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

CHAPTER 3

The Accounting Information System

ASSIGNMENT CLASSIFICATION TABLE

Study Objectives QuestionsBrief

Exercises ExercisesA

ProblemsB

Problems

1. Analyse the effect ofbusiness transactionson the basic accountingequation.

1, 2, 3 1 1, 2, 3, 4,13

1A, 2A 1B, 2B

2. Explain what anaccount is and how ithelps in the recordingprocess.

4

3. Define debits andcredits and explain howthey are used to recordbusiness transactions.

5, 6, 7, 8,9, 10, 11,12, 13

2, 3 5, 6 3A, 4A 3B, 4B

4. Identify the basic steps

in the recordingprocess.

14 5

5. Explain what a journalis and how it helps inthe recording process.

15, 16 4, 6, 7 7, 8, 9, 12,13

5A, 6A, 7A 5B, 6B, 7B

6. Explain what a ledgeris and how it helps inthe recording process.

17

7. Explain what posting

is and how it helps inthe recording process.

18 8 10, 11, 12,

13

6A, 7A 6B, 7B

8. Explain the purposes ofa trial balance.

19, 20, 21 9, 10 10, 11, 12,14, 15

6A, 7A,8A, 9A,10A

6B, 7B,8B, 9B,10B

Solutions Manual 3-1 Chapter 3

Copyright 2004 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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ASSIGNMENT CHARACTERISTICS TABLE

Problem

Number

Description Difficulty

Level

Time

Allotted (min.)

1A Analyse transactions, classify cash flows, andcalculate net earnings.

Moderate 40-50

2A Analyse transactions and prepare financialstatements.

Moderate 40-50

3A Identify normal account balance and associatedfinancial statement.

Simple 20-30

4A Identify debits, credits, and normal balances;calculate cash flow and net earnings. Simple 30-40

5A Journalize transactions. Moderate 30-40

6A Journalize transactions, post, and prepare trialbalance.

Moderate 40-50

7A Journalize transactions, post, and prepare trialbalance.

Moderate 40-50

8A Analyse errors and their effects on trial balance. Moderate 30-40

9A Prepare corrected trial balance. Complex 40-50

10A Prepare trial balance and financial statements. Moderate 40-50

1B Analyse transactions, classify cash flows, andcalculate net earnings.

Moderate 40-50

2B Analyse transactions and prepare financialstatements.

Moderate 40-50

3B Identify normal account balance and associatedfinancial statement.

Simple 20-30

4B Identify debits, credits, and normal balances;calculate cash flow and net earnings.

Simple 30-40

5B Journalize transactions. Moderate 30-40



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ProblemNumber

Description DifficultyLevel

TimeAllotted (min.)

6B Journalize transactions, post, and prepare trialbalance.

Moderate 40-50

7B Journalize transactions, post, and prepare trialbalance.

Moderate 40-50

8B Analyse errors and their effects on trial balance. Moderate 30-40

9B Prepare corrected trial balance. Complex 40-50

10B Prepare trial balance and financial statements. Moderate 40-50



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ANSWERS TO QUESTIONS

1. Yes, a business can enter into a transaction in which only the left side of the accountingequation is affected. An example would be a transaction where an increase in one asset is

offset by a decrease in another asset. An increase in the Equipment account which isoffset by a decrease in the Cash account is a specific example.

2. Accounting transactions are the economic events of the enterprise recorded byaccountants because they affect the basic equation.

(a) The death of a major shareholder of the company is not an accountingtransaction, as it does not affect the basic equation.(b) Supplies purchased on account is an accounting transaction because itaffects the basic equation.(c) An employee being fired is not an accounting transaction, as it does notaffect the basic equation.

(d) Paying a cash dividend to shareholders is an accounting transaction as itdoes affect the basic equation.

3. (a) Decrease assets and decrease shareholders' equity.(b) Increase assets and increase liabilities.(c) Increase assets and increase shareholders' equity.(d) Decrease assets and decrease liabilities.

4. An account consists of three parts: (a) the title, (b) the left or debit side, and (c) the right orcredit side. Because the alignment of these parts resembles the letter T, it is referred to asa T account.

5. Charles is incorrect. The double-entry system merely records the dual effect of atransaction on the accounting equation. A transaction is not recorded twice; it is recordedonce, with a dual effect.

6. Natalie is incorrect. A debit balance only means that debit amounts exceed credit amountsin an account. Conversely, a credit balance only means that credit amounts are greaterthan debit amounts in an account. Thus, a debit or credit balance is neither favourable norunfavourable.

7. (a) Asset accounts are increased by debits and decreased by credits.(b) Liability accounts are decreased by debits and increased by credits.

(c) The Common Shares and revenue accounts are decreased by debits andincreased by credits. The dividend and expense accounts are increased bydebits and decreased by credits.



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Questions (Continued)

8. (a) Accounts Receivable debit balance(b) Cash debit balance(c) Dividends debit balance(d) Accounts Payable credit balance(e) Service Revenue credit balance(f) Income Tax Expense debit balance(g) Common Shares credit balance(h) Unearned Revenue credit balance

9. (a) Accounts Receivable asset debit balance(b) Accounts Payable liability credit balance(c) Equipment asset debit balance(d) Dividends shareholders' equity debit balance(e) Supplies asset debit balance

(f) Service Revenue shareholders equity credit balance

10. (a) Debit Supplies and credit Accounts Payable.(b) Debit Cash and credit Notes Payable.(c) Debit Salaries Expense and credit Cash.

11. (a) Cash both debit and credit entries(b) Accounts Receivable both debit and credit entries(c) Dividends debit entries only(d) Accounts Payable both debit and credit entries(e) Salaries Expense debit entries only

(f) Service Revenue credit entries only

12. The balance in total Shareholders Equity should not equal the balance in the Cashaccount. The balance in Shareholders Equity includes Common Shares (investment byshareholders) and Retained Earnings (net earnings retained in the business). Investmentby shareholders would normally be made in cash. The Retained Earnings componentwould include earnings calculated on an accrual basis and therefore would not equal theentries to the Cash account.

13. Two other accounts that the company might have used to record a cash receipt from acustomer are:(1) Unearned revenue where customer paid in advance.(2) Accounts Receivable - where the customer was making a payment on a previous

credit purchase.



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14. The basic steps in the recording process are:(1) Analyse each transaction in terms of its effect on the accounts.(2) Enter the transaction information in the general journal (book of original entry).(3) Transfer the journal information to the appropriate accounts in the general ledger

(book of accounts).

15. This would not be a more efficient process because all transaction would be postedindividually rather than posting summary amounts.

16. (a) Cash 9,000Common Shares 9,000

(Invested cash in the business in exchange for common shares)

(b) Prepaid Insurance 800

Cash 800(Paid one-year insurance policy)

(c) Supplies 1,500Accounts Payable 1,500

(Purchased supplies on account)

(d) Cash 7,500Service Revenue 7,500

(Received cash for services rendered)

17. (a) The general ledger is the entire group of accounts maintained by a company,including all the asset, liability, and shareholders' equity accounts.(b) The chart of accounts is important, particularly for a company that has a large

number of accounts because it helps organize the accounts and identify theirlocation in the ledger.

18. Posting from the general journal to the general ledger should be performed on a timelybasis to ensure that the general ledger reflects the most up-to-date accountinginformation. With the use of computers in the recording process, entries posted to thegeneral journal are usually simultaneously posted to the general ledger. The morefrequently the journal entries are posted the more accurate the accounting records.



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19. A trial balance is a list of accounts and their balances at a given time. The primarypurpose of a trial balance is to prove the mathematical equality of debits and credits afterall journalized transactions have been posted. A trial balance also facilitates the discoveryof errors in journalizing and posting. In addition, it is useful in preparing financialstatements. The main limitation of the trial balance is that numerous errors may still existeven though the debit and credit columns of the trial balance agree. For example,provided the debits and credit are equal, a trial balance will still balance even though a

journal entry has been omitted or if an entry is posted to the wrong account.

20. The proper sequence is as follows:2. An accounting transaction occurs.3. Information is entered in the general journal.1. Debits and credits are posted to the general ledger.5. A trial balance is prepared.

4. Financial statements are prepared.

21. (a) The trial balance would balance because the debits and credits would still beequal.

(b) The trial balance would not balance because the debit side would be $810 higherthan the credit side



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SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-1

Assets LiabilitiesShareholders

Equity

a.

+ + NE

b.

+ NE +

c. - NE -d.

+ NE +

e

.

- NE -

f. +/- NE NE

BRIEF EXERCISE 3-2

(a)DebitEffect

(a)CreditEffect

(b)NormalBalance

1. Accounts Payable

2. Advertising Expense3. Service Revenue4. Accounts Receivable5. Unearned Service Revenue6. Dividends

Decrease

IncreaseDecreaseIncreaseDecreaseIncrease

Increase

DecreaseIncreaseDecreaseIncreaseDecrease

Credit

DebitCreditDebitCreditDebit

BRIEF EXERCISE 3-3

Account Debited Account CreditedJune 1 Cash Common Shares

2 Equipment Accounts Payable3 Rent Expense Cash

12 Accounts Receivable Service Revenue30 Income Tax Expense Cash



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BRIEF EXERCISE 3-4

June 1 Cash 2,500Common Shares 2,500

2 Equipment 900Accounts Payable 900

3 Rent Expense 500Cash 500

12 Accounts Receivable 300Service Revenue 300

30 Income Tax Expense 100Cash 100

BRIEF EXERCISE 3-5

The basic steps in the recording process are:

1. Analyse each transaction. In this step, business documents are examined to determine theeffects of the transaction on the accounts.

2. Enter each transaction in the general journal. This step is called journalizing and it resultsin making a chronological record of the transactions.

3. Transfer general journal information to general ledger accounts. This step is called post-ing. Posting makes it possible to accumulate the effects of journalized transactions onindividual accounts.



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BRIEF EXERCISE 3-6

Aug. 1 (a) Basic Analysis (b) Debit-Credit AnalysisThe asset Cash is increased. Debits increase assets:

debit Cash $5,000.

The shareholders' equity Credits increase shareholders'account Common Shares is equity: credit Common Sharesincreased. $5,000.

Aug. 4 (a) Basic Analysis (b) Debit-Credit AnalysisThe asset Prepaid Insurance Debits increase assets:is increased. debit Prepaid Insurance $2,100

The asset Cash Credits decrease assets:

is decreased. credit Cash $2,100.

Aug. 16 (a) Basic Analysis (b) Debit-Credit AnalysisThe asset Cash is increased. Debits increase assets:

debit Cash $900

The revenue Service Revenue Credits increase revenues:is increased. credit Service Revenue $900.

Aug. 27 (a) Basic Analysis (b) Debit-Credit AnalysisThe expense Salaries Debits increase expenses:Expense is increased. debit Salaries Expense $500.

The asset Cash is decreased. Credits decrease assets:credit Cash $500.



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BRIEF EXERCISE 3-7

Aug. 1 Cash 5,000Common Shares 5,000

4 Prepaid Insurance 2,100Cash 2,100

16 Cash 900Service Revenue 900

27 Salaries Expense 500Cash 500

BRIEF EXERCISE 3-8

Accounts Receivable Service Revenue

May 5 3,200 May 12 1,900 May 5 3,200May 15 2,000

Bal. 1,300 Bal. 5,200

Cash Income Tax Expense

May 12 1,900May 15 2,000

May 15 750

Bal. 3,900

Income Tax Payable

May 15 750



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BRIEF EXERCISE 3-9

CARLAND INC.Trial BalanceJune 30, 2004

Debit Credit

CashAccounts ReceivableEquipment

Accumulated AmortizationAccounts PayableUnearned Service RevenueCommon Shares

Retained EarningsDividendsService RevenueSalaries ExpenseRent ExpenseIncome Tax ExpenseTotals

$ 8,4003,000

17,000

1,200

4,0001,000

640$35,240

$ 3,4004,000

15020,000

1,090

6,600

______$35,240



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BRIEF EXERCISE 3-10

ING LIMITEDTrial Balance

December 31, 2004

Debit Credit

CashPrepaid insurance

Accounts payableUnearned revenueCommon sharesRetained earningsDividends

Service revenueSalaries expenseRent expenseIncome tax expenseTotals

$17,6003,500

4,500

18,6002,4001,200

$47,800

$ 3,0002,200

10,0007,000

25,600

00 0000$47,800



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SOLUTIONS TO EXERCISES

EXERCISE 3-1

1. Increase in assets and increase in shareholders' equity.2. Decrease in assets and decrease in shareholders' equity.3. Increase in assets and increase in liabilities.4. Increase in assets and increase in shareholders' equity.5. Decrease in assets and decrease in shareholders' equity.6. Increase in assets and decrease in assets. No effect overall.7. Increase in liabilities and decrease in shareholders' equity.8. Increase in assets, decrease in assets and increase in liabilities.9. Increase in assets and increase in shareholders' equity.10. Decrease in assets and decrease in shareholders equity.

EXERCISE 3-2

Trans-action

Assets LiabilitiesShareholders

EquityRevenues Expenses

NetEarnings

1. +19,000 +19,000 NE NE NE NE2. -4,000 NE -4,000 NE +4,000 -4,0003. +15,000

-15,000NE NE NE NE NE

4. +3,000 NE +3,000 +3,000 NE +3,0005. -11,000 NE -11,000 NE +11,000 -11,0006. +32,000 NE +32,000 NE NE NE7. -19,000 -19,000 NE NE NE NE8. +1,000 +1,000 NE NE NE NE



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EXERCISE 3-3

(a)

1. Shareholders invested $15,000 cash in the business.2. Purchased office equipment for $5,000, paying $1,000 in cash and the balance of $4,000

on account.3. Paid $750 cash for supplies.4. Earned $8,000 in revenue, receiving $4,600 cash and $3,400 on account.5. Paid $1,500 cash on accounts payable.6. Paid $2,000 cash dividends to shareholders.7. Paid $800 cash for rent.8. Collected $450 cash from customers on account.9. Paid salaries of $2,900.

10. Incurred $500 of utilities expense on account.11. Paid $1,500 of income tax expense.

(b) Issued common Shares $15,000Service revenue 8,000Dividends (2,000)Rent expense (800)Salaries expense (2,900)Utilities expense (500)Income tax expense (1,500)Increase in shareholders' equity $15,300

(c) Service revenue $8,000

Rent expense (800)Salaries expense (2,900)Utilities expense (500)Income tax expense (1,500)Net earnings $2,300



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EXERCISE 3-4

HAGIWARA INC.Statement of Earnings

Month Ended August 31, 2004

RevenuesService revenue $8,000

ExpensesSalaries expense 2,900Rent expense 800Utilities expense 500

Total expenses 0 4,200Earnings before income tax 3,800Income tax expense 1,500Net earnings $2,300

HAGIWARA INC.Statement of Retained EarningsMonth Ended August 31, 2004

Retained earnings, August 1 $0,000Add: Net earnings 2,300

2,300Less: Dividends 2,000Retained earnings, August 31 $ 300



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EXERCISE 3-4 (Continued)

HAGIWARA INC.Balance Sheet

August 31, 2004

Assets

Current assetsCash $ 9,600

Accounts receivable 2,950Supplies 750

Total current assets $13,300Property, plant and equipment

Office equipment0 5,000Total assets $18,300

Liabilities and Shareholders' Equity

LiabilitiesAccounts payable $ 3,000

Shareholders' equityCommon shares $15,000Retained earnings 300

Total shareholders equity 15,300

Total liabilities and shareholders equity $18,300



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EXERCISE 3-5

Account Normal Balance Financial Statement Account Classification

Accounts payable Credit Balance sheet Current liabilityAccounts receivable Debit Balance sheet Current assetCash and cashequivalents

Debit Balance sheet Current asset

Common stock Credit Balance sheet Shareholders equityDividends Debit Statement of retained

earningsN/A

Income taxes payable Credit Balance sheet Current liabilityInterest expense Debit Statement of earnings ExpenseInterest income Credit Statement of earnings RevenueInventories Debit Balance sheet Current asset

Prepaid expenses Debit Balance sheet Current assetProperty andequipment

Debit Balance sheet Property, plant andequipment

Revenues Credit Statement of earnings Revenue



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EXERCISE 3-6

Account Debited Account Credited

Trans-action

(a)BasicType

(b)Specific

Account

(c)

Effect

(d)

Dr./Cr.

(a)BasicType

(b)Specific

Account

(c)

Effect

(d)

Dr./Cr.

1. Asset Cash Increase Debit ShareholdersEquity

CommonShares

Increase Credit

2. Asset Vehicle Increase Debit Asset Cash Decrease Debit

3. Asset Supplies Increase Debit Liability AccountsPayable

Increase Credit

4. Asset AccountsReceivable

Increase Debit ShareholdersEquity

ServiceRevenue

Increase Credit

5. ShareholdersEquity

AdvertisingExpense

Increase Debit Asset Cash Decrease Debit

6. Asset Cash Increase Debit Asset AccountsReceivable Decrease Debit

7. Liability AccountsPayable

Decrease Credit Asset Cash Decrease Debit

8. ShareholdersEquity

Dividends Increase Debit Asset Cash Decrease Debit



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EXERCISE 3-7

General Journal

Trans. Account Titles Debit Credit

1.

2.

3.

4.

5.

6.

7.

8.

CashCommon Shares

VehicleCash

SuppliesAccounts Payable

Accounts ReceivableService Revenue

Advertising ExpenseCash

CashAccounts Receivable

Accounts Payable

Cash

DividendsCash

10,000

018,000

00,500

02,600

00,200

00,700

00,300

00,500

10,000

018,000

00,500

02,600

00,200

00,700

00,300

00,500



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EXERCISE 3-8

Oct. 1 Debits increase assets: Debit Cash $25,000.Credits increase shareholders' equity: Credit Common Shares $25,000.

2 No accounting transaction.

3 Debits increase assets: Debit Office Furniture $1,900.Credits increase liabilities: Credit Accounts Payable $1,900.

6 Debits increase assets: Debit Accounts Receivable $6,200.Credits increase revenues: Credit Service Revenue $6,200.

10 Debits increase assets: Debit Cash $140.Credits increase revenues: Credit Service Revenue $140.

27 Debits decrease liabilities: Debit Accounts Payable $700.Credits decrease assets: Credit Cash $700.

30 Debits increase expenses: Debit Salaries Expense $2,500.Credits decrease assets: Credit Cash $2,500.



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EXERCISE 3-9

General Journal

Date Account Titles Debit Credit

Oct. 1

2

3

6

10

27

30

CashCommon Shares

No entry.

Office FurnitureAccounts Payable

Accounts ReceivableService Revenue

CashService Revenue

Accounts PayableCash

Salaries ExpenseCash

25,000

01,900

06,200

00,140

00,700

00,2,500

25,000

01,900

06,200

00,140

00,700

00,2,500



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EXERCISE 3-10

(a)

Cash

Oct. 1 25,00010 140

Oct. 27 70030 2,500

Bal. 21,940

Accounts Receivable

Oct. 6 6,200

Bal. 6,200

Office Furniture

Oct. 3 1,900

Bal. 1,900

Salaries Expense

Oct. 30 2,500

Bal. 2,500

Accounts Payable

Oct. 27 700 Oct. 3 1,900

Bal. 1,200

Common Shares

Oct. 1 25,000

Bal. 25,000

Service Revenue

Oct. 6 6,200Oct. 10 140

Bal. 6,340



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(b)AUBUT REAL ESTATE AGENCY CORPORATION

Trial Balance

October 31, 2004

Debit Credit

CashAccounts receivableOffice furniture

Accounts payableCommon sharesService revenueSalaries expenseTotals

$21,940006,200

1,900

2,5009$32,540

$ 1,20025,000

0 6,340______

$32,540

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EXERCISE 3-11

(a)

Cash

Aug. 1 1,60010 2,90031 600

Aug. 12 1,000

Bal. 4,100

Accounts Receivable

Aug. 25 1,800 Aug. 31 600

Bal. 1,200

Office Equipment

Aug. 12 4,000

Bal. 4,000

Notes Payable

Aug. 12 3,000

Bal. 3,000

Common Shares

Aug. 1 1,600

Bal. 1,600

Service Revenue

Aug. 10 2,90025 1,800

Bal. 4,700

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(b)

KANG, INC.

Trial BalanceAugust 31, 2004

Debit Credit

CashAccounts ReceivableOffice EquipmentNotes PayableCommon SharesService RevenueTotals

$4,10000,1,200

04,000

_____$9,300

$3,00001,6004,700

$9,300

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EXERCISE 3-12

(a) Oct. 1 Cash 4,000Common Shares 4,000

(Invested cash in business in exchange for common shares)

3 Furniture 3,000Accounts Payable 3,000

(Purchased furniture on account)

4 Supplies 400Cash 400

(Purchased supplies)

6 Accounts Receivable 800Service Revenue 800

(Billed clients for services provided)

10 Cash 750Service Revenue 750

(Received cash for services rendered)

10 Cash 8,000Notes Payable 8,000

(Obtained loan from bank)

12 Accounts Payable 1,500Cash 1,500

(Made payment on accounts payable)

15 Rent Expense 250Cash 250

(Paid cash for rent)

20 Cash 800Accounts Receivable 800

(Received cash in payment of account)

20 Accounts Receivable 740

Service Revenue 740(Billed clients for services provided)

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(a) (Continued)

Oct. 25 Cash 2,000

Common Shares 2,000(Invested cash in business in exchange for common shares)

30 Dividends 300Cash 300

(Paid cash dividends)

31 Store Wages Expense 500Cash 500

(Paid wages)

31 Supplies Expense 180Supplies 180

(Used supplies for operating)

(b)

HOLLY CORP.Trial Balance

October 31, 2004

Debit Credit

CashAccounts ReceivableSuppliesFurnitureNotes Payable

Accounts PayableCommon SharesDividendsService RevenueStore Wages Expense

Supplies ExpenseRent ExpenseTotals

$12,60000740

000,220003,000

000,300

000,500

000,180250$17,790

$08,0000001,500

006,000

002,290

______$17,790

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EXERCISE 3-13

(a)

Cash + Equipment = AccountsPayable + ShareholdersEquity

Sept. 1

5

25

30

+$15,000+ 15,000

5,000+ 10,000+3,000+ 7,000

+ -500$ 6,500

+

+

+

+12,00012,000

______12,000

______+$12,000

=

=

=

=

+7,0007,000

-3,0004,000

_____$4,000

+

+

+

+$15,000+ 15,000

____ _____+ 15,000______

+ 15,000-500

$14,500

Investment

Dividends

(b)

General Journal

Date Account Titles Debit Credit

Sept. 1

5

25

30

CashCommon Shares

EquipmentCash

Accounts Payable

Accounts PayableCash

DividendsCash

15,000

12,000

03,000

00,500

15,000

05,00007,000

03,000

00,500

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(c)

Cash

Sept. 1 15,000 Sept. 5 5,000Sept. 25 3,000Sept. 30 500

Bal. 6,500

Equipment

Sept. 5 12,000

Bal. 12,000

Accounts Payable

Sept. 25 3,000 Sept. 5 7,000

Bal. 4,000

Common Shares

Sept. 1 15,000

Bal. 15,000

Dividends

Sept. 30 500

Bal. 500

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EXERCISE 3-14

Error

(a)

In Balance

(b)

Difference

(c)

Larger Column

1.2.3.4.5.6.

NoYesYesNoYesNo

$40000

$3000

$9

Debitn/an/a

Creditn/a

Credit

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EXERCISE 3-15

(a)SPEEDY DELIVERY SERVICE, INC.

Trial Balance

July 31, 2004

Debit Credit

Cash ($111,640 - $83,920 debit total of all accts. without cash)Accounts ReceivablePrepaid InsuranceDelivery Equipment

Accumulated AmortizationAccounts PayableSalaries PayableNotes PayableCommon SharesRetained EarningsDividendsService Revenue

Amortization ExpenseSalaries ExpenseGas and Oil ExpenseRepair ExpenseInsurance ExpenseIncome Tax Expense

Totals

$ 27,72013,6401,960

49,360

700

9,8704,420

7501,200

5201,500

$111,640

$ 19,7457,390

81518,45040,000

4,630

20,610

000 0000

$111,640

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(b)SPEEDY DELIVERY SERVICE, INC.

Statement of Earnings

Year Ended July 31, 2004

RevenuesService revenue $ 20,610

ExpensesAmortization expense 9,870Salaries expense 4,420Gas and oil expense 750Repair expense 1,200Insurance expense 520

Total expenses 0 16,760Earnings before income tax 3,850

Income tax expense 1,500Net earnings $ 2,350

SPEEDY DELIVERY SERVICE, INC.Statement of Retained Earnings

Year Ended July 31, 2004

Retained earnings, August 1, 2003 $4,630

Add: Net earnings 2,3506,980

Less: Dividends 700Retained earnings, July 31, 2004 $6,280

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PROBLEM 3-1A (Continued)

(a) (Continued)

Key to Retained Earnings column on previous page.

(a) Rent expense(b) Advertising expense(c) Service revenue(d) Dividends(e) Salaries expense(f ) Utilities expense(g) Service revenue(h) Income tax expense

(c)

Service revenue $4,500ExpensesSalaries expense $1,500Rent expense 500

Advertising expense 250Utilities expense 140Income tax expense 1,000 3,390Net earnings $1,110

OR

Increase in retained earnings $ 610Add: Dividends 500Net earnings $1,110

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(a) Service revenue(b) Dividends(c) Salaries expense(d) Rent expense(e) Advertising expense(f ) Utility expense(g) Income tax expense

(b)CORSO CARE CORP.Statement of Earnings

Month Ended September 30, 2004

RevenuesService revenue $8,900

ExpensesRent expense 900Salaries expense 700Utilities expense 170

Advertising expense 100Total expenses 0 1,870

Earnings before taxes 7,030Income tax expense 2,500Net earnings $4,530

CORSO CARE CORP.Statement of Retained Earnings

Month Ended September 30, 2004

Retained earnings, September 1 $0,700Add: Net earnings 4,530

5,230Less: Dividends 0 600Retained earnings, September 30 $4,630

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(b) (Continued)

CORSO CARE CORP.Balance Sheet

September 30, 2004

AssetsCurrent assets

Cash $11,000Accounts receivable 6,700Supplies 600

Total current assets $18,300Office equipment 10,100Total assets $28,400

Liabilities and Shareholders' EquityLiabilities

Notes payable $7,000Accounts payable 3,770

Total liabilities $10,770Shareholders' equity

Common shares $13,000Retained earnings 3 4,630

Total shareholders equity 0 17,630Total liabilities and shareholders' equity $28,400

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PROBLEM 3-4A

(a)Account Debited Account Credited

1 2 3 4 1 2 3 4Trans-action

BasicType

SpecificAccount Effect Dr./Cr.

BasicType


1. Asset Cash Increase Debit Share-holdersEquity

CommonShares

Increase Credit

2. Asset Cash Increase Debit Share-holdersEquity(Revenue)

ServiceRevenue

Increase Credit

3. Asset Vehicle Increase Debit Asset Cash Decrease CreditLiability Note

PayableIncrease Credit

4. Asset Cash Increase Debit Liability UnearnedRevenue

Increase Credit

5. Share-holdersEquity(Expense)

WagesExpense

Increase Debit Asset Cash Decrease Credit

6. Asset AccountsRec-eivable

Increase Debit Share-holdersEquity(Revenue)

ServiceRevenue

Increase Credit

7. Asset Supplies Increase Debit Liability AccountsPayable

Increase Credit

8. Asset Cash Increase Debit Asset AccountsReceivable

Decrease Credit

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(a) (Continued)

Account Debited Account Credited1 2 3 4 1 2 3 4Trans-action

BasicType


BasicType


9. Share-holdersEquity(Expense)

RentExpense


10. Share-holders

Equity(Expense

IncomeTax

Expense


(b)

Cash FlowIssue shares $10,000Provide services 2,500Payment for truck (10,000)

Deposit from customers 5,000Payment of wages (2,000)Collection from customers 20,000Payment of rent (1,500)Payment of income taxes (800)Ending cash $23,200

Net EarningsProvide services $ 2,500Payment of wages (2,000)

Bill customers 20,000Payment of rent (1,500)Payment of income tax (800)Net earnings $18,200

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PROBLEM 3-5A

Date Account Titles and Explanation Debit Credit

Apr. 1 CashCommon Shares(Issued shares for cash)

75,00075,000

4 LandCashNote Payable(Purchased land for cash, note)

50,00010,00040,000

8 Advertising ExpenseAccounts Payable(Incurred advertising expense onaccount)

01,80001,800

11 Salaries ExpenseCash(Paid salaries)

01,70001,700

12 No entry.

13 Prepaid InsuranceCash(Paid for one-year insurance policy)

03,00003,000

17 DividendsCash(Payment of cash dividend)

00,60000,600

20 CashAdmission Revenue(Received cash for admission fees)

05,700 05,700


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PROBLEM 3-6Aa)


May 1 CashCommon Shares(Issued shares for cash)

52,00052,000

2 No entry. Not an accounting transaction.

3 SuppliesAccounts Payable(Purchased supplies on account)

08000800

7 Rent ExpenseCash(Paid office rent)

00,90000,900

11 Accounts ReceivableService Revenue(Billed client for services provided)

01,10001,100

12 CashUnearned Revenue(Received an advance for futureservices)

04,20004,200

17 CashService Revenue(Received cash for revenue earned)

04,20004,200

31 Salaries ExpenseCash(Paid salaries)

01,00001,000

31 Accounts Payable ($800 X 40%)Cash(Paid creditor on account)

00,32000,320

31 Income Tax ExpenseCash(Paid income taxes)

00,10000,100


(b)

Cash

May 1 52,000 May 7 900

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Service Revenue

May 11 1,100May 17 4,200

Bal. 5,300

Salaries Expense

May 31 1,000

Bal. 1,000

Rent Expense

May 7 900

Bal. 900

Income Tax Expense

May 31 100

Bal. 100

(c)ASTROMECH ACCOUNTING SERVICES INC.

Trial BalanceMay 31, 2004

Debit Credit

CashAccounts ReceivableSupplies

Accounts PayableUnearned RevenueCommon SharesService RevenueSalaries ExpenseRent ExpenseIncome Tax ExpenseTotals

$58,080001,100

00800

001,000900100

$61,980

$00,480004,200052,000005,300

_ ___$61,980

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(b)


Apr. 2 Film Rental ExpenseCash

(Paid film rental)

0,1,0000,1,000

3 No entry not a transaction.

9 CashAdmission Revenue(Received cash for admissions)

3,8003,800

10 Mortgage PayableAccounts Payable

Cash(Made payments on mortgage and

accounts payable)

2,0001,000

3,000

11 No entry. Not a transaction.

12 Advertising Expense

Cash(Paid advertising expenses)

0,400

0,400

20 Film Rental ExpenseAccounts Payable(Rented film on account)

0,5000,500


3,0003,000

29 Salaries ExpenseCash(Paid salaries expense)

1,6001,600


(b) (Continued)

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Apr. 30 CashAccounts Receivable

Concession Revenue (17% X $1,000)(Received cash and balance on account

for concession revenue)

0,0850,085

0,170

30 Prepaid RentalsCash(Paid cash for future film rental)

0,1,0000,1,000

(d)LAKE THEATRE, INC.

Trial BalanceApril 30, 2004

Debit Credit

CashAccounts ReceivablePrepaid RentalsLandBuildingsEquipment

Accounts PayableMortgage PayableCommon Shares

Admission RevenueConcession Revenue

Advertising ExpenseFilm Rental ExpenseSalaries ExpenseTotals

$05,885000,085

000,1,000010,000008,000006,000

000,400001,500

1,600$34,470

$01,500006,000020,000006,800000,170

000 000$34,470

PROBLEM 3-8A

(a) Correct: 8Incorrect: 1, 2, 3, 4, 5, 6, and 7

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(b)

Error(1)

In Balance(2)

Difference(3)

Larger Column1. No $90 Credit2. Yes Nil N/A3. No $750 Debit4. Yes Nil N/A5. Yes Nil N/A6. No $500 Debit7. Yes Nil N/A

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PROBLEM 3-9A

SAGINAW LTD.

Trial BalanceMay 31, 2004

Debit Credit

Cash ($7,490 + $420)Accounts Receivable ($2,570 $210)Prepaid Insurance ($700 + $100)SuppliesEquipment ($8,000 - $420)

Accumulated AmortizationAccounts Payable ($4,500 - $100 + $420)Common Shares ($5,700 + $700)DividendsRetained EarningsService Revenue ($6,960 - $210)

Salaries ExpenseAdvertising ExpenseAmortization ExpenseInsurance ExpenseIncome Tax Expense ($200 + $100)Totals

$ 7,9102,360

040800420

4207,580

700

4,2001,1001,600

200300

$27,170

$ 3,20004,820

0 6,400

6,000006,750

00 0000$27,170

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PROBLEM 3-10A

(a)

HUDSONS BAY COMPANYTrial BalanceJanuary 31, 2003

(thousands)Debit Credit

Capital stock $1,454,655Cash in stores $ 7,308Credit card receivables 559,151Dividends

Fixed assets

38,912

1,205,333Goodwill 152,294Income tax expense 42,421Interest expense 45,428Long-term debt 388,543Long-term debt due within one year 258,870Long-term receivables 12,105Merchandise inventories 1,551,104Operating expenses 7,184,503Other accounts payable and accrued

expenses

541,599

Other accounts receivables 117,412Other assets 496,702Other long-term liabilities 230,824Other shareholders equity items 199,231Prepaid expenses and other current assets 122,860Retained earnings 668,304Sales and revenue 7,383,813Short-term borrowingsShort-term deposits 51,418

24,744

Trade accounts payable 0000000000 436,368Totals $11,586,951 $11,586,951

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(b) (Continued)

HUDSONS BAY COMPANYBalance Sheet

January 31, 2004(thousands)


Cash in stores $ 7,308Short-term deposits 51,418Credit card receivables 559,151Other accounts receivable 117,412Merchandise inventories 1,551,104Prepaid expenses and other current 122,860

assetsTotal current assets $2,409,253

Long-term receivables 12,105Property, plant and equipment 1,205,333Goodwill 152,294Other assets 496,702Total assets $4,275,687

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PROBLEM 3-1B(a) and (b)

Trans-action

Cash FlowStatement Cash

AccountsReceivabl

e Supplies EquipmentAccountsPayable

CommonShares

RetainedEarnings

1. F +$20,000 +$20,000

2. O - 700 -$700 (a)

3. I - 2,500 +$2,500

4. +$300 -300 (b)

5. O -600 +$600

6. O +1,000 +$8,000 +9,000 (c)

7. F -400 -400 (d)

8. O -300 -300

9. O -1,200 -1,200 (e)

10. O +8,000 -8,000

11. O -2,000 -2,000 (f)

Total $21,300 $0 $600 $2,500 $0 $20,000 $4,400

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PROBLEM 3-1B (Continued)

(a) (Continued)


(a) Rent expense(b) Advertising expense(c) Service revenue(d) Dividends(e) Salaries expense(f ) Income tax expense

(c)

Service revenue $9,000ExpensesSalaries expense $1,200Rent expense 700

Advertising expense 300Income tax expense 2,000 4,200Net earnings $4,800

OR

Increase in retained earnings $4,400Add: Dividends 400Net earnings $4,800

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PROBLEM 3-2B

(a) IVAN IZO, INC.

Cash +AccountsReceivable + Supplies +

OfficeEquipment =

NotesPayable +

AccountsPayable +

CommonShares +

RetainedEarnings

Bal.1.2.3.4.5.

6.7.8.9.

$4,000+2,0002,700+3,000

4002,750

550+2,000 0-1,300$3,300

$2,5002,000+3,400

0000 0$3,900

$500

000 0

$500

$5,000, 00

+2,000

0 0$7,000

+$2,000+

0000 0$2,000

$4,200

2,700+1,600

+300

00$3,400

$6,500

0000 0$6,500

$1,300

+6,400

1,500900350 550300

-1,300$2,800

(a)

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

(f)(g)

$14,700 =$14,700

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(a) Continued)


(a) Service revenue(b) Salaries expense(c) Rent expense(d) Advertising expense

(e) Dividends(f) Utilities expense(g) Income tax expense

(b)IVAN IZO, LLP.

Statement of EarningsMonth Ended August 31, 2004

Revenues

Service revenue $6,400Expenses

Salaries expense 1,500Rent expense 900Utilities expense 300

Advertising expense 350Total expenses 0 3,050

Earnings before income tax 3,350Income tax expense 1,300Net earnings $ 2,050

IVAN IZO, LLP.Statement of Retained EarningsMonth Ended August 31, 2004

Retained earnings, August 1 $1,300Add: Net earnings 0 2,050

3,350Less: Dividends 550Retained earnings, August 31 $2,800

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(b) (Continued)

IVAN IZO, INC.Balance Sheet

August 31, 2004

Assets

Current assetsCash $3,300

Accounts receivable 3,900Supplies 500

Total current assets $ 7,700Office equipment 7,000Total assets $14,700

Liabilities and Shareholders' Equity

LiabilitiesNotes payable $2,000

Accounts payable 3,400Total liabilities $ 5,400

Shareholders' equityCommon shares $6,500Retained earnings 2,800

Total shareholders equity 9,300Total liabilities and shareholders' equity $14,700

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Mar. 25 DividendsCash(Payment of cash dividend)

00

, 500 00,500

30 Salaries ExpenseCash(Paid salaries expense)

0,7000,700

30 Accounts PayableCash(Paid creditor on account)

4,9004,900

31 CashGolf Revenue(Received cash for revenue earned)

0,5000,500

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Apr. 30 Accounts Payable

Cash(Paid Halo Company on account)

600

600

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PROBLEM 3-6B (Continued)(c)

VIRMANI ARCHITECTS INC.Trial Balance

April 30, 2004

Debit Credit

CashAccounts ReceivableSupplies

Accounts PayableUnearned RevenueCommon SharesService RevenueSalaries ExpenseRent ExpenseTotals

$15,400001,100001,500

001,200800

$20,000

$00,900000,500016,000002,600

______$20,000

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PROBLEM 3-7B

(a) and (c)

Cash

Mar. 1 Bal. 16,000Mar. 9 6,500Mar. 20 7,500Mar. 31 600Mar. 31 20,000

Mar. 2 4,000Mar. 10 10,600Mar. 12 800Mar. 20 4,000Mar. 31 3,800

Bal. 27,400

Accounts Receivable

Mar. 31 600

Bal. 600

Land

Mar. 1 Bal. 42,000

Bal. 42,000

Buildings

Mar. 1 Bal. 18,000

Bal. 18,000

Equipment

Mar. 1 Bal. 16,000

Bal. 16,000

Accounts Payable

Mar. 10 10,600 Mar. 1 Bal. 12,000Mar. 2 8,000

Bal. 9,400

Common Shares

Mar. 1 Bal. 80,000

Bal. 80,000

Admission Revenue

Mar. 9 6,500Mar. 20 7,500Mar. 31 20,000

Bal. 34,000

Concession Revenue

Mar. 31 1,200

Bal. 1,200

Advertising Expense

Mar. 12 800

Bal. 800


(a) (Continued)

Film Rental Expense

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Mar. 2 12,000Mar. 20 4,000

Bal. 16,000

Salaries Expense

Mar. 31 3,800

Bal. 3,800

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Mar. 31 CashAccounts Receivable

Concession Revenue (15% X $8,000)(Received cash and balance onaccount for concession revenue)

00,60000,600

01,200


20,00020,000

(d)THE STAR THEATRE, INC.

Trial BalanceMarch 31, 2004

Debit Credit

CashAccounts ReceivableLandBuildingsEquipment

Accounts PayableCommon Shares

Admission RevenueConcession Revenue

Advertising ExpenseFilm Rental ExpenseSalaries ExpenseTotals

$ 27,4000000,6000042,0000018,0000016,000

0000,8000016,000

3,800$124,600

$09,4000080,0000034,0000001,200

0 000000$124,600

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Kimmel, Weygandt, Kieso, Trenholm Financial Accounting, Second CanadianEdition

PROBLEM 3-8B

Error (a) In Balance (b) Difference (c) Larger Column1. No $600 Credit2. Yes Nil N/A3. Yes Nil N/A4. Yes Nil N/A5. No $250 Credit6. Yes Nil N/A7. Yes Nil N/A8. Yes Nil N/A

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PROBLEM 3-9B

WARGO LTD.

Trial BalanceJune 30, 2004

Debit Credit

Cash ($5,652 + $180)Accounts Receivable ($3,230 - $180 + $54)Supplies ($800 - $340)Equipment ($3,000 + $340)

Accumulated amortizationAccounts PayableUnearned RevenueCommon SharesDividends ($800 + $600)Service Revenue ($4,380 + $801)Salaries Expense ($3,400 - $600)Office Expense

Amortization ExpenseIncome Tax ExpenseTotals

$ 5,8323,104

4603,340

1,400

2,80091050

200

$18,096

$ 5002,665

001,200009,000

005,181

______

$18,096

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Problem 3-10B (Continued)

(b)

TAGGAR ENTERPRISES INC.Statement of Earnings

Year Ended June 30, 2004

Sales revenue $2,000Expenses

Cost of goods sold 870Insurance expense 130

Amortization expense 150Interest expense 225

Total expenses 1,375Earnings before income taxes 625Income tax expense 160Net earnings $ 465

TAGGAR ENTERPRISES INC.

Statement of Retained EarningsYear Ended June 30, 2004

Retained earnings, July 1 $0,400Add: Net earnings 0__ 465Retained earnings, June 30 $ 865

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(b) (Continued)

TAGGAR ENTERPRISES INC.Balance SheetJune 30, 2004


Cash $180Accounts receivable 500Inventories 510Prepaid insurance 90

Total current assets $1,280Long-term investment 495Property, plant and equipment

Land $ 800Equipment $1,500Less: accumulated amortization,

equipment 300 1,200Total property, plant and equipment 2,000

Total assets $3,775

Liabilities and Shareholders Equity

Current liabilitiesIncome tax payable $ 160

Long-term liabilitiesNotes payable $1,000Long-term debt 1,200

Total long-term liabilities 2,200Total liabilities 2,360

Shareholders equity

Common shares $550Retained earnings 865

Total shareholders' equity 1,415Total liabilities and shareholders' equity $ 3,775

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BYP 3-1 FINANCIAL REPORTING PROBLEM(a)

Account IncreaseSide DecreaseSide NormalBalance

Accounts payable and accruedliabilities

Accounts receivableDepreciation expenseFixed assetsInterest expenseSales

Credit

DebitDebitDebitDebitCredit

Debit

CreditCreditCreditCreditDebit

Credit

DebitDebitDebitDebitCredit

(b)

1. Cash is decreased.2. Cash is increased.3. Accumulated depreciation is increased.4. Accounts payable is increased.5. Interest payable is increased.6. Accounts receivable is increased.

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BYP 3-2 (Continued)

Note 1Replace retained earnings on the balance sheet with opening retained earnings fromthe statement of retained earnings and include the dividends paidby including the income

statement accounts the net earnings is included.

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BYP 3-3 RESEARCH CASE

(a) NAICS industries are identified by a 6-digit code. The longer code accommodates a larger

number of sectors and allows more flexibility in designating subsectors. It also provides foradditional detail not necessarily appropriate for all three NAICS countries. Theinternational NAICS agreement fixes only the first five digits of the code. The sixth digit,where used, identifies subdivisions of NAICS industries that accommodate user needs inindividual countries. Thus, 6-digit Canadian codes may differ from counterparts in U.S. orMexico, but at the 5-digit level they are standardized. The first two digits identify thesector, the fourth digit identifies the industry group, and the sixth digit identifies specialnational subdivisions of NAICS industries on a country-by-country basis when necessary.

(b) The NAICS industry 517210 is Cellular and Other Wireless Telecommunications. Thisindustry is in:

51 Information and cultural industries sector sector517 Telecommunications subsector5172 Wireless telecommunications carriers

51721 NAICS industry Wireless Telecommunications Carriers(except satellite)

517210 Canadian specific industry Cellular and Other WirelessTelecommunications.

(c) 1. 112. 513. 52

4. 555. 71

(d) Answer will depend on the company chosen. Some answers could include 71112 dancecompanies; 711211 sports teams and clubs; and, 71111 theatre companies and dinnertheatres.

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BYP 3-4 (Continued)

(b)

Account Assets = Liabilities + Shareholders

EquityCash and cash equivalents $ 39,117

Accounts receivables and prepaidexpenses

212,454

Inventories 469,172Property, plant and equipment 724,926Other assets 138,305Bank and other payables $ 388,722

Accounts payable and accruedexpenses

344,836

Dividends payable 4,728

Long-term debt 338,342Share capital $ 460,688Retained earnings 74,919Dividends (4,728)Sales and revenues from services 4,130,154Gain on disposal of assets 17,221Cost of goods sold (3,669,961)Depreciation and amortization (82,958)Operating, general and administrativeexpense

(382,420)

Interest expense (48,408)Other expenses (4,236)Income tax recovery 000000000 000000000 17,075Totals $1,583,974 = $1,076,628 + $ 507,346

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BYP 3-5 A GLOBAL FOCUS

Order

Trial balances in Canada vary in format. Some companies organize them in financialstatement order; others in alphabetical order. The trial balance as presented for Holmen AB isin neither of these formats it is arranged by type of asset, liability and equity. The assets arein order of longevity not currency.

Specific differences

1. Goodwill, leases and similar rights these items are not generally grouped together.2. Short-term placements would be called short-term investments.3. Shares and participations would be called common and preferred shares.4. Restricted and non restricted equity are not terms used in Canada but they are similar in

intent (i.e. limited liability for share capital doesnt allow this amount to be distributed toshareholders).

5. Financial liabilities would be called long-term liabilities (from financing sources).6. Revenues net turnover would be sales.7. Depreciation would be called amortization.

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BYP 3-6 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 alsoupdated whenever necessary, and can be found online in the Instructor Resources section ofour home page (www.wiley.com/canada/kimmel).
http://www.wiley.com/canada/kimmel).%0Dhttp://www.wiley.com/canada/kimmel).%0D

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BYP 3-7 COLLABORATIVE LEARNING ACTIVITY

(a) May 1 Correct.

5 Cash 250Lesson Revenue 250

7 Cash 500Unearned Revenue 500

9 Hay and Feed Supplies 1,700Accounts Payable 1,700

14 Office Equipment 800

Cash 800

15 Dividends 400Cash 400

20 Cash 154Riding Revenue 154

31 Correct.

(b) The error in the entries of May 14 and May 20 would prevent the trial balance frombalancing.

(c)

Net earnings as reported $4,500Add: May 9, Hay and feed expense $1,700

May 15, Salaries expense (Dividendsdeclared and paid) 400 2,100

6,600Less: May 7, Boarding revenue unearned 500Correct net earnings $6,100

(d)

Cash as reported $12,475Add: May 9, Purchase on account $1,700

May 20, Transposition error 91,709

$14,184

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BYP 3-8 COMMUNICATION ACTIVITY

To: Accounting Instructor

From: Accounting Student

Re: Steps in Recording Process

In the first transaction, bills totaling $6,000 were sent to customers for services rendered.Therefore, the asset Accounts Receivable is increased $6,000 and the revenue ServiceRevenue is increased $6,000. Debits increase assets and credits increase revenues, so the

journal entry is:

Accounts Receivable 6,000Service Revenue 6,000(Bill customer for services rendered)

The $6,000 amount is then posted to the debit side of the general ledger account AccountsReceivable and to the credit side of the general ledger account Service Revenue.

In the second transaction, $2,000 was paid in salaries to employees. Therefore, the expenseSalaries Expense is increased $2,000 and the asset Cash is decreased $2,000. Debitsincrease expenses and credits decrease assets, so the journal entry is:

Salaries Expense 2,000Cash 2,000

(Salaries paid)

The $2,000 amount is then posted to the debit side of the general ledger account SalariesExpense and to the credit side of the general ledger account Cash.

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BYP 3-9 ETHICS CASE

(a) The stakeholders in this situation are:

Vu Hung, assistant chief accountant;Users of the company's financial statements such as shareholders and regulators

(b) By adding $1,000 to the Equipment account, the account total is intentionally misstated.By not locating the error causing the imbalance, some other account may also bemisstated by $1,000. If the amount of $1,000 is determined to be immaterial, and the intentis not to commit fraud (cover up an embezzlement or other misappropriation of assets),Vu's action might not be considered unethical in the preparation of interim financialstatements. However, if Vu is violating a company accounting policy by her action, thenshe is acting unethically.

(c) Vu's alternatives are:

1. Miss the deadline but find the error causing the imbalance.

2. Tell her supervisor of the imbalance and suffer the consequences.

3. Do as she did and locate the error later, making the adjustment in the next quarter.

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