

Apr. 30 Miscellaneous Expense 75

Cash 75

(b) The correct entry:

Apr. 30 Advertising Expense 75

Cash 75

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 Advertising Expense 75

Miscellaneous Expense 75

Entry 3:

(a) The incorrect entry:

Entry 3:

Apr. 30 Salaries Expense 1,900

Cash 1,900

(b) The correct entry:

Apr. 30 Salaries Expense 1,200

Salaries Payable 700

Cash 1,900

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 Salaries Payable 700

Salaries Expense 700

Entry 4:

(a) The incorrect entry:

Apr. 30 Supplies 510

Accounts Payable 540

(b) The correct entry:

Apr. 30 Equipment 510

Accounts Payable 510

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 Equipment 510

Supplies 510

Entry 5:

(a) The incorrect entry:

Apr. 30 Equipment 69

Cash 69

(b) The correct entry:

Apr. 30 Repairs Expense 96

Cash 96

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 Repairs Expense 96

Equipment 69
Entry 5:

Cash 27

Entry 6:

(a) The incorrect entry:

Apr. 30 Accounts Receivable 890

Unearned Service Revenue 890

(b) The correct entry:

Apr. 30 Accounts Receivable 890

Service Revenue 890

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 Unearned Service Revenue 890

Service Revenue 890

Entry 7:

(a) The incorrect entry:

Apr. 30 Salaries Expense 760

Cash 760

(b) The correct entry:

Apr. 30 S. Lee, Drawings 760

Cash 760

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 S. Lee, Drawings 760

Salaries Expense 760

Entry 8:

(a) The incorrect entry:

Apr. 30 Accounts Payable 320

Cash 320

(b) The correct entry:

Apr. 30 Accounts Payable 230

Cash 230
Entry 8:

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 Cash 90

Accounts Payable 90

Entry 9:

(a) The incorrect entry:

Apr. 30 Insurance Expense 1,200

Cash 1,200

(b) The correct entry:

Apr. 30 Prepaid Insurance 1,200

Cash 1,200

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 Prepaid Insurance 1,200

Insurance Expense 1,200

Entry 10:

(a) The incorrect entry:

Apr. 30 Cash 260

Service Revenue 260

(b) The correct entry:

Apr. 30 Cash 260

Accounts Receivable 260

(c) The correcting entry completed without reversing the incorrect entry:

Apr. 30 Service Revenue 260

Accounts Receivable 260

Back: Problem 2 ([Link])

Demonstration Problem

Chapter 4
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 3
An alphabetical list of the adjusted account balances (all accounts have normal balances) at year end May 31,
2024, for Hroda Company is as follows:

Accounts payable $ 5,100

Accounts receivable 22,400

Accumulated depreciation—building 12,400

Building 220,800

Cash and cash equivalents 24,500

Depreciation expense 4,200

Equity investments (long-term) 18,000

Goodwill 5,500

Interest expense 8,100

Interest payable 3,000

Land 50,000

Notes payable (due April 30, 2027) 120,000

Notes receivable 42,300

O. Hroda, capital 66,100

O. Hroda, drawings 23,000

Patent 12,700

Salaries expense 87,300

Salaries payable 3,200

Service revenue 334,200

Short-term investments 6,500

Supplies 2,900

Supplies expense 17,800

Unearned revenue 5,400

Utilities expense 3,400

Additional information:
1. Olga Hroda invested $17,000 in the business during this business year. The investment has been recorded
and is included in the capital account.
2. $20,000 of the notes payable is due within the next 12 months.
3. The notes receivable will be collected on May 31, 2027.

Instructions
Prepare an income statement, statement of owner’s equity, and a classified balance sheet for the year.

Action Plan

Review the Chapter 1 information relating to the income statement and the statement of owner’s equity
accounts.
Review the account information relating to a “classified” balance sheet, which may include the following:
Current assets include all assets that will be realized within one year.
Non-current assets are assets that are expected to be realized in more than one year. They are more
specifically categorized as Long-Term Investments; Property, Plant, and Equipment; and Intangible
Assets and Goodwill.
Long-term investments include investments in shares and bonds of other companies they plan to hold
over many years, long-term notes receivable, and assets such as land that the company is currently
not using in its operating activities, but plans to hold the property over the long term.
Property, plant, and equipment are assets with a long life that are tangible and are currently being
used in the business.
Intangible assets are long-lived assets that do not have physical substance.
Goodwill results from the acquisition of another company when the price paid for the company is
higher than the fair value of the purchased company’s net assets.
Current liabilities are obligations that are expected to be settled within one year.
Non-current liabilities are obligations that are expected to be paid after one year.

Download the Working Papers (Excel Spreadsheet) (ch04_d3_worksheet_RM.xlsx)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 4

Problem 3: Solution
Income Statement

HRODA COMPANY
Income Statement
For the Year Ended May 31, 2024

Revenues

Service revenue $334,200

Expenses

Depreciation expense $4,200

Interest expense 8,100

Salaries expense 87,300

Supplies expense 17,800

Utilities expense 3,400

Total expenses 120,800

Profit for the year $213,400

Statement of Owner's Equity

HRODA COMPANY
Statement of Owner’s Equity
For the Year Ended May 31, 2024

O. Hroda, capital, June 1, 2023 $49,100

Add: Investments $17,000

Profit for the year 213,400 230,400

279,500

Less: Drawings 23,000

 HRODA COMPANY
Statement of Owner’s Equity
For the Year Ended May 31, 2024

O. Hroda, capital, May 31, 2024 $256,500

Balance Sheet

HRODA COMPANY
Balance Sheet
May 31, 2024

Assets

Current assets

Cash and cash equivalents $ 24,500

Short-term investments 6,500

Accounts receivable 22,400

Supplies 2,900

Total current assets $ 56,300

Long-term investments

Notes receivable 42,300

Equity investments 18,000

Total long-term investments 60,300

Property, plant, and equipment

Land $50,000

Building 220,800

Less: Accumulated depreciation 12,400 208,400

Total property, plant, and equipment 258,400

Patent 12,700

Goodwill 5,500

Total assets $393,200

Liabilities and Owner’s Equity

Current liabilities

Accounts payable $ 5,100

Salaries payable 3,200

 HRODA COMPANY
Balance Sheet
May 31, 2024

Interest payable 3,000

Unearned revenue 5,400

Current portion of long-term notes payable 20,000

Total current liabilities $ 36,700

Non-current liabilities

Notes payable 100,000

Total liabilities 136,700

Owner's equity

O. Hroda, capital 256,500

Total liabilities and owner’s equity $393,200

Back: Problem 3 ([Link])

Demonstration Problem

Chapter 4
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 4
Chantel Powers began operations as a private investigator on April 1, 2023. The trial balance columns of the work
sheet for Powers PI at June 30, 2024, the most recent year end of the proprietorship, are as follows:

POWERS PI
Adjusted Trial Balance
June 30, 2024

Debit Credit

Cash $12,400

Accounts receivable 6,200

Supplies 300

Prepaid insurance 2,760

Equipment 33,000

Accumulated depreciation - equipment $ 1,600

Current portion of notes payable 3,000

Accounts payable 8,900

Interest payable 300

Notes payable 9,000

C. Powers, capital 22,000

C. Powers, drawings 1,200

Service revenue 25,205

Depreciation expense 420

Insurance expense 680

Interest expense 300

Miscellaneous expense 315

 POWERS PI
Adjusted Trial Balance
June 30, 2024

Rent expense 3,600

Salaries expense 5,800

Supplies expense 630

Travel expense 2,400

$70,005 $70,005

Additional Information:
1. On May 21, 2024 Chantel Powers invested $2,500 cash in the proprietorship.
2. Of the note payable, $3,000 must be paid on March 31 each year.

Instructions
A. Prepare an income statement and a statement of owner's equity and a classified balance sheet at June 30,
2024.
B. Journalize the closing entries from the adjusted trial balance.
C. Post the closing entries to the Income Summary account and C. Powers, Capital account. After the
revenue and expense closing entries are recorded and posted, which amount on the financial statement(s)
should the balance in the Income Summary account agree with? After all closing entries are recorded and
posted, which amount on which financial statement(s) should the balance in the C. Powers, Capital
account agree with?
D. Calculate the working capital, current ratio, and acid-test ratio for June 30, 2024.

Action Plan

Prepare the income statement first, listing revenues then expenses. Calculate profit as revenues minus
expenses.
Determine the opening balance in owner's capital by deducting the investments made by the owner
during the year from the balance in the Owner's Capital account.
Determine the ending balance in Owner's Capital by adding profit and owners investments to the
owner's capital account and subtracting drawings.
In preparing a classified balance sheet, know the contents of each section.
Current assets are normally cash and other assets that will be converted to cash, sold, or used up
within one year from the balance sheet date. In Canada, companies generally list current assets in the
order of their liquidity. Some international companies list current assets in reverse order of liquidity.
Current liabilities are obligations that are expected to be settled within the coming year. Similar to
current assets, North American companies often list current liabilities in order of liquidity – that is, the
liabilities that will be due first are listed first.
In journalizing closing entries, remember that there are four entries – one to close revenues, one to
close expenses, one to close income summary, and one to close owner's drawings.
For liquidity analysis: (1) subtract current liabilities from current assets to calculate working capital; (2)
divide current assets by current liabilities to calculate current ratio; and (3) divide cash plus short-term
investments plus accounts receivable by current liabilities to calculate the acid-test ratio.
Download the Working Papers (Excel Spreadsheet) (ch04_d4_worksheet_RM.xlsx)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 4

Problem 4: Solution
A.

POWERS PI
Income Statement
For the Year Ended June 30, 2024

Revenue

Service revenue $25,205

Expenses

Depreciation expense $ 420

Insurance expense 680

Interest expense 300

Miscellaneous expense 315

Rent expense 3,600

Salaries expense 5,800

Supplies expense 630

Travel expense 2,400

Total expenses 14,145

Profit for the year $11,060

POWERS PI
Statement of Owner's Equity
For the Year Ended June 30, 2024

C. Powers, capital, July 1, 2023 $19,500*

Add: Investments $2,500

Profit for the year 11,060 13,560

33,060
 POWERS PI
Statement of Owner's Equity
For the Year Ended June 30, 2024

Less: Drawings 1,200

C. Powers, capital, July 1, 2024 $31,860

(* $22,000 − $2,500 = $19,500)

POWERS PI
Balance sheet
June 30, 2024

Assets

Current assets

Cash $12,400

Accounts receivable 6,200

Supplies 300

Prepaid Insurance 2,760

Total current assets $ 21,660

Property, plant, and equipment

Equipment $33,000

Less: Accumulated depreciation 1,600 31,400

Total assets $53,060

Liabilities and Owner's Equity

Current Liabilities

Accounts payable $8,900

Interest payable 300

Current portion of notes payable 3,000

Total current liabilities $ 12,200

Long-term liabilities

Notes payable 9,000

Total liabilities 21,200

Owner's Equity

C. Powers, capital 31,860

Total liabilities and owner's equity $53,060

B.

General Journal

Date Account Titles Debit Credit

June 30 Service Revenue 25,205

Income Summary 25,205

30 Income Summary 14,145

Depreciation Expense 420

Insurance Expense 680

Interest Expense 300

Miscellaneous Expense 315

Rent Expense 3,600

Salaries Expense 5,800

Supplies Expense 630

Travel Expense 2,400

30 Income Summary 11,060

C. Powers, capital 11,060

30 C. Powers, capital 1,200

C. Powers, drawings 1,200

C.

Income Summary

Clos. 14,145 Clos. 25,205

Balance 11,060

Clos. 11,060

Balance 0

C. Powers, Capital

Balance 22,000

Clos. 1,200 Clos. 11,060

Balance 31,860

After the revenue and expense closing entries are recorded and posted, the Income Summary balance of $11,060
should agree with the profit on the income statement.
After all closing entries are recorded and posted, the balance in the C. Powers, Capital account should agree with
both the balance sheet amount and the ending balance on the statement of owner’s equity.

D.

Working capital = current assets − current liabilities

= $21,660 − $12,200

= $9,460

Current ratio = current assets ÷ current liabilities

= $21,660 ÷ $12,200

= 1.78

Acid-test ratio = (cash + short-term investments + receivables) ÷ current liabilities

= ($12,400 + $6,200) ÷ $12,200

= 1.52

Back: Problem 4 ([Link])

Demonstration Problem

Chapter 4
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 5
Ketchum Company had the following information in its financial statements for the fiscal years ended December
31.

2024 2023 2022

Cash $475 $1,505 $900

Accounts receivable 2,166 2,216 2,050

Current assets 3,950 4,050 3,880

Current liabilities 2,966 3,010 3,200

Instructions
a. Calculate Ketchum’s (1) working capital, (2) current ratio, and (3) acid-test ratio for each year. Calculate the
ratios to two decimal places.
b. Determine from the results obtained in part a. if Ketchum’s
1. Working capital improved or deteriorated from 2023 to 2024
2. Current ratio improved or deteriorated from 2023 to 2024
3. Current ratio improved or deteriorated from 2022 to 2023
4. Acid-test ratio improved or deteriorated from 2023 to 2024
5. Acid-test ratio improved or deteriorated from 2022 to 2023

Action Plan

Calculate Ketchum’s working capital for three years by deducting current liabilities from current
assets.
Calculate Ketchum’s current ratio for three years by dividing current assets by current liabilities.
Add cash and accounts receivable for each year.
Take the result and calculate Ketchum’s acid-test ratio for the three years by dividing the sum of cash
and accounts receivable by current liabilities.
Compare the table of results arrived at above.
Higher working capital is better than lower working capital.
For the current and the acid-test ratios, higher ratios are preferred to lower ratios.
Determine if the working capital, the current ratio, and the acid-test ratio have improved or
deteriorated for the periods stated in the question.

Download the Working Papers (Excel Spreadsheet) (ch04_d5_worksheet.xlsx)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 4

Problem 5: Solution
a.

2024

1. Working Capital $3,960 – $2,966 = $984

2. Current Ratio = $3,950/$2,966 = 1.33 :1

3. Acid-test ratio = ($475 + $2,166)/$2,966 = 0.89 :1

2023

1. Working Capital $4,050 – $3,010 = $1,040

2. Current Ratio = $4,050/$3,010 = 1.35 :1

3. Acid-test ratio = ($1,505 + $2,216)/$3,010 = 1.24 :1

2022

1. Working Capital $3,880 – $3,200 = $680

2. Current Ratio = $3,880/$3,200 = 1.21 :1

3. Acid-test ratio = ($900 + $2,050)/$3,200 = 0.92 :1

b.

1. Deteriorated
2. Deteriorated
3. Improved
4. Deteriorated
5. Improved

Back: Problem 5 ([Link])

Demonstration Problem

Chapter 4
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 6
The unadjusted trial balance of Wang Delivery Services at April 30, 2024, and the adjustment data for the month
of April 2024 are as follows:

Wang Delivery Services

Trial Balance
April 30, 2024

Debit Credit

Cash $13,025

Accounts receivable 7,940

Prepaid rent 2,375

Equipment 48,000

Accumulated depreciation–equipment $12,000

Accounts payable 4,580

Notes payable 24,000

Unearned revenue 2,000

Interest payable

Y. Wang, capital 24,400

Y. Wang, drawings 7,150

Service revenue 25,600

Salaries expense 10,120

Depreciation expense 2,650

Interest expense 1,320

$ 92,580 $ 92,580
Additional Information:
1. $1,000 of unearned revenue is to be recognized because the related delivery services have been performed
by April 30, 2024.
2. The equipment has an estimated useful life of eight years.
3. Interest on the note payable is due on the first day of each month for the previous month’s interest. The
note payable has a 6% annual rate of interest.

Instructions
Prepare the work sheet for the month of April 2024.

Action Plan

Use the unadjusted balances and enter the amounts in the work sheet. Ensure that the totals
correspond to the totals in the data given.
From the information that is given, arrive at adjusting entry amounts and enter the adjustments
required on the work sheet. Enter totals and make sure that the total of the debits equals the total of
the credits.
Calculate and enter the amounts for the adjusted trial balance. Enter totals and make sure that the trial
balance balances.
Enter the balance sheet amounts to the balance sheet columns along with the drawings account.
Enter the income statement amounts to the income statement column.
Enter sub totals for all four columns of the income statement and the balance sheet.
Calculate and enter the amount of income for the month of April.
Enter totals to the all four columns of the income statement and the balance sheet.

Download the Working Papers (Excel Spreadsheet) (ch04_d6_worksheet_RM.xlsx)

Next: View the Solution ([Link])

Demonstration Problem

Chapter 4

Problem 6: Solution
Wang Delivery Services
Work Sheet
Month Ended April 30, 2024

Unadjusted Adjusted Trial Income

Trial Balance Adjustments Balance Statement Balance Sheet

Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

Cash 13,025 13,025 13,025

Accounts receivable 7,940 7,940 7,940

Prepaid rent 2,375 2,375 2,375

Equipment 48,000 48,000 48,000

[Link].– 12,000 (2) 500 12,500 12,500

equip.

Accounts payable 4,580 4,580 4,580

Notes payable 24,000 24,000 24,000

Unearned revenue 2,000 (1) 1,000 1,000 1,000

Interest payable (3) 120 120 120

Y. Wang, capital 24,400 24,400 24,400

Y. Wang, drawings 7,150 7,150 7,150

Service revenue 25,600 (1) 1,000 26,600 26,600

Salaries expense 10,120 10,120 10,120

Depreciation expense 2,650 (2) 500 3,150 3,150

Interest expense 1,320 (3) 120 1,440 1,440

Totals 92,580 92,580 1,620 1,620 93,200 93,200 14,710 26,600 78,490 66,600

Profit 11,890 11,890

Totals 26,600 26,600 78,490 78,490

Back: Problem 6 ([Link])
Demonstration Problem

Chapter 4
The Demonstration Problem below includes an Action Plan and electronic Working Papers (in Excel). Download
the Working Papers and complete the problem, using the Action Plan (be sure to save your work). Once you've
completed the problem, you can compare to the Solution, also available below.

Problem 7
The unadjusted trial balance for Patel Heating at its fiscal year end of October 31, 2024 is as follows:

PATEL HEATING
Trial Balance
October 31, 2024

Debit Credit

Cash $14,600

Accounts receivable 6,500

Supplies 1,500

Equipment 39,600

Accumulated depreciation—equipment $ 2,475

Accounts payable 3,500

Unearned revenue 4,500

Note payable 12,000

P. Patel, capital 40,000

P. Patel, drawings 20,000

Service revenue 83,725

Insurance expense 4,100

Interest expense 300

Rent expense 23,100

Utilities expense 8,500

Salaries expense 28,000

$146,200 $146,200
Other Data:
There was $780 of supplies on hand on October 31, 2024.
The equipment has an estimated useful life of 12 years.
Pratik Patel made an investment in the company of $13,000 cash during the year. This amount was
mistakenly credited to Service Revenue.
The note payable has a 5% annual interest rate. Interest is paid quarterly. The last day interest was paid
was September 30, 2024. The next payment is due December 31, 2024. Interest is accrued monthly.
On October 31, 2024, $1,800 of unearned revenue was still unearned.
Accrued salaries to October 31 were $1,550. The next pay is November 4. On that date, the employees will
be paid a total of $1,825.
The company has earned another $7,000 that will be collected on November 10. This amount is not
included in the current balance of Service Revenue. On November 10, the company will also collect an
additional $1,500 for new revenues earned during November.
On July 1, 2024, the company purchased furniture that cost $6,000 and recorded the amount as a debit to
P. Patel, Drawings. The furniture has an estimated useful life of 10 years.
A payment of $350 for utilities expense was entered as a debit to Rent Expense of $350 and a credit to
Cash of $350.
Rent expense of $2,100 and Utilities expense of $450 are owed but have not yet been recorded. Both
amounts will be paid on November 8.

Instructions
A. Prepare correcting and adjusting entries for the year ended October 31, 2024 as required.
B. Prepare journal entries to record the November and December 2024 cash transactions.
C. *Assume instead that the company prepares reversing entries where appropriate. Record the reversing
entries and the journal entries to record the November and December 2024 cash transactions.

Action Plan

Prepare separate correcting entries for each error. Compare the correct entry to the incorrect entry
and determine what the correcting entry should be. Make sure debits equal credits.
Prepare separate journal entries for each adjusting entry. Make sure debits equal credits.
Each adjusting entry should affect one income statement account and one balance sheet account.
Look at how the amounts are currently recorded in the accounts before trying to determine what
adjustments are necessary.
Select account titles carefully. Use existing titles whenever possible.
(*Appendix 4B) When journalizing reversing entries, remember that they are used to reverse accruals
and that they are the exact opposite of the adjusting entry made in the previous period.

Download the Working Papers (Excel Spreadsheet) (ch04_d7_worksheet_RM.xlsx)

Next: View the Solution ([Link])
Demonstration Problem

Chapter 4

Problem 7: Solution
A.

General Journal

Date Account Titles Debit Credit

Oct. 31 Supplies Expense 720

Supplies 720

($1,500 − $780 = $720)

31 Depreciation Expense 3,300

Accumulated Depreciation—Equipment 3,300

($39,600 ÷ 12)

31 Service Revenue 13,000

P. Patel, Capital 13,000

31 Interest Expense 50

Interest Payable 50

($12,000 × 5% × 1/12 = $50)

31 Unearned Revenue 2,700

Service Revenue 2,700

($4,500 − $1,800 = $2,700)

31 Salaries Expense 1,550

Salaries Payable 1,550

31 Accounts Receivable 7,000

Service Revenue 7,000

31 Furniture 6,000

P. Patel, Drawings 6,000

31 Depreciation Expense 200

 General Journal

Accumulated Depreciation—Furniture 200

($6,000 ÷ 10 × 4/12 = $200)

31 Utilities Expense 350

Rent Expense 350

31 Rent Expense 2,100

Utilities Expense 450

Accounts Payable 2,550

B.

General Journal

Date Account Titles Debit Credit

Nov. 4 Salaries Payable 1,550

Salaries Expense ($1,825 − $1,550) 275

Cash 1,825

8 Accounts Payable 2,550

Cash 2,550

10 Cash 8,500

Accounts Receivable 7,000

Service Revenue 1,500

Dec. 31 Interest Payable ($50 × 2 months) 100

Interest Expense (1 month) 50

Cash 150

This entry is based on an interest accrual at the end of October and November.

*C (*Appendix 4B)

General Journal

Date Account Titles Debit Credit

Nov. 1 Interest Payable 50

Interest Expense 50

1 Salaries Payable 1,550

Salaries Expense 1,550

1 Service Revenue 7,000

 General Journal

Accounts Receivable 7,000

1 Accounts Payable 2,550

Rent Expense 2,100

Utilities Expense 450

4 Salaries Expense 1,825

Cash 1,825

8 Rent Expense 2,100

Utilities Expense 450

Cash 2,550

10 Cash ($7,000 + $1,500) 8,500

Service Revenue 8,500

Dec. 31 Interest Expense 150

Cash 150

($12,000 × 5% × 3/12 = $150)

Back: Problem 7 ([Link])