Contents

Part 1 - Accounting in Business.....................................................................................................................3

Question 1.1 Classifying accounts.........................................................................................................3
Question 1.2.1 Introduction to income statements.................................................................................4
Question 1.2.2 Introduction to statements of changes in equity............................................................5
Question 1.2.3 Introduction to balance sheets.......................................................................................6
Question 1.3 Analyzing transactions and preparing financial statements.............................................7
Part 2 – Analyzing and Recording Transactions............................................................................................9
Question 2.1 Analyzing transactions.....................................................................................................9
Question 2.2 Analyzing and journalizing revenue transactions...........................................................11
Question 2.3 Analyzing and journalizing expense transactions..........................................................12
Question 2.4.1 Preparing and posting journal entries; preparing a trial balance.................................13
Question 2.4.2 Preparing financial statements from a trial balance....................................................16
Part 3 – Adjusting Accounts for Financial Statements................................................................................17
Question 3.1 Preparing adjusting entries (annual)—prepaid expense.................................................17
Question 3.2 Preparing adjusting entries (annual)—unearned revenue...............................................18
Question 3.3 Preparing adjusting entries (annual)—accrued expenses and revenue...........................19
Question 3.4 Adjusting entries (annual)..............................................................................................20
Question 3.5 Adjusting entries (annual) from unadjusted trial balance...............................................22
Part 4 – Completing the Accounting Cycle and Classifying Accounts.......................................................25
Question 4.1 Closing entries................................................................................................................25
Question 4.2 Adjusting entries and closing entries..............................................................................27
Question 4.3 Preparing a Classified Balance Sheet.............................................................................31
Question 4.4 Preparing closing entries and the post-closing trial balance..........................................33
Part 5 – Accounting for Merchandising Activities......................................................................................35
Question 5.1 Calculating expenses and income...................................................................................35
Question 5.2 Recording journal entries for merchandise transactions—periodic...............................36
Question 5.3 Income statement - periodic inventory system...............................................................37
Question 5.4 Recording journal entries for merchandise transactions—perpetual..............................39
Question 5.5 Income Statements—Perpetual......................................................................................41
Part 6 – Inventory Costing and Valuation....................................................................................................44
Question 6.1 Alternative Cost Flow Assumptions - Perpetual Inventory System...............................44
Question 6.2 Alternative Cost Flow Assumptions - Perpetual Inventory System...............................47
Question 6.3 Lower of Cost and Net Realizable Value.......................................................................50
Question 6.4 Lower of Cost and Net Realizable Value.......................................................................52
Part 7 – Internal Control and Cash...............................................................................................................54

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Question 7.1 Preparation of Bank Reconciliation and Recording Adjustments..................................54
Question 7.2 Preparation of Bank Reconciliation and Recording Adjustments..................................58
Part 8 - Receivables.....................................................................................................................................62
Question 8.1 Balance Sheet Presentation.............................................................................................62
Question 8.2 Estimating bad debt expense—Aging analysis..............................................................63
Question 8.3 Estimating bad debt expense—percentage of sales........................................................64
Question 8.4 Estimating bad debt expense—percentage of receivables..............................................66
Question 8.5 Estimating bad debt expense—Direct write-off method................................................68

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Part 1 - Accounting in Business

Question 1.1 Classifying accounts

Below is a list of accounts that you may find in a chart of accounts for a business. Organize the accounts
by categorizing all of the following accounts into a table with the headings from a balance sheet, income
statement, and statement of changes in equity. Some accounts may be used more than once.
Accounts Payable Accounts Receivable Advertising Expense Insurance Expense
Owner's Capital, Interest Payable Rent Revenue Interest Expense
Ending balance
Withdrawals Owner's Capital, Prepaid Rent Vehicle Expenses
Beginning balance
Bank Loan Payable Salaries Expense Service Revenue Land
Unearned Revenue Cash Telephone Expense Investment by Owner
Supplies Wages Expense Cost of Goods Sold Rent Expense
Merchandise Utilities Expense Vehicles Salaries Payable
Inventory
Building Prepaid Subscription Equipment Supplies Expense

Income Statement Statement of

Balance Sheet Changes in
Equity
Assets Liabilities Owner’s Revenues Expenses
Equity

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 1.2.1 Introduction to income statements
On April 1 Andrew Comerford decided to turn his passion for photography into a business, Picture
Perfect Ltd.. On April 30 the company’s general ledger showed the following balances. Use this
information to prepare an April income statement for the business.

Cash $11,000 Photoshoot Revenue $17,000

Supplies 14,000 Rent Expense 1,800

Equipment 12,000 Supplies Expense 2,600

Accounts Payable 5,500 Utilities Expense 950

Notes Payable 11,900 Advertising Expense 1,200

Owners Investment 9,500 Interest Expense 350

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 1.2.2 Introduction to statements of changes in equity
Use the information from question 1.2.1 to prepare an April statement of changes in equity for Perfect
Picture Ltd..

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 1.2.3 Introduction to balance sheets
Use the information from question 1.2.1 and question 1.2.2 to prepare an April 30 balance sheet for
Picture Perfect Ltd.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 1.3 Analyzing transactions and preparing financial statements
Emilija Hilton started a new architecture firm called Genuine Drawings. The following activities occurred
during its first month of operations, July:
July 1 Hilton invested $40,000 cash and office equipment valued at $10,000 in the business.
July 3 Signed a lease for a small building to pay $1,500 to be used as an office. Prepaid the first six
months of rent.
July 3 Took a small business loan out for $10,000 from the local credit union.
July 4 Purchased $2,500 of office supplies with cash.
July 5 Purchased a $4,600 drafting table on credit.
July 8 Hilton committed to a recruitment agency to help find an associate architect in the following year,
the deposit is due in November.
July 16 Completed a project on credit and billed the client $4,800 for the work.
July 18 Advertised the new business on the radio for $850.
July 20 Completed a project for a client and collected $6,000 cash.
July 22 Made a $3,500 payment on the drafting table from July 5.
July 25 Received $2,200 from the customer from July 16.
July 27 Paid $650 cash for the utilities bill.
July 29 Hilton withdrew $5,600 cash from the company bank account to pay personal living expenses.
T-Charts:

Cash

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Prepare an income statement, a statement of changes in equity, and a balance sheet

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Part 2 – Analyzing and Recording Transactions
Question 2.1 Analyzing transactions
Glenn Mcfarlane is a personal injury lawyer and owns the business Clumsy Payday Law, or CP Law for
short. This is his first month of operations and he has the following transactions which must be recorded.
For each transaction, determine the accounts used, categorize the account, show if the balance of the
accounts is increasing or decreasing using arrows, and assign debit or credit to each account. Afterwards,
enter all of the transactions into the general journal.
On May 1, Glenn Mcfarlane invested $23,900 cash into his business.

On May 3, Mcfarlane purchased $720 of office supplies for cash.

On May 6, Mcfarlane purchased $15,600 of office equipment on credit.

On May 11, Mcfarlane received $5,200 cash as revenue for a unsalted sidewalk settlement for his client.

On May 13, Mcfarlane paid for half of the office equipment purchased on May 6.

On May 17, Mcfarlane sent a bill to a client for an initial consult of $800.

On May 21, Mcfarlane paid June rent for his office with $1,700 cash.

On May 26, Mcfarlane collected cash for all of the account receivable created on May 17.

On May 29, Mcfarlane withdrew $3,000 cash from the business to give to his daughter for college.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 2.2 Analyzing and journalizing revenue transactions
Examine the following transactions and identify those that created revenues for RJ Equipment repairs, a
sole proprietorship owned by Rod James. Prepare general journal entries to record the revenue
transactions. Explain why the other transactions did not create revenues.
December 8 Invested $56,500 cash in the business.

December 12 Provided $3,700 of services on credit.

December 15 Received $4,200 cash for services provided to a client.

December 17 Received $11,300 from a client in payment for services to be provided next year.

December 24 Received $1,000 from a client in partial payment of an account receivable.

December 29 Borrowed $80,000 from the bank as a business loan.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 2.3 Analyzing and journalizing expense transactions
Examine the following transactions and identify those that were expenses for Extreme Fitness, a local
fitness studio owned by Juan Rodrigo. Prepare journal entries to record the expense transactions and
explain why the other transactions did not create expenses.
January 4 Purchased office supplies on credit for $1,870.

January 7 Paid the $1,125 salary of the front desk clerk.

January 10 Paid $2,100 to the bank for the principle of the business loan owing.

January 13 Paid utility bill with $630 cash.

January 20 Withdrew $4,000 from the business account for personal use.

January 27 Received the January telephone bill for $120 due next month.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 2.4.1 Preparing and posting journal entries; preparing a trial balance
Gerard Churchill has decided to use his exceptional accounting skills along with his natural ability to sell.
Churchill opened up Future Savings Financial Services and had the following transactions in the first
month. Prepare journal entries to record the transactions. Use the T-accounts to maintain balances.
Prepare a Trial Balance at December 31.

December 1 Invested $36,500 cash and $33,000 of office equipment in the business.
December 1 Signed a lease on a new office and prepaid the first three months of rent for $12,900.
December 2 Purchased $4,200 worth of office supplies on credit.
December 6 Completed a weekend workshop for a local training company and was paid $7,500 cash.
December 9 Provided advice to a wealthy family and billed them for $11,200.
December 10 Paid half of the account payable from the December 2 bill.
December 12 Purchased a $7,200 annual premium for business insurance.
December 18 Paid salaries of staff for $7,800.
December 23 Withdrew $2,400 cash for Christmas gifts.
December 30 Paid $800 for this month’s utilities bill.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Cash

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
Question 2.4.2 Preparing financial statements from a trial balance
Using the trial balance prepared for Future Savings Financial Services in Question 2.4.1, prepare an
income statement and statement of changes in equity for the month ended December 31, and a balance
sheet at December 31.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Part 3 – Adjusting Accounts for Financial Statements
Question 3.1 Preparing adjusting entries (annual)—prepaid expense
Dr. Erica Chan, MD owns EC Health Clinic. She prepares annual financial statements and has a
December 31 year-end.
 On October 1 Dr. Chan prepaid $8,000 for four months of rent.
 On November 1 Dr. Chan prepaid $480 to renew the clinic's magazine subscriptions. The
subscription is for one year.
 On December 1 Dr. Chan pays $3,000 for supplies. At the end of the year, $2,000 of supplies had
not been used.
Required For each transaction, record the initial journal entry and the adjusting entry required on
December 31.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 3.2 Preparing adjusting entries (annual)—unearned revenue
Dynamic Music is a centre that offers piano and clarinet lessons. Dynamic Music prepares annual
financial statements and has a December 31 year-end.
a. On September 1, Dynamic Music collects $12,000 cash for piano lessons running from
September 1 to December 31.
b. On October 1 Dynamic Music collects $8,000 cash for four months of clarinet lessons. The
lessons run from October 1 to January 31 the following year.
c. On October 1 Dynamic Music collects $12,000 cash for four months of clarinet lessons. The
lessons run from October 1 to January 31 the following year.
For each transaction, record the initial journal entry and the adjusting entry required on December 31.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 3.3 Preparing adjusting entries (annual)—accrued expenses and revenue
Go Go Go Karts is a centre that offers indoor Go Karting for groups. Go Go Go Karts prepares annual
financial statements and has a December 31 year-end.
a. On June 1 Go Go Go Karts took out a five-year, $150,000 bank loan with an interest rate of 3%.
Interest expense is paid on the first day of each month.
b. On July 1 Go Go Go Karts issued a two-year, $40,000 Note Receivable with an interest rate of
10%. Interest income will be collected on January 1 and July 1 of each year.
c. On December 15 Go Go Go Karts took a high school class for $2,000. The student club was
invoiced on December 31st and pays Go Go Go Karts on January 15 the following year.
Record the adjusting journal entries at December 31.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 3.4 Adjusting entries (annual)
On January 1, Tonisha Graham started a business of recording voice overs for commercials online.
Tonisha charges $30 an hour for voice over work. The following are her transactions for the year.
a. On January 1, Tonisha purchased a computer $1,800 cash. The computer has to be upgraded in
two years to stay up to date with the competitors, after which it will be donated to the local
library.
b. On March 1, Tonisha paid $600 cash for one-year of insurance coverage.
c. On July 1, Tonisha purchased supplies from the local office supplies store for $380 cash. At the
end of the year, $170 was left.
d. On November 1, a client paid cash for six hours of voice over work per month for three months
beginning immediately.
e. Tonisha completed voice over work on a cartoon for six hours on December 29 and sent the bill
which was paid a month later.
f. At the end of December Tonisha received her December business cell phone bill for $95. The bill
is due January 25.
Assume Tonisha Graham uses Straight Line Method to depreciate assets.
Journalize the transactions at the initial time of the transaction and then the adjusting entries on December
31.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
Question 3.5 Adjusting entries (annual) from unadjusted trial balance
Elliot & Freeman Management Consulting is just finishing its third year of operations. The company's
unadjusted trial balance at October 31 follows:

Elliot & Freeman Management Consulting

Unadjusted Trial Balance
October 31

Accounts
Debit Credit
$
Cash
31,000
Accounts receivable
56,000
Interest receivable -
Notes receivable
40,000
Supplies
7,000
1,60
Prepaid insurance
0
Prepaid rent
27,000
Office furniture
96,000
Accumulated depreciation, office
28,000
furniture
Accounts payable 13,000
Wages payable -
Unearned consulting revenue 13,000
Freeman, capital 250,000
Freeman, withdrawals
34,000
Consulting revenue 229,780
Interest Income 2,620
Depreciation expense, office furniture -
Wages expense
190,600
Insurance expense -
Rent expense
44,000
Supplies expense
9,200
Totals 536,400

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 536,400

Elliot & Freeman Management Consulting prepares adjustments each October 31. The following
additional information is available on October 31.
a. After a report from the management consultants, it was determined that $8,000 of the unearned
revenues had not been realized.
b. The report also determined that $10,000 of the revenue that was already expected to be completed
and journalized had been postponed and won’t be completed until November.
d. Accrued wages at October 31 totalled $7,200.
e. A count of the supplies on October 31 revealed a balance remaining of $1,620.
f. The office furniture was purchased on March 1 of this year and has an estimated useful life of
two years. After two years of use, it is expected that the furniture will be worthless.
g. Interest of $115 had accrued on the note receivable for the month of October.
h. The balance in the Prepaid Insurance account represents the balance of a two-year policy
purchased on March 1 of this year.
i. The balance in the Prepaid Rent account represents three months of rent beginning August 1.
Elliot & Freeman Management Consulting uses Straight Line Method to depreciate assets.
Prepare the annual adjusting journal entries for October 31 based on the above.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
Part 4 – Completing the Accounting Cycle and Classifying Accounts
Question 4.1 Closing entries
Prepare the closing entries for Elliot & Freeman Management Consulting using the adjusted trial balance,
with accounts in alphabetical order, as at December 31.

Elliot & Freeman Management Consulting

Trial Balance
December 31

Accounts
Debit Credit
Accounts payable $ 13,000
Accounts receivable $ 56,000
Accumulated depreciation, office furniture 40,000
Cash 31,000
Consulting revenue 229,880
Depreciation expense, office furniture 12,000
Freeman, capital 250,000
Freeman, withdrawals 24,000
Insurance expense 1,200
Interest Income 2,820
Interest receivable 200
Notes receivable 40,000
Office furniture 96,000
Prepaid insurance 500
Prepaid rent 27,000
Rent expense 44,000
Supplies 7,000
Supplies expense 9,200
Unearned consulting revenue 3,000
Wages expense 191,800
Wages payable 1,200
Totals $ 539,900 $ 539,900

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 4.2 Adjusting entries and closing entries
Jared Wilson opened up a fire suppression firm that services restaurants and camps for their fire safety
equipment called Wilson Fire Safety. He also provides training for groups for companies to enhance
safety on the worksite. The unadjusted trial balance is as follows:

Wilson Fire Safety

Trial Balance
December 31

Accounts
Debit Credit
Accounts payable and Accrued Liabilities $ 4,300
Accounts receivable $ 7,200
Accumulated depreciation, office furniture 5,900
Cash 11,200
Depreciation expense, office furniture -
Insurance expense 1,050
Interest expense 200
Jared Wilson, capital 33,200
Jared Wilson, withdrawals 12,000
Notes receivable 1,000
Office furniture 22,000
Patent 6,500
Rent expense 7,500
Revenue 64,500
Supplies 7,000
Supplies expense 9,200
Telephone expense 2,750
Unearned revenue 10,100
Wages expense 31,600
Wages payable 1,200
Totals $ 119,200 $ 119,200

The following adjustments need to be made before the closing entries can be made.
a. On December 28, Wilson Fire Safety provided training to a camp services company. An invoice
had not been sent yet to the business for $3,000.

b. On December 31, Wilson Fire Safety received the telephone bill for the month of December for
$250, due in January.

c. The office furniture has an estimated useful life of 20 years with no salvage value. Straight line
depreciation is used.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 d. On December 31, Wilson Fire Safety completed the two-month online training for people across
the province. All of the entries had been prepaid in October for a total of $7,600.

Prepare the missing adjusting entries for transactions. Prepare an adjusted trial balance. Based on your
new adjusted trial balance, prepare the closing entries.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Wilson Fire Safety
Trial Balance
December 31

Accounts
Debit Credit
Accounts payable and Accrued Liabilities
Accounts receivable
Accumulated depreciation, office furniture
Cash
Depreciation expense, office furniture
Insurance expense
Interest expense
Jared Wilson, capital
Jared Wilson, withdrawals
Notes receivable
Office furniture
Patent
Rent expense
Revenue
Supplies
Supplies expense
Telephone expense
Unearned revenue
Wages expense
Wages payable
Totals

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 4.3 Preparing a Classified Balance Sheet
Use the following adjusted trial balance of Rosario Moving Company to prepare a classified balance
sheet as of December 31.

Rosario Moving Company

Trial Balance
December 31

Accounts
Debit Credit
Cash $ 14,500
Accounts receivable 31,500
Office Supplies 4,460
Trucks 170,000
Accumulated Depreciation, trucks $ 46,000
Land 289,000
Accounts Payable 28,500
Interest Payable 350
Long-term notes payable (due in 6 years) 140,000
Halima Rosario, capital 244,110
Halima Rosario, Withdrawals 22,000
Moving Revenue 168,000
Depreciation Expense, trucks 22,500
Salaries Expense 59,800
Office supplies Expense 5,300
Repairs expense, trucks 7,900
Totals $ 626,960 626,960

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
Question 4.4 Preparing closing entries and the post-closing trial balance
The adjusted trial balance at December 31 for Anya and Co. follows.

Anya and Co
Trial Balance
December 31

Accounts
Debit Credit
Cash $4,500
Accounts receivable 12,000
Equipment 34,000
Accumulated depreciation, equipment 8,000
Patent 19,000
Notes Receivable 45,000
Accounts Payable 5,500
Salary Payable 2,400
Unearned Revenue 3,500
Aya Sheridan, capital 76,560
Aya Sheridan, withdrawals 4,400
Electrical revenue 50,200
Depreciation expense, equipment 4,000
Salaries expense 18,640
Rent expense 2,500
Insurance expense 640
Utilities expense 1,480
Income Summary
Totals $ 146,160 146,160

Prepare the four closing entries and prepare a post-closing trial balance.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Adjusted
Trial Balance
Account Title Dr. Cr.

Part 5 – Accounting for Merchandising Activities

Question 5.1 Calculating expenses and income

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Determine each of the missing numbers in the following situations:

Company A Company B Company C

Purchases $94,000 $157,000 $122,000

Purchase discounts (5,000) (3,600)

Purchase returns and allowances (6,500) (4,400)

Transportation-in 4,400 16,000 17,000

Cost of goods purchased $89,400 $156,000 $129,000

Beginning inventory $ 6,000 $ 35,000

Cost of goods purchased 89,400 154,000

Ending inventory (5,400) (29,000)

Cost of goods sold $166,400 $136,520

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 5.2 Recording journal entries for merchandise transactions—periodic
Journalize the following merchandising transactions for Silva Parts and Service assuming a periodic
system:
February 1 Silva Parts and Service purchase merchandise for $3,700 on credit with terms 2/10, n/30.
February 3 Silva Parts and Service pays for previous purchase
February 8 Silva Parts and Service receives payment for returned defective merchandise of $750 that
was purchased on February 1.
February 11 Silva Parts and Service pays $300 for freight to its store.
February 15 Silva Parts and Service sells merchandise on account for $6,500. The cost of the
merchandise was $4,200.
February 19 A customer returns merchandise from the February 15 transaction. The return item sold
for $1,150 and cost $640. The item will be returned to inventory.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 5.3 Income statement - periodic inventory system
The following amounts appeared on the Anya and Co's adjusted trial balance as of December 31, the end
of its fiscal year:

Anya and Co
Trial Balance
December 31

Accounts
Debit Credit
Merchandise Inventory $1,400
Other Assets 40,000
Liabilities $36,340
Rental Income 150
Sales 96,400
Sales Returns and Allowances 7,500
Sales Discounts 1,125
Purchases 43,500
Purchase Returns and Allowances 2,150
Purchase Discounts 900
Anya Surano, Withdrawals 3,200
Anya Surano, Capital 37,375
Transportation-in 5,050
Salaries Expense - Sales Staff 17,800
Salaries Expense - Office Staff 22,000
Rent Expense - Show room 9,200
Rent Expense - Office 7,600
Advertising Expense 9,000
Office Supplies Expense 2,940
Totals $ 170,315 $ 173,315

A physical count shows that the cost of the ending inventory is $11,200.

Present a multiple-step income statement and a condensed single-step income statement.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
Question 5.4 Recording journal entries for merchandise transactions—perpetual
Journalize the following merchandising transactions for McKinney Campgear assuming a perpetual
system:

September 1 McKinney Campgear purchase merchandise from Villa Steel for $3,700 on credit with
terms 2/15, n/30. FOB shipping point.
September 3 McKinney Campgear pays $300 for freight to its store.
September 8 McKinney Campgear returns unacceptable merchandise to Villa Steel with an invoice
price of $500.
September 11 McKinney Campgear pays for previous purchase from Villa Steel.
September 15 McKinney Campgear purchase merchandise from Quality Polyester for $8,700 on credit
with terms 2/10, n/30. FOB shipping point.
September 18 McKinney Campgear received a $2,100 allowance on the purchase from September 15.
September 19 McKinney Campgear sold merchandise for $8,700 cash to Trinity Camps with a cost of
$3,900.
September 27 McKinney Campgear paid Quality Polyster the remaining balance.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 5.5 Income Statements—Perpetual
The following adjusted trial balance for Mullins Inc.was prepared at the end of the fiscal year, December
31:

Mullins Inc.
Trial Balance
December 31

Accounts
Debit Credit
Merchandise Inventory $1,400
Other Assets 45,000
Liabilities $ 36,340
Interest Expense 150
Sales 96,400
Sales Returns and Allowances 7,500
Sales Discounts 1,125
Cost of Goods Sold 43,500
Moshin Mullins, Withdrawals 3,200
Moshin Mullins, Capital 61,525
Salaries Expense - Sales Staff 17,800
Salaries Expense - Office Staff 22,000
Insurance Expense - Show Room 1,400
Insurance Expense - Office 1,650
Depreciation Expense - Show Room 8,500
Depreciation Expense - Office 12,600
Rent Expense - Show Room 9,200
Rent Expense - Office 7,600
Advertising Expense 9,000
Office Supplies Expense 2,940
Totals $ 194,415 $ 194,415

1. Prepare a classified multiple-step income statement that would be used by the business's owner.
2. Prepare a multiple-step income statement that would be used by external users.
3. Prepare a single-step income statement that would be provided to decision makers outside the
company.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
Part 6 – Inventory Costing and Valuation
Question 6.1 Alternative Cost Flow Assumptions - Perpetual Inventory System
Mclaughlin Harmonicas sells a wide variety of harmonicas and supporting items. The following is
information on the purchases and sales of their top selling harmonica which sells for $65.

Date Description Units Unit Costs

July 1 Beginner Inventory 15 $28

July 3 Purchase 60 $33

July 6 Purchase 90 $38

July 17 Sale 45

July 23 Purchase 60 $42

July 31 Sale 120

Calculate the cost of goods sold and ending inventory under the perpetual inventory system using
1. First in First Out.

2. Moving weighted average. Round all unit costs to two decimal places and round all other
numbers to the nearest dollar.

3. Specific Identification. The 165 units sold were specifically sold as follows:
July 17 5 units from beginning inventory, 20 units from July 3 inventory, and 20 units
from July 6.
July 31 30 units from July 3 inventory, 70 units from July 6 inventory, and 20 units from
July 23 inventory.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Date Purchase Sale Balance

Date Purchase Sale Balance

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Date Purchase Sale Balance

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 6.2 Alternative Cost Flow Assumptions - Perpetual Inventory System
Keeling Golf Balls sells tournament level golf ball sleeves. The following is information on the purchases
and sales of their top selling golf ball sleeves.

Date Description Units Unit Cost/Price

March 1 Beginner Inventory 140 $5.50

March 2 Sale 70 $20.00

March 3 Purchase 280 $5.95

March 6 Sale 110 $20.00

March 17 Purchase 550 $5.40

March 23 Purchase 450 $5.80

March 31 Sale 600 20.00

Calculate the cost of goods sold and ending inventory under the perpetual inventory system using
1. First in First Out.

2. Moving weighted average. Round all unit costs to two decimal places and round all other
numbers to the nearest dollar.

3. Specific Identification. The 780 units sold were specifically sold as follows:
March 2 70 units from beginning inventory
March 17 50 units from beginning inventory, 60 units from March 3 inventory.
March 31 20 units from beginning inventory, 380 units from March 17 inventory, and 200
units from March 23 inventory.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Date Purchase Sale Balance

Date Purchase Sale Balance

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Date Purchase Sale Balance

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 6.3 Lower of Cost and Net Realizable Value
Surfworld is a surfing mega store off the California coast. Heading into low season, they gather the
following information regarding their inventory.

Per Unit
Product Units on Cost NRV
Hand
Surfboards:
O’Nice Smooth 315 $580 $615
Billa Water 280 490 420
Wavefront 245 415 425

Wakeboards:
Shortboard S300 473 285 335
Foam Master 5 281 260 248
Sand Stainer 185 245 223

Wetsuits:
Double Layer X3 165 80 110
Slim Slip 120 65 105

1) Calculate the LCNRV:

a) For the inventory by major group
b) For the inventory, applied separately to each product.
2) Prepare the appropriate entry, if any, for 1(a) and 1(b).

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Per Unit LCNRV applied to:
b.
Units a. Separately
Inventory on Total Total Major to Each
Items Hand Cost NRV Cost NRV Group Product

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 6.4 Lower of Cost and Net Realizable Value
Golf City is a major golf store in Saskatchewan. Heading into winter, they gather the following
information regarding their inventory.
Per Unit
Product Units on Cost NRV
Hand
Drivers:
Big Barry 3.2 285 $185 $205
Desblast 9 305 205 190
Chonker 8 605 145 150

Iron Sets:
P182 212 245 185
Series Y Fat 311 268 275
Recover 9 279 290 285

Putters:
Pendulum 2 168 105 102
Soft Shot X 128 45 40

1) Calculate the LCNRV for the:

a) Inventory by major category
b) Inventory, applied separately to each product.
2) Prepare the appropriate entry, if any, for (a) and (b).

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Per Unit LCNRV applied to:
b.
Units a. Separately
Inventory on Total Major to Each
Items Hand Cost NRV Cost Total NRV Group Product

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Part 7 – Internal Control and Cash
Question 7.1 Preparation of Bank Reconciliation and Recording Adjustments
The bank reconciliation prepared by June Bug Inc on June 30, appeared as follows:

June Bug Inc.

Bank Reconciliation
June 30
Bank Statement Balance $ 12,351.18 Book Balance $ 16,874.59
Add:
Deposit of June 30 in
transit 1,208.51
13,559.69
Deduct: Deduct:
Outstanding cheques: NSF cheque plus
#265 $ 455.85 service charge: $ 5,035.75
#276 1,400.00 1,855.85 Bank service charge 135.00 5,170.75
Adjusted bank balance $ 11,703.84 Adjusted book balance $ 11,703.84

The Cash account in the general ledger appeared as follows on July 31:

Cash - Acct No 1001

Date Explanation PR Debit Credit Balance
July 1 Balance $11,703.84
$ 10,433.96
1 Cheque # 280 GJ458 1,269.88
1 Cheque # 281 GJ459 1254.32 9,179.64
4 Cheque # 282 GJ460 741.59 8,438.05
6 Cheque # 283 GJ461 455.85 7,982.20
7 Cheque # 284 GJ462 1748.44 6,233.76
8 Deposit GJ463 $ 3,751.56 9,985.32
12 Cheque # 285 GJ464 1375.06 8,610.26
12 Cheque # 286 GJ465 1374.67 7,235.59
14 Cheque # 287 GJ466 647.32 6,588.27
18 Cheque # 288 GJ467 1153.06 5,435.21
19 Deposit GJ468 4,611.27 10,046.48
20 Cheque # 289 GJ469 2386.52 7,659.96
24 Cheque # 290 GJ470 304.05 7,355.91
25 Cheque # 291 GJ471 337.08 7,018.83
31 Deposit GJ472 4,152.36 11,171.19

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

The following bank statement is available for July:

Bank Statement
To: June Big Inc.
July 31
Cheques/Charges Deposits/Credits Balance
July 1 Balance $12,351.18
1 Deposit $1,208.51 13,559.69
6 Cheque # 280 $1,269.88 12,289.81
8 Cheque # 282 741.59 11,548.22
8 Cheque # 265 455.85 11,092.37
9 Cheque # 284 1,748.44 9,343.93
9 Deposit 3,751.56 13,095.49
14 Cheque # 286 1,374.67 11,720.82
15 Cheque # 287 674.32 11,046.50
18 Cheque # 285 1,375.06 9,671.44
20 Deposit 4,611.27 14,282.71
23 Cheque # 289 2,386.52 11,896.19
28 Cheque # 291 337.08 11,559.11
31 Interest 4.50 11,563.61
31 Service Charge 60.00 11,503.61

Prepare a bank reconciliation at July 31 Assume that any errors made were by the bookkeeper (cheque
#287 was for office supplies).
Prepare the necessary entries resulting from the bank reconciliation.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
 Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Question 7.2 Preparation of Bank Reconciliation and Recording Adjustments
The bank reconciliation prepared by Chapman Inc. on September 30 appeared as follows:

Chapman Inc.
Bank Reconciliation
September 30
Bank Statement Balance $ 16,518.15 Book Balance $ 34,648.55
Add:
Deposit of Sept 30 in transit 17,351.00
33,869.15
Deduct: Deduct:
$
Outstanding cheques: Interest Payment 450.00
$
#551 $ 2,945.15 Principle Payment 4,500.00
#558 850.45 3,795.60 Bank service charge 75.00 4,575.00
Adjusted bank balance $ 30,073.55 Adjusted book balance $ 30,073.55

The Cash account in the general ledger appeared as follows on October 31:

Cash - Acct No 1001

Date Explanation PR Debit Credit Balance
October 1 Balance $30,073.55
1 Cheque # 565 GJ121 $ 1,235.26 28,838.29
2 Cheque # 566 GJ122 850.07 27,988.22
3 Cheque # 567 GJ123 1,354.71 26,633.51
6 Cheque # 568 GJ124 858.71 25,774.80
6 Cheque # 569 GJ125 1,253.92 24,520.88
8 Deposit GJ126 3,193.93 27,714.81
12 Cheque # 570 GJ127 810.37 26,904.44
12 Cheque # 571 GJ128 1,458.10 25,446.34
14 Cheque # 572 GJ129 816.54 24,629.79
18 Cheque # 573 GJ130 1,014.34 23,615.45
19 Deposit GJ131 1,139.68 24,755.13
20 Cheque # 574 GJ132 2,386.52 22,368.62
24 Cheque # 575 GJ133 780.85 21,587.77
25 Cheque # 576 GJ134 925.60 20,662.16
31 Deposit GJ135 1,264.08 21,926.25

The following bank statement is available for October:

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Bank Statement
To: Chapman Inc.
October 31
Cheques/Charges Deposits/Credits Balance
October 1 Balance $16,518.15
1 Deposit $17,351.00 33,869.15
3 Cheque # 551 $2,945.15 30,924.00
8 Cheque # 565 1,235.26 29,688.74
8 Cheque # 568 858.71 28,830.03
9 Cheque # 569 1,253.92 27,576.11
9 Deposit 3,193.93 30,770.04
17 Cheque # 572 816.54 29,953.50
19 Cheque # 558 850.45 29,103.05
21 NSF Cheque 1,284.83 27,818.22
20 Deposit 1,139.68 28,957.90
26 Cheque # 574 2,386.52 26,571.38
28 Cheque # 575 780.85 25,790.53
31 Cheque # 571 1,458.10 24,332.43
31 Principle 4,500.00 19,832.43
31 Interest 440.00 19,392.43
31 Service Charge 60.00 19,332.43

Prepare a bank reconciliation at October 31. The NSF cheque was for a customer payment Jessica
Pearson.
Prepare the necessary entries resulting from the bank reconciliation.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.
 Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Part 8 - Receivables
Question 8.1 Balance Sheet Presentation
From the following alphabetized list of adjusted account balances, prepare the current asset section of
Richmond Supplies August 31 balance sheet.

Cash $4,500
Accounts receivable 120,000
Accumulated depreciation, equipment 8,000
Allowance for doubtful accounts 3,350
Bad debt expense 1,900
Building 135,000
Equipment 34,000
Notes Receivable 45,000
Patent 19,000
Supplies 3,500

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 8.2 Estimating bad debt expense—Aging analysis
Chang Foods had an unadjusted credit balance in its Allowance for Doubtful Accounts at December 31
of $2,100.

Prepare the adjusting entry assuming that Chang estimates uncollectible accounts based on an aging
analysis as follows:

December 31 Age of Accounts Expected Percentage

Accounts Receivable Receivable Uncollectible
$140,000.00 Not Due 1%
25,000.00 1-30 days past due 5%
4,500.00 31-60 days past due 12%
1,500.00 Over 60 days past due 50%

Accounts Receivable Chart

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 8.3 Estimating bad debt expense—percentage of sales
Selected unadjusted account balances at December 31, are shown below for Fizbeau Sales.

Account Debit Credit

Accounts receivable $80,000
Allowance for doubtful accounts $2,200
Sales (on credit) 525,000
Sales discounts $6,500

Fizbeau estimates that 1.5% of net credit sales will prove to be uncollectible. Prepare the adjusting entry
required on December 31 to estimate uncollectible receivables.

Date Account Titles and Explanation PR Debit Credit

During the following year, credit sales were $580,000 (cost of sales $394,500); sales discounts of $14,000
were taken when accounts receivable of $485,000 were collected; and accounts written off during the year
totalled $14,000. Prepare the entries for these transactions.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Record the adjusting entry required on December 31 to estimate uncollectible receivables, assuming it is
based on 1.0% of net credit sales.

Date Account Titles and Explanation PR Debit Credit

Show how accounts receivable would appear on the December 31 balance sheet.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 8.4 Estimating bad debt expense—percentage of receivables
Selected unadjusted account balances at December 31, are shown below for Shark Servicing.

Account Debit Credit

Accounts receivable $80,000
Allowance for doubtful accounts $2,200
Sales (on credit) 525,000
Sales discounts $6,500

Assume that Shark estimates uncollectible accounts as 2% of receivables. Prepare the adjusting entry
required on December 31 to estimate uncollectible receivables.

Date Account Titles and Explanation PR Debit Credit

During the following year, credit sales were $580,000 (cost of sales $394,500); sales discounts of $14,000
were taken when accounts receivable of $485,000 were collected; and accounts written off during the year
totalled $14,000. Prepare the entries for these transactions.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

 Date Account Titles and Explanation PR Debit Credit

Record the adjusting entry required on December 31, of the following year, to estimate uncollectible
receivables, assuming it is based on 2% of receivables.
Date Account Titles and Explanation PR Debit Credit

Show how accounts receivable would appear on the December 31 balance sheet.

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.

Question 8.5 Estimating bad debt expense—Direct write-off method
Shabaz Wells owns and operates Wells Sewing Machine Repair. She doesn’t have many customers and
most pay cash so she uses the direct write-off method to account for uncollectible accounts receivable.
On June 18, after seeing the obituaries in the paper, she determined that the Silas Callahan account
would be uncollectable. The account was for $780. During the year, she had total credit sales of $115,400
and her balance of accounts receivable was $8,800.

Record the June 18 write-off using the direct write-off method.

Date Account Titles and Explanation PR Debit Credit

Financial Accounting I by Evan van Dyk is license under a CC BY 4.0 license.