Unit 1 Module 5 Chapter Solutions

BRIEF EXERCISE C.6

Dec. 31 Interest Expense1 ............................ 600

Interest Payable........................ 600
1
($20,000 X 12% X 3/12)

June 1 Notes Payable .................................. 20,000

Interest Payable ............................... 600
Interest Expense2 ............................ 1,000
Cash .......................................... 21,600
2
($20,000 x 12% x 5/12)

BRIEF EXERCISE C.7

The formula to calculate the amount of depreciation for the year using
straight-line depreciation is:

(Cost less residual value) divided by useful life X pro-rated period

used in the fiscal year. Note that the monthly salary of the
groundskeeper and the estimated annual fuel cost are irrelevant for
the calculation of depreciation as they are expenses and not
considered part of the asset.

= Cost of mower and accessories - zero X 6

Useful life 12

= $ 9,600 X 6
8 12
= $ 600
BRIEF EXERCISE C.8

(a) Salaries and Wages Payable ................... 2,700

Salaries and Wages Expense .......... 2,700

(b) Salaries and Wages Expense ................. 5,000

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

(c) Salaries and Wages Payable ................... 2,700

Salaries and Wages Expense ................. 2,300
Cash ................................................... 5,000

BRIEF EXERCISE C.9

Beginning inventory $ 76,000

Purchases $486,000
Less: Purchase returns and
allowances $5,800
Purchase discounts 5,000 10,800
Net purchases 475,200
Add: Freight in 16,200
Cost of goods purchased 491,400
Cost of goods available for sale 567,400
Ending inventory 69,500
Cost of goods sold $497,900
BRIEF EXERCISE C.10

Sales Revenue ................................................. 928,900

Interest Income ................................................. 17,500
Income Summary ...................................... 946,400
To close revenue accounts

Income Summary .............................................. 590,300

Cost of Goods Sold................................... 406,200
Operating Expenses ................................. 129,000
Income Tax Expense................................. 55,100
To close expense accounts

Income Summary .............................................. 356,100

Retained Earnings..................................... 356,100
To close Income Summary

Retained Earnings ............................................ 15,900

Dividends ................................................... 15,900
To close Dividends
BRIEF EXERCISE C.11

Service Revenue .............................................. 426,500

Income Summary ...................................... 426,500
To close revenue accounts

Income Summary .............................................. 326,000

Salaries and Wages Expense .................. 219,000
Rent Expense ............................................ 74,000
Utilities Expense ....................................... 33,000
To close expense accounts

Income Summary .............................................. 100,500

Owner’s Capital ......................................... 100,500
To close Income Summary

Owner’s Capital................................................. 65,000

Owner’s Drawings ..................................... 65,000
To close Drawings

EXERCISE C.1

Apr. 2 Cash .................................................. 15,000

Equipment......................................... 10,000
Owner’s Capital ........................ 25,000
To record investment by owner

2 No entry—not a transaction.

3 Supplies ............................................ 1,200

Accounts Payable .................... 1,200

7 Rent Expense ................................... 750

Cash ........................................... 750

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

Service Revenue ....................... 1,500

12 Cash .................................................. 4,200

Unearned Revenue ................... 4,200
 17 Cash ........................................................... 2,900
Service Revenue ............................... 2,900

21 Insurance Expense ................................... 180

Cash ................................................... 180

30 Salaries and Wages Expense ................... 1,920

Cash ................................................... 1,920
Payment of salary to assistant

30 Supplies Expense ..................................... 220

Supplies............................................. 220
To record supplies used

Apr. 30 Equipment.................................................. 4,100

Owner’s Capital ................................ 4,100
To record purchase of computer for
business by owner.
 Mis-Match Inc.
Work Sheet
July 31, 2020

EXERCISE C.2

Adjusted Trial Balance

Trial Balance Adjustments

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

Cash $2,870 $1,320 $2,125 $2,065

Accounts Receivable 3,231 3,890 1,320 5,801
Office Supplies 800 400 725 475
Equipment 3,800 500 4,300
Accounts Payable $2,666 2,125 400 500 1,160 $2,601
Salaries and Wages Payable 670 670
Dividends Payable 575 575
Unearned Revenue 1,200 825 375
Common Shares 6,000 6,000
Retained Earnings 2,795 2,795
Dividends 575 575
Service Revenue 2,380 825 3,890 7,095
Salaries and Wages Expense 3,400 670 4,070
Office Expense 940 1,160 2,100
Office Supplies Expense 725 725
Totals $15,041 $ 15,041 $12,190 $12,190 $20,111 $20,111
EXERCISE C.7

a. 1. Insurance Expense ($3,500 x 3/4) ........... 2,625

Prepaid Insurance ............................. 2,625
(To allocate prepaid insurance, 3 months
expired, 1 remains prepaid at 8/31)

2. Supplies Expense ($1,800 – $650) .......... 1,150

Supplies .............................................. 1,150

3. Depreciation Expense1 ............................ 1,278

Accumulated Depreciation—
Buildings ....................................... 1,278
1
($142,000 – $14,200 = $127,800;
$127,800 / 25 = $5,112 per
year; $5,112 x 3/12 = $1,278)
To record depreciation on buildings
Depreciation Expense2 ........................... 360
Accumulated Depreciation—
Equipment ..................................... 360
2
($16,000 – $1,600 = $14,400;
$14,400 / 10 = $1,440;
$1,440 x 3/12 = $360)
To record depreciation on equipment

Rent Revenue ............................................ 8,000

Unearned Rent Revenue ................... 8,000
To adjust for rent revenue received

Unearned Rent Revenue .......................... 2,300

Rent Revenue ..................................... 2,300
To accrue rent revenue

Salaries and Wages Expense .................. 375

Salaries and Wages Payable ............ 375

Accounts Receivable ................................................ 800

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

7. Interest Expense3 ...................................................... 1,540

Interest Payable ............................................... 1,540
3
[($77,000 x 8%) x 3/12]

b.
HANNA RESORT LIMITED
Adjusted Trial Balance
August 31, 2020

Debit Credit
Cash $ 6,700
Accounts Receivable 800
Prepaid Insurance ($3,500 – $2,625) 875
Supplies ($1,800 – $1,150) 650
Land 20,000
Buildings 142,000
Accumulated Depreciation—Buildings
($20,448 + $1,278) $ 21,726
Equipment 16,000
Accumulated Depreciation—Equipment
($4,320 + $360) 4,680
Accounts Payable 4,800
Unearned Rent Revenue ($4,600 + $8,000 – $2,300) 10,300
Salaries and Wages Payable 375
Interest Payable 1,540
Notes Payable 77,000
Common Shares 81,000
Retained Earnings 4,680
Dividends 5,000
Rent Revenue ($68,002 - $8,000 + $2,300 + $800) 63,102
Salaries and Wages Expense ($43,200 + $375) 43,575
Utilities Expense 7,720
Insurance Expense ($12,250 + $2,625) 14,875
Repairs and Maintenance Expense 3,600
Supplies Expense 1,150
Depreciation Expense ($1,278 + $360) 1,638
Interest Expense ($3,080 + $1,540) 4,620 ________
$269,203 $269,203
EXERCISE C.9

a. Dec. 31 Service Revenue.................................. 110,000

Income Summary ........................ 110,000
To close revenue account

31 Income Summary ................................ 12,800

Interest Expense ......................... 12,800
To close expense account

b. Jan. 1 Service Revenue.................................. 9,700

Accounts Receivable.................. 9,700
To reverse revenue accrual

1 Interest Payable ................................... 6,400

Interest Expense ......................... 6,400
To reverse interest expense accrual

c. & e.
Accounts Receivable
Dec. 31 Balance 9,700 Jan. 1 Reversing 9,700

Service Revenue
Dec. 31 Closing 110,000 Dec. 31 Balance 110,000
Jan. 1 Reversing 9,700 Jan. 10 9,700

Interest Payable
Jan. 1 Reversing 6,400 Dec. 31 Balance 6,400

Interest Expense
Dec. 31 Balance 12,800 Dec. 31 Closing 12,800
Jan. 15 6,400 Jan. 1 Reversing 6,400

d. (1) Jan. 10 Cash ............................................... 9,700

Service Revenue................... 9,700

(2) Jan. 15 Interest Expense ........................... 6,400

Cash ...................................... 6,400
 EXERCISE C.14
AIRBOURNE TRAVEL INC.
Work Sheet
For the Month Ended March 31, 2020
Account Titles Trial Balance Adjustments Adj. Trial Balance Income Stat. SFP
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 1,800 1,800 1,800
Accounts Receivable 2,600 2,600 2,600
Supplies 600 (a) 80 520 520
Equipment 6,000 6,000 6,000
Accumulated Depr. -
Equipment 400 (b) 100 500 500
Accounts Payable 1,100 1,100 1,100
Unearned Revenue 500 (c) 400 100 100
Common Shares 6,400 6,400 6,400
Retained Earnings 600 600 600
Sales Revenue 2,600 (c) 400 3,000 3,000
Salaries and Wages Expense 500 (d) 850 1,350 1,350
Miscellaneous Exp. 100 100 100
Totals 11,600 11,600
Supplies Expense (a) 80 80 80
Depreciation Expense (b) 100 100 100
Salaries and Wages Payable (d) 850 850 850
Totals 1,430 1,430 12,550 12,550 1,630 3,000 10,920 9,550
Net Income 1,370 1,370
Totals 3,000 3,000 10,920 10,920
Key: (a) Record supplies expense (c) Record ticket revenue earned
(b) Record depreciation expense (d) Accrue salaries
 PROBLEM C.2

a. Dec. 31 Accounts Receivable .......................... 3,500

Service Revenue ........................ 3,500
To accrue revenue earned

31 Unearned Revenue ............................ 1,400

Service Revenue ........................ 1,400
To record revenue previously collected

31 Supplies Expense .............................. 5,400

Supplies ...................................... 5,400
To adjust for supplies used

31 Depreciation Expense ........................ 5,000

Accumulated Depreciation—
Equipment ................................ 5,000
To record depreciation expense

31 Interest Expense ................................ 150

Interest Payable .......................... 150
To accrue interest expense

31 Insurance Expense ............................ 850

Prepaid Insurance ....................... 850
To record expired insurance

31 Salaries and Wages Expense ............ 1,300

Salaries and Wages Payable ..... 1,300
To accrue salaries owing to employees

b. MASON ADVERTISING AGENCY INC.

Income Statement
For the Year Ended December 31, 2020
Revenues
Service revenue .......................... $63,500
Expenses
Salaries and wages expense ...... $11,300
Insurance expense ...................... 850
Interest expense .......................... 500
 Depreciation expense ................. 5,000
Supplies expense ........................ 5,400
Rent expense .............................. 4,000
Total expenses ...................... 27,050
Net income ........................................ $36,450

MASON ADVERTISING AGENCY INC.

Statement of Retained Earnings
For the Year Ended December 31, 2020
Retained earnings, January 1 ........................ $ 3,500
Add: Net income ............................................ 36,450
Retained earnings, December 31 .................. $39,950

b. (continued)
MASON ADVERTISING AGENCY INC.
Statement of Financial Position
December 31, 2020
Assets
Cash ........................................................... $11,000
Accounts receivable ................................... 23,500
Supplies ..................................................... 3,000
Prepaid insurance ...................................... 2,500
Equipment .................................................. $60,000
Less: Accumulated depreciation—
equipment .................................................. 33,000 27,000
Total assets......................................... $67,000

Liabilities and Shareholders’ Equity

Liabilities
Notes payable ............................................ $ 5,000
Accounts payable ....................................... 5,000
Unearned revenue ..................................... 5,600
Salaries and wages payable ...................... 1,300
Interest payable ......................................... 150
Total liabilities ....................................... $17,050
Shareholders’ equity
 Common shares ......................................... $10,000
Retained earnings ...................................... 39,950 49,950
Total liabilities and shareholders’ equity $67,000

c. 1. Interest expense for three months was $150 the Note payable
balance is $5,000. Therefore, interest per month is 1% ($50 ÷
$5,000). 1% X 12 = 12% interest per year.
2. Salaries and Wages Expense, $11,300 less Salaries and Wages
Payable 12/31/20 $1,300 = $10,000. Total Payments, $12,500 –
$10,000 = $2,500 Salaries and Wages Payable 12/31/19.
PROBLEM C.6

a. -1-
Service Revenue............................................... 6,900
Unearned Revenue ................................... 6,900

-2-
Accounts Receivable ........................................ 7,300
Service Revenue ....................................... 7,300

-3-
Bad Debt Expense ............................................ 6,300
Allowance for Doubtful Accounts .............. 6,300

-4-
Prepaid Insurance ............................................. 6,000
Insurance Expense .................................... 6,000

-5-
1
Depreciation Expense ...................................... 7,000
Accumulated Depreciation —Equipment ... 7,000
1
($85,000-15,000)/10
-6-
2
Interest Expense ............................................... 71
Interest Payable ......................................... 71
2
($7,200 X 12% X 30/365)

-7-
Prepaid Rent ...................................................... 750
 Rent Expense ............................................. 750

-8-
Salaries and Wages Expense ........................ 2,598
Salaries and Wages Payable .................. 2,598

-9-
Dividends ........................................................ 80,000
Dividends Payable .................................. 80,000
PROBLEM C.6 (CONTINUED)

b. MUSTANG ROVERS CONSULTING LIMITED

Adjusted Trial Balance
December 31, 2020

Dr. Cr.
Cash ............................................................ $83,700
Accounts receivable .................................... 88,400
Allowance for doubtful accounts ................. $7,050
Supplies ...................................................... 1,960
Prepaid insurance ....................................... 6,000
Prepaid rent ................................................ 750
Equipment .................................................. 85,000
Accumulated depreciation—equipment 13,250
Unearned revenue ..................................... 6,900
Interest payable .......................................... 71
Salaries and wages payable ....................... 2,598
Dividends payable ...................................... 80,000
Notes payable ............................................ 7,200
Common shares.......................................... 35,010
Retained earnings ....................................... 161,100
Dividends .................................................... 80,000
Service revenue .......................................... 100,400
Salaries and wages expense ...................... 31,098
Utilities expense .......................................... 1,080
Rent expense .............................................. 9,000
Insurance expense ..................................... 12,500
Bad debt expense ....................................... 6,300
Depreciation expense ................................. 7,000
Miscellaneous expense .............................. 720
Interest expense ......................................... 71 _______
$413,579 $413,579
c. MUSTANG ROVERS CONSULTING LIMITED
Income Statement
For the Year Ended December 31, 2020

Service Revenue ............................................. $100,400

Expenses:
Salaries and wages expense................. $31,098
Utilities expense ..................................... 1,080
Rent expense ......................................... 9,000
Insurance expense ................................ 12,500
Bad debt expense .................................. 6,300
Depreciation expense ............................ 7,000
Miscellaneous expense ......................... 720
Interest expense .................................... 71
Total expenses .............................. 67,769
Net income $32,631
c. (continued)

MUSTANG ROVERS CONSULTING LIMITED

Statement of Financial Position
December 31, 2020

Assets
Current assets
Cash $83,700

Accounts receivable ............................ $88,400

Less: Allowance for
doubtful accounts .................. (7,050) 81,350
Supplies .............................................. 1,960
Prepaid insurance ............................... 6,000
Prepaid rent ......................................... 750
Total current assets ...................... 173,760
Equipment ........................................... 85,000
Less: Accumulated depreciation ........... (13,250) 71,750
Total assets $245,510

Liabilities and Shareholders’ Equity

Current liabilities
 Unearned revenue ............................. $ 6,900
Interest payable ................................. 71
Salaries and wages payable .............. 2,598
Dividends payable .............................. 80,000
Notes payable .................................... 7,200
Total liabilities ............................... 96,769
Shareholders’ equity
Common shares ...................................... 35,010
Retained earnings ................................... 113,731
Total liabilities and shareholders’ equity $245,510

c. (continued)

MUSTANG ROVERS CONSULTING LIMITED

Statement of Retained Earnings
For the Year Ended December 31, 2020

Retained Earnings, January 1 $161,100

Add: Net income 32,631
193,731
Less: Dividends 80,000
Retained Earnings, December 31 $113,731

d. The major differences in the financial statements of the proprietorship

and a corporation have to do with the equity accounts. In the case of
corporations, there is a minimum of two shareholders’ equity accounts
for the statement of financial position: Common Shares and Retained
Earnings. In the case of a proprietorship the equity of the business
would be in a single account using the owner’s name followed by the
word Capital.
Another significant difference has to do with income taxes.
Proprietorships do not have income tax expense. The income of the
business is taxed in the hands of the owner, the proprietor.
Corporations distribute earnings to the shareholders in the form of
dividends. Owners of a proprietorship reduce their investment in the
business with Drawings. The account name would be the name of the
owner, followed the word Drawings.
Instead of presenting a statement of retained earnings, the
corresponding statement in a proprietorship would be titled Statement
of Owner’s Equity.