Solutions - CH4

Kimmel, Weygandt, Kieso, Trenholm Financial Accounting, Second Canadian Edition
CHAPTER 4
Accrual Accounting Concepts
ASSIGNMENT CLASSIFICATION TABLE
Brief A B
Study Objectives Questions Exercises Exercises Problems Problems
*1. Explain the revenue 1, 2, 3, 4 1 1, 2 1A 1B

recognition principle and
the matching principle.
*2. Differentiate between 5 2 3 2A, 3A 2B, 3B

the cash basis and the
accrual basis of ac-
counting.
*3. Explain why adjusting 6, 7 3 4

entries are needed, and
identify the major types
of adjusting entries.
*4. Prepare adjusting entries 8, 9, 10, 11, 4, 5, 6, 7,11 4, 5, 6, 7, 8, 2A, 3A, 4A, 2B, 3B, 4B
for prepayments. 12, 17, 18, 10, 11 5A, 6A, 7A, 5B, 6B, 7B
19 8A, 9A, 10A, 8B, 9B, 10B,
11A, 12A 11B, 12B
*5. Prepare adjusting entries 13, 14, 15, 8,9,10,11 4, 5, 6, 7, 8, 2A, 3A, 4A, 2B, 3B, 4B,
for accruals. 16, 17, 18, 9, 10, 11 5A, 6A, 7A, 5B, 6B, 7B,
19 8A, 9A, 10A, 8B, 9B, 10B,
11A, 12A 11B, 12B
*6. Describe the nature and 20 12, 13 10, 11, 12 8A, 9A, 10A, 8B, 9B, 10B,
purpose of the adjusted 11A, 12A 11B, 12B
trial balance.
*7. Explain the purposes of 21, 22, 23 14, 15 13 9A, 10A, 9B, 10B,
closing entries. 12A 12B
8. Describe the required 24, 25 12A 12B

steps in the accounting
cycle.
Solutions Manual 4-1 Chapter 4

Copyright 2004 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
ASSIGNMENT CHARACTERISTICS TABLE
Problem Difficulty Time

Number Description Level Allotted (min.)
1A Identify accounting assumptions, principles, and Simple 10-15

constraints.
2A Convert earnings from cash to accrual basis. Complex 30-40
3A Convert earnings from cash to accrual basis; prepare Complex 40-50

accrual-based financial statements.
4A Prepare original and adjusting entries. Simple 20-30
5A Prepare adjusting entries. Simple 20-30
6A Prepare original and adjusting entries. Simple 20-30
7A Prepare adjusting entries and corrected statement of Moderate 40-50

earnings.
8A Prepare adjusting entries, post, and prepare adjusted Moderate 30-40

trial balance.
9A Prepare adjusting entries, post, prepare adjusted trial Moderate 50-60

balance, financial statements, and closing entries.
10A Prepare adjusting entries and financial statements; Moderate 40-50

identify accounts to be closed.
11A Complete accounting cycle through to preparation of Moderate 70

financial statements.
12A Complete all steps in accounting cycle. Moderate 70
1B Identify accounting assumptions, principles, and Simple 10-15

constraints.
2B Convert earnings from cash to accrual basis. Complex 30-40
3B Convert earnings from cash to accrual basis; prepare Complex 40-50

accrual-based financial statements.
4B Prepare original and adjusting entries. Simple 20-30

Problem Difficulty Time
Number Description Level Allotted (min.)
5B Prepare adjusting entries. Simple 20-30
6B Prepare original and adjusting entries. Simple 20-30
7B Prepare adjusting entries and corrected statement of Moderate 40-50

earnings.
8B Prepare adjusting entries, post, and prepare adjusted Moderate 30-40

trial balance.
9B Prepare adjusting entries, post, prepare adjusted trial Moderate 50-60

balance, financial statements, and closing entries.
10B Prepare adjusting entries and financial statements; Moderate 40-50

identify accounts to be closed.
11B Complete accounting cycle through to preparation of Moderate 70

financial statements.
12B Complete all steps in accounting cycle. Moderate 70

ANSWERS TO QUESTIONS
1. (a) Under the time period assumption, an accountant is required to determine the
relevance of each accounting transaction to specific accounting periods.
(b) An accounting time period of one year in length is referred to as a fiscal year.
2. The two generally accepted accounting principles that pertain to adjusting the accounts
are (1) the revenue recognition principle, which states that revenue should be recognized
in the time period in which it is earned, and (2) the matching principle, which states that
efforts (expenses) must be matched with accomplishments (revenues).
3. The law firm should recognize the revenue in April. The revenue recognition principle
states that revenue should be recognized in the accounting period in which it is earned. In
this case, the revenue was earned in April when the work was performed.
4. Expenses of $4,500 should be deducted from the revenues in April. Under the matching
principle efforts (expenses) should be matched in the same period as accomplishments
(revenues). The $2,000 of expense incurred in March would be recorded as a prepaid ex-
pense until April.
5. (a) Information presented on an accrual basis is useful because it reveals important in-
formation about the relationship between efforts and results. This information is
useful in predicting future results. Trends in revenues and expenses are thus more
meaningful.
(b) Information presented on a cash basis is useful for predicting the future availability
of cash. Cash basis financial statements provide useful information about a com-
pany's sources and uses of cash.
6. The financial information in a trial balance may not be up-to-date because:

(1) Some events are not journalized daily because it is unnecessary and inexpedient
to do so.
(2) The expiration of some costs occurs with the passage of time rather than as a re-
sult of recurring daily transactions.
(3) Some items may be unrecorded because the transaction data are not known.
7. The two categories of adjusting entries are prepayments and accruals. Prepayments con-
sist of revenues and expenses paid before they are earned or incurred such as prepaid
expenses and unearned revenues. Accruals consist of revenues and expenses earned or
incurred prior to payment.
8. In a prepaid expense adjusting entry, expenses are debited and assets are credited.
9. No. Amortization is the process of allocating the cost of an asset to expense over its use-
ful life. Amortization results in the presentation of the book value of the asset, not its mar-
ket value.

Questions (Continued)
10. Amortization expense is an expense account whose normal balance is a debit. This ac-
count shows the cost of a long-lived asset that has expired during the current accounting
period. Accumulated amortization is a contra asset account whose normal balance is a
credit. The balance in this account is the amortization that has been recognized from the
date of acquisition to the balance sheet date.
11. 1st Fiscal Year-end

Equipment $12,000
Less: Accumulated Amortization... 4,000 $8,000
2nd Fiscal Year-end

Equipment $12,000
Less: Accumulated Amortization... 8,000 $4,000
12. In an unearned revenue adjusting entry, liabilities are debited and revenues are credited.
13. Accrued revenues affect asset and revenue accounts. An asset is debited and revenue is
credited.
14. Accrued liabilities affect liability and expense accounts. An expense is debited and a liabil-
ity is credited.
15. Net earnings was understated $300 because prior to adjustment revenues are understat-
ed by $900 and expenses are understated by $600. The difference in this case is $300
($900 $600).
16. The entries are:
Dec. 31 Salaries Expense.. 1,700

Salaries Payable ... 1,700
Jan. 9 Salaries Payable.. 1,700

Salaries Expense .... 3,300
Cash........ 5,000
17. (a) Salaries Payable (d) Supplies Expense

(b) Accumulated Amortization (e) Service Revenue
(c) Interest Expense (f) Service Revenue
18. Disagree. An adjusting entry affects only one balance sheet account and one statement of
earnings account.

Questions (Continued)
19. Adjusting entries never involve the Cash account. In making adjusting entries for prepay-
ments the cash has already been paid or received and recorded. The adjusting journal en-
try must be prepared to reflect the fact that the related revenue or expense has not yet
been earned or incurred. An accrual entry reflects the fact that although the cash has not
been paid or received, either revenue has been earned or an expense has been incurred.
Again there is no impact on the Cash account because cash has not yet been received or
paid.
20. Financial statements can be prepared from an adjusted trial balance because the balanc-
es of all accounts have been adjusted to show the effects of all financial events that have
occurred during the accounting period.
21. (1) (Dr) Individual revenue accounts and (Cr.) Income Summary
(2) (Dr) Income Summary and (Cr.) Individual expense accounts
(3) (Dr) Income Summary and (Cr.) Retained Earnings (for net earnings)
(Dr) Retained earnings and (Cr) Income Summary (for net loss)
(4) (Dr) Retained Earnings and (Cr.) Dividends
22. The post-closing trial balance contains only balance sheet accounts. Its purpose is to
prove the equality of the permanent account balances that are carried forward into the
next accounting period.
23. The accounts that will not appear in the post-closing trial balance are Amortization Ex-
pense, Dividends, and Service Revenue.
24. The steps that involve journalizing are (1) journalize the transactions, (2) journalize the ad-
justing entries, and (3) journalize the closing entries.
25. The three trial balances are the (1) trial balance, (2) adjusted trial balance, and (3) post-
closing trial balance.

SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 4-1
The revenue recognition principle dictates that revenue must be recognized in the period in
which it is earned. In a service environment, such as a university, revenue is considered earned
at the time the service is performed. Once the term starts, of the tuition should be recognized
each month and matched against the cost of providing this service (e.g., salaries, utilities, etc.).
BRIEF EXERCISE 4-2
Cash Net Earnings

(a) -$100 $0
(b) 0 50
(c) 0 +1,000
(d) +800 0
(e) 2,500 0
(f) 0 500
BRIEF EXERCISE 4-3
(1) (2)
Item Type of Adjustment Accounts Before Adjustment
(a) Prepaid Expenses Assets Overstated

Expenses Understated
(b) Accrued Revenues Assets Understated

Revenues Understated
(c) Accrued Revenues Assets Understated

(d) Unearned Revenues Liabilities Overstated

(e) Prepaid Expenses Assets Overstated

Expenses Understated
(f) Accrued Expenses Expenses Understated

Liabilities Understated

BRIEF EXERCISE 4-4
Dec. 31 Advertising Supplies Expense ........................................ 7,300

Advertising Supplies .............................................. 7,300
Advertising Supplies Advertising Supplies Expense

Dec. 31 8,800 Dec. 31 7,300 Dec. 31 7,300
Dec. 31 Bal. 1,500
BRIEF EXERCISE 4-5
Dec. 31 Amortization ExpenseEquipment ................................ 4,400

Accumulated AmortizationEquipment ................ 4,400
Amortization Expense Accumulated Amortization

Equipment Equipment
Dec. 31 4,400 Dec. 31 4,400
SHAH CORPORATION
Balance Sheet (partial)
December 31
Assets
Property, plant, and equipment

Equipment ........................................................................... $22,000
Less: Accumulated amortization ........................................ 4,400 $17,600
BRIEF EXERCISE 4-6
June 1 Prepaid Insurance .......................................................... 12,000

Cash ...................................................................... 12,000
Dec. 31 Insurance Expense ($12,000 x 7/12) .............................. 7,000

Prepaid Insurance ................................................. 7,000
Prepaid Insurance Insurance Expense

June 1 12,000 Dec. 31 7,000 Dec. 31 7,000
Dec. 31 Bal. 5,000

BRIEF EXERCISE 4-7
June 1 Cash ............................................................................... 12,000

Unearned Insurance Revenue ............................... 12,000
Dec. 31 Unearned Insurance Revenue ........................................ 7,000

Insurance Revenue ............................................... 7,000
Unearned Insurance Revenue Insurance Revenue

Dec. 31 7,000 June 1 12,000 Dec. 31 7,000
Dec. 31 Bal. 5,000
BRIEF EXERCISE 4-8
(a) Dec. 28 Salaries Expense ................................................... 5,000

Cash ............................................................. 5,000
(b) Dec. 31 Salaries Expense ................................................... 1,000

Salaries Payable ........................................... 1,000
(c) Jan. 4 Salaries Expense ................................................... 4,000

Salaries Payable .................................................... 1,000
Cash ............................................................. 5,000
BRIEF EXERCISE 4-9
(a) July 1, 2004 Vehicle Truck ............................................ 40,000

Note Payable ......................................... 22,000
Cash ..................................................... 18,000
(b) Dec. 31, 2004 Interest Expense ($22,000 X 6% X 6/12) ..... 660
Interest Payable..................................... 660
(c) Dec. 31, 2005 Note Payable ................................................ 22,000

Interest Payable ............................................ 660
Interest Expense ($22,000 X 6%) ................. 1,320
Cash ...................................................... 23,980

BRIEF EXERCISE 4-10
(a) $2,500 ($2,500 - $0)
(b) $4,500 ($2,500 + $3,500 - $1,500)
(c) $3,000 ($1,500 - $2,000 X = $2,500)
Income Tax Payable

0
Payment 0 Expense 2,500
2004 Bal. (a) 2,500
Payment (b) 4,500 Expense 3,500
2005 Bal. 1,500
Payment 2,000 Expense (c) 3,000
2006 Bal. 2,500
BRIEF EXERCISE 4-11
(1) (2)
Account Type of Adjustment Related Account
(a) Accounts Receivable Accrued Revenues Service Revenue
(b) Prepaid Insurance Prepaid Expenses Insurance Expense
(c) Equipment No adjustment required N/A
(d) Accum. Amortization Prepaid Expenses Amortization Expense

Equipment
(e) Notes Payable No adjustment required N/A
(f) Interest Payable Accrued Expenses Interest Expense
(g) Unearned Service Revenue Unearned Revenues Service Revenue

BRIEF EXERCISE 4-12
LUMAS CORPORATION
Statement of Earnings
Year Ended December 31, 2004
Revenues
Service revenue .................................................................... $37,000
Expenses
Salaries expense ................................................................... $13,000
Rent expense ........................................................................ 3,500
Insurance expense ................................................................ 2,000
Supplies expense .................................................................. 1,500
Amortization expense ............................................................ 1,000
Total expenses ............................................................. 21,000
Earnings before income taxes ........................................................ 16,000
Income tax expense ....................................................................... 6,400
Net earnings ................................................................................... $ 9,600
BRIEF EXERCISE 4-13
LUMAS CORPORATION
Statement of Retained Earnings
Retained earnings, January 1 .............................................................................. $15,600

Add: Net earnings............................................................................................... 9,600
25,200
Less: Dividends ................................................................................................... 6,000
Retained earnings, December 31......................................................................... $19,200
BRIEF EXERCISE 4-14
The accounts that will appear in the post-closing trial balance are:
Accumulated Amortization
Retained Earnings
Supplies
Accounts Payable

BRIEF EXERCISE 4-15
July 31 Green Fees.................................................... 26,000

Income Summary.................................... 26,000
July 31 Income Summary .......................................... 16,700

Salaries Expense .................................... 8,200
Maintenance Expense ............................ 2,500
Income tax Expense ............................... 6,000
July 31 Income Summary .......................................... 9,300

Retained Earnings .................................. 9,300
Green Fees
July 31 26,000 July 31 Bal. 26,000
July 31 Bal. 0
Salaries Expense
July 31 Bal. 8,200 July 31 8,200
July 31 Bal. 0
Maintenance Expense
July 31 Bal. 2,500 July 31 2,500
July 31 Bal. 0
Income Tax Expense

July 31 Bal. 6,000 July 31 6,000
July 31 Bal. 0
Income Summary
July 31 16,700 July 31 26,000
July 31 9,300
July 31 Bal. 0
Retained Earnings
July 1 50,000
July 31 9,300
July 31 Bal. 59,300

SOLUTIONS TO EXERCISES
EXERCISE 4-1
(a) Since the sales effort is not complete until the flight actually occurs, revenue should not be
recognized until December. Air Canada should recognize the revenue in December when
the customer has been provided with the flight.
(b) If Leons is reasonably certain of collection, revenue should be recognized at the time
of sale. If the company has concerns over the collectibility of the accounts receivable,
revenue should not be recognized until the time that collection is reasonably assured.
(c) Revenue should be recognized on a per game basis over the season from April to Oc-
tober.
(d) Interest revenue should be accrued and recognized by RBC evenly over the term of
the loan.
(e) Revenue should be recognized when the sweater is shipped to the customer in Septem-
ber provided there is reasonable assurance of collectibility.
EXERCISE 4-2
(a) Revenue recognition principle

(b) Going concern assumption
(c) Time period assumption
(d) Cost principle
(e) Economic entity assumption
EXERCISE 4-3
(a) and (b) Cash Basis Accrual Basis

Service revenue $22,000 $26,000
Less:
Operating expenses 013,500 015,000
Insurance expense 2,500
Earnings before income taxes 16,000 011,000
Less: Income tax expense 4,400
Net earnings $ 6,000 $ 6,600

EXERCISE 4-3 (Continued)
(c) The accrual basis of accounting provides more useful information for decision makers be-
cause it recognizes revenues when earned and expenses when incurred. By recognizing
revenue when it is earned and properly matching revenue and expenses, the accrual basis
provides a better measurement of performance.
EXERCISE 4-4
(1) (2)
Item Type of Adjustment Accounts Before Adjustment
1. Accrued Revenues Assets: Accounts Receivable understated by $600

Revenues: Service Revenue understated by $600
2. Prepaid Expenses Assets: Supplies overstated by $1,700

Expenses: Supplies Expense understated by
$1,700
3. Accrued Expenses Expenses: Income Tax Expense understated by

$225
Liabilities: Income Tax Payable understated by
$225
4. Unearned Revenues Liabilities: Unearned Revenue overstated by $260

Revenues: Service Revenue understated by $260
5. Accrued Expenses Expenses: Salaries Expense understated by $800

Liabilities: Salaries Payable understated by $800
6. Prepaid Expenses Assets: Prepaid Insurance overstated $350

Expenses: Insurance Expense understated by
$350

EXERCISE 4-5
1. Mar. 031 Amortization Expense ($500 X 3) ................................ 1,500

Accumulated AmortizationEquipment ............. 1,500
2. 31 Unearned Rent Revenue ............................................. 3,400

Rent Revenue ($10,200 X 1/3) ........................... 3,400
3. 31 Interest Expense .......................................................... 600

Interest Payable .................................................. 600
4. 31 Supplies Expense ........................................................ 3,150

Supplies ($4,000 $850) .................................... 3,150
5. 31 Insurance Expense ($200 X 3) .................................... 600

Prepaid Insurance ............................................... 600
6. 31 Income Tax Expense ................................................... 15,000

Income Tax Payable ........................................... 15,000
EXERCISE 4-6
1. Jan. 31 Accounts Receivable ................................................... 900

Service Revenue................................................. 900
2. 31 Utilities Expense .......................................................... 5,200

Utilities Payable .................................................. 5,200
3. 31 Amortization Expense .................................................. 600

Accumulated AmortizationDental Equipment .. 600
31 Interest Expense ($60,000 X 8% X 1/12)..................... 400

Interest Payable .................................................. 400
4. 31 Insurance Expense ($5,000 12) ................................ 417

Prepaid Insurance ............................................... 417
5. 31 Supplies Expense ($1,800 $500) .............................. 1,300

Supplies .............................................................. 1,300

EXERCISE 4-7
WELLER CORP.
Month Ended July 31, 2005
Revenues
Service revenue ($5,500 + $750) .............................................. $6,250
Expenses
Wages expense ($2,300 + $300) .............................................. $2,600
Supplies expense ($1,000 $400)............................................ 600
Utilities expense ........................................................................ 800
Insurance expense .................................................................... 300
Amortization expense ................................................................ 150
Total expenses ................................................................. 4,450
Earnings before income taxes ............................................................ 1,800
Income tax expense ........................................................................... 600
Net earnings ....................................................................................... $1,200
EXERCISE 4-8
(a) July 10 Supplies ....................................................................... 300

Cash .................................................................... 300
14 Cash ............................................................................ 3,000

Service Revenue................................................. 3,000
15 Salaries Expense ......................................................... 1,200

Cash .................................................................... 1,200
20 Cash ............................................................................ 700

Unearned Service Revenue ................................ 700
31 Cash ............................................................................ 800

Service Revenue................................................. 800
(b) July 31 Supplies Expense ........................................................ 700

Supplies .............................................................. 700
31 Accounts Receivable ................................................... 500

Service Revenue................................................. 500
31 Salaries Expense ......................................................... 1,200

Salaries Payable ................................................. 1,200
31 Unearned Service Revenue ......................................... 1,200

Service Revenue................................................. 1,200

EXERCISE 4-9
(a) Income Tax Expense ([$750 X 12] $12,000) ................................ 3,000

Income Tax Payable ............................................................ 3,000
Utilities Expense ............................................................................ 900

Utilities Payable ................................................................... 900
Salaries Expense ($1,500 X 3/5 days) ........................................... 900

Salaries Payable .................................................................. 900
Interest Expense ($10,000 X 6% X 1/12) ....................................... 50

Interest Payable ................................................................... 50
(b) Arsenaults accrued expenses reported on its year-end classified balance sheet would
be ($3,000 +$900 + $900 + $50) $4,850. They would be classified as current liabilities.
EXERCISE 4-10
Answer Calculation
(a) Supplies balance = $900 Supplies expense $950)

Add: Supplies (Jan. 31) 800)
Less: Supplies purchased (850)
Supplies (Jan. 1) $900)
(b) Total premium = $7,200 Total premium = Monthly premium X 12;

$600 X 12 = $7,200
Purchase date = June 1, 2003 Purchase date: On Jan. 31, there are 4
months coverage remaining ($600
X 4). Thus, the purchase date was 8 months
earlier on June 1, 2003.
(c) Salaries payable = $1,900 Cash paid $2,500

Salaries payable (Jan. 31, 2004) 1,200
3,700
Less: Salaries expense 1,800
Salaries payable (Dec. 31, 2003) $1,900
(d) Service revenue = $1,650 Service revenue $2,500

Unearned revenue (Jan. 31, 2004) 750
3,250
Cash received in Jan. 1,600
Unearned revenue (Dec. 31, 2003) $1,650

EXERCISE 4-11
Aug. 31 Accounts Receivable ............................................................ 700

Service Revenue ......................................................... 700
31 Office Supplies Expense ...................................................... 1,600

Office Supplies ............................................................ 1,600
31 Insurance Expense............................................................... 1,500

Prepaid Insurance ....................................................... 1,500
31 Amortization Expense .......................................................... 1,200

Accumulated AmortizationOffice Equipment ........... 1,200
31 Salaries Expense ................................................................. 1,000

Salaries Payable ......................................................... 1,000
31 Income Tax Expense............................................................ 3,500

Income Tax Payable.................................................... 3,500
31 Unearned Rent Revenue...................................................... 800

Rent Revenue ............................................................. 800

EXERCISE 4-12
INUIT INC.
Year Ended August 31, 2004
Revenues
Service revenue .................................................................... $34,700
Rent revenue ......................................................................... 11,800
Total revenues.............................................................. 46,500
Expenses
Salaries expense ................................................................... $18,000
Rent expense ........................................................................ 15,000
Office supplies expense ........................................................ 1,600
Insurance expense ................................................................ 1,500
Amortization expense ............................................................ 1,200
Total expenses ............................................................. 37,300
Earnings before income taxes ........................................................ 9,200
Income tax expense ....................................................................... 3,500
Net earnings ................................................................................... $ 5,700
INUIT INC.
Year Ended August 31, 2004
Retained earnings, September 1, 2003................................................................ $ 5,600

Add: Net earnings............................................................................................... 5,700
11,300
Less: Dividends ................................................................................................... 800
Retained earnings, August 31, 2004 .................................................................... $10,500

EXERCISE 4-12 (Continued)
INUIT INC.
Balance Sheet
August 31, 2004
Assets
Current assets
Cash ...................................................................................... $ 9,600
Accounts receivable .............................................................. 9,500
Office supplies ....................................................................... 700
Prepaid insurance ................................................................. 2,500
Total current assets ...................................................... 22,300
Office equipment ................................................................... $14,000
Less: Accum. amortizationoffice equipment ..................... 4,800 9,200
Total assets .................................................................. $31,500
Liabilities and Shareholders Equity
Current liabilities
Accounts payable ........................................................................................ $ 5,800
Salaries payable .......................................................................................... 1,000
Income tax payable ..................................................................................... 3,500
Unearned rent revenue ............................................................................... 700
Total current liabilities......................................................................... 11,000
Shareholders equity
Common shares .......................................................................................... 10,000
Retained earnings ....................................................................................... 10,500
Total shareholders equity .................................................................. 20,500
Total liabilities and shareholders equity............................................. $31,500

EXERCISE 4-13
Aug. 31 Service Revenue ............................................................ 34,700

Rent Revenue ................................................................ 11,800
Income Summary .................................................. 46,500
31 Income Summary ........................................................... 40,800

Salaries Expense .................................................. 18,000
Office Supplies Expense ....................................... 1,600
Rent Expense ........................................................ 15,000
Insurance Expense................................................ 1,500
Amortization Expense ........................................... 1,200
Income Tax Expense............................................. 3,500
031 Income Summary ........................................................... 5,700

Retained Earnings ................................................. 5,700
31 Retained Earnings .......................................................... 800

Dividends............................................................... 800

SOLUTIONS TO PROBLEMS
PROBLEM 4-1A
(a) 2. Going concern assumption
(b) 3. Monetary unit assumption
(c) 9. Materiality
(d) 4. Time period assumption
(e) 6. Revenue recognition principle
(f) 10. Cost-benefit
(g) 1. Economic entity assumption
(h) 5. Full disclosure principle

PROBLEM 4-2A
$45,000 Cash basis earnings

Accounts receivable arise from sales that have been made, thus
+3,600 revenue must be recognized for balance outstanding at the end of
the current year
-2,700 Accounts receivable collected in current year, for sales made in
previous year must be deducted from earnings
+1,500 Prepaid expenses at year end should be set up as an asset rather
than expensed, this increases earnings
-1,300 Prepaid expenses at the end of the previous year should be ex-
pensed this year, this decreases earnings
-1,500 Accounts payable owing at the end of the current year should be
accrued, thus reducing earnings
Accounts payable owed at the end of the previous year should not
+2,200 be deducted from the current years earnings, thus increasing
earnings
-1,400 Unearned revenue at the end of the current year should be ac-
crued, thus reducing earnings.
+1,500 Unearned revenue at the end of the previous year should not be
deducted from the current years income, thus increasing earnings
$46,900 Accrual basis earnings.

PROBLEM 4-3A
(a) THE RADICAL EDGE LTD.

Six Months Ended April 30, 2004
Revenues
Repair services ($32,150 + $650) ..................... $32,800
Expenses
Wage expense ($2,600 + $220) ........................ $2,820
Rent expense ($1,225 - $175) ........................... 1,050
Advertising expense .......................................... 375
Amortization expense ($9,200 5 x 6/12) ......... 920
Utilities expense ................................................ 970
Total expenses........................................... 6,135
Earnings before taxes ............................................... 26,665
Income tax expense .................................................. 10,000
Net earnings .............................................................. $16,665

PROBLEM 4-3A (Continued)
(b)
THE RADICAL EDGE LTD.

Balance Sheet
April 30, 2004
Assets
Current assets
Cash ............................................................. $27,780
Rent deposit ................................................. 175
Accounts receivable .................................... 650
Total current assets .............................. 28,605
Equipment .................................................... $9,200
Less: Accumulated amortization .................. 920 8,280
Total assets .......................................................... $36,885
Current liabilities
Wages payable ............................................. $ 220
Shareholders equity
Common shares ........................................... $20,000
Retained earnings ........................................ 16,665
Total shareholders equity ..................... 36,665
Total liabilities and shareholders equity............... $36,885

PROBLEM 4-4A
1. Jan. 2 Office Supplies ................................................... 2,800

Cash ......................................................... 2,800
Dec. 31 Supplies Expense ($2,800 $300) .................. 2,500

Office Supplies ......................................... 2,500
2. Aug. 1 Prepaid Insurance ............................................ 3,600

Cash ......................................................... 3,600
Dec. 31 Insurance Expense ($3,600 x 5/12) ................. 1,500

Prepaid Insurance .................................... 1,500
3. Dec. 15 Prepaid Rent .................................................... 500

Cash ......................................................... 500
Dec. 31 No entry required
4. Nov. 15 Cash................................................................. 1,200

Unearned Revenue .................................. 1,200
Dec. 31 Unearned Revenue ($400 x 2)......................... 800

Revenue ................................................... 800

PROBLEM 4-5A
1. Dec. 31 Salaries Expense ........................................ 2,320

Salaries Payable ................................. 2,320
(6 X $800 X 2/5 = $1,920)
(2 X $500 X 2/5 = $400)
2. 31 Unearned Rent Revenue ............................ 74,000

Rent Revenue ..................................... 74,000
(5 X $4,000 X 2 = $40,000)
(4 X $8,500 X 1 = 34,000)
Total rent earned $74,000)
3. 31 Advertising Expense ................................... 5,500

Prepaid Advertising ............................. 5,500
(A650 $500 per month
for 8 months = $4,000)
(B974 $300 per month
for 5 months = 1,500)
$5,500
4. 31 Interest Expense ......................................... 4,800

Interest Payable .................................. 4,800
($80,000 X 9% X 8/12)

PROBLEM 4-6A
1. (a) Office Supplies .............................................. 1,500

Cash ......................................................... 1,500
(b) Dec. 31 Supplies Expense ($300 + $1,500 $500) ... 1,300

Office Supplies ......................................... 1,300
2. (a) June 1 Cash .............................................................. 4,000

Note Payable ............................................ 4,000
(b) Dec. 31 Interest Expense ........................................... 187

Interest Payable ($4,000 X 8% x 7/12) .... 187
3. Dec. 31 Utilities Expense ............................................ 1,400

Accounts Payable .................................... 1,400
4. (a) July 1 Truck ............................................................. 38,000

Cash ......................................................... 38,000
(b) Dec. 31 Amortization Expense ($7,600 X 6/12).......... 3,800

Accumulated Amortization Truck .......... 3,800
5. Dec. 31 Income Tax Expense ($13,000 - $10,000) .... 3,000

Income Tax Payable ................................ 3,000

PROBLEM 4-7A
(a)
1. March 31 Travel Service Fees................................. 28,000
Unearned Fees ................................ 28,000
2. 31 Supplies Expense .................................... 2,400

Supplies ($3,200 $800) ................ 2,400
3. 31 Insurance Expense ($1,200 x 3/12) ......... 300

Prepaid Insurance ........................... 300
4. 31 Utilities Expense ....................................... 180

Accounts Payable ............................ 180
5. 31 Salaries Expense ($175 x 3 x 2) .............. 1,050

Salaries Payable ............................. 1,050
6. 31 Interest Expense (10,000 x 5% x 1/12) .... 42

Interest Payable .............................. 42

(b)
TRY- US TRAVEL AGENCY LTD.
Quarter Ended March 31, 2004
Revenues
Travel service fees ($50,000 $28,000) ........... $22,000
Expenses
Advertising expense .......................................... $2,600
Amortization expense ........................................ 400
Salaries expense ($6,000 + $1,050) .................. 7,050
Utilities expense ($400 + $180) ......................... 580
Supplies expense .............................................. 2,400
Insurance expense ............................................ 300
Interest expense ................................................ 42
Total expenses........................................... 13,372
Earnings before income taxes ................................... 8,628
Net earnings .............................................................. $ 7,128
(c) The generally accepted accounting principles pertaining to the statement of

earnings not recognized by Paul were the revenue recognition principle and
The revenue recognition principle states that revenue is recognized when it is

earned. The fees of $28,000 for summer rentals have not been earned and,
therefore, should not be reported in earnings for the quarter ended March 31.
The matching principle dictates that efforts (expenses) be matched with ac-
complishments (revenue) whenever it is reasonable and practicable to do so.
This means that the expenses should include amounts incurred in March but
not paid until April, and any other costs related to the operations of the busi-
ness during the period JanuaryMarch.
The difference in reported expenses was $3,972 ($13,372 + $1,500 -

$10,900). The overstatement of revenues ($28,000) plus the understatement
of expenses ($3,972) equals the difference in reported earnings of $31,972
($39,100 - $7,128).

PROBLEM 4-8A
(a)
Date Account Titles Debit Credit
1. Dec. 31 Accounts Receivable 11,500

Service Revenue 11,500
2. 31 Insurance Expense 1,800

Prepaid Insurance 1,800
($3,600 2 years)
3. 31 Amortization Expense 11,600

Accumulated AmortizationAuto. 11,600
4. 31 Interest Expense 2,250

Interest Payable 2,250
5. 31 Unearned Service Revenue 1,000

Service Revenue 1,000
6. 31 Salaries Expense (4 x $900) 3,600

Salaries Payable 3,600
7. 31 Repairs Expense 650

Accounts Payable 650
8. 31 Income Tax Expense 2,600

Income Taxes Payable 2,600

(b)
Cash Unearned Service Revenue
Dec. 31 Bal. 12,400 Dec. 31 1,000 Dec. 31 Bal. 2,500
Dec. 31 Bal. 1,500
Accounts Receivable
Dec. 31 Bal. 3,200 Common Shares
Dec. 31 11,500 Dec. 31 Bal. 18,000
Dec. 31 Bal. 14,700
Service Revenue
Prepaid Insurance Dec. 31 Bal. 96,000
Dec. 31 Bal. 3,600 Dec. 31 1,800 Dec. 31 11,500
Dec. 31 Bal. 1,800 Dec. 31 1,000
Dec. 31 Bal. 108,500
Automobiles
Dec. 31 Bal. 58,000 Salaries Expense
Dec. 31 Bal. 57,000
Accumulated Amortization Dec. 31 3,600
Automobiles Dec. 31 Bal. 60,600
Dec. 31 11,600
Dec. 31 Bal. 11,600 Repairs Expense
Dec. 31 Bal. 6,000
Accounts Payable Dec. 31 650
Dec. 31 650 Dec. 31 Bal. 6,650
Dec. 31 Bal. 650
Rent Expense
Notes Payable Dec. 31 Bal. 12,000
Dec. 31 045,000
Dec. 31 Bal. 45,000 Gas and Oil Expense
Dec.31 Bal. 09,300
Salaries Payable
Dec. 31 03,600 Amortization Expense
Dec. 31 Bal. 3,600 Dec. 31 11,600
Dec. 31 Bal. 11,600
Interest Payable
Dec. 31 0 2,250 Insurance Expense
Dec. 31 Bal. 0 2,250 Dec. 31 1,800
Dec. 31 Bal. 1,800
Income Taxes Payable
Dec. 31 2,600 Interest Expense
Dec. 31 Bal. 2,600 Dec. 31 2,250
Dec. 31 Bal. 2,250
Income Tax Expense

Dec. 31 2,600
Dec. 31 Bal. 2,600

(c)
ORTEGA LIMO SERVICE LTD.
Adjusted Trial Balance
December 31, 2004
Debit Credit
Cash ...................................................................... $ 12,400
Accounts Receivable ............................................. 14,700
Automobiles ........................................................... 58,000
Accumulated AmortizationAutomobiles ............. $ 11,600
Accounts Payable .................................................. 650
Interest Payable ..................................................... 2,250
Income Taxes Payable .......................................... 2,600
Unearned Service Revenue .................................. 1,500
Notes Payable ....................................................... 45,000
Common Shares .................................................... 18,000
Service Revenue ................................................... 108,500
Salaries Expense ................................................... 60,600
Rent Expense ........................................................ 12,000
Repairs Expense ................................................... 6,650
Gas and Oil Expense ............................................. 9,300
Amortization Expense ............................................ 11,600
Insurance Expense ................................................ 1,800
Interest Expense .................................................... 2,250 00
Income Tax Expense ............................................. 2,600 _____ __
Totals $193,700 $193,700

PROBLEM 4-9A
(a) 1. Aug. 31 Insurance Expense ($300 X 3) .................. 900

Prepaid Insurance ............................. 900
2. 31 Supplies Expense ($4,300 $1,200) ........ 3,100

Supplies ............................................. 3,100
3. 31 Amortization ExpenseCottages ............. 1,500

($6,000 X 3/12)
Accum. Amort.Cottages ................. 1,500
31 Amortization ExpenseFurniture ............. 1,250

($5,000 X 3/12)
Accum. Amort.Furniture ................. 1,250
4. 31 Unearned Rent Revenue .......................... 5,000

Rent Revenue.................................... 5,000
5. 31 Salaries Expense ...................................... 400

Salaries Payable ................................ 400
6. 31 Accounts Receivable ................................. 1,800

Rent Revenue.................................... 1,800
7. 31 Interest Expense ....................................... 600

Interest Payable................................. 600
[($90,000 X 8%) X 1/12]
8. 31 Income Tax Expense................................. 4,000

Income Tax Payable .......................... 4,000

(b)
Cash Aug. 31 Bal. 400
Aug. 31 Bal. 15,600
Interest Payable
Accounts Receivable Aug. 31 600
Aug. 31 1,800 Aug. 31 Bal. 600
Aug. 31 Bal. 1,800
Income Tax Payable
Prepaid Insurance Aug. 31 Bal. 5,000
Aug. 31 Bal. 5,400 Aug. 31 900 Aug. 31 4,000
Aug. 31 Bal. 4,500 Aug. 31 Bal. 9,000
Supplies Mortgage Payable

Aug. 31 Bal. 4,300 Aug. 31 3,100 Aug. 31 Bal. 90,000
Aug. 31 Bal. 1,200
Common Shares
Land Aug. 31 Bal. 100,000
Aug. 31 Bal. 50,000
Dividends
Cottages Aug. 31 Bal. 5,000
Aug. 31 Bal. 125,000 Aug. 31 Bal. 5,000
Accumulated Amortization Rent Revenue

Cottages Aug. 31 Bal. 90,000
Aug. 31 1,500 Aug. 31 5,000
Aug. 31 Bal. 1,500 Aug. 31 1,800
Aug. 31 Bal. 96,800
Furniture
Aug. 31 Bal. 26,000 Salaries Expense
Aug. 31 Bal. 51,000
Accumulated Amortization Aug. 31 400
Furniture Aug. 31 Bal. 51,400
Aug. 31 1,250
Aug. 31 Bal. 1,250 Utilities Expense
Aug. 31 Bal. 9,400
Accounts Payable
Aug. 31 Bal. 6,500
Repair Expense
Unearned Rent Revenue Aug. 31 Bal. 3,600
Aug. 31 5,000 Aug. 31 Bal. 6,800
Aug. 31 Bal. 1,800 Insurance Expense
Aug. 31 900
Salaries Payable Aug. 31 Bal. 900
Aug. 31 400

Amortization Expense
PROBLEM 4-9A (Continued) Cottages
Aug. 31 1,500
(b) (Continued) Aug. 31 Bal. 1,500
Supplies Expense
Furniture
Aug. 31 3,100
Aug. 31 1,250
Aug. 31 Bal. 3,100
Aug. 31 Bal. 1,250
Income Tax Expense

Interest Expense
Aug. 31 Bal. 3,000
Aug. 31 600
Aug. 31 00 4,000
Aug. 31 Bal. 600
Aug. 31 Bal. 7,000
(c)
HIGHLAND COVE RESORT INC.
August 31, 2005
Debit Credit
Cash .................................................................. $ 15,600
Supplies ................................................................. 1,200
Land ....................................................................... 50,000
Cottages ................................................................ 125,000
Accumulated AmortizationCottages ................... $ 1,500
Furniture ................................................................ 26,000
Accumulated AmortizationFurniture ................... 1,250
Accounts Payable .................................................. 6,500
Unearned Rent Revenue ....................................... 1,800
Salaries Payable .................................................... 400
Interest Payable ..................................................... 600
Income Tax Payable.............................................. 9,000
Mortgage Payable ................................................. 90,000
Common Shares .................................................... 100,000

Dividends ............................................................... 5,000
Rent Revenue ........................................................ 96,800
Utilities Expense .................................................... 9,400
Repair Expense ..................................................... 3,600
Insurance Expense ................................................ 900
Income Tax Expense ............................................. 7,000
Supplies Expense .................................................. 3,100
Amortization ExpenseCottages .......................... 1,500
Amortization ExpenseFurniture .......................... 1,250 0000,
Interest Expense .................................................... 600 _____ __
Totals $307,850 $307,850

(d) HIGHLAND COVE RESORT INC.

Three Months Ended August 31, 2005
Revenues
Rent revenue ................................................... $96,800
Expenses
Salaries expense ............................................. $51,400
Utilities expense............................................... 9,400
Repair expense................................................ 3,600
Supplies expense ............................................ 3,100
Amortization expensecottages ..................... 1,500
Insurance expense .......................................... 900
Interest expense .............................................. 600
Amortization expensefurniture ..................... 1,250
Total expenses ......................................... 71,750
Earnings before income tax ..................................... 25,050
Income tax expense ................................................ 7,000
Net earnings ............................................................ $18,050

Three Months Ended August 31, 2005
Retained earnings, June 1 .......................................................... $ 0

Add: Net earnings ..................................................................... 18,050
18,050
Less: Dividends .......................................................................... 5,000
Retained earnings, August 31 ..................................................... $13,050

(d) (Continued)

Balance Sheet
August 31, 2005
Assets
Current assets
Cash ............................................................ $15,600
Accounts receivable..................................... 1,800
Prepaid insurance ........................................ 4,500
Supplies ....................................................... 1,200
Total current assets ................................ $23,100
Property, plant and equipment
Land ............................................................. $ 50,000
Cottages ...................................................... $125,000
Less: Accum. amortizationcottages ........ 1,500
123,500
Furniture ...................................................... $ 26,000
Less: Accum. amortizationfurniture ......... 1,250
24,750
Total property, plant, and equipment...... 198,250
Total assets ......................................................... $221,350


(d) (Continued)
Current liabilities
Accounts payable ......................................... $6,500
Salaries payable ........................................... 400
Interest payable ............................................ 600
Unearned rent revenue ................................. 1,800
Income tax payable....................................... 9,000
Total current liabilities ................................... $ 18,300
Mortgage payable ................................................. 90,000
Total liabilities ....................................... 108,300
Shareholders equity
Common shares ........................................... 100,000
Retained earnings......................................... 13,050
Total liabilities and shareholders equity $221,350
(e)
Aug. 31 Rent Revenue .................................................... 96,800
Income Summary ....................................... 96,800
31 Income Summary ............................................... 78,750

Salaries Expense ....................................... 51,400
Utilities Expense ......................................... 9,400
Repair Expense .......................................... 3,600
Insurance Expense ..................................... 900
Interest Expense ........................................ 600
Supplies Expense ....................................... 3,100
Amortization Expense - Cottages ............... 1,500
Amortization Expense - Furniture ............... 1,250
Income Tax Expense .................................. 7,000
031 Income Summary ............................................... 18,050

Retained Earnings ...................................... 18,050
31 Retained Earnings.............................................. 5,000

Dividends .................................................... 5,000

PROBLEM 4-10A
(a) Dec. 31 Accounts Receivable ....................................... 3,500

Advertising Revenue ................................ 3,500
31 Art Supplies Expense ...................................... 2,400

Art Supplies .............................................. 2,400
31 Insurance Expense .......................................... 850

Prepaid Insurance .................................... 850
31 Amortization Expense ...................................... 7,000

Accumulated Amortization ....................... 7,000
31 Interest Expense .............................................. 225

Interest Payable ....................................... 225
31 Unearned Advertising Revenue ....................... 400

Advertising Revenue ................................ 400
31 Salaries Expense ............................................. 1,300

Salaries Payable ...................................... 1,300
31 Income Tax Expense ....................................... 2,500

Income tax Payable ................................. 2,500

(b)
GRANT ADVERTISING AGENCY LIMITED
Revenues
Advertising revenue ........................................... $62,500
Expenses
Salaries expense ............................................... $11,300
Amortization expense ........................................ 7,000
Rent expense..................................................... 14,000
Art supplies expense ......................................... 2,400
Total expenses ........................................... 35,775
Earnings before income tax expense ........................ 26,725
Net earnings .............................................................. $16,725

Retained earnings, January 1 ..................................................... $11,650

Add: Net earnings ..................................................................... 16,725
28,375
Less: Dividends .......................................................................... 12,000
Retained earnings, December 31 ................................................ $16,375

(b) (Continued)

Balance Sheet
December 31, 2004
Assets
Current assets
Cash ................................................................ $11,000
Accounts receivable......................................... 21,500
Art supplies ...................................................... 6,000
Prepaid insurance ............................................ 2,500
Total current assets ......................................... 41,000
Printing equipment ........................................... $60,000
Less: Accumulated amortization ..................... 35,000 25,000
Total assets ............................................................. $66,000
Current liabilities
Notes payable .................................................. $15,000
Accounts payable ............................................ 5,000
Interest payable ............................................... 225
Unearned advertising revenue......................... 5,600
Income tax payable.......................................... 2,500
Salaries payable .............................................. 1,300
Total current liabilities .............................. 29,625
Shareholders equity
Common shares .............................................. 20,000
Retained earnings............................................ 16,375
Total shareholders equity ........................ 36,375
Total liabilities and shareholders equity ................. $66,000

(c) Advertising Revenue, Salaries Expense, Amortization Expense, Rent Ex-

pense, Art Supplies Expense, Insurance Expense, Interest Expense, In-
come Tax Expense and Dividends.
(d) Interest expense = $5,000 x ?% x 3/12 = $225

Interest rate = 18%
(e) Salaries Expense, $11,300, less Salaries Payable 12/31/04, $1,300 =

$10,000. Total payments, $13,500 $10,000 = $3,500 Salaries Payable
12/31/03.

PROBLEM 4-11A
(a), (c) and (e)

Cash
Sept. 1 Bal. 4,880 Sept. 8 1,100
Sept. 10 1,200 Sept. 20 4,500
Sept. 12 3,400 Sept. 22 500
Sept. 29 650 Sept. 25 1,200
Sept. 30 500
Sept. 30 Bal. 2,330
Accounts Receivable
Sept. 1 Bal. 3,720 Sept. 10 1,200
Sept. 27 900
Sept. 30 Bal. 3,420
Supplies
Sept. 1 Bal. 800 Sept. 30 500
Sept. 17 1,500
Sept. 30 Bal. 1,800
Store Equipment
Sept. 1 Bal. 15,000
Sept. 15 3,000
Sept. 30 Bal. 18,000
Accumulated Amortization
Sept. 1 Bal. 1,500
Sept. 30 250
Sept. 30 Bal. 1,750
Accounts Payable
Sept. 20 4,500 Sept. 1 Bal. 3,100
Sept. 15 3,000
Sept. 17 1,500
Sept. 30 Bal. 3,100

(a), (c), and (e) (Continued)

Salaries Expense
Unearned Sept. 8 400
Service Revenue Sept. 25 1,200
Sept. 30 350 Sept. 1 Bal. 400 Sept. 30 400
Sept. 29 650 Sept. 30 Bal. 2,000
Sept. 30 Bal. 700
Rent Expense
Salaries Payable Sept. 22 500
Sept. 8 700 Sept. 1 Bal. 700 Sept. 30 Bal. 500
Sept. 30 400
Sept. 30 Bal. 400
Income Tax Expense
Sept. 30 500
Common Shares Sept. 30 Bal. 500
Sept. 1 Bal. 10,000
Sept. 30 Bal. 10,000
Retained Earnings
Sept. 1 Bal. 8,700
Sept. 30 Bal. 8,700
Service Revenue
Sept. 12 3,400
Sept. 27 900
Sept. 30 350
Sept. 30 Bal. 4,650
Sept. 30 250
Sept. 30 Bal. 250
Supplies Expense
Sept. 30 500
Sept. 30 Bal. 500

(b) General Journal
Sept. 8 Salaries Payable............................................. 700

Salaries Expense................................................................
400
Cash ........................................................................... 1,100
10 Cash ............................................................... ...................

1,200
Accounts Receivable .............................. 1,200
12 Cash ............................................................... ...................

3,400
Service Revenue .................................... 3,400
15 Store Equipment ............................................. 3,000

Accounts Payable ................................... 3,000
17 Supplies .......................................................... 1,500

Accounts Payable ................................... 1,500
20 Accounts Payable ........................................... 4,500

Cash ....................................................... 4,500
22 Rent Expense ................................................. 500

Cash ....................................................... 500
25 Salaries Expense............................................ 1,200

Cash ....................................................... 1,200
27 Accounts Receivable ...................................... 900

Service Revenue .................................... 900
29 Cash ............................................................... ...................

650
Unearned Service Revenue.................... 650
30 Income Tax Expense ...................................... 500

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


(d) and (f)
RIJO EQUIPMENT REPAIR CORP.
Trial Balance
September 30, 2004
Before After
Adjustment Adjustment
Dr. Cr. Dr. Cr.
Cash ............................................ $ 2,330 $ 2,330
Accounts Receivable ................... 3,420 3,420
Supplies ....................................... 2,300 1,800
Store Equipment .......................... 18,000 18,000
Accumulated Amortization ........... $ 1,500 $ 1,750
Accounts Payable ........................ 3,100 3,100
Unearned Service Revenue ........ 1,050 700
Salaries Payable.......................... 400
Common Shares .......................... 10,000 10,000
Retained Earnings ....................... 8,700 8,700
Service Revenue ......................... 4,300 4,650
Amortization Expense .................. 250
Supplies Expense ........................ 500
Salaries Expense ......................... 1,600 2,000
Income Tax Expense................... 500 000 500 00
Rent Expense .............................. 500 __ ____ 500 ____ __
Totals $28,650 $28,650 $29,300 $29,300
(e) 1. Sept. 30 Supplies Expense ...................................... 500

Supplies ($2,300 $1,800) ................ 500
2. 30 Salaries Expense....................................... 400

3. 30 Amortization Expense................................ 250

Accumulated Amortization ................. 250
4. 30 Unearned Service Revenue ...................... 350

Service Revenue ............................... 350

(g)
Month Ended September 30, 2004
Revenues
Service revenue .................................................... $4,650
Expenses
Salaries expense .................................................. $2,000
Supplies expense ................................................. 500
Rent expense........................................................ 500
Amortization expense ........................................... 250
Total expenses .............................................. 3,250
Earnings before income tax .......................................... 1,400
Income tax expense ..................................................... 500
Net earnings ................................................................. $ 900

Month Ended September 30, 2004
Retained earnings, September 1 ................................................... $8,700

Add: Net earnings ........................................................................ 900
Retained earnings, September 30 ................................................. $9,600

(g) (Continued)

Balance Sheet
September 30, 2004
Assets
Current assets
Cash ................................................................ $ 2,330
Supplies ........................................................... 1,800
Store equipment .............................................. $18,000
Less: Accumulated amortization ..................... 1,750 16,250
Total assets ............................................................. $23,800
Current liabilities
Accounts payable ................................................................ $ 3,100
Salaries payable .................................................................. 400
Unearned service revenue................................................... 700
Total current liabilities .................................................. 4,200
Shareholders equity
Common shares .................................................................. 10,000
Retained earnings................................................................ 9,600
Total shareholders equity ............................................ 19,600
Total liabilities and shareholders equity ...................................... $23,800

PROBLEM 4-12A
(a)
General Journal
Mar. 1 Cash ................................................................. 10,000

Common Shares ...................................... 10,000
1 Equipment ........................................................ 26,000

Cash ......................................................... 6,000
Note Payable ............................................ 20,000
2 Rent Expense................................................... 500

Cash ......................................................... 500
3 Cleaning Supplies ............................................ 1,200

Accounts Payable ..................................... 1,200
5 Prepaid Insurance ............................................ 1,800

Cash ......................................................... 1,800
14 Accounts Receivable........................................ 4,800

Service Revenue ...................................... 4,800
18 Accounts Payable ............................................ 500

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

Cash ......................................................... 1,500
21 Cash ................................................................. 2,600

Accounts Receivable ................................ 2,600

Service Revenue ...................................... 3,500
31 Gas & Oil Expense ........................................... 350

Cash ......................................................... 350

(a) (Continued)
Mar. 31 Dividends ......................................................... 900

Cash ......................................................... 900

(b), (e) and (h)
Cash
Mar. 1 10,000 Mar. 1 6,000 Salaries Payable
Mar. 21 2,600 Mar. 2 500 Mar. 31 500
Mar. 5 1,800 Mar. 31 Bal. 500
Mar. 18 500
Mar. 20 1,500
Mar. 31 350 Interest Payable
Mar. 31 900 Mar. 31 133
Mar. 31 Bal. 1,050 Mar. 31 Bal. 133
Accounts Receivable Income Tax Payable

Mar. 14 4,800 Mar. 21 2,600 Mar. 31 1,600
Mar. 28 3,500 Mar. 31 Bal. 1,600
Mar. 31 600
Mar. 31 Bal. 6,300
Notes Payable
Mar. 1 20,000
Cleaning Supplies Mar. 31 Bal. 20,000
Mar. 3 1,200 Mar. 31 800
Mar. 31 Bal. 400
Common Shares
Mar. 1 10,000
Prepaid Insurance Mar. 31 Bal. 10,000
Mar. 5 1,800 3/31 150
Mar. 31 Bal. 1,650
Retained Earnings
Mar. 31 900 Mar. 31 2,967
Equipment Mar. 31 Bal. 2,067
Mar. 1 26,000
Mar. 31 Bal. 26,000
Dividends
Mar. 31 900 Mar. 31 900
Accumulated Amortization Mar. 31 Bal. 0
Equipment
Mar. 31 400
Mar. 31 Bal. 400 Income Summary
Mar. 31 5,933 Mar. 31 8,900
Mar. 31 2,967
Accounts Payable Mar. 31 Bal. 0
Mar. 18 500 Mar. 3 1,200
Mar. 31 Bal. 700

(b), (e), and (h) (Continued)
Service Revenue Salaries Expense

Mar. 31 8,900 Mar. 14 4,800 Mar. 20 1,500 Mar. 31 2,000
Mar. 28 3,500 Mar. 31 500
Mar. 31 600 Mar. 31 Bal. 0
Mar. 31 Bal. 0
Gas & Oil Expense
Amortization Expense Mar. 31 350 Mar. 31 350
Mar. 31 400 Mar. 31 400 Mar. 31 Bal. 0
Mar. 31 Bal. 0
Interest Expense
Insurance Expense Mar. 31 133 Mar. 31 133
Mar. 31 150 Mar. 31 150 Mar. 31 Bal. 0
Mar. 31 Bal. 0
Income Tax Expense

Cleaning Supplies Expense Mar. 31 1,600 Mar. 31 1,600
Mar. 31 800 Mar. 31 800 Mar. 31 Bal. 0
Mar. 31 Bal. 0
Rent Expense
Mar. 2 500 Mar. 31 500
Mar. 31 Bal. 0

(c) and (f)

EWOKS CARPET CLEANERS LTD.
Trial Balance
March 31, 2004
Before After
Debit Credit Debit Credit
Cash .................................................... $ 1,050 $ 1,050
Accounts Receivable ........................... 5,700 6,300
Cleaning Supplies ............................... 1,200 400
Prepaid Insurance ............................... 1,800 1,650
Equipment ........................................... 26,000 26,000
Accumulated Amortization .................. $ 400
Accounts Payable ............................... $ 700 700
Salaries Payable ................................. 500
Interest Payable .................................. 133
Income Taxes Payable 1,600
Note Payable ....................................... 20,000 20,000
Common Shares ................................. 10,000 10,000
Dividends ............................................ 900 900
Service Revenue ................................. 8,300 8,900
Gas & Oil Expense .............................. 350 350
Salaries Expense ................................ 1,500 2,000
Amortization Expense ......................... 400
Insurance Expense ............................. 150
Cleaning Supplies Expense ................ 800
Rent Expense ...................................... 500 55500
Interest Expense ................................. 133
Income Tax Expense .......................... ___ ___ ____ __ 1,600 ____ __
Totals $39,000 $39,000 $42,233 $42,233

(d) General Journal
1. March 31 Accounts Receivable ............................... 600

Service Revenue .............................. 600
2. 31 Amortization Expense .............................. 400

Accumulated Amortization................ 400
3. 31 Interest Expense ($20,000 X 8% X 1/12) . 133

Interest Payable ............................... 133
4. 31 Insurance Expense .................................. 150

Prepaid Insurance ($1,800 X 1/12) .. 150
5. 31 Cleaning Supplies Expense ..................... 800

Cleaning Supplies ($1,200 $400) .. 800
6. 31 Salaries Expense ..................................... 500

Salaries Payable .............................. 500
7. 31 Income Tax Expense ............................... 1,600

Income Tax Payable......................... 1,600

(g)
Month Ended March 31, 2004
Revenues
Service revenue .................................................. $8,900
Expenses
Salaries expense ................................................ $2,000
Cleaning supplies expense ................................. 800
Amortization expense ......................................... 400
Gas & oil expense .............................................. 350
Rent expense ..................................................... 500
Interest expense ................................................. 133
Insurance expense ............................................. 150
Total expenses............................................ 4,333
Earnings before income tax ........................................ 4,567
Income tax expense ........................................... 1,600
Net earnings ............................................................... $2,967

Month Ended March 31, 2004
Retained earnings, March 1 ...................................... $ 0

Add: Net earnings ................................................... 2,967
2,967
Less: Dividends ........................................................ 900
Retained earnings, March 31 .................................... $2,067

(g) (Continued)

Balance Sheet
March 31, 2004
Assets
Current assets
Cash .................................................................. $ 1,050
Accounts receivable .......................................... 6,300
Cleaning supplies .............................................. 400
Prepaid insurance .............................................. 1,650
Total current assets ................................... 9,400
Equipment ......................................................... $26,000
Less: Accumulated amortization ....................... 400 25,600
Total assets ............................................................... $35,000
Current liabilities
Accounts payable .............................................. $ 700
Interest payable ................................................. 133
Income tax payable ........................................... 1,600
Salaries payable ................................................ 500
Total current liabilities ................................ 2,933
Long-term liabilities
Note payable ..................................................... 20,000
Total liabilities ............................................ 22,933
Shareholders equity
Common shares ................................................ 10,000
Retained earnings ............................................. 2,067
Total shareholders equity .......................... 12,067
Total liabilities and shareholders equity .................... $35,000

(h) General Journal
Mar. ..............................................................
Service Revenue ..............................................
31 8,900
Income Summary ..................................... 8,900
..............................................................
Income Summary .............................................
31 5,933
Salaries Expense ..................................... 2,000
Amortization Expense .............................. 400
Insurance Expense................................... 150
Cleaning Supplies Expense ..................... 800
Gas & Oil Expense ................................... 350
Income Tax Expense................................ 1,600
Interest Expense ...................................... 133
Rent Expense ........................................... 500
..............................................................
Income Summary .............................................
31 2,967
Retained Earnings .................................... 2,967
..............................................................
Retained Earnings............................................
31 900
Dividends .................................................. 900

(i)
Post-Closing Trial Balance
March 31, 2004
Debit Credit
Cash ...................................................................... $ 1,050
Cleaning Supplies.................................................. 400
Equipment ............................................................. 26,000
Accumulated AmortizationEquipment ................ $ 400
Interest Payable..................................................... 133
Note Payable ......................................................... 20,000
Common Shares .................................................... 10,000
Retained Earnings ................................................. ___ ___ 2,067
Totals $35,400 $35,400

PROBLEM 4-1B
(a) 7. Matching principle
(b) 10. Cost-benefit
(c) 3. Monetary unit assumption
(d) 4. Time period assumption
(e) 8. Cost principle
(f) 1. Economic entity assumption
(g) 5. Full disclosure principle
(h) 9. Materiality

PROBLEM 4-2B
$35,190 Cash basis earnings

Accounts receivable arise from sales that have been made, thus
+2,500 revenue must be recognized for balance outstanding at the end of
the current year
-3,400 Accounts receivable collected in current year, for sales made in
previous year must be deducted from earnings
+1,160 Supplies at year end should be set up as an asset rather than ex-
pensed, this increases earnings
-1,300 Supplies at the end of the previous year should be expensed this
year, this decreases earnings
-2,400 Wages payable owing at the end of the current year should be ac-
crued, thus reducing earnings
Wages payable owed at the end of the previous year should not be
+1,200 deducted from the current years earnings, thus increasing earn-
ings
$32,950 Accrual basis earnings

PROBLEM 4-3B
(a)
CREATIVE DESIGNS LTD.

Revenues
Design revenue ($61,500 + (6) $3,800)............. $65,300
Expenses
Wage expense ($18,400 + (5) $400) ................. $18,800
Supplies expense ($6,200 (2) $1,800) ........... 4,400
Rent expense ($9,600 (3) $600) ..................... 9,000
Automobile expense ((7) 10,000 X $0.30)) ........ 3,000
Advertising expense .......................................... 3,600
Amortization expense ($16,400 (1) 5) ........... 3,280
Telephone expense ........................................... 980
Insurance expense ........................................... 1,800
Total expenses........................................... 44,860
Earnings before tax ................................................... 20,440
Net earnings .............................................................. $16,440

PROBLEM 4-3B (Continued)
(b)
CREATIVE DESIGNS LTD.
Balance Sheet
December 31, 2004
Assets
Current assets
Cash ............................................................. $ 16,520
Rent deposit (3) ............................................ 600
Accounts receivable (6) ................................ 3,800
Supplies (2)................................................... 1,800
Total current assets ...................................... 22,720
Property, plant and equipment
Equipment .................................................... $16,400
Less: Accumulated amortizationequip. (1) 3,280 13,120
Total assets .......................................................... $35,840
Current liabilities
Wages payable (5) ....................................... $ 400
Accounts payable ((7) $10,000 X $0.30) ...... 3,000
Total current liabilities ................................... 3,400
Shareholders equity
Common shares ........................................... $20,000
Retained earnings ($16,440 $4,000) ......... 12,440
Total liabilities and shareholders equity ............... $35,840

PROBLEM 4-4B
1. Jan. 2 Office Supplies ................................................. 4,500

Cash ......................................................... 4,500
Dec. 31 Supplies Expense ($4,500 $500) .................. 4,000

Office Supplies ......................................... 4,000
2. Sept. 1 Prepaid Insurance ............................................ 3,600

Cash ......................................................... 3,600
Dec. 31 Insurance Expense ($3,600 X 4/12) ................ 1,200

3. Nov. 15 Cash................................................................. 1,200

Unearned Revenue .................................. 1,200
Dec. 31 Unearned Revenue ......................................... 600

Service Revenue ...................................... 600
4. Dec. 1 Cash................................................................. 920

Unearned Rent Revenue ......................... 920
Dec. 31 Unearned Rent Revenue ($920 2) ................ 460

Rental Revenue ....................................... 460

PROBLEM 4-5B
1. Jan. 31 Insurance Expense .......................................... 8,000

[($9,600 2) =$4,800
[($4,800 X 12/18) . = 3,200
$8,000]
2. Jan. 31 Unearned Subscription Revenue ..................... 7,000

Subscription Revenue .............................. 7,000
[Nov. 200 X $50 X 3/12 = $2,500
[Dec. 300 X $50 X 2/12 = 2,500
[Jan. 480 X $50 X 1/12 = 2,000
$7,000]
3. Jan. 31 Interest Expense .............................................. 1,458

Interest Payable ....................................... 1,458
($50,000 X 7% X 5/12)
4. Jan. 31 Salaries Expense ............................................. 2,160

Salaries Payable ...................................... 2,160
[5 X $600 X 2/5 = $ 1,200
[3 X $800 X 2/5 = 960
$2,160]

PROBLEM 4-6B
1. (a) Office Supplies ................................................. 1,460

Cash ......................................................... 1,460
(b) Dec. 31 Supplies Expense ($1,460 + $640 $740)...... 1,360

Office Supplies ......................................... 1,360
2. (a) Feb. 1 Cash................................................................. 10,000

Note Payable ............................................ 10,000
(b) Dec. 31 Interest Expense (Long-Term) ......................... 50

Interest Payable ($10,000 X 6% X 1/12) .. 50
3. Dec. 31 Telephone Expense ......................................... 400

Accounts Payable .................................... 400
4. (a) Jan. 1 Truck ................................................................ 28,000

Cash ......................................................... 28,000
(b) Dec. 31 Amortization Expense ...................................... 5,600

Accumulated Amortization Truck .......... 5,600
5. (a) Dec. 31 Wage Expense................................................. 2,000

Wages Payable ($3,000 X 4/6) ................ 2,000

PROBLEM 4-7B
(a) 1. March 31 Travel Court Rental Fees ......................... 28,000

Unearned Fee Revenue .................. 28,000
2. 31 Supplies Expense .................................... 3,900

Supplies ($5,200 $1,300) ............. 3,900
3. 31 Insurance Expense ($7,200 X 3/5)........... 4,320

Prepaid Insurance ........................... 4,320
Note: If we assume that adjusting entries are made quarterly, then the
balance of $7,200 in the Prepaid Insurance account is the balance adjust-
ed to December 31. Therefore, there are 5 months remaining in the policy
(January 1 May 31) at December 31, of which three are now expired
(January 1 March 31).
4. 31 Advertising Expense ................................ 410

Repairs Expense ...................................... 4,260
Utilities Expense ....................................... 380
Accounts Payable ............................ 5,050
5. 31 Wages Expense ($350 x 3) ...................... 1,050

Wages Payable ............................... 1,050
6. 31 Interest Expense ($12,000 x 5% x 3/12) .. 150

Interest Payable .............................. 150
7. 31 Income Tax Expense ............................... 6,000

Income Tax Payable ........................ 6,000


(b)
HOLIDAY TRAVEL COURT LTD.
Quarter Ended March 31, 2004
Revenues
Travel court rental fees ($95,000 $28,000) .... $67,000
Expenses
Wages expense ($29,800 + $1,050) ................. $30,850
Advertising expense ($5,200 + $410) ................ 5,610
Repairs expense ($4,000 + $4,260) .................. 8,260
Insurance expense ............................................ 6,000
Utilities expense ($900 + $380) ......................... 1,280
Total expenses........................................... 56,850
Net earnings .............................................................. $ 4,150
(c) The generally accepted accounting principles pertaining to the statement of

earnings not recognized by Alice were the revenue recognition principle and
The revenue recognition principle states that revenue is recognized when it is
earned. The fees of $28,000 for summer rentals have not been earned and,
therefore, should not be reported in earnings for the quarter ended March 31.
The matching principle dictates that efforts (expenses) be matched with
accomplishments (revenue). This means that the expenses should include
amounts incurred in March but not paid until April, and any other costs related
to the operations of the business during the period January March.
The difference in reported expenses was $22,150 ($56,850 + $6,000 -
$40,700). The overstatement of revenues ($28,000) plus the understatement
of expenses ($22,150) equals the difference in reported earnings of $50,150
($54,300 - $4,150).

PROBLEM 4-8B
(a)
2005
1. June 30 Insurance Expense ...................................... 600
Prepaid Insurance
($7,200 12 months) ............................ 600
2. 30 Amortization Expense .................................. 2,550

Accum. Amortization - Office Equip. ..... 50
Accum. Amortization Buses............... 2,500
3. 30 Interest Expense .......................................... 310

Interest Payable ................................... 310
4. 30 Unearned Revenue ...................................... 9,000

Tour Revenue ($1,500 X 6 tours) ......... 9,000
5. 30 Salaries Expense ......................................... 1,600

Salaries Payable .................................. 1,600
6. 30 Accounts Receivable ................................... 1,200

Tour Revenue....................................... 1,200
7. 30 Income Tax Expense ................................... 2,000

Income Taxes Payable ......................... 2,000

(b)
Cash Unearned Revenue
Jun. 30 Bal. 3,000 Jun. 30 9,000 Jun. 30 Bal. 15,000
Jun. 30 Bal. 6,000
Accounts Receivable
Jun. 30 1,200 Common Shares
Jun. 30 Bal. 1,200 Jun. 30 Bal. 70,000
Prepaid Insurance Tour Revenue

Jun. 30 Bal. 7,200 Jun. 30 600 Jun. 30 Bal. 15,900
Jun. 30 Bal. 6,600 Jun. 30 9,000
Jun. 30 1,200
Office Equipment Jun. 30 Bal. 26,100
Jun. 30 Bal. 1,800
Salaries Expense
Accum. Amortiz. Office Equip. Jun. 30 Bal. 9,000
Jun. 30 50 Jun. 30 1,600
Jun. 30 Bal. 50 Jun. 30 Bal. 10,600
Buses Advertising Expense

Jun. 30 Bal. 140,000 Jun. 30 Bal. 800
Accum. Amortiz.Buses Amortization Expense

Jun. 30 2,500 Jun. 30 2,550
Jun. 30 Bal. 2,500 Jun. 30 Bal. 2,550
Notes Payable Gas and Oil Expense

Jun. 30 Bal. 62,000 Jun. 30 1,100
Jun. 30 Bal. 1,100
Interest Payable
Jun. 30 310 Interest Expense
Jun. 30 Bal. 310 Jun. 30 310
Jun. 30 Bal. 310
Salaries Payable
Jun. 30 1,600 Income Tax Expense
Jun. 30 Bal. 1,600 Jun. 30 2,000
Jun. 30 Bal. 0 2,000
Jun. 30 2,000 Insurance Expense
Jun. 30 Bal. 2,000 Jun. 30 600
Jun. 30 Bal. 600

(c)
SCENIC TOURS LIMITED
June 30, 2005
Debit Credit
Cash ...................................................................... $ 3,000
Office Equipment ................................................... 1,800
Accumulated AmortizationOffice Equipment ...... $ 50
Buses ..................................................................... 140,000
Accumulated AmortizationBuses ....................... 2,500
Notes Payable ....................................................... 62,000
Unearned Service Revenue .................................. 6,000
Common Shares .................................................... 70,000
Tour Revenue ........................................................ 26,100
Advertising Expense .............................................. 800
Amortization Expense ............................................ 2,550
Interest Expense .................................................... 310
Gas and Oil Expense ............................................. 1,100
Insurance Expense ................................................ 600 00 00000
Totals $170,560 $170,560

PROBLEM 4-9B
(a) 1. May 31 Insurance Expense .................................... 300

Prepaid Insurance .............................. 300
2. 31 Supplies Expense ...................................... 1,250

Supplies.............................................. 1,250
($2,600 $1,350)
3. 31 Amortization ExpenseLodge .................. 292

($3,500 X 1/12)
Accumulated AmortizationLodge .... 292
31 Amortization ExpenseFurniture .............. 280

($3,360 X 1/12)
Accumulated AmortizationFurniture 280
4. 31 Interest Expense ........................................ 204

Interest Payable ................................. 204
[($35,000 X 7%) X 1/12]
5. 31 Unearned Rent Revenue ........................... 1,500

Rent Revenue .................................... 1,500
6. 31 Salaries Expense ....................................... 500

7. 31 Income Tax Expense ................................. 1,700

Income Taxes Payable ....................... 1,700

(b)
Cash
May 31 Bal. 2,500 Unearned Rent Revenue
May 31 1,500 May 31 Bal. 4,500
May 31 Bal. 3,000
Prepaid Insurance
May 31 Bal. 1,800 May 31 300
May 31 Bal. 1,500 Salaries Payable
May 31 500
May 31 Bal. 500
Supplies
May 31 Bal. 2,600 May 31 1,250
May 31 Bal. 1,350 Interest Payable
May 31 204
May 31 Bal. 204
Land
May 31 Bal. 15,000
Mortgage Payable
May 31 Bal. 35,000
Lodge
May 31 Bal. 70,000
Common Shares
May 31 Bal. 60,000
Accum. AmortizationLodge
May 31 292
May 31 Bal. 292 Rent Revenue
May 31 Bal. 9,000
May 31 1,500
Furniture May 31 Bal. 10,500
May 31 Bal. 16,800
Salaries Expense
Accum. AmortizationFurniture May 31 Bal. 3,000
May 31 280 May 31 500
May 31 Bal. 280 May 31 Bal. 3,500
Accounts Payable Utilities Expense

May 31 Bal. 4,700 May 31 Bal. 1,000

May 31 1,700 Advertising Expense
May 31 Bal. 1,700 May 31 Bal. 500

(b) (Continued)
Amortization ExpenseLodge
Interest Expense May 31 292
May 31 204 May 31 Bal. 292
May 31 Bal. 204
Amortization ExpenseFurniture
Income Tax Expense May 31 280
May 31 1,700 May 31 Bal. 280
May 31 Bal. 1,700
Insurance Expense
Supplies Expense May 31 300
May 31 1,250 May 31 Bal. 300
May 31 Bal. 1,250

(c)
RIVER RUN MOTEL LTD.

May 31, 2004
Debit Credit
Cash ...................................................................... $ 2,500

Supplies ................................................................. 1,350
Land ....................................................................... 15,000
Lodge ..................................................................... 70,000
Accumulated AmortizationLodge ....................... $ 292
Furniture ................................................................ 16,800
Accumulated AmortizationFurniture ................... 280
Accounts Payable .................................................. 4,700
Unearned Rent Revenue ....................................... 3,000
Mortgage Payable ................................................. 35,000
Common Shares .................................................... 60,000
Rent Revenue ........................................................ 10,500
Utilities Expense .................................................... 1,000
Advertising Expense .............................................. 500
Interest Expense .................................................... 204
Insurance Expense ................................................ 300
Supplies Expense .................................................. 1,250
Amortization ExpenseLodge .............................. 292
Amortization ExpenseFurniture .......................... 280 000000 0
Totals ................................................................. $116,176 $116,176

(d)
Month Ended May 31, 2004
Revenues
Rent revenue ..................................................... $10,500
Expenses
Utilities expense................................................. 1,000
Advertising expense .......................................... 500
Amortization expenselodge ............................ 292
Amortization expensefurniture ....................... 280
Total expenses ........................................... 7,326
Net earnings .............................................................. $ 1,474

Month Ended May 31, 2004
Retained earnings, May 1 ........................................................... $ 0

Add: Net earnings ...................................................................... 1,474
Retained earnings, May 31 ......................................................... $1,474

(d) (Continued)

Balance Sheet
May 31, 2004
Assets
Current assets
Cash ............................................................. $ 2,500
Prepaid insurance ......................................... 1,500
Supplies ........................................................ 1,350
Land .............................................................. $15,000
Lodge ............................................................ $70,000
Less: Accumulated amortizationlodge ..... 292
69,708
Furniture ....................................................... $16,800
Less: Accumulated amortizationfurniture . 280
16,520
Total property, plant, and equipment ......... 101,228
Total assets .......................................................... $106,578

(d) (Continued)
Current liabilities
Accounts payable ......................................... $ 4,700
Unearned rent revenue ................................. 3,000
Salaries payable ........................................... 500
Interest payable ............................................ 204
Income taxes payable ................................... 1,700
Total current liabilities ................................... 10,104
Mortgage payable ................................................. 35,000
Total liabilities ....................................... 45,104
Shareholders equity
Common shares ........................................... $60,000
Retained earnings......................................... 1,474
Total liabilities and shareholders equity ............... $106,578
(e)
May 31 Rent Revenue .................................................... 10,500

Income Summary ....................................... 10,500
31 Income Summary ............................................... 9,026

Salaries Expense ....................................... 3,500
Utilities Expense ......................................... 1,000
Advertising Expense ................................... 500
Insurance Expense ..................................... 300
Interest Expense ........................................ 204
Supplies Expense ....................................... 1,250
Amortization Expense - Lodge ................... 292
Amortization Expense - Furniture ............... 280
Income Tax Expense .................................. 1,700
031 Income Summary ............................................... 1,474

Retained Earnings ...................................... 1,474

PROBLEM 4-10B
(a) Sept. 30 Accounts Receivable ....................................... 400

Commission Revenue.............................. 400
30 Rent Expense .................................................. 1,100

Prepaid Rent ............................................ 1,100
30 Supplies Expense ............................................ 200

Supplies ................................................... 200
30 Amortization Expense ..................................... 350

Accum. AmortizationEquipment ........... 350
30 Interest Expense ............................................. 50

Interest Payable ....................................... 50
30 Unearned Rent Revenue ................................. 300

Rent Revenue .......................................... 300
30 Salaries Expense ............................................ 600

Salaries Payable ...................................... 600

Income Taxes Payable ............................ 1,000

(b)
OZAKI CORP.
Quarter Ended September 30, 2004
Revenues
Commission revenue ......................................... $14,400
Rent revenue ..................................................... 700
Total revenues ........................................... 15,100
Expenses
Rent expense..................................................... 2,000
Utilities expense................................................. 510
Supplies expense .............................................. 200
Total expenses ........................................... 12,510
Net earnings .............................................................. $ 1,590
OZAKI CORP.
Quarter Ended September 30, 2004
Retained earnings, July 1 .............................................................. $ 0

Add: Net earnings ....................................................................... 1,590
1,590
Less: Dividends ............................................................................ 600
Retained earnings, September 30 ................................................. $ 990

(b) (Continued)
OZAKI CORP.
Balance Sheet
September 30, 2004
Assets
Current assets
Cash ................................................................ $ 6,700
Accounts receivable......................................... 800
Prepaid rent ..................................................... 900
Supplies ........................................................... 1,000
Equipment........................................................ $15,000
Less: Accum. amortizationequipment ......... 350 14,650
Total assets ............................................................. $24,050
Current liabilities
Note payable.................................................... $ 5,000
Accounts payable ............................................ 1,710
Salaries payable .............................................. 600
Interest payable ............................................... 50
Income tax payable.......................................... 1,000
Unearned rent revenue .................................... 700
Total current liabilities .............................. 9,060
Shareholders equity
Common shares .............................................. $14,000
Retained earnings............................................ 990
Total shareholders equity ........................ 14,990
Total liabilities and shareholders equity .................. $24,050

(c) The following accounts would be closed: Commission Revenue, Rent Reve-
nue, Salaries Expense, Rent Expense, Utilities Expense, Amortization Ex-
pense, Supplies Expense, Interest Expense, Income Tax Expense and Divi-
dends.
(d) Interest of 6% per year equals a monthly rate of 0.5%; monthly interest is $25
($5,000 X 0.5%). Since total interest expense is $50, the note has been out-
standing two months.

PROBLEM 4-11B
(a), (c) and (e)
Cash Accounts Payable

Nov. 1 Bal. 2,790 Nov. 8 1,100 Nov. 20 2,500 Nov. 1 Bal. 2,300
Nov. 10 1,200 Nov. 20 2,500 Nov. 15 3,000
Nov. 12 1,700 Nov. 22 300 Nov. 17 1,300
Nov. 29 550 Nov. 25 1,100 Nov. 30 Bal. 4,100
Nov. 30 Bal. 1,240

Unearned
Service Revenue
Accounts Receivable Nov. 30 300 Nov. 1 Bal. 400
Nov. 1 Bal. 2,910 Nov. 10 1,200 Nov. 29 550
Nov. 27 700 Nov. 30 Bal. 650
Nov. 30 Bal. 2,410
Salaries Payable
Supplies Nov. 8 500 Nov. 1 Bal. 500
Nov. 1 Bal. 1,000 Nov. 30 700 Nov. 30 500
Nov. 17 1,300 Nov. 30 Bal. 500
Nov. 30 Bal. 1,600
Common Shares
Store Equipment Nov. 1 Bal. 10,000
Nov. 1 Bal. 10,000 Nov. 30 Bal. 10,000
Nov. 15 3,000
Nov. 30 Bal. 13,000
Retained Earnings
Nov. 1 Bal. 3,000
Accumulated Amortization Nov. 30 Bal. 3,000
Store Equipment
Nov. 1 Bal. 500
Nov. 30 250
Nov. 30 Bal. 750

(a), (c) and (e) (Continued)
Service Revenue Salaries Expense

Nov. 12 1,700 Nov. 8 600
Nov. 27 700 Nov. 25 1,100
Nov. 30 300 Nov. 30 500
Nov. 30 Bal. 2,700 Nov. 30 Bal. 2,200
Amortization Expense Rent Expense

Nov. 30 250 Nov. 22 300
Nov. 30 Bal. 250 Nov. 30 Bal. 300
Supplies Expense
Nov. 30 700
Nov. 30 Bal. 700

(b) General Journal
Nov. 8 Salaries Payable .............................................. 500

Salaries Expense ............................................. 600
Cash......................................................... 1,100
10 Cash ................................................................ 1,200

Accounts Receivable ............................... 1,200
12 Cash ................................................................ 1,700

Service Revenue...................................... 1,700
15 Store Equipment .............................................. 3,000

17 Supplies ........................................................... 1,300

20 Accounts Payable ............................................ 2,500

Cash......................................................... 2,500
22 Rent Expense .................................................. 300

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

Cash......................................................... 1,100
27 Accounts Receivable ....................................... 700

Service Revenue...................................... 700
29 Cash ................................................................ 550

Unearned Service Revenue ..................... 550

(d) and (f) ALOU EQUIPMENT REPAIR CORP.

Trial Balance
November 30, 2004
Before After
Dr. Cr. Dr. Cr.
Cash ............................................ $ 1,240 $ 1,240

Accounts Receivable ................... 2,410 2,410
Supplies ....................................... 2,300 1,600
Store Equipment .......................... 13,000 13,000
Accumulated Amortization ........... $ 500 $ 750
Accounts Payable ........................ 4,100 4,100
Unearned Service Revenue ........ 950 650
Salaries Payable .......................... 500
Common Shares .......................... 10,000 10,000
Retained Earnings ....................... 3,000 3,000
Service Revenue ......................... 2,400 2,700
Salaries Expense ......................... 1,700 2,200 00
Rent Expense .............................. 300 300
Supplies Expense ........................ 700
Amortization Expense.................. 000 000 0000 00 0 00250 00 0000
Totals ........................................ $20,950 $20,950 $21,700 $21,700

(e)
1. Nov. 30 Supplies Expense ............................................. 700

Supplies ($2,300 $1,600) ....................... 700
2. 30 Salaries Expense .............................................. 500

Salaries Payable ....................................... 500
3. 30 Amortization Expense ....................................... 250

Accum. Amort.Store Equipment ............ 250
4. 30 Unearned Service Revenue.............................. 300

Service Revenue ....................................... 300

(g)
ALOU EQUIPMENT REPAIR CORP.
Month Ended November 30, 2004
Revenues
Service revenue ................................................. ($2,700
Expenses
Supplies expense .............................................. 700
Rent expense..................................................... 300
Total expenses ........................................... ( 3,450
Net loss ..................................................................... $ (750)

Month Ended November 30, 2004
Retained earnings, November 1 .................................................. $3,000

Less: Net loss ............................................................................. (750)
Retained earnings, November 30 ................................................ $2,250

(g) (Continued)

Balance Sheet
November 30, 2004
Assets
Current assets
Cash ................................................................ $ 1,240
Supplies ........................................................... 1,600
Total current assets ................................. 5,250
Store equipment .............................................. $13,000
Less: Accumulated amortization. .................... 750 12,250
Total assets ................................................................................. $17,500
Current liabilities
Accounts payable ................................................................ $ 4,100
Salaries payable .................................................................. 500
Unearned service revenue................................................... 650
Total current liabilities .................................................. 5,250
Shareholders equity
Common shares .................................................................. 10,000
Retained earnings................................................................ 2,250
Total shareholders equity ............................................ 12,250
Total liabilities and shareholders equity ...................................... $17,500

PROBLEM 4-12B
(a) General Journal
July 1 Cash ................................................................. 24,000
Common Shares ...................................... 24,000
1 Equipment ........................................................ 36,000

Cash ......................................................... 16,000
Note Payable ............................................ 20,000
3 Cleaning Supplies ............................................ 800

Accounts Payable ..................................... 800
5 Prepaid Insurance ............................................ 1,200

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

Service Revenue ...................................... 4,500
18 Accounts Payable ............................................ 500

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

Cash ......................................................... 1,600
21 Cash ................................................................. 1,500

Accounts Receivable ................................ 1,500

Service Revenue ...................................... 2,000
31 Gas & Oil Expense ........................................... 250

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

Cash ......................................................... 1,200
31 Dividends ......................................................... 600

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

(b), (e) and (h)

Jul. 31 Bal. 300
Cash
Jul. 1 24,000 Jul. 1 16,000
Jul. 21 1,500 Jul. 5 1,200 Salaries Payable
Jul. 18 500 Jul. 31 400
Jul. 20 1,600 Jul. 31 Bal. 400
Jul. 31 250
Jul. 31 1,200 Interest Payable
Jul. 31 600 Jul. 31 133
Jul. 31 Bal. 4,150 Jul. 31 Bal. 133
Note Payable
Accounts Receivable Jul. 1 20,000
Jul. 12 4,500 Jul. 21 1,500 Jul. 31 Bal. 20,000
Jul. 25 2,000
Jul. 31 1,500
Jul. 31 Bal. 6,500 Common Shares
Jul. 1 24,000
Jul. 31 Bal. 24,000
Cleaning Supplies
Jul. 3 800 Jul. 31 200
Jul. 31 Bal. 600 Retained Earnings
Jul. 31 600 Jul. 31 3,817
Jul. 31 Bal. 3,217
Prepaid Insurance
Jul. 5 1,200 Jul. 31 100
Jul. 31 Bal. 1,100 Dividends
Jul. 31 600 Jul. 31 600
Jul. 31 Bal. 0
Equipment
Jul. 1 36,000
Jul. 31 Bal. 36,000 Income Summary
Jul. 31 4,183 Jul. 31 8,000
Jul. 31 3,817
Accumulated Amortization Jul. 31 Bal. 0
Equipment
Jul. 31 300
Jul. 31 Bal. 300 Service Revenue
Jul. 31 8,000 Jul. 12 4,500
Jul. 25 2,000
Accounts Payable Jul. 31 1,500
Jul. 18 500 Jul. 3 800 Jul. 31 Bal. 0

(b), (e) and (h) (Continued)
Gas & Oil Expense

Jul. 31 250 Jul. 31 250
Jul. 31 Bal. 0
Cleaning Supplies Expense

Jul. 31 200 Jul. 31 200
Jul. 31 Bal. 0
Jul. 31 300 Jul. 31 300
Jul. 31 Bal. 0
Insurance Expense
Jul. 31 100 Jul. 31 100
Jul. 31 Bal. 0
Salaries Expense
Jul. 20 1,600 Jul. 31 2,000
Jul. 31 400
Jul. 31 Bal. 0
Income Tax Expense

Jul. 31 1,200 Jul. 31 1,200
Jul. 31 Bal. 0
Interest Expense
Jul. 31 133 Jul. 31 133
Jul. 31 Bal. 0

(c) and (f)

CORELLIAN WINDOW WASHING INC.
Trial Balance
July 31, 2004
Before After
Debit Credit Debit Credit
Cash .................................................... $ 4,150 $ 4,150
Accounts Receivable ........................... 5,000 6,500
Cleaning Supplies ............................... 800 600
Prepaid Insurance ............................... 1,200 1,100
Equipment ........................................... 36,000 36,000
Accumulated Amort.Equipment ....... $ 300
Accounts Payable................................ $ 300 300
Salaries Payable ................................. 400
Interest Payable .................................. 133
Note Payable ....................................... 20,000 20,000
Common Shares ................................. 24,000 24,000
Dividends............................................. 600 600
Service Revenue ................................. 6,500 8,000
Salaries Expense ................................ 1,600 2,000
Gas & Oil Expense .............................. 250 250
Amortization Expense ......................... 300
Insurance Expense.............................. 100
Income Tax Expense........................... 1,200 1,200
Cleaning Supplies Expense ................ 000 200
Interest Expense ................................. 0000 00 0000 00 133 000 000
Totals .............................................. $50,800 $50,800 $53,133 $53,133

(d) General Journal
1. July 31 Accounts Receivable ................................... 1,500

Service Revenue ................................. 1,500
2. 31 Amortization Expense ................................. 300

Accumulated Amort.Equipment........ 300
3. 31 Insurance Expense ...................................... 100

Prepaid Insurance................................ 100
4. 31 Cleaning Supplies Expense ........................ 200

Cleaning Supplies ................................ 200
5. 31 Salaries Expense ........................................ 400

Salaries Payable .................................. 400
6. 31 Interest Expense ($20,000 X 8% X 1/12) .... 133

Interest Payable ................................... 133

(g)
Revenues
Service revenue .................................................. $8,000
Expenses
Salaries expense ................................................ $2,000
Cleaning supplies expense ................................. 200
Amortization expense ......................................... 300
Gas & oil expense............................................... 250
Interest expense ................................................. 133
Insurance expense ............................................. 100
Total expenses ............................................ 2,983
Earnings before income taxes .................................... 5,017
Income tax expense ................................................... 1,200
Net earnings ............................................................... $3,817

Retained earnings, July 1 ............................................................ $ 0

Add: Net earnings ..................................................................... 3,817
3,817
Less: Dividends .......................................................................... 600
Retained earnings, July 31 .......................................................... $3,217

(g) (Continued)

Balance Sheet
July 31, 2004
Assets
Current assets
Cash .................................................................. $ 4,150
Accounts receivable........................................... 6,500
Cleaning supplies .............................................. 600
Prepaid insurance .............................................. 1,100
Equipment.......................................................... $36,000
Less: Accumulated amortization ....................... 300 35,700
Total assets ............................................................... $48,050
Current liabilities
Note payable...................................................... $20,000
Accounts payable .............................................. 300
Interest payable ................................................. 133
Salaries payable ................................................ 400
Total current liabilities ................................ 20,833
Shareholders equity
Common shares ................................................ $24,000
Retained earnings.............................................. 3,217
Total shareholders equity .......................... 27,217
Total liabilities and shareholders equity .................... $48,050

(h) General Journal
July 31 Service Revenue .............................................. 8,000

Income Summary ..................................... 8,000
31 Income Summary ............................................. 4,183

Salaries Expense ..................................... 2,000
Amortization Expense .............................. 300
Insurance Expense ................................... 100
Cleaning Supplies Expense ..................... 200
Gas & Oil Expense ................................... 250
Income Tax Expense ................................ 1,200
Interest Expense ...................................... 133
31 Income Summary ............................................. 3,817

Retained Earnings .................................... 3,817
31 Retained Earnings............................................ 600

Dividends .................................................. 600

(i)
Post-Closing Trial Balance
July 31, 2004
Debit Credit
Cash ...................................................................... $ 4,150
Cleaning Supplies .................................................. 600
Equipment ............................................................. 36,000
Accumulated AmortizationEquipment ................ $ 300
Note Payable ......................................................... 20,000
Common Shares .................................................... 24,000
Retained Earnings ................................................. 000 00 3,217
Totals ................................................................. $48,350 $48,350

BYP 4-1 FINANCIAL REPORTING PROBLEM
(a) Items that may have resulted in adjusting entries for prepayments are:
a. Prepaid expenses and other assets

b. Fixed assets
(b) Accrual adjusting entries are often made for interest expense and income taxes.
(c) Income tax expense was $414 million in 2002 and $372 million in 2001. There are income
taxes payable of $179 at the end of 2002.
(d) The cash paid for interest in 2002 was $185 million. The interest expense reported on the
statement of earnings was $161 million. The difference ($24 million) is presumably included
in accounts payable and accrued liabilities in the balance sheet.

BYP 4-2 COMPARATIVE ANALYSIS PROBLEM
Accounts that provide evidence of the use of accrual accounting are:
Balance Sheet Statement of Earnings
(a) Sobeys
1. Receivables 1. Sales
2. Prepaid expenses 2. Income tax expense
3. Income taxes payable 3. Miscellaneous expense
4. Accounts payable and accrued liabilities 4. Miscellaneous expense
(b) Loblaws
1. Prepaid expenses and other assets 1. Insurance (rent) expense

2. Fixed assets 2. Amortization expense
3. Accounts receivable 3. Sales
4. Accounts payable and accrued liabilities 4. Miscellaneous expense

BYP 4-3 RESEARCH CASE
(a) Cisco closes its books quarterly. Currently, it takes Cisco 2 days to close its books.
(b) The closing process at Cisco, prior to the current changes, took up to 10 days.
(c) A virtual close is the ability of the company to close its books within a day on any day
in the quarter. A virtual close is advantageous to the company because it would al-
low Cisco to know where it is financially at all times and, because the close is per-
formed so quickly, the amount of valuable time spent by employees performing the
close is greatly reduced. According to CEO Larry Carter, this would allow Cisco to
employ its human resources in more effective activities such as mining data for busi-
ness intelligence.

BYP 4-4 INTERPRETING FINANCIAL STATEMENTS
(a) Unearned revenue is an example of a prepayment because the cash is received before it
is actually earned.
(b) Cash would be debited and a liability account called unearned service revenue would be
credited.
(c) The revenue from the subscriber deposits should be recognized when Rogers Cable Inc.
provides the related services to the customer. When the revenue is recognized, the un-
earned revenue account should be debited to reduce the liability (since the company is no
longer owes any services relating to the deposit) and, since the revenue has now been
earned, the service revenue account should be credited. If the journal entry were omitted,
liabilities would be overstated and revenues (equity) would be understated.
(d) Rogers is following the revenue recognition principle and the matching principle. The rev-
enue recognition principle requires that revenue not be recognized until the accounting
period in which it is earned. Rogers follows the revenue recognition principle in that the
company does not recognize revenue from monthly fees until the services relating to
those fees are provided. The matching principle requires that expenses must be matched
with revenues. Rogers Cable Inc matches the direct selling costs incurred to the revenue
generated from installations.
In calculating its earnings for any period Rogers uses the revenue recognition principle to
determine the amount of revenue to record as earned. They then apply the matching prin-
ciple to determine the related expenses that should be recorded. Once the company has
identified all revenues and matched the related expenses the statement of earnings can
be prepared.

BYP 4-5 A GLOBAL FOCUS
(a) IIJ reports income on an accrual basis. Under accrual accounting revenue is recognized
when earned, not when the cash is received. Expenses are matched to revenue and may
not coincide with the payment of cash. For example, the company could have a positive
cash flow and a net loss by having collected cash in advance from customers and not
recognized the revenue until the cash had actually been earned or the company may
have incurred expenses and not yet paid cash for these expenses.
As well, the company could have raised cash through non-operating activities such as
selling assets, issuing debt or by issuing share capital.
(b) The company could have generated positive cash from operating activities and have a
decline in cash overall if they used significant amounts of cash for financing and investing
activities. The company may have purchased assets, repaid debt or paid dividends, which
would have caused the overall cash balance to decrease.
(c) Beginning accounts receivable ..................................... 5,417

Add: Revenues ............................................................ 39,905
Less: Ending accounts receivable ............................... (8,982)
Cash collections during the year .................................. 36,340 millions of yen

BYP 4-6 FINANCIAL ANALYSIS ON THE WEB
Due to the frequency of change with regard to information available on the world wide web, the
Accounting on the Web cases are updated as required. Their suggested solutions are also updat-
ed whenever necessary, and can be found online in the Instructor Resources section of our home
page <www.wiley.com/canada/kimmel>.

BYP 4-7 COLLABORATIVE LEARNING ACTIVITY
(a) Option 1 Record revenue when the seat sale is advertised this will result in early recog-
nition of revenue. In order to properly match expenses with revenue the cost of providing
the flight would have to be estimated and accrued. Net earnings would be reported early.
The overall impact on the companys net earnings would depend on the increase in vol-
ume from year to year. Assuming volume is increasing, net earnings would increase. If
expenses are not accrued to match with revenue net earnings will be overstated.
Option 2 Record revenue when the passengers pick up their tickets and have paid for
their flights. In this case the revenue will be recognized before the service is provided and
to properly match expenses with revenue the cost of providing the flight would have to be
estimated and accrued. Net earnings would be reported early. The overall impact on the
companys net earnings would depend on the increase in volume from year to year. As-
suming volume is increasing, net earnings would increase. If expenses are not accrued to
match with revenue net earnings will be overstated.
Option 3 Record revenue when the boarding passes are collected. At this point the ex-
penses will have been identified and it will be easier to match them with the revenue. Ex-
penses will be recorded when they occur and net earnings appropriately measured.
Option 4 Record revenue when the passengers get off the plane. In terms of the account-
ing process this is essentially the same point as collection of the boarding passes. At this
point the expenses will have been incurred and it will be easier to match them with the
revenue. Expenses will be recorded when they occur and net earnings appropriately
measured.
(b) Option 1 recognizes revenue at the earliest point. Both options 1 and 2 require estimating
and accruing expenses to match with revenue a process that may be difficult. Option 3
and 4 are essentially the same in terms of timing.
I think the Air Canada should recognize revenue from ticket sales when the passengers
get off the plane. This is the earliest point at which all of the criteria for revenue recogni-
tion are met. The service has been performed, and the expenses (fuel, salaries, etc.) sup-
porting the service have been incurred.

BYP 4-8 COMMUNICATION ACTIVITY
Memo
To:
From:
Accrual basis accounting records the events that change an entitys financial statements in the
periods in which the events occur, rather than in the periods in which the entity receives or pays
cash. Information presented on an accrual basis is useful because it reveals relationships that
are likely to be important in predicting future results. Conversely, under cash basis accounting,
revenue is recorded only when cash is received, and an expense is recognized only when cash
is paid. As a result, the cash basis of accounting often leads to misleading financial statements.
It is possible for management to manipulate earnings. For example, management may decide not
to accrue wages that have been incurred but not yet paid. This would cause reported earnings to
be higher.
It is possible for management to manipulate cash flows. For example, management may delay
the payment of an accounts payable to increase its cash flow position as presented in the finan-
cial statements.

BYP 4-9 ETHICS CASE
(a) The stakeholders in this situation are:
Carole Denton, controller.

The president of Die Hard Corporation.
Die Hard Corporation shareholders.
(b) 1. It is unethical for the president to place pressure on Carole to misstate net earnings
by requesting her to prepare incorrect adjusting entries.
2. It is customary for adjusting entries to be dated as of the balance sheet date although
the entries are prepared at a later date. Carol did nothing unethical by dating the ad-
justing entries December 31.
(c) Carol can accrue revenues and defer expenses through the preparation of adjusting entries
and be ethical so long as the entries reflect economic reality. Intentionally misrepresenting
the companys financial condition and its results of operations is unethical (it is also illegal).

Legal Notice
Copyright
Copyright 2004 by John Wiley & Sons Canada, Ltd. or related companies. All rights reserved.
The data contained in these files are protected by copyright. This manual is furnished under licence and
may be used only in accordance with the terms of such licence.
The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified,
made available on a network, used to create derivative works, or transmitted in any form or by any means,
electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permis-
sion of John Wiley & Sons Canada, Ltd.


Solutions - CH4

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Kimmel, Weygandt, Kieso, Trenholm Financial Accounting, Second Canadian Edition

*1. Explain the revenue 1, 2, 3, 4 1 1, 2 1A 1B

*2. Differentiate between 5 2 3 2A, 3A 2B, 3B

*3. Explain why adjusting 6, 7 3 4

8. Describe the required 24, 25 12A 12B

Solutions Manual 4-1 Chapter 4

ASSIGNMENT CHARACTERISTICS TABLE

Problem Difficulty Time

1A Identify accounting assumptions, principles, and Simple 10-15

2A Convert earnings from cash to accrual basis. Complex 30-40

3A Convert earnings from cash to accrual basis; prepare Complex 40-50

4A Prepare original and adjusting entries. Simple 20-30

5A Prepare adjusting entries. Simple 20-30

6A Prepare original and adjusting entries. Simple 20-30

7A Prepare adjusting entries and corrected statement of Moderate 40-50

8A Prepare adjusting entries, post, and prepare adjusted Moderate 30-40

9A Prepare adjusting entries, post, prepare adjusted trial Moderate 50-60

10A Prepare adjusting entries and financial statements; Moderate 40-50

11A Complete accounting cycle through to preparation of Moderate 70

12A Complete all steps in accounting cycle. Moderate 70

1B Identify accounting assumptions, principles, and Simple 10-15

2B Convert earnings from cash to accrual basis. Complex 30-40

3B Convert earnings from cash to accrual basis; prepare Complex 40-50

4B Prepare original and adjusting entries. Simple 20-30

Solutions Manual 4-2 Chapter 4

6B Prepare original and adjusting entries. Simple 20-30

7B Prepare adjusting entries and corrected statement of Moderate 40-50

8B Prepare adjusting entries, post, and prepare adjusted Moderate 30-40

9B Prepare adjusting entries, post, prepare adjusted trial Moderate 50-60

10B Prepare adjusting entries and financial statements; Moderate 40-50

11B Complete accounting cycle through to preparation of Moderate 70

12B Complete all steps in accounting cycle. Moderate 70

Solutions Manual 4-3 Chapter 4

6. The financial information in a trial balance may not be up-to-date because:

Solutions Manual 4-4 Chapter 4

11. 1st Fiscal Year-end

2nd Fiscal Year-end

16. The entries are:

Dec. 31 Salaries Expense.. 1,700

Jan. 9 Salaries Payable.. 1,700

17. (a) Salaries Payable (d) Supplies Expense

Solutions Manual 4-5 Chapter 4

Solutions Manual 4-6 Chapter 4

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

BRIEF EXERCISE 4-2

Cash Net Earnings

BRIEF EXERCISE 4-3

(a) Prepaid Expenses Assets Overstated

(b) Accrued Revenues Assets Understated

(c) Accrued Revenues Assets Understated

(d) Unearned Revenues Liabilities Overstated

(e) Prepaid Expenses Assets Overstated

(f) Accrued Expenses Expenses Understated

Solutions Manual 4-7 Chapter 4

BRIEF EXERCISE 4-4

Dec. 31 Advertising Supplies Expense ........................................ 7,300

Advertising Supplies Advertising Supplies Expense

BRIEF EXERCISE 4-5

Dec. 31 Amortization ExpenseEquipment ................................ 4,400

Amortization Expense Accumulated Amortization

Property, plant, and equipment

BRIEF EXERCISE 4-6

June 1 Prepaid Insurance .......................................................... 12,000