Larson17ceV1 SM CH04

Last revised: September 2021.
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
17th Canadian Edition
by Larson/Dieckmann/Harris
Revised for the 17th Edition by:

John Harris, Seneca College
Technical checks by: Rhonda Heninger, SAIT
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd.
4-1
Chapter 4 Completing the Accounting

Cycle and Classifying Accounts
Chapter Opening Critical Thinking Challenge Questions*
Pela’s external users include Kensington Capital, all investors that have provided funds to Pela
through its venture capitalist group, as well as their bank if they have any outstanding loans. The
Canadian Government is also a user, as Pela will pay taxes annually as a corporation based on their
earnings. The company also likely has external financial statement auditors, as the venture capitalist
group likely requires an independent review of their financial statements.
*The Chapter 4 Critical Thinking Challenge questions are asked at the beginning of this chapter.
Students are reminded at the conclusion of the chapter to refer to the Critical Thinking Challenge
questions at the beginning of the chapter. The solutions to the Critical Thinking Challenge questions
are available here in the Solutions Manual and accessible to students in the print and ebooks.
Knowledge Check-Up Questions
1. d)
2. b) 3. a) 4. c) 5. d) 6. c)
7. a) 8. a) 9. c) 10. d) 11. b)
Concept Review Questions
1. The four-step closing entry process is: (i) close the revenue (and gain) accounts to the
Income Summary account, (ii) close the expense (and loss) accounts to the Income Summary
account, (iii) close the Income Summary account to the owner’s capital account, and (iv) close the
withdrawals account to the owner’s capital account.
2. Closing entries prepare the revenue, expense, and withdrawal accounts for the upcoming
year by giving them zero balances. Closing entries also update the owner’s capital account for the
transactions of the year just finished.
3. Closing entries include: (1) closing the revenue accounts, (2) closing the expense accounts, (3)
closing the Income Summary account, and (4) closing the withdrawals account.
4. Temporary accounts accumulate data related to one account period. They include all income
statement accounts, withdrawals accounts and the Income Summary. The accounts are
opened at the beginning of a period, used to record transactions that period, and then closed at
the end of the period by transferring their balances to the owner’s capital account. Temporary
accounts are closed at the end of the period. Permanent accounts report on transactions
related to one or more future accounting periods. They carry their ending balances into the next
period and include all balance sheet accounts. Permanent accounts are not closed at the end
of the period.
The accounts are classified as follows:
Temporary Accounts Permanent Accounts

Withdrawals Prepaid insurance
Interest income Owner’s capital
4-2
5. I disagree with Alexis. The information in temporary accounts are not deleted but are closed
and transferred to the owner’s capital account. Closing entries zero out the temporary accounts
(revenues, expenses, Income Summary, and withdrawals) and transfer these balances to a
permanent account (capital).
6. Both adjusting and closing entries are recorded at the end of the accounting period. Adjusting
entries update the accounts for economic transactions that have taken place but not in the form
of external transactions. Closing entries update the owner’s capital account and prepare the
temporary accounts for use in the next accounting period.
7. The purpose of the Income Summary account is to help in the closing process at the end of an
accounting period.
The Income Summary is a temporary account that contains a credit for the sum of all revenues
and a debit for the sum of all expenses. Before the account is closed, the account balance
equals the profit or loss reported on the Income Statement. The Income Summary account will
be closed to the owner’s capital account and the ending balance will be equal to zero. An
income statement is not an account but one of the financial statements used to communicate to
financial statement users. The Income Statement summarizes each category of revenues and
expenses for the period and is not closed at the end of the period.
8. Yes, an error has occurred because Depreciation Expense is a temporary account that should
be closed. If the item appears on the post-closing trial balance, the amounts of profit next period
and equity this period are overstated.
9. This closing entry would have been recorded on December 31, 2020 to close the revenue
balance to the Income Summary.
Revenue.................................................1,570,600,000
Income Summary............................ 1,570,600,000
10. A company’s operating cycle is the average time between paying cash for salaries or
merchandise and receiving cash from customers in exchange for services or goods.
11. A classified balance sheet is more useful because it groups common accounts together. This
grouping allows financial statement users to determine how much of a certain type of an
account a company has and compare it to other groupings. For example, comparing the current
assets to current liabilities shows whether a company has enough current assets to meet their
current liabilities. The groupings also help users make decisions based on time. For example,
current liabilities need to be paid within the longer of one year or the company’s operating cycle.
12. Assets on a typical balance sheet include current assets; non-current investments; property,
plant and equipment; and intangible assets. Liabilities are classified as current and non-current.
13. Property, plant and equipment are tangible long-lived assets used to produce or sell goods and
services.
14. The very end of Note 18 shows that there is no debt retirement in 2021. In 2022, there is
$120,325,000 in long-term debt to be repaid.
*15. A work sheet is used to collect and organize the data for preparing adjusting entries, closing
entries, and financial statements.
4-3
QUICK STUDY
Quick Study 4-1
1. “b”; Permanent accounts generally consist of all balance sheet accounts, and these
accounts are not closed.
2. “c”; Permanent accounts report on activities related to one or more future accounting
periods, and they carry their ending balances into the next period.
3. “d”; Temporary accounts accumulate data related to one accounting period.
4. “a”; Temporary accounts include all income statement accounts, the withdrawals account,
and the Income Summary account.
Quick Study 4-2
Account (1) Temporary? (1) Permanent? (2) Financial Statement?

a. Accounts Payable Balance Sheet
b. Insurance Expense Income Statement
c. Delivery Vehicle Balance Sheet
d. Interest Income Income Statement
e. Unearned Revenue Balance Sheet
f. Accumulated Balance Sheet
Depreciation
g. Stephos Petridis, Balance Sheet and
Capital Statement of Changes in
Equity
h. Depreciation Income Statement
Expense
i. Stephos Petridis, Statement of Changes in
Withdrawals Equity
j. Wages Payable Balance Sheet
k. Prepaid Insurance Balance Sheet
l. Utility Expense Income Statement
m. Building Balance Sheet
n. Supplies Expense Income Statement
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education
Ltd. 4-4
Quick Study 4-3
a. Income Summary balance after closing revenues and expenses:
Revenues: $35,000 + $3,500 ................................................. = $38,500

Expenses: $19,000 + $4,000 + $2,300 .................................. = –25,300
Credit balance ........................................................................ = $13,200
b. Peter Jontil, Capital balance after all closing entries:
Beginning balance......... $14,000 Peter Jontil, Capital

Profit.............................. 13,200 14,000 (Beg. Bal.)
Total.............................. $27,200 OR (Withdrawals) 6,000 13,200 (Profit)
Less: Withdrawals......... 6,000 21,200 (End. Bal.)
Ending balance............. $21,200
Ltd. 4-5
Quick Study 4–4

2023
(1) Apr 30 Revenue........................................................... 100
Income Summary........................................ 100
To close the revenue account.
(2) 30 Income Summary............................................. 60
Expenses.................................................... 60
To close the expenses account.
(3) 30 Income Summary............................................. 40
Capital......................................................... 40
To close the income summary to capital.
(4) 30 Capital.............................................................. 20
Withdrawals................................................. 20
To close withdrawals to capital.
Assets Liabilities Capital

Apr. 30 250 30 Apr. 30 200 Apr. 30
(4) 20 40 (3)
220 Balance
Withdrawals Revenue Expenses

Apr. 30 20 20 (4) (1) 100 100 Apr. 30 Apr. 30 60 60 (2)
Balance -0- -0- Balance Balance -0-
Income Summary Income Summary Income Summary

(2) 60 100 (1) (2) 60 100 (1) (2) 60 100 (1)
(3) 40 40 Balance 40 Balance (3) 40 40 Balance
-0- Balance -0- Balance
Note that the $40 debit balance results after The third entry then debits the income
posting the first and second closing entries. summary for the $40 balance which results
in a final balance of ‘0’.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd. 4-6
Quick Study 4-5

2023
(1) Oct. 31 Revenue........................................................... 100
Income Summary........................................ 100
(2) 31 Income Summary............................................. 140

Expenses.................................................... 140
To close the expenses account.
(3) 31 Capital.............................................................. 40
Income Summary........................................ 40
(4) 31 Capital.............................................................. 20
Withdrawals................................................. 20
Assets Liabilities Capital

Oct. 31 250 110 Oct. 31 (4) 20 200 Oct. 31
(3) 40
140 Balance
Withdrawals Revenue Expenses

Oct. 31 20 20 (4) (1) 100 100 Oct. 31 Oct. 31 140 140 (2)
Balance -0- -0- Balance Balance -0-
Income Summary
(2) 140 100 (1)
Balance 40 40 (3)
Balance -0-
Quick Study 4-6
Silver Star Automotive

Post-Closing Trial Balance
October 31, 2023
Account Debit Credit
Cash............................................................................. $40
Accounts receivable..................................................... 20
Unearned revenue....................................................... $10
Capital.......................................................................... 50
Totals........................................................................... $60 $60
Quick Study 4-7
1. (f) Journalizing transactions.

2. (g) Posting the transaction entries.
3. (a) Preparing the unadjusted trial balance.
4. (h) Completing the work sheet (optional).
5. (c) Journalizing and posting adjusting entries.
6. (e) Preparing the financial statements.
7. (d) Journalizing and posting closing entries.
8. (b) Preparing the post-closing trial balance.
Quick Study 4-8
1. c 5. b
2. e 6. a
3. a 7. d
4. f
Quick Study 4-9
1. h. 6. f. 11. c. 16. c.
2. g. 7. e. 12. a. 17. h.
3. a. 8. a. 13. c. 18. a.
4. h. 9. b. 14. d. 19. e.
5. c. 10. e. 15. c. 20. b.
Quick Study 4-10
Jardine Servicing
Partial Balance Sheet
March 31, 2023
Liabilities
Current liabilities
Accounts payable....................................................... $14,000
Unearned revenue...................................................... 26,000
Notes payable, due February 1, 2024........................ 45,000
Current portion of mortgage payable.......................... 56,000
Total current liabilities................................................. $141,000
Non-current liabilities
Mortgage payable
(less $56,000 current portion)................................. 59,000
Total liabilities.................................................................. $200,000
Quick Study 4-11
Current assets:
Accounts receivable .................................... $15,000
Cash ............................................................ 6,000
Office supplies ............................................. 1,800
Prepaid insurance ....................................... 2,500
Total ............................................................ $25,300
Current liabilities:
Accounts payable ........................................ $10,000
Unearned services revenue ........................ 4,000
Total ............................................................ $14,000
1.81 is less than the industry average of 2.2 so
$25,300 compares unfavourably. However, a current ratio of
Current ratio = = 1.81
$14,000 1.81 is generally considered to be favourable.
Quick Study 4-12
Quick ratio = (Cash + Accounts Receivable)

(Accounts payable + Unearned service revenue)
Quick Ratio =($6,000 + $15,000) / ($10,000 + $4,000)
=$21,000 / $14,000
=1.50
Quick Study 4-13
(Numbers in 2020 2019

thousands)
Debt to equity ratio = ($427,927 + $1,397,608) / ($283,536) = ($1,488,322+$430,758) / ($344,986)
=$1,825,535 / $283,536 =$1,919,080/ $344,986
=6.44 =5.56
Comment: There has been a significant change in Recipe’s debt to equity ratio from 2019 to 2020. About 87%
of assets were funded by debt in 2020 compared to about 85% in 2019. It is unfavourable that the debt to equity
ratio has increased.
*Quick Study 4-14
1. BS 4. BS
2. BS 5. BS
3. IS 6. IS
*Quick Study 4-15

Balance Sheet
Unadjusted Adjusted & Statement of
Trial Balance Adjustments Trial Balance Income Statement Changes in Equity
Account Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 15 15 15
Accounts receivable 22 22 22
Supplies 25 8 17 17
Ed Wolt, capital 40 40 40
Ed Wolt, withdrawals 12 12 12
Revenue 48 48 48
Supplies expense 14 8 22 22
Totals 88 88 8 8 88 88 22 48 66 40
26 26
Profit 48 48 66 66
*Quick Study 4-16
Alice Pursley, Capital for the December 31, 2023 balance sheet:
Beginning capital............................................................. $50,000

Profit ($184,000 – $125,000)........................................... 59,000
Less: Withdrawals............................................................ 32,000
Ending capital.................................................................. $77,000
*Quick Study 4-17
Sam Hascal, Capital for the December 31, 2023, balance sheet:
Beginning capital ............................................. $165,000

Less: Loss ($74,000 – $115,000) ................... 41,000
Less: Withdrawals ........................................... 32,000
Ending capital ................................................. $ 92,000
EXERCISES
Exercise 4-1 (20 minutes)

2023 Closing entries:
Apr. 30 Plumbing Revenue................................................. 41,050
Income Summary.............................................. 41,050
To close revenue to the income summary.
30 Income Summary................................................... 31,800

Depreciation Expense, Trucks.......................... 4,700
Salaries Expense.............................................. 17,600
Rent Expense.................................................... 2,800
Advertising Expense......................................... 6,700
To close expense accounts to income
summary.
30 Income Summary................................................... 9,250

Angel Zhang, Capital......................................... 9,250
To close income summary to capital.
30 Angel Zhang, Capital.............................................. 9,400

Angel Zhang, Withdrawals................................ 9,400
Ltd. 4-13
Zhang Co.
April 30, 2023
Acct.
No. Account Debit Credit
101 Cash $ 3,400
106 Accounts receivable..................................................... 8,300
153 Trucks.......................................................................... 25,000
154 Accumulated depreciation, trucks................................ $ 8,050
193 Franchise..................................................................... 13,000
201 Accounts payable......................................................... 9,400
209 Salaries payable........................................................... 3,000
233 Unearned revenue....................................................... 1,300
301 Angel Zhang, capital.................................................... 27,950*
Totals........................................................................... $49,700 $49,700
Angel Zhang, Capital

*Calculated as:
28,100 (Adj. Bal, Apr. 30)
(Withdrawals) 9,40 9,250 (Profit)
28,100 + 9,250 – 9,400 = 27,950 or 0
27,950 (Post-closing Bal., Apr. 30)
Ltd. 4-14

January 31 Subscription Revenues............................................ 71,400
Interest Income........................................................ 490
Income Summary................................................ 71,890
To close revenues to the income summary.
31 Income Summary..................................................... 81,000

Depreciation Expense, Equipment...................... 1,700
Rent Expense...................................................... 17,900
Salaries Expense................................................ 61,400
.................................................................................
summary.
31 Trish Norris, Capital.................................................. 9,110

Income Summary................................................ 9,110
31 Trish Norris, Capital.................................................. 19,800

Trish Norris, Withdrawals.................................... 19,800
Ltd. 4-15
Part 1
Title Debit Credit
Cash..............................................................................................
$ 40,000
Supplies........................................................................................
4,000
Prepaid insurance.........................................................................
6,500
Equipment.....................................................................................
46,000
Accumulated depreciation, equipment.......................................... $ 13,000
Unearned revenue........................................................................ 4,000
Nick Stilz, capital........................................................................... 110,100
Nick Stilz, withdrawals...................................................................
43,000
Ticket revenue.............................................................................. 131,000
Depreciation expense, equipment................................................
4,000
Insurance expense........................................................................
3,000
Rent expense................................................................................
61,000
Salaries expense..........................................................................
42,000
Supplies expense..........................................................................
8,600
Totals............................................................................................
$258,100 $258,100
No, Nick Stilz’s capital account of $110,100 will not show up on the balance sheet as at
December 31, 2023. The capital amount reported on the adjusted trial balance
represents the beginning balance of Nick Stilz’s capital account. After the closing
entries are prepared and posted, the ending capital balance will be reported on the
balance sheet as at December 31, 2023.
Ltd. 4-16
Exercise 4-3 (Continued) Part 2

Dec. 31 Ticket Revenue ....................................................... 131,000
Income Summary ............................................ 131,000
To close the revenue account to the
income summary.
31 Income Summary .................................................... 118,600

Depreciation Expense, Equipment................... 4,000
Insurance Expense ......................................... 3,000
Rent Expense ................................................. 61,000
Salaries Expense ............................................ 42,000
Supplies Expense ........................................... 8,600
To close the expense accounts to the
income summary.
31 Income Summary..................................................... 12,400

Nick Stilz, Capital ............................................ 12,400
31 Nick Stilz, Capital .................................................... 43,000

Nick Stilz, Withdrawals .................................... 43,000
Part 3
Nick Stilz, Capital
Dec 31 43,000 110,100 Jan 1
12,400 Dec 31
79,500 Bal.
Ltd. 4-17

1.
Dec. 31Services Revenue......................................................403 44,000

Income Summary...............................................901 44,000
Close revenue account.
31Income Summary........................................................901 33,100
Depreciation Expense—Equipment...................612 3,000
Salaries Expense...............................................622 22,000
Insurance Expense............................................637 2,500
Rent Expense....................................................640 3,400
Supplies Expense..............................................653 2,200
Close expense accounts.
31Income Summary........................................................901 10,900
A. Cruz, Capital..................................................301 10,900
Close income summary.
31A. Cruz, Capital...........................................................301 7,000
A. Cruz, Withdrawals.........................................302 7,000
Close withdrawals account.
2.
CRUZ COMPANY
December 31
Debit Credit
Cash............................................................................$19,000
Supplies.......................................................................13,000
Prepaid insurance........................................................3,000
Equipment...................................................................24,000
Accumulated depreciation–Equipment........................ $ 7,500
A. Cruz, Capital*.......................................................... 51,500
Totals...........................................................................$59,000 $59,000
*$47,600 + $10,900 - $7,000 = $51,500
Ltd. 4-18
WILSON TRUCKING COMPANY

Income Statement
For Year Ended December 31
Trucking revenue......................................................................$130,000
Expenses
Depreciation expense—Trucks....................................$23,500
Salaries expense.........................................................61,000
Office supplies expense...............................................8,000
Repairs expense.......................................................... 12,000
Total expenses................................................................... 104,500
Net income...............................................................................$ 25,500

Statement of Owner’s Equity
K. Wilson, Capital, December 31 prior year.......................$170,000

Add: Net income............................................................... 25,500
195,500
Less: Withdrawals............................................................. (20,000)
K. Wilson, Capital, December 31 current year...................$175,500
Ltd. 4-19

Balance Sheet
December 31
Assets
Current assets
Cash................................................................................ $ 8,000
Accounts receivable........................................................ 17,500
Office supplies................................................................. 3,000
Total current assets......................................................... 28,500
Plant assets
Trucks.............................................................................. $172,000
Accumulated depreciation-Trucks................................... (36,000) 136,000
Land................................................................................ 85,000
Total plant assets............................................................ 221,000
Total assets....................................................................... $249,500
Liabilities
Current liabilities
Accounts payable............................................................ $ 12,000
Interest payable............................................................... 4,000
Total current liabilities...................................................... 16,000
Long-term notes payable................................................... 58,000
Total liabilities.................................................................... 74,000
Equity
K. Wilson, Capital*............................................................. 175,500
Total liabilities and equity.................................................. $249,500
K. Wilson Capital is computed as follows.

Beginning balance....................................................................................... $170,000
Plus: Net income ($130,000 - $23,500 - $61,000 - $8,000 - $12,000)....... 25,500
(20,000
Less: Withdrawals
)
Ending balance $175,500
Ltd. 4-20

No Date General Journal Debit Credit
1 Dec 31 Trucking revenue 130,000
Income summary 130,000
2 Dec 31 Income summary 104,500

Depreciation expense—Trucks 23,500
Salaries expense 61,000
Office supplies expense 8,000
Interest expense 12,000
3 Dec 31 Income summary 25,500

K. Wilson, Capital 25,500
4 Dec 31 K. Wilson, Capital 20,000

K. Wilson, Withdrawal 20,000
Ltd. 4-21
Closing entries:
2023
(1) Dec. 31 Services Revenue.................................................... 103,000
Income Summary.............................................. 103,000
Income Summary.
(2) 31 Income Summary.............................................................. 45,800

Rent Expense............................................................. 9,100
Salaries Expense....................................................... 27,000
Insurance Expense..................................................... 1,500
Depreciation Expense................................................ 8,200
To close the expense accounts to the
income summary.
(3) 31 Income Summary.............................................................. 57,200

Marcy Jones, Capital ................................................. 57,200
(4) 31 Marcy Jones, Capital ........................................................ 38,000

Marcy Jones, Withdrawals.......................................... 38,000
Ltd. 4-22
Exercise 4-8 (concluded)
Posted accounts:
Assets Rent Expense
Dec. 31 142,000 Dec. 31 9,100 9,100 (2)
Balance 0
Liabilities
51,000 Dec. 31 Salaries Expense
Dec. 31 27,000 27,000 (2)
Marcy Jones, Capital Balance 0
(4) 38,000 71,800 Dec. 31
57,200 (3) Insurance Expense
91,000 Balance Dec. 31 1,500 1,500 (2)
Balance 0
Marcy Jones, Withdrawals
Dec. 31 38,000 38,000 (4) Depreciation Expense
Balance 0 Dec. 31 8,200 8,200 (2)
Balance 0
Income Summary
(2) 45,800 103,00 (1)
0
(3) 57,200
0 Balance
Services Revenue
(1) 103,000 103,00 Dec. 31
0
0 Balance

Jones Consulting
December 31, 2023
Assets.......................................................................... $142,000
Liabilities...................................................................... $ 51,000
Marcy Jones, Capital.................................................... 91,000
Totals........................................................................... $142,000 $142,000
Ltd. 4-23
1. Jozef Jones, Withdrawals; Interest income, and Other Expenses have not been closed.
2.
2023
June 30 Jozef Jones, Capital............................................. 58,900
Interest income..................................................... 1,150
Jozef Jones, Withdrawals............................... 59,900
Other Expenses.............................................. 150
To close interest income, withdrawals and
other expenses directly to capital.
Jozef Jones, Capital

216,200
3. $216,200 – $58,900 = $157,300 OR 58,900
157,300 (Balance)
Ltd. 4-24

Part A
Account Title Adjusted Trial Balance
Debit Credit
Accounts payable................................................................... $ 31,000
Accounts receivable............................................................... $ 48,000
Accumulated depreciation, equipment.................................... 9,000
Accumulated depreciation, truck............................................. 21,000
Cash...................................................................................... 14,400
X Depreciation expense............................................................. 3,800
Equipment.............................................................................. 19,000
Franchise............................................................................... 21,000
X Gas and oil expense.............................................................. 7,500
Intangible asset...................................................................... 7,000
X Interest expense..................................................................... 450
Interest payable...................................................................... 750
Land not currently used in business operations...................... 148,000
Long-term notes payable........................................................ 35,000
Notes payable, due February 1, 2024..................................... 7,000
Notes receivable.................................................................... 6,000
Prepaid rent........................................................................... 14,000

X Rent expense......................................................................... 51,000
X Repair revenue....................................................................... 266,000
Repair supplies...................................................................... 13,100
X Repair supplies expense........................................................ 29,000
Truck...................................................................................... 26,000
Unearned repair revenue........................................................ 12,600
X Vic Sopik, capital.................................................................... 74,900
X Vic Sopik, withdrawals............................................................ 49,000
Totals..................................................................................... $457,250 $457,250
b. $74,900 - $3,800 - $7,500 - $450 - $51,000 + $266,000 - $29,000 - $49,000 =

$200,150.
Analysis component:
Depreciation expense, gas and oil expense, interest expense, rent expense, repair revenue,
repair supplies expense, and withdrawals are all temporary accounts and do not appear on the
post-closing trial balance because their balances were transferred to capital during the closing
process leaving each with a zero post-closing balance. The adjusted balance of $74,900 in
capital is the balance prior to closing all temporary accounts into it. A capital account balance
does appear on the post-closing trial balance but it is the post-closing balance of $200,150 as
determined in part (b) above. Therefore, the adjusted capital balance of $74,900 will not
appear on the post-closing trial balance
Ltd. 4-25
Note to instructor: Reinforce to the student that the question asks which account balances from
the adjusted trial balance will not appear on the post-closing trial balance.
a. Current assets = $48,000 + $14,400 + $2,000* + $14,000 + $13,100 = $91,500.

b. Property, plant, and equipment = $19,000 + $26,000 - $9,000 - $21,000 = $15,000.
c. Intangible assets = $21,000 + $7,000 = $28,000.
d. Non-current investments = $4,000* + $148,000 = $152,000.
e. Total assets = $91,500 + $15,000 + $28,000 + $152,000 = $286,500.
f. Current liabilities = $31,000 + $750 + $5,000** + $7,000 + $12,600 = $56,350.
g. Non-current liabilities = $30,000**.
h. Total liabilities = $56,350 + $30,000 = $86,350.
i. Total liabilities and equity = $86,350 + $200,150 = $286,500.
*$2,000 of the $6,000 notes receivable is current while the $4,000 balance is a non-current
investment.
**$5,000 of the $35,000 long-term notes payable is current while the $30,000 balance is a non-
current liability.
Ltd. 4-26

Sunshine Sushi
Balance Sheet
December 31, 2023
Assets
Current assets:
Cash.................................................................. $ 115,000
Merchandise inventory....................................... 34,250
Notes receivable, current.................................. 41,500
Total current assets........................................... $ 190,750
Non-current investments:
Notes receivable, non-current............................ $ 74,000
Property, plant and equipment:
Equipment.......................................................... $373,875
Less: Accumulated depreciation.................... 99,700 $274,175
Furniture............................................................ $102,000
Less: Accumulated depreciation.................... 38,250 63,750
Total property, plant and equipment.................. $ 337,925
Total assets.............................................................. $602,675
Liabilities
Accounts payable.............................................. $ 41,625
Wages payable.................................................. $ 30,250
Bank loan, current.............................................. $ 60,550
Total current liabilities........................................ $ 132,425
Non-current liabilities:
Bank loan, non-current...................................... 440,450
Total liabilities.................................................... $572,875
Equity
Natsuki Miyakawa, capital.................................... 29,800*
Total liabilities and equity.......................................... $602,675
*$28,500+($50,750-$38,150)-11,300 = $29,800
Ltd. 4-27

DOVER PACIFIC TOURS
Balance Sheet
November 30, 2023
Assets
Current assets:
Cash..................................................................................... $ 7,200
Accounts receivable............................................................. 19,000
Prepaid insurance................................................................. 4,600
Prepaid rent.......................................................................... 9,000
Supplies................................................................................ 2,250
Current portion of notes receivable...................................... 7,500
Total current assets.............................................................. $ 49,550
Notes receivable, less $7,500 current portion..................... 13,000
Vehicles................................................................................ $64,000
Less: Accumulated depreciation....................................... 15,800 $48,200
Office furniture...................................................................... $ 6,500
Less: Accumulated depreciation....................................... 4,100 2,400
Total property, plant and equipment..................................... 50,600
Intangible assets:
Copyright.............................................................................. 9,000
Total assets................................................................................. $122,150
Liabilities
Accounts payable............................................................. $ 41,000
Salaries payable.............................................................. 12,100
Unearned touring revenue............................................... 23,000
Notes payable.................................................................. 14,000
Current portion of long-term notes payable..................... 10,000
Total current liabilities....................................................... $100,100
Long-term notes payable, less $10,000 current 11,600
portion...............................................................................
Total liabilities....................................................................... $111,700
Equity
Pat Dover, capital*................................................................ 10,450
Total liabilities and equity............................................................ $122,150
*Calculated as Total assets of $122,150 less Total liabilities of $111,700 = $10,450.
Ltd. 4-28

HANSON TRUCKING COMPANY
Balance Sheet
December 31, 2023
Assets
Current assets:
Cash......................................................................... $ 13,000
Accounts receivable................................................. 29,600
Office supplies.......................................................... 3,100
Total current assets.................................................. $ 45,700
Land......................................................................... $275,000
Trucks....................................................................... $170,000
Less: Accumulated depreciation........................... 46,000 124,000
Total property, plant and equipment......................... $399,000
Total assets..................................................................... $444,700
Liabilities
Accounts payable..................................................... $ 31,000
Interest payable........................................................ 400
Total current liabilities............................................... $ 31,400
Long-term notes payable............................................. 152,000
Total liabilities............................................................... $183,400
Equity
Stanley Hanson, capital .............................................. 261,300*
Total liabilities and equity................................................ $444,700
*Calculation:
$206,200 - $19,000 + $168,000 - $22,500 - $58,000 - $6,500 - $6,900 = $261,300
OR
Total assets – Total liabilities = $444,700 - $183,400 = $261,300
Ltd. 4-29

1. Leda Svenson, withdrawals; tutoring revenue; rent expense; depreciation expense; and ad-
vertising expense have zero balances because each account was closed at December 31,
2022 resulting in each balance being transferred to capital leaving a zero balance behind.
2.
2023
Jan. 15 Accounts Receivable........................................ 8,000
Tutoring Revenue..................................... 8,000
To record revenues earned on
account.
Feb. 20 Advertising Expense......................................... 2,000

Cash......................................................... 2,000
To record payment for advertising.
July 7 Cash................................................................. 9,000

Accounts Receivable................................ 9,000
To record collection from customers.
Dec. 10 Leda Svenson, Withdrawals............................. 3,000

Cash......................................................... 3,000
To record cash withdrawals by owner.
Ltd. 4-30
Exercise 4-16 (continued)

2.
Cash Accounts Receivable Prepaid Rent

Dec 31/22 2,000 2,000 Feb 20/23 Dec 31/22 5,000 9,000 Jul 07/23 Dec 31/22 3,000
Jul 07/23 9,000 3,000 Dec 10/23 Jan. 15/23 8,000
Unadj Bal 6,000 Unadj Bal 4,000
Office Equip. Accum. Deprec., Office Equipment Unearned Revenue

Dec 31/22 20,000 10,000 Dec 31/22 2,900 Dec 31/22
Leda Svenson, Capital Leda Svenson, Withdrawals Tutoring Revenue

17,100 Dec 31/22 Dec 31/22 -0- -0- Dec 31/22
Dec 10/23 3,000 8,000 Jan. 15/23
Unadj Bal 3,000 8,000 Unadj Bal
Rent Expense Depreciation Expense Advertising Expense

Dec 31/22 -0- Dec 31/22 -0- Dec 31/22 -0-
Feb 20/23 2,000
Unadj Bal 2,000
3.
Svenson’s Tutoring Clinic
Unadjusted Trial Balance
December 31, 2023
Cash...................................................................................... $ 6,000
Accounts receivable............................................................... 4,000
Prepaid rent........................................................................... 3,000
Office equipment.................................................................... 20,000
Accumulated depreciation, office equipment.......................... $10,000
Unearned revenue................................................................. 2,900
Leda Svenson, capital............................................................ 17,100
Leda Svenson, withdrawals.................................................... 3,000
Tutoring revenue.................................................................... 8,000
Advertising expense............................................................... 2,000
Totals..................................................................................... $38,000 $38,000
4. Journalize adjustments:
2023
Dec. 31 Depreciation Expense........................................ 2,000
Accum. Deprec., Office Equipment............ 2,000
To record annual depreciation.
31 Unearned Revenue............................................ 2,400

Tutoring Revenue...................................... 2,400
To record earned revenue.
31 Rent Expense.................................................... 3,000

Prepaid Rent.............................................. 3,000
To record expired prepaid rent.
Ltd. 4-32

4. Post adjustments:

Dec 31/22 2,000 2,000 Feb 20/23 Dec 31/22 5,000 9,000 Jul 07/23 Dec 31/22 3,000 3,000 Dec 31/23
Jul 07/23 9,000 3,000 Dec 10/23 Jan. 15/23 8,000
Unadj Bal 6,000 Unadj Bal 4,000 Adj Bal -0-
Office Equip. Accum. Deprec., Office Equipment Unearned Revenue

Dec 31/22 20,000 10,000 Dec 31/22 Dec 31/23 2,400 2,900 Dec 31/22
2,000 Dec 31/23
12,000 Adj Bal 500 Adj Bal

17,100 Dec 31/22 Dec 31/22 -0- -0- Dec 31/22
Dec 10/23 3,000 8,000 Jan 15/23
Unadj Bal 3,000 8,000 Unadj Bal
2,400 Dec 31/23
10,400 Adj Bal

Dec 31/22 -0- Dec 31/22 -0- Dec 31/22 -0-
Dec 31/23 3,000 Dec 31/23 2,000 Feb 20/23 2,000
Adj Bal 3,000 Adj Bal 2,000 Unadj Bal 2,000
Exercise 4–16 (continued)
5.

Adjusted Trial Balance
December 31, 2023
Cash............................................................................ $ 6,000
Accounts receivable..................................................... 4,000
Office equipment.......................................................... 20,000
Accumulated depreciation, office equipment................ $12,000
Unearned revenue........................................................ 500
Leda Svenson, capital.................................................. 17,100
Leda Svenson, withdrawals.......................................... 3,000
Tutoring revenue.......................................................... 10,400
Rent expense............................................................... 3,000
Depreciation expense................................................... 2,000
Advertising expense..................................................... 2,000
Totals........................................................................... $40,000 $40,000
4-34
6.

Income Statement
For Year Ended December 31, 2023
Revenue:
Tutoring revenue............................................................................ $10,400
Operating expenses:
Rent expense................................................................................. $3,000
Advertising expense....................................................................... 2,000
Depreciation expense.................................................................... 2,000
Total operating expenses.......................................................... 7,000
Profit.................................................................................................... $ 3,400

Statement of Changes in Equity
Leda Svenson, capital, January 1....................................................... $17,100
Investments by owner......................................................................... $ 0
Profit.................................................................................................... 3,400 3,400
Total............................................................................................... $20,500
Less: Withdrawals by owner.............................................................. 3,000
Leda Svenson, capital, December 31................................................. $17,500

Balance Sheet
December 31, 2023
Assets
Current assets:
Cash............................................................................................ $ 6,000
Accounts receivable..................................................................... 4,000
Total current assets..................................................................... $ 10,000
Office equipment.......................................................................... $20,000
Less: Accumulated depreciation.............................................. 12,000 8,000
Total assets......................................................................................... $18,000
Liabilities
Unearned revenue....................................................................... $ 500
Equity
Leda Svenson, capital..................................................................... 17,500
Total liabilities and equity.................................................................... $18,000
4-35
7. Journalize the closing entries:

2023
(1) Dec. 31 Tutoring Revenue.............................................
10,400
Income Summary..................................... 10,400
To close the revenue account to
the income summary.
(2) 31 Income Summary.............................................7,000

Rent Expense........................................... 3,000
Depreciation Expense.............................. 2,000
Advertising Expense................................ 2,000
To close the expense accounts
to the income summary.
(3) 31 Income Summary.............................................3,400

Leda Svenson, Capital............................. 3,400
To close the income summary to
capital.
(4) 31 Leda Svenson, Capital.....................................3,000

Leda Svenson, Withdrawals..................... 3,000
4-36
7. Post the closing entries:

Dec 31/22 2,000 2,000 Feb 20/23 Dec 31/22 5,000 9,000 Jul 07/23 Dec 31/22 3,000 3,000 Dec 31/23
Jul 07/23 9,000 3,000 Dec 10/23 Jan. 15/23 8,000
Unadj Bal 6,000 Unadj Bal 4,000 Adj Bal -0-
Office Equip. Accum. Deprec., Office Equip. Unearned Revenue

Dec 31/22 20,000 10,000 Dec 31/22 Dec 31/23 2,900 Dec 31/22
2,000 Dec 31/23 2,40
0
12,000 Adj Bal 500 Adj Bal

(4) 3,000 17,100 Dec 31/22 Dec 31/22 -0- -0- Dec 31/22
3,400 (3) Dec 10/23 3,000 8,000 Jan 15/23
17,500 Post-closing Unadj Bal 3,000 3,000 (4) 8,000 Unadj Bal
balance 2,400 Dec 31/23
-0- (1) 10,400 10,400 Adj Bal
-0-

Dec 31/22 -0- Dec 31/22 -0- Dec 31/22 -0-
Dec 31/23 3,000 Dec 31/23 2,000 Feb 20/23 2,000
Adj Bal 3,000 3,000 (2) Adj Bal 2,000 2,000 (2) Unadj Bal 2,000 2,000 (2)
-0- -0- -0-
Income Summary
(2) 7,000 10,400 (1)
(3) 3,400 3,400 Bal.
-0-
Exercise 4–16 (concluded)
8.

December 31, 2023
Cash........................................................................... $ 6,000
Accounts receivable.................................................... 4,000
Office equipment......................................................... 20,000
Accumulated depreciation, office equipment............... $12,000
Unearned revenue...................................................... 500
Leda Svenson, capital................................................. 17,500
Totals.......................................................................... $30,000 $30,000
Part 1
General Journal
Date Account Titles and Explanation Debit Credit
2023
May 2 Cash........................................................................ 5,500
Laptop...................................................................... 900
Emily Lee, Capital............................................. 6,400
To record the owner’s initial investment.
3 Supplies................................................................... 600
Cash................................................................. 600
To record purchase of supplies.
4 Printer...................................................................... 360
Accounts Payable............................................. 360
To record purchased of printer on account.
5 Prepaid Insurance.................................................... 2,400
Cash................................................................. 2,400
Paid one year’s insurance in advance.
6 Emily Lee, Withdrawal............................................. 200
Cash................................................................ 200
To record owner withdrawal.
8 No entry required.
10 Cash........................................................................ 1,920
Unearned Revenue.......................................... 1,920
Collected cash for future tours.
Ltd. 4-38
15 Cash........................................................................ 600
Tour Revenue................................................... 600
Received cash for providing tours.
25 Unearned Revenue.................................................. 1,000
Tour Revenue................................................... 1,000
Earned revenue from providing tours.
Ltd. 4-39

Parts 2, 3, 5
Ledger as of May 31 (using the T-account format):

Cash Supplies Prepaid Insurance
May 2 5,500 600 May 3 May 3 600 400 May 31 May 5 2,400 200 May 31
10 1,920 2,400 5 Bal. 200 Bal. 2,200
15 600 200 6
Bal. 4,820 Laptop Accum. Dep., Laptop
May 2 900 25 May 31
Printer Accum. Dep., Printer Accounts Payable

May 4 360 10 May 31 360 May 4
Unearned Revenue Wages Payable Emily Lee, Capital

May 25 1,000 1,920 May 10 500 May 6,400 May 2
31
May 31 200 465 31
920 Bal. 500 Bal. 6,665 Bal.
Emily Lee, Withdrawals

May 6 200 200 May 31
Bal. -0-

Parts 2, 3, 5
Tour Revenue Deprec. Expense, Deprec. Expense,

Laptop Printer
600 May 15 May 31 25 25 May 31 May 31 10 10 May 31
1,000 25
May 31 1,600 1,600 Bal. Bal. -0- Bal. -0-
Wages Expense Insurance Expense Supplies Expense

May 31 500 500 May 31 May 31 200 200 May 31 May 31 400 400 May 31
Bal. -0- Bal. -0- Bal. -0-
Income Summary
May 31 1,135 1,600 May 31
May 31 465 465 Bal.
Bal. -0-
Part 3
General Journal
2023 Adjusting entries:
May 31 Depreciation Expense.............................................. 25

Accumulated Depreciation, Laptop.................. 25
To record depreciation (900/3 x 1/12 months).
31 Depreciation Expense.............................................. 10
Accumulated Depreciation, Printer.................. 10
To record depreciation (360/3 x 1/12 months).
31 Supplies Expense.................................................... 400
Supplies............................................................ 400
To record the cost of consumed supplies
31 Insurance Expense.................................................. 200
Prepaid Insurance............................................ 200
To record expired insurance ($2,400/12
months).
31 Wages Expense....................................................... 500
Wages Payable................................................. 500
To record accrued wages.
Part 4
VERY VANCOUVER
Income Statement
For Month Ended May 31, 2023
Revenues:
Tour revenue................................................................................... $1,600
Operating expenses:
Wages expense............................................................................... $500
Supplies expense............................................................................ 400
Insurance expense.......................................................................... 200
Depreciation expense, laptop.......................................................... 25
Depreciation expense, printer.......................................................... 10
Total operating expenses......................................................... 1,135
Profit....................................................................................................... $ 465
Ltd. 4-42

VERY VANCOUVER
For Month Ended May 31, 2023
Emily Lee, capital, May 1........................................................................ $ 0

Investment by owner............................................................................... $ 6,400
Profit 465
Total.................................................................................................. $6,865
Less: Withdrawals by owner................................................................. $200
Emily Lee, capital, May 31...................................................................... $6,665
VERY VANCOUVER
Balance Sheet
May 31, 2023
Assets
Current assets:
Cash........................................................................................ $4,820
Supplies.................................................................................. 200
Prepaid insurance................................................................... 2,200
Total current assets................................................................. $ 7,220
Laptop..................................................................................... $900
Less: Accumulated depreciation.......................................... 25 $875
Printer...................................................................................... $ 360
Less: Accumulated depreciation.......................................... 10 350
Total property, plant and equipment........................................ 1,225
Total assets.................................................................................... $8,445
Liabilities
Current liabilities
Accounts payable.................................................................... $ 360
Wages payable....................................................................... 500
Unearned revenue.................................................................. 920
Total liabilities........................................................................... $ 1,780
Equity
Emily Lee, capital....................................................................... 6,665
Total liabilities and equity............................................................... $8,445
Ltd. 4-43

Part 5
General Journal
May 31 Tour Revenue................................................................ 1,600
Income Summary.................................................... 1,600
Income Summary account.
31 Income Summary........................................................... 1,135

Wages Expense..................................................... 500
Supplies Expense................................................... 400
Insurance Expense................................................ 200
Depreciation Expense, Printer................................ 10
Depreciation Expense, Laptop............................... 25
To close the expenses to the income summary.
31 Income Summary........................................................... 465

Emily Lee, Capital.................................................. 465
To close the Income Summary to capital.
31 Emily Lee, Capital.......................................................... 200

Emily Lee, Withdrawals.......................................... 200
Part 6
VERY VANCOUVER
May 31, 2023
Account
Cash........................................................................................ $ 4,820
Supplies................................................................................... 200
Laptop..................................................................................... 900
Accumulated depreciation, laptop........................................... $ 25
Printer...................................................................................... 360
Accumulated depreciation, printer........................................... 10
Accounts payable.................................................................... 360
Wages payable........................................................................ 500
Unearned revenue.................................................................. 920
Emily Lee, capital.................................................................... 6,665
Totals....................................................................................... $8,480 $8,480
Ltd. 4-44
Current Current Current

Assets Liabilities Ratio F/U
Case 1 .............. $ 78,000 / $31,000 = 2.52 F
Case 2 .............. 104,000 / 75,000 = 1.39 F
Case 3 .............. 44,000 / 48,000 = 0.92 U
Case 4 .............. 84,500 / 80,600 = 1.05 U
(Numbers in thousands) 2024 2023

Current assets:
Cash ............................................................ $6,501 $3,880
Accounts Receivable ................................... 4,368 4,616
Notes Receivable (current) .......................... 220 265
Inventories ................................................... 123 137
Prepaid expenses and other current assets 190 695
Total ................................................................ $11,402 $9,593
2024 2023
Current Ratio =$11,402 / $11,061 =$9,593 / $10,649
=1.03 =0.90
Quick Ratio =($6,501 + $4,368) / $11,061 =($3,880 + $4,616) / $10,649
=0.98 =0.80
Comments In 2023, Organic Catering’s current ratio was low, indicating that the
company did not have sufficient liquid assets to cover their current
obligations. In 2024, the current ratio increased slightly to above 1.
This increase is favourable as it indicates that for every dollar of current
liabilities, Organic Catering has slightly more current assets to pay for
these current liabilities.
Organic Catering’s quick ratio is below one for 2023 and 2024, which is
unfavourable. The quick ratio did increase from 2023 to 2024, from
0.80 to 0.98 respectively. This increase is favourable as it indicates that
Organic Catering has more liquid assets to cover its current laibilties.
The increase in current ratio and quick ratio is due primarily to a large
increase in cash. Overall, Organic Catering’s liquidity is satisfactory.
However, the company may face challenges in paying their current
obligations in the future.
Ltd. 4-45

2024 2023
Debt to equity ratio =$31,376 / $45,964 =$31,980 / $56,700
=0.68 =0.56
Comments Organic Catering’s debt to equity ratio increased slightly from 2023
to 2024. An increase in debt to equity is generally unfavourable as it
indicates that the company has more debt, which is associated with
more risk. However, overall the ratio is significantly below 1, which
means that Organic Catering finances its operations more with
equity than debt. Overall, the ratio indicates that Organic Catering
has a healthy balance of debt and equity.
Exercise 4-21* (15 minutes)

1. C 5. C 9. C 13. C
2. B 6. A 10. C 14. A
3. D 7. A 11. D 15. A
4. B 8. D 12. D 16. C
Exercise 4-22* (20 minutes)
Balance Sheet
Adjusted & Statement of
Trial Income Changes in
Balance Statement Equity
No. Title Debit Credit Debit Credit Debit Credit
101 Cash........................................ $ 21,000 $21,000
106 Accounts receivable................ 8,200 8,200
153 Trucks..................................... 48,000 48,000
154 Accum. depreciation, trucks.... $ 31,250
$31,250
193 Franchise................................ 6,500 6,500
201 Accounts payable................... 13,000
13,000
209 Salaries payable..................... 14,600
14,600
233 Unearned revenue.................. 2,450 2,450
301 Bo Webber, capital.................. 37,750
37,750
302 Bo Webber, withdrawals….. 7,200 7,200
401 Plumbing revenue................... 31,600 $31,600
611 Depreciation expense, trucks12,100 $12,100
622 Salaries expense.................... 17,800 17,800
640 Rent expense.......................... 6,000 6,000
Ltd. 4-46
677 Misc. expenses....................... 3,850 3,850

Totals................................... $130,650 $130,650 $39,750 $31,600 $90,900
$99,050
Loss........................................ 8,150 8,150
Totals................................... $39,750 $39,750 $99,050
$99,050
Ltd. 4-47
Exercise 4-23 (25 minutes) Parts 1, 2, and 3

Musical Sensations
Work Sheet
Balance Sheet &
Unadjusted Trial Adjusted Trial Statement of
Balance Adjustments Balance Income Statement Changes in Equity
Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash.................................. 7,500 7,500 7,500
Accounts receivable.......... 14,200 14,200 14,200
Office supplies................... 790 d) 650 140 140
Musical equipment............ 125,000 125,000 125,000
Accum. deprec.
musical equip.............. 21,600 b) 21,600 43,200 43,200
Accounts payable.............. 4,200 4,200 4,200
Unearned performance
revenue.................. 12,400 a) 3,175 9,225 9,225
Jim Daley, capital.............. 154,300 154,300 154,300
Jim Daley, withdrawals...... 52,000 52,000 52,000
Performance revenue........ 138,000 a) 3,175 141,175 141,175
Salaries expense............... 86,000 c) 6,100 92,100 92,100
Travelling expense............ 45,010 45,010 45,010
Totals............................. 330,500 330,500
Depreciation expense,
musical equip......... b) 21,600 21,600 21,600
Salaries payable................ c) 6,100 6,100 6,100
Office supplies expense.... d) 650 650 650
Totals............................. 31,525 31,525 358,200 358,200 159,360 141,175 198,840 217,025
Loss................................... 18,185 18,185
Totals............................. 159,360 159,360 217,025 217,025
Part 4
$154,300 – $52,000 – $18,185 = $84,115
or
Jim Daley, Capital

154,300 (Beg. bal.)
(With.) 52,000
(Loss) 18,185
84,115 (End. bal.)

1. (a) Income = $36,800
2. (a)
Mar. 31 Income Summary............................................................... 36,800
Capital.......................................................................... 36,800
To close the income summary account to capital.
3. (a) Capital
63,000 (Beg. bal.)
$63,000 + $36,800 – $17,000 = $82,800 OR (With.) 17,000 36,800 (Profit)
82,800 (End. bal.)
1. (b) Loss = $60,000
2. (b)
Mar. 31 Capital................................................................................ 60,000
Income Summary.......................................................... 60,000
To close the income summary account to capital.
3. (b) Capital
114,000 (Beg. bal.)
$114,000 – $60,000 = $54,000 OR (Loss) 60,000
54,000 (End. bal.)
Ltd. 4-49

Debit Credit
Rent revenue............................................................................ 97,000
Salaries expense...................................................................... 35,000
Insurance expense................................................................... 4,100
Dock rental expense................................................................. 11,700
Boat supplies expense.............................................................. 5,920
Depreciation expense, boats.................................................... 21,200
Totals........................................................................................ 77,920 97,000
Profit.................................................................................. 19,080
Totals........................................................................................ 97,000 97,000

Dec. 31 Rent Revenue........................................................................... 97,000
Income Summary............................................................... 97,000
31 Income Summary...................................................................... 77,920

Salaries Expense............................................................... 35,000
Insurance Expense............................................................ 4,100
Dock Rental Expense........................................................ 11,700
Boat Supplies Expense..................................................... 5,920
Depreciation Expense, Boats............................................ 21,200
To close the expense accounts.
31 Income Summary...................................................................... 19,080

Carl Winston, Capital......................................................... 19,080
To close Income Summary.
31 Carl Winston, Capital................................................................ 17,700

Carl Winston, Withdrawals................................................. 17,700
To close the withdrawals account.
Ltd. 4-50
PROBLEMS
Problem 4-1A (75 minutes)

Part 1
TYBALT CONSTRUCTION
Income Statement
Revenues
Services revenue................................................................... $97,000
Rent revenue......................................................................... 14,000
Interest revenue.................................................................... 4,100
Total revenues...................................................................... $115,100
Expenses
Depreciation expense—Building........................................... 11,000
Depreciation expense—Equipment....................................... 6,000
Wages expense.................................................................... 52,900
Interest expense.................................................................... 5,100
Insurance expense................................................................ 10,000
Rent expense........................................................................ 13,400
Supplies expense.................................................................. 7,400
Property taxes expense........................................................ 5,000
Total expenses...................................................................... 110,800

Net income.............................................................................. $ 4,300
TYBALT CONSTRUCTION
Statement of Owner's Equity
O. Tybalt, Capital, December 31 previous year....................... $121,400
Add: Investments by owner................................................ $5,000
Net income................................................................. 4,300 9,300
...................................................................130,700
Less: Withdrawals by owner................................................ (13,000)
O. Tybalt, Capital, December 31 current year......................... $117,700
Ltd. 4-51
TYBALT CONSTRUCTION
Balance Sheet
December 31
Assets
Current assets
Cash ..................................................................$ 5,000
Supplies................................................................................31,100
Prepaid insurance................................................................ 7,000
Plant assets
Equipment............................................................................40,000
Accumulated depreciation—Equipment............................... (20,000)20,000
Building ..................................................................150,000
Accumulated depreciation—Building.................................... (50,000)100,000
Land ................................................................................ 55,000
Total plant assets................................................................. 175,000
Total assets............................................................................ $218,100
Liabilities
Current liabilities
Accounts payable.................................................................$ 16,500
Interest payable.................................................................... 2,500
Rent payable........................................................................ 3,500
Wages payable..................................................................... 2,500
Property taxes payable.........................................................900
Unearned revenue...............................................................14,500
Total current liabilities........................................................... $ 40,400

Long-term liabilities
Long-term notes payable...................................................... 60,000
Total liabilities......................................................................... 100,400
Equity
O. Tybalt, Capital ................................................................... 117,700
Total liabilities and equity....................................................... $218,100
Ltd. 4-52
Part 2
Closing entries (all dated December 31)
Instructor note: Entries are shown without an account reference column because no
posting is required.
(1)Services Revenue....................................................................... 97,000

Rent Revenue 14,000
Interest Revenue ................................................................4,100

Income Summary..................................................... 115,100
Close revenue accounts.
(2)Income Summary........................................................................ 110,800

Depreciation Expense—Building............................. 11,000
Depreciation Expense—Equipment......................... 6,000
Wages Expense....................................................... 52,900
Interest Expense...................................................... 5,100
Insurance Expense.................................................. 10,000
Rent Expense.......................................................... 13,400
Supplies Expense.................................................... 7,400
Property Taxes Expense......................................... 5,000
(3)Income Summary........................................................................ 4,300

O. Tybalt, Capital..................................................... 4,300
Close income summary account.
(4)O. Tybalt, Capital ....................................................................... 13,000

O. Tybalt, Withdrawals............................................. 13,000
Close the withdrawals account.
Ltd. 4-53
Part 1
Dec. 31 Repair Revenue............................................................. 157,630
Income Summary...................................................... 157,630
To close revenue to the income summary.
31 Income Summary........................................................... 174,990

Depreciation Expense, Equipment........................... 8,500
Wages Expense....................................................... 104,500
Insurance Expense................................................... 1,900
Rent Expense........................................................... 52,350
Office Supplies Expense.......................................... 4,800
Utilities Expense....................................................... 2,940
summary.
31 Mike Yang, Capital........................................................ 17,360

Income Summary...................................................... 17,360
Mike Yang, Capital........................................................ 36,000

Mike Yang, Withdrawals........................................... 36,000
Part 2
MY Autobody
December 31, 2023
Acct. No. Account Debit Credit
101 Cash............................................................... $ 28,000
124 Shop supplies................................................. 1,800
128 Prepaid insurance.......................................... 4,200
167 Equipment...................................................... 88,000
168 Accumulated depreciation, equipment........... $ 7,500
201 Accounts payable........................................... 19,000
210 Wages payable............................................... 8,860
301 Mike Yang, capital.......................................... 86,640
Totals.............................................................. $122,000 $122,000
Ltd. 4-54
MY AUTOBODY
Income Statement
Revenue:
Repair revenue..................................................... $157,630
Operating expenses:
Wages expense....................................................... $104,500
Rent expense........................................................... 52,350
Depreciation expense, equipment........................... 8,500
Office supplies expense........................................... 4,800
Utilities expense....................................................... 2,940
Insurance expense.................................................. 1,900
Total operating expenses................................. 174,990
Loss............................................................................. $ 17,360
MY AUTOBODY
Mike Yang, capital, January 1...................................... $140,000

Less: Loss................................................................. 17,360
Withdrawals..................................................... 36,000
Mike Yang, capital, December 31................................ $ 86,640
Ltd. 4-55
MY AUTOBODY
Balance Sheet
December 31, 2023
Assets
Current assets:
Cash........................................................................... $28,000
Shop supplies............................................................. 1,800
Prepaid insurance...................................................... 4,200
Total current assets.................................................... $ 34,000
Equipment.................................................................. $88,000
Less: Accumulated depreciation............................. 7,500 80,500
Total assets....................................................................... $114,500
Liabilities
Accounts payable....................................................... $19,000
Wages payable........................................................... 8,860
Total current liabilities................................................. $ 27,860
Equity
Mike Yang, capital ......................................................... 86,640
Analysis component:
As a creditor, I would review the current assets on the balance sheet to determine MY
Autobody’s ability to pay current obligations in 2024. At December 31, 2023 MY Autobody has
$34,000 in current assets of which $28,000 is cash and accounts payable total $19,000.
Therefore, as a creditor, although MY Autobody experienced a loss, its $34,000 of current
assets appear to be sufficient to meet its current obligations of $27,860.
Ltd. 4-56
Dec. 31 Professional Revenue..................................................... 199,480

Rent Revenue.................................................................. 22,500
Income Summary..................................................... 221,980
To close the revenue accounts.
31 Income Summary............................................................. 130,040

Depreciation Expense, Building............................... 19,300
Wages Expense....................................................... 63,300
Interest Expense...................................................... 540
Insurance Expense................................................... 17,300
Supplies Expense..................................................... 12,100
Telephone Expense................................................. 3,700
31 Income Summary............................................................. 91,940

Amar Lloyd, Capital.................................................. 91,940
To close the Income Summary account.
31 Amar Lloyd, Capital......................................................... 2,300

Amar Lloyd, Withdrawals.......................................... 2,300
Ltd. 4-57
Part 1
LLOYD CONSTRUCTION
Income Statement
Revenues:
Professional revenue............................................... $199,480
Rent revenue........................................................... 22,500
Total revenues.................................................... $221,980
Operating expenses:
Wages expense....................................................... $ 63,300
Depreciation expense, building................................ 19,300
Supplies expense.................................................... 12,100
Interest expense...................................................... 540
Telephone expense................................................. 3,700
Total operating expenses................................... 130,040
Profit............................................................................ $ 91,940
LLOYD CONSTRUCTION
Amar Lloyd, capital, January 1.................................... $ 17,640
Investments by owner.................................................. $68,000
Profit ......................................................................... 91,940 159,940
Total......................................................................... $177,580
Less: Withdrawals by owner........................................ 2,300
Amar Lloyd, capital, December 31............................... $175,280
Ltd. 4-58
LLOYD CONSTRUCTION
Balance Sheet
December 31, 2023
Assets
Current assets:
Cash........................................................................... $ 15,300
Current investments.................................................... 20,300
Supplies...................................................................... 6,900
Total current assets.................................................... $ 42,500
Notes receivable........................................................ 38,500
Land.......................................................................... $ 82,500
Building...................................................................... $253,000
Less: Accumulated depreciation............................ 137,500 115,500
Equipment................................................................. $ 71,000
Less: Accumulated depreciation............................ 34,500 36,500
Total property, plant and equipment.......................... 234,500
Intangible assets:
Franchise.................................................................. 27,500
Total assets.................................................................... $343,000
Liabilities
Accounts payable....................................................... $ 16,300
Interest payable.......................................................... 120
Unearned professional revenue................................. 26,300
Current portion of long-term notes payable................ 41,500
Total current liabilities................................................. $ 84,220
Long-term notes payable (less current portion).......... 83,500
Total liabilities................................................................ $167,720
Equity
Amar Lloyd, capital........................................................ 175,280
Ltd. 4-59
Problem 4-5A (concluded)
Analysis component:
Liabilities must be separated between those that are due within one year of the balance sheet
date (current) and those that are due beyond one year of the balance sheet date (non-current)
because decision makers must be able to assess whether the business has sufficient current
assets to cover its current obligations. If the $41500 current portion of the $125,000 long-term
note was not shown as a current liability on the balance sheet, it would have appeared that
Lloyd had sufficient current assets to cover its current liabilities when in fact it does not.
Part 1
General Journal
2023
a. Mar 31 Telephone Expense................................................. 365
Accounts Payable and Accrued Liabilities........ 365
To accrue the March telephone expense.
b. 31 Accounts Receivable............................................... 4,250

Revenue........................................................... 4,250
To record accrued revenues.
c. 31 Unearned Revenue.................................................. 1,840

Revenue........................................................... 1,840
To record amount of advance payment earned.
d. 31 Depreciation Expense, Equipment.......................... 1,170

Accumulated Depreciation, Equipment............. 1,170
To record depreciation expense.
Ltd. 4-60
Problem 4-6A (Continued)

Part 2
Adventure Elements
March 31, 2023
Acct. Account Debit Credit
No.
101 Cash......................................................................... $10,750
103 Accounts receivable (6,200+4,250).......................... 10,450
126 Supplies.................................................................... 475
141 Notes receivable, due January 1, 2026.................... 10,900
167 Equipment................................................................. 23,400
168 Accumulated depreciation, equipment $7,420
(6,250+1,170)...........................................................
194 Copyright.................................................................. 11,350
201 Accounts payable and accrued liabilities 4,865
(4,500+365)..............................................................
203 Unearned revenues (13,800 – 1,840)....................... 11,960
233 Long-term notes payable.......................................... 18,500
300 Becky Brenner, capital.............................................. 44,300
301 Becky Brenner, withdrawals...................................... 40,300
402 Revenues (74,070+4,250+1,840)............................. 80,160
606 Depreciation expense, equipment (0+1,170)............ 1,170
610 Rent expense............................................................ 9,800
612 Wages expense........................................................ 37,000
623 Interest expense....................................................... 525
633 Insurance expense................................................... 2,660
637 Supplies expense..................................................... 2,580
652 Telephone expense (2,980 + 365)............................ 3,345
688 Utilities expense........................................................ 2,500
Totals........................................................................ $167,205 $167,205
Ltd. 4-61
Problem 4-6A (Concluded)
Part 3

March 31 Revenues................................................... 80,160
Income Summary.................................. 80,160
To close the revenue account to the income
summary.
31 Income Summary....................................... 59,580

Depreciation Expense, Equipment........ 1,170
Insurance Expense................................ 2,660
Interest Expense................................... 525
Rent Expense........................................ 9,800
Supplies Expense.................................. 2,580
Telephone Expense.............................. 3,345
Utilities Expense.................................... 2,500
Wages Expense.................................... 37,000
To close expense accounts to the income
summary.
31 Income Summary....................................... 20,580

Becky Brenner, Capital.......................... 20,580
31 Becky Brenner, Capital............................... 40,300

Becky Brenner, Withdrawals................. 40,300
Ltd. 4-62

Adventure Elements
Income Statement
For Year Ended March 31, 2023
Revenues.......................................................................... $80,160
Operating expenses:
Wages expense.............................................................. $37,000
Rent expense................................................................. 9,800
Telephone expense........................................................ 3,345
Insurance expense......................................................... 2,660
Supplies expense........................................................... 2,580
Utilities expense............................................................. 2,500
Depreciation expense, equipment.................................. 1,170
Interest expense............................................................. 525

Total operating expenses............................................. 59,580
Profit.................................................................................. $20,580
Adventure Elements
Becky Brenner, capital, April 1.......................................... $32,300
Profit.................................................................................. $20,580
Investments by owner ....................................................... 12,000 32,580
Total............................................................................. $64,880
Less: Withdrawals for the year........................................ 40,300
Becky Brenner, capital, March 31...................................... $24,580
Ltd. 4-63
Adventure Elements
Balance Sheet
March 31, 2023
Assets
Current assets:.............................................................
Cash........................................................................ $ 10,750
Accounts receivable................................................ 10,450
Supplies................................................................... 475
Total current assets................................................. $21,675
Notes receivable........................................................ 10,900
Equipment................................................................. $23,400
Less: Accumulated depreciation......................... 7,420 $15,980
Intangible assets:
Copyright.................................................................. 11,350
Total assets....................................................................... $59,905
Liabilities
Accounts payable.................................................... $4,865
Unearned revenues................................................. 11,960
Current portion of long-term notes payable............. 3,800
Total current liabilities.............................................. $20,625
Long-term notes payable (less current portion)........ 14,700
Total liabilities.............................................................. $35,325
Equity
Becky Brenner, capital.................................................. 24,580
Analysis component:
Because the current ratio is so low Adventure Elements might be tempted to report the notes
receivable as a current asset on the March 31, 2023 balance sheet because total current
assets would then be greater than total current liabilities giving the misimpression that Brenner
is in a position to cover its current obligations. However, that would be unethical to mis-report
current assets.
Ltd. 4-64
1.
Apex Architectural Designs

Income Statement
For Year Ended June 30, 2023
Revenues:
Design revenue............................................................................ $135,000
Operating expenses:
Salaries expense......................................................................... $64,400
Supplies expense......................................................................... 2,100
Depreciation expense, office equipment...................................... 1,700
Telephone expense..................................................................... 1,550
Depreciation expense, office furniture......................................... 840
Utilities expense........................................................................... 2,650
Interest expense.......................................................................... 340
Insurance expense....................................................................... 1,190
Total operating expenses.......................................................... 74,770
Profit.................................................................................................. $ 60,230
2. $85,500 + $60,230 – $34,500 = $111,230
OR
Nolan Apex, Capital

85,500 (Beg. bal.)
(With.) 34,500 60,230 (Profit)
111,230 (End. bal.)
Ltd. 4-65
IMPRESSIONS DANCE SCHOOL

Income Statement
For Year Ended September 30, 2023
Revenues:
Dance lesson revenue................................................ $153,680
Rent revenue............................................................... 20,800
Total revenues........................................................ $174,480
Operating expenses:
Salaries expense........................................................ $172,000
Gas, oil, and repairs expense..................................... 29,400
Depreciation expense, building.................................. 28,200
Depreciation expense, automobiles........................... 6,900
Total operating expenses....................................... 236,500
Loss................................................................................... $ 62,020
IMPRESSIONS DANCE SCHOOL

Alisha Bjorn, capital, October 1......................................... $164,960
Less: Loss........................................................................ $62,020
Withdrawals............................................................ 10,000 72,020
Alisha Bjorn, capital, September 30.................................. $ 92,940
Ltd. 4-66
Problem 4-9A (continued)
2.
Impressions Dance School
Balance Sheet
September 30, 2023
Assets
Current assets:
Cash..................................................................................... $11,400
Accounts receivable............................................................. 13,300
Store supplies....................................................................... 4,180
Land for future expansion..................................................... 48,000

Land..................................................................................... $32,700
Building................................................................................. $234,000
Automobiles.......................................................................... $ 70,000
Total property, plant and equipment..................................... 134,540
Intangible assets:
Copyright............................................................................ $ 6,700
Brand name........................................................................ 8,600 15,300
Total assets.............................................................................. $226,720
Liabilities
Accounts payable............................................................. $ 22,480
Unearned revenue............................................................ 23,300
Total current liabilities.................................................... $45,780
Note payable, due in 18 months....................................... 88,000
Total liabilities....................................................................... $133,780
Equity
Alisha Bjorn, capital.............................................................. 92,940
Total liabilities and equity......................................................... $226,720
Ltd. 4-67
Analysis component:
The business experienced a loss for the year ended September 30, 2023. It has current assets
that are less than current liabilities at September 30, 2023 and, in the longer term, there is a note
payable that is due 18 months from September 30, 2023. The business does not have the ability
to meet current obligations let alone a new one that would be created by the purchase of a new
car. However, if Alisha were to sell the Land for future expansion, a non-current investment, she
may be able to meet current liabilities and consider buying a new car. But then there is the issue
of the loss: will this be ongoing? If so, the sale of the land might provide only temporary relief
and the purchase of the car would complicate things for the business in the long-term.

Part 1
Wyett North, capital = $415,780 – $28,000 + $132,995 = $520,775
OR
Wyett North, Capital

415,780 (Beg. bal.)
(With.) 28,000 132,995* (Profit)
520,775 (End. bal.)
*Profit = Revenues – Expenses

= 398,400 – (16,200 + 25,000 + 3,500 + 10,260 + 41,000 + 126,625 + 6,100 + 36,720)
= 398,400 – 265,405
= 132,995
Ltd. 4-68
Part 2
North Country Rentals

Balance Sheet
March 31, 2023
Assets
Current assets:
Cash............................................................................... $ 17,000
Rent receivable.............................................................. 16,000
Office supplies................................................................ 700
Prepaid advertising........................................................ 400
Current portion of notes receivable................................ 55,000
Total current assets........................................................ $ 89,100
Notes receivable, less current portion............................ 88,000
Land............................................................................... $110,000
Building.......................................................................... $591,000
Less: Accumulated depreciation................................. 25,000 566,000
Furniture......................................................................... $ 42,800
Less: Accumulated depreciation................................. 3,500 39,300
Total property, plant and equipment.............................. 715,300
Intangible assets:
Brand name................................................................... 3,000
Total assets........................................................................... $895,400
Liabilities
Accounts payable........................................................... $ 9,100
Interest payable.............................................................. 900
Salaries payable............................................................. 2,625
Current portion of long-term notes payable.................... 215,000
Total current liabilities..................................................... $227,625
Long-term notes payable, less current portion............... 147,000
Total liabilities.................................................................... $374,625
Equity
Wyett North, capital............................................................ 520,775
Total liabilities and equity...................................................... $895,400
4-69
Problem 4-10A (Continued)
Part 3
Current Ratio =$89,100 / $227,625
=0.39
Debt to Equity Ratio =$374,625 / $520,775
=0.72
Analysis component:
It is reasonable to assume that the $362,000 in addition to the owner’s original investment was used
to acquire property, plant and equipment assets. Since the purpose of property, plant and
equipment assets is to generate revenues, borrowing to purchase them is generally considered a
good reason to borrow (provided the debt can be serviced).
4-70
Problem 4-11A (90 minutes) Part 2
NOTE: The general ledger accounts are shown at the end of the solution (in both balance column
and T-account format) as they would appear after all entries have been posted.
Transactions for June (The account numbers in the PR column below would be included only during
the posting of these journal entries into the ledger accounts in Part 2 of Problem 4-10A) :
General Journal Page G1

Date Account Titles and Explanation PR Debit Credit
2023
June 1 Cash........................................................................ 101 40,000
Furniture.................................................................. 160 5,000
Computer Equipment............................................... 167 60,000
Sam Near, Capital............................................ 301 105,000
To record the owner’s initial investment.
2 Rent Expense.......................................................... 640 3,200
Cash................................................................. 101 3,200
Paid one month of rent.
3 Office Supplies......................................................... 124 2,400
Cash................................................................. 101 2,400
Acquired office supplies.
10 Prepaid Insurance.................................................... 128 7,200
Cash................................................................. 101 7,200
Paid one year’s premium in advance.
14 Salaries Expense..................................................... 622 3,600
Cash................................................................. 101 3,600
Paid two weeks salary.
24 Cash........................................................................ 101 13,600
Commissions Revenue..................................... 405 13,600
Collected commissions from airlines.
28 Salaries Expense..................................................... 622 3,600

Cash................................................................. 101 3,600
Paid two weeks salary.
29 Telephone Expense................................................. 688 3,500
Cash................................................................. 101 3,500
Paid the telephone bill.
30 Repairs Expense..................................................... 684 700
Accounts Payable............................................. 201 700
Repaired the computer on account.
30 Sam Near, Withdrawals........................................... 302 2,850
Cash................................................................. 101 2,850
Owner’s withdrawal of cash.
4-71
Part 3
a) June 30 Insurance Expense................................................................ 637 400
Prepaid Insurance........................................................... 128 400
To record expired insurance (2/3 × $600 per month).
b) 30 Office Supplies Expense........................................................ 650 800

Office Supplies................................................................ 124 800
($2,400 – $1,600).
c) 30 Depreciation Expense, Furniture. .......................................... 610 400

Accumulated Depreciation, Furniture. ............................ 161 400
To record depreciation.
30 Depreciation Expense, Computer Equip. .............................. 612 1,650

Accumulated Depreciation, Computer Equip. ................ 168 1,650
d) 30 Salaries Expense................................................................... 622 320

Salaries Payable............................................................. 209 320
To record accrued salaries.
e) 30 Accounts Receivable.............................................................. 106 3,500

Commissions Revenue................................................... 405 3,500
To record accrued commissions.
Note: The account numbers in the PR column above would be included only during the
posting of these journal entries into the ledger accounts in Part 3 of Problem 4-11A.
Ltd. 4-72
Part 4
TOURS-FOR-LESS
Income Statement
For Month Ended June 30, 2023
Revenues:
Commissions revenue..................................................................... $17,100
Operating expenses:
Salaries expense............................................................................. $7,520
Telephone expense......................................................................... 3,500
Rent expense.................................................................................. 3,200
Depreciation expense, computer equipment................................... 1,650
Office supplies expense.................................................................. 800
Repairs expense.............................................................................. 700
Depreciation expense, furniture....................................................... 400
Insurance expense.......................................................................... 400
Total operating expenses......................................................... 18,170
Loss........................................................................................................ $ 1,070
TOURS-FOR-LESS
For Month Ended June 30, 2023
Sam Near, capital, June 1...................................................................... $ 0

Investment by owner............................................................................... 105,000
Total.................................................................................................. $105,000
Less: Withdrawals by owner................................................................. $2,850
Loss............................................................................................ 1,070 3,920
Sam Near, capital, June 30.................................................................... $101,080
Ltd. 4-73
Part 4
TOURS-FOR-LESS
Balance Sheet
June 30, 2023
Assets
Current assets:
Cash........................................................................................ $27,250
Accounts receivable................................................................ 3,500
Office supplies........................................................................ 1,600
Computer equipment............................................................... $60,000
Less: Accumulated depreciation.......................................... 1,650 $58,350
Furniture.................................................................................. $ 5,000
Less: Accumulated depreciation.......................................... 400 4,600
Total property, plant and equipment........................................ 62,950
Total assets.................................................................................... $102,100
Liabilities
Current liabilities
Accounts payable.................................................................... $ 700
Salaries payable..................................................................... 320
Total liabilities........................................................................... $ 1,020
Equity
Sam Near, capital....................................................................... 101,080
Total liabilities and equity............................................................... $102,100
Ltd. 4-74
Part 5

June 30 Commissions Revenue.................................................. 405 17,100
Income Summary.................................................... 901 17,100
30 Income Summary........................................................... 901 18,170

Depreciation Expense, Furniture............................ 610 400
Depreciation Expense, Computer Equipment......... 612 1,650
Salaries Expense.................................................... 622 7,520
Insurance Expense................................................. 637 400
Rent Expense......................................................... 640 3,200
Office Supplies Expense........................................ 650 800
Repairs Expense.................................................... 684 700
Telephone Expense................................................ 688 3,500
To close the expenses to the income summary.
30 Sam Near, Capital......................................................... 301 1,070

Income Summary.................................................... 901 1,070
30 Sam Near, Capital......................................................... 301 2,850

Sam Near, Withdrawals.......................................... 302 2,850
Note: The account numbers in the PR column above would be included only during the
posting of these journal entries into the ledger accounts in Part 5 of Problem 4-13A.
Ltd. 4-75
Part 6
TOURS-FOR-LESS
June 30, 2023
Acct. No. Account
101 Cash........................................................................................ $ 27,250
106 Accounts receivable................................................................ 3,500
124 Office supplies......................................................................... 1,600
128 Prepaid insurance................................................................... 6,800
160 Furniture.................................................................................. 5,000
161 Accumulated depreciation, furniture........................................ $ 400
167 Computer equipment............................................................... 60,000
168 Accumulated depreciation, computer equipment.................... 1,650
201 Accounts payable.................................................................... 700
209 Salaries payable...................................................................... 320
301 Sam Near, capital.................................................................... 101,080
Totals....................................................................................... $104,150 $104,150
Parts 1, 2, 3, 5
Ledger as of June 30 (using the balance column format):
Cash Acct. No. 101

Date Explanation PR Debit Credit Balance
2023
June 1 G1 40,000 40,000
2 G1 3,200 36,800
3 G1 2,400 34,400
10 G1 7,200 27,200
14 G1 3,600 23,600
24 G1 13,600 37,200
28 G1 3,600 33,600
29 G1 3,500 30,100
30 G1 2,850 27,250
Accounts Receivable Acct. No. 106

2023
June 30 G2 3,500 3,500
Ltd. 4-76
Problem 4-11A (continued) Parts 1, 2, 3, 5
Office Supplies Acct. No. 124

2023
June 3 G1 2,400 2,400
30 G2 800 1,600
Prepaid Insurance Acct. No. 128

2023
June 10 G1 7,200 7,200
30 G2 400 6,800
Furniture Acct. No. 160

2023
June 1 G1 5,000 5,000
Accumulated Depreciation, Furniture Acct. No. 161

2023
June 30 G2 400 400
Computer Equipment Acct. No. 167

2023
June 1 G1 60,000 60,000
Accumulated Depreciation, Computer Equipment Acct. No. 168

2023
June 30 G2 1,650 1,650
Accounts Payable Acct. No. 201

2023
June 30 G2 700 700
Salaries Payable Acct. No. 209

2023
June 30 G2 320 320
Ltd. 4-77
Parts 1, 2, 3, 5
Sam Near, Capital Acct. No. 301

2023
June 1 G1 105,000 105,000
30 G3 1,070 103,930
30 G3 2,850 101,080
Sam Near, Withdrawals Acct. No. 302

2023
June 30 G1 2,850 2,850
30 G3 2,850 0
Commissions Revenue Acct. No. 405

2023
June 24 G1 13,600 13,600
30 G2 3,500 17,100
30 G3 17,100 0
Depreciation Expense, Furniture Acct. No. 610

2023
June 30 G2 400 400
30 G3 400 0
Depreciation Expense, Computer Equipment Acct. No. 612

2023
June 30 G2 1,650 1,650
30 G3 1,650 0
Salaries Expense Acct. No. 622

2023
June 14 G1 3,600 3,600
28 G1 3,600 7,200
30 G2 320 7,520
30 G3 7,520 0
Ltd. 4-78
Parts 1, 2, 3, 5
Insurance Expense Acct. No. 637

2023
June 30 G2 400 400
30 G3 400 0
Rent Expense Acct. No. 640

2023
June 2 G1 3,200 3,200
30 G3 3,200 0
Acct. No. 650
Office Supplies Expense

2023
June 30 G2 800 800
30 G3 800 0
Repairs Expense Acct. No. 684

2023
June 30 G1 700 700
30 G3 700 0
Telephone Expense Acct. No. 688

2023
June 29 G1 3,500 3,500
30 G3 3,500 0
Income Summary Acct. No. 901

2023
June 30 G3 17,100 17,100
30 G3 18,170 1,070
30 G3 1,070 0
Ltd. 4-79

Parts 1, 2, 3, 5
Ledger as of June 30 (using the T-account format):

Cash 101 Accounts Receivable 106 Office Supplies 124
Jun 1 40,000 3,200 Jun 2 Jun 30 3,500 Jun 3 2,400 800 Jun 30
24 13,600 2,400 3 Bal. 1,600
7,200 10
3,600 14 Prepaid Insurance 128 Furniture 160
3,600 28 Jun 1 7,200 400 Jun 30 Jun 1 5,000
3,500 29 Bal. 6,800
2,850 30
Bal. 27,250
Accum. Deprec., Computer
Accum. Dep., Furniture 161 Computer Equipment 167 Equipment 168
400 Jun 30 Jun 1 60,000 1,650 Jun 30
Accounts Payable 201 Sam Near, Capital 301 Sam Near, Withdrawals 302
700 Jun 30 Jun 30 1,070 105,000 Jun 1 Jun 30 2,850 2,850 Jun 30
30 2,850
101,080 Bal. Bal. -0-
Salaries Payable 209
320 Jun 30

Parts 1, 2, 3, 5
Deprec. Expense, Deprec. Expense,

Commissions Revenue 405 Furniture 610 Computer Equip. 612
Jun 30 17,100 13,600 Jun 24 Jun 30 400 400 Jun 30 Jun 30 1,650 1,650 Jun 30
3,500 30
-0- Bal. Bal. -0- Bal. -0-
Salaries Expense 622 Insurance Expense 637 Rent Expense 640

Jun 14 3,600 7,520 Jun 30 Jun 30 400 400 Jun 30 Jun 2 3,200 3,200 Jun 30
28 3,600 Bal. -0- Bal. -0-
30 320
Bal. -0-
Office Supplies Expense 650 Repairs Expense 684 Telephone Expense 688
Jun 30 800 800 Jun 30 Jun 30 700 700 Jun 30 Jun 29 3,500 3,500 Jun 30
Bal. -0- Bal. -0- Bal. -0-
Income Summary 901

Jun 30 18,170 17,100 Jun 30
Bal. 1,070 1,070 30
Bal. -0-
2020 2019
Current ratio =$382,239,000 / $297,085,000 =$399,732,000 / $235,605,000
=1.29 =1.70
Quick ratio =($120,473,000 + $7,640,000) / =($41,290,000 +

$297,085,000 $87,150,000+10,543,000) /
$235,605,000
=0.43
=.59
Debt to equity ratio =$798,965,000 / $84,005,000 =$240,348,000 / $370,116,000
=9.51 =.65
Comments:
Indigo’s current ratio has declined slightly from 2019 to 2020 from 1.70 to 1.29, respectively.
The company’s quick ratio has also declined from 2019 to 2020 from .59 to 0.43, respectively.
These results indicate that the company has lower liquidity in 2020 compared to 2019. As most
of the company’s current assets are in inventories, the quick ratio provides a better picture of
Indigo’s more liquid assets.
The debt to equity ratio decreased from 2019 to 2020 from .65 to 9.51, respectively. This
means that in 2019 Indigo’s assets were financed by approximately 39%, but this percent
increased dramatically to 90% debt in 2020. Indigo’s also experienced a large deficit in 2020,
which translated to a negative retained earnings value for that year.
Being able to compare Indigo’s ratios with its competitors and other companies in the industry
would provide a better picture of the company’s performance.
Problem 4-13A* (30 minutes)
Part 1
a) Dec. 31 Salaries Expense....................................................... 1,600
Salaries Payable................................................. 1,600
b) 31 Supplies Expense...................................................... 5,400

Supplies.............................................................. 5,400
To record cost of consumed supplies;
$9,000 - $3,600 on hand = $5,400 used.
c) 31 Interest Expense........................................................ 2,500

Interest Payable.................................................. 2,500
To record accrued interest expense.
d) 31 Unearned Membership Revenue............................... 16,000

Membership Revenue......................................... 16,000
To record earned revenue;
$48,000 - $32,000 still unearned = $16,000 earned.
e) 31 Accounts Receivable.................................................. 24,000

Membership Revenue......................................... 24,000
f) 31 Depreciation Expense, Equipment............................. 30,000

Accumulated Depreciation, Equipment............... 30,000
Problem 4-13A* (concluded)
Part 2
2024 Reversing entries:
a) Jan. 1 Salaries Payable........................................................ 1,600
Salaries Expense................................................ 1,600
To reverse accrued salaries.
c) 1 Interest Payable......................................................... 2,500

Interest Expense................................................. 2,500
To reverse accrued interest expense.
e) 1 Membership Revenue................................................ 24,000

Accounts Receivable.......................................... 24,000
To reverse accrued revenues.
Part 3
2024
Jan. 8 Salaries Expense.......................................................... 2,400
Cash...................................................................... 2,400
To record payroll.
15 Interest Expense........................................................... 3,000

Cash...................................................................... 3,000
To record interest payment.
21 Cash ($24,000 + $14,000)............................................ 38,000

Membership Revenue............................................ 38,000
To record collection of membership revenue.
*Problem 4-14A (30 minutes)

Silva Rentals
Work Sheet
Balance Sheet &
Unadjusted Trial Statement of
Account Balance Adjustments Adjusted Trial Balance Income Statement Changes in Equity
Number Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
101 Cash..........................................................................................................................................
7,000 7,000 7,000
110 Rent receivable..........................................................................................................................
31,000 a) 5,000 36,000 36,000
124 Office supplies...........................................................................................................................
2,250 b) 1,830 420 420
141 Notes receivable, due 2023..........................................................................................................
46,000 46,000 46,000
161 Furniture.....................................................................................................................................
16,000 16,000 16,000
173 Building......................................................................................................................................
216,000 216,000 216,000
183 Land...........................................................................................................................................
41,000 41,000 41,000
191 Patent.........................................................................................................................................
9,600 9,600 9,600
201 Accounts payable.......................................................................................................................
13,750 f) 2,620 16,370 16,370
252 Long-term note payable.............................................................................................................
175,000 175,000 175,000
301 Stephen Silva, capital.................................................................................................................
90,250 90,250 90,250
302 Stephen Silva, withdrawals........................................................................................................
92,000 92,000 92,000
406 Rent revenue.............................................................................................................................
328,800 a) 5,000 333,800 333,800
620 Office salaries expense..............................................................................................................
52,000 d) 1,920 53,920 53,920
633 Interest expense........................................................................................................................
5,250 g) 425 5,675 5,675
655 Advertising expense...................................................................................................................
14,600 e) 2,400 12,200 12,200
673 Janitorial expense......................................................................................................................
41,000 41,000 41,000
690 Utilities expense.........................................................................................................................
34,100 f) 2,620 36,720 36,720
Totals..................................................................................................................................
607,800 607,800
650 Office supplies expense.............................................................................................................
b) 1,830 1,830 1,830
601 Depreciation expense, furniture.....................................................................................................
c) 3,500 3,500 3,500
162 Accumulated deprec., furniture..................................................................................................
c) 3,500 3,500 3,500
606 Deprec. expense, building..........................................................................................................
c) 25,000 25,000 25,000
174 Accumulated deprec., building...................................................................................................
c) 25,000 25,000 25,000
209 Salaries payable........................................................................................................................
d) 1,920 1,920 1,920
131 Prepaid advertising....................................................................................................................
e) 2,400 2,400 2,400
203 Interest payable.........................................................................................................................
g) 425 425 425
Totals..................................................................................................................................
42,695 42,695 646,265 646,265 179,845 333,800 466,420 312,465
Profit.......................................................................................................................................... 153,955 153,955
Totals.................................................................................................................................. 333,800 333,800 466,420 466,420
Parts 1, 2, and 3
Trenton Consulting
Work Sheet
Balance Sheet &
Balance Adjustments Balance Income Statement Changes in Equity
Cash.................................... 680 680 680
Accounts receivable............ 2,900 d) 4,100 7,000 7,000
Prepaid rent........................ 3,660 b) 2,440 1,220 1,220
Equipment........................... 9,600 9,600 9,600
Accounts payable................ 1,730 1,730 1,730
Toni Trenton, capital........... 26,650 26,650 26,650
Toni Trenton, withdrawals ... 6,880 6,880 6,880
Consulting revenue............. 30,200 d) 4,100 34,300 34,300
Wages expense.................. 24,920 c) 3,200 28,120 28,120
Insurance expense.............. 1,620 1,620 1,620
Rent expense...................... 8,320 b) 2,440 10,760 10,760
Totals............................... 58,580 58,580
Depreciation expense......... a) 1,500 1,500 1,500
Accumulated depreciation,
equip. ................................. a) 1,500 1,500 1,500
Wages payable................... c) 3,200 3,200 3,200
Totals............................... 11,240 11,240 67,380 67,380 42,000 34,300 25,380 33,080
Loss.................................... 7,700 7,700
Totals............................... 42,000 42,000 33,080 33,080
Part 4
Toni Trenton, Capital
26,650 (Beg. bal.)
$26,650 – $6,880 – $7,700 = $12,070 (With.) 6,880
OR
(Loss) 7,700
12,070 (End. bal.)
Analysis component:
A loss causes the equity in the accounting equation to decrease. To offset the decrease in
equity, liabilities would have to increase and/or assets would have to decrease.
Ltd. 4-88

Part 1
CHALLENGER CONSTRUCTION
Work Sheet
Balance Sheet &

Unadjusted Adjusted Trial Statement of Changes
Trial Balance Adjustments Balance Income Statement in Equity
No. Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
101 22,000
Cash............................................................ 22,000 22,000
126 17,200
Supplies..................................................... (a) 14,000 3,200 3,200
128 Prepaid insurance...................................... 9,600 (b) 8,400 1,200 1,200
149 Land not currently used in op.................... 50,000 50,000 50,000
167 106,000
Equipment................................................. 106,000 106,000
168 Accum. deprec., equipment...................... 40,500 (c) 17,600 58,100 58,100
191 6,000
Copyright................................................... 6,000 6,000
201 Accounts payable........................................ 8,100 (d) 750 8,850 8,850
203 Interest payable........................................... (f) 120 120 120
210 Wages payable........................................... (e) 4,200 4,200 4,200
251 Long-term notes payable............................ 50,000 50,000 50,000
301 Chris Challenger, capital............................. 71,000 71,000 71,000
302 Chris Challenger, withdrawals................... 68,000 68,000 68,000
401 Construction revenue................................ 255,620 255,620 255,620
612 Deprec. expense, equipment..................... (c) 17,600 17,600 17,600
623 Wages expense......................................... 96,000 (e) 4,200 100,200 100,200
633 Interest expense........................................ 1,200 (f) 120 1,320 1,320
637 Insurance expense.................................... (b) 8,400 8,400 8,400
640 26,400
Rent expense.............................................. 26,400 26,400
652 Supplies expense........................................ (a) 14,000 14,000 14,000
683 Business taxes expense............................. 10,000 10,000 10,000
684 Repairs expense........................................ 5,020 5,020 5,020
690 Utilities expense........................................ 7,800 (d) 750 8,550 8,550
425,220
Totals..................................................... 425,220 45,070 45,070 447,890 447,890 191,490 255,620 256,400 192,270
Profit.......................................................... 64,130 64,130
Totals....................................................... 255,620 255,620 256,400 256,400
*Problem 4-16A (continued)
Part 2
a) Sept. 30 Supplies Expense............................................................. 14,000
Supplies..................................................................... 14,000
To record consumption of supplies.
b) 30 Insurance Expense........................................................... 8,400

Prepaid Insurance..................................................... 8,400
To record consumption of insurance coverage.
c) 30 Depreciation Expense, Equipment................................... 17,600

Accumulated Depreciation, Equipment..................... 17,600
d) 30 Utilities Expense............................................................... 750

Accounts Payable...................................................... 750
To record accrued utilities costs.
e) 30 Wages Expense............................................................... 4,200

Wages Payable......................................................... 4,200
f) 30 Interest Expense............................................................... 120

Interest Payable........................................................ 120
Ltd. 4-90
Part 2 (continued)

Sept. 30 Construction Revenue........................................................ 255,620
Income Summary........................................................ 255,620
30 Income Summary................................................................ 191,490

Depreciation Expense, Equipment.............................. 17,600
Wages Expense.......................................................... 100,200
Interest Expense......................................................... 1,320
Insurance Expense...................................................... 8,400
Rent Expense.............................................................. 26,400
Supplies Expense........................................................ 14,000
Business Taxes Expense............................................ 10,000
Repairs Expense......................................................... 5,020
Utilities Expense.......................................................... 8,550
To close the expense accounts to the Income
Summary account.
30 Income Summary................................................................ 64,130

Chris Challenger, Capital............................................. 64,130
To close the Income Summary account to capital.
30 Chris Challenger, Capital.................................................... 68,000

Chris Challenger, Withdrawals.................................... 68,000
To close the withdrawals account to capital.
Ltd. 4-91
Part 3
Income Statement
Revenues:
Construction revenue................................................. $255,620
Operating expenses:
Wages expense.......................................................... $100,200
Rent expense............................................................. 26,400
Depreciation expense, equipment.............................. 17,600
Supplies expense....................................................... 14,000
Business taxes expense............................................. 10,000
Utilities expense......................................................... 8,550
Insurance expense..................................................... 8,400
Repairs expense........................................................ 5,020
Interest expense......................................................... 1,320
Total operating expenses....................................... 191,490
Profit.................................................................................. $ 64,130
Chris Challenger, capital, October 1.................................. $ 46,000

Investments by owner........................................................ $25,000
Profit.................................................................................. 64,130 89,130
Total............................................................................... $135,130
Less: Withdrawals............................................................. 68,000
Chris Challenger, capital, September 30........................... $ 67,130
Ltd. 4-92
*Problem 4-16A (concluded)
Balance Sheet
September 30, 2023
Assets
Current assets:
Cash............................................................................... $ 22,000
Supplies......................................................................... 3,200
Prepaid insurance.......................................................... 1,200
Total current assets........................................................ $ 26,400
Land not currently used in operations........................... 50,000
Equipment..................................................................... $106,000
Less: Accumulated depreciation................................ 58,100 47,900
Intangible assets:
Copyright....................................................................... 6,000
Total assets........................................................................... $130,300
Liabilities
Accounts payable........................................................... $ 8,850
Interest payable.............................................................. 120
Wages payable.............................................................. 4,200
Current portion of long-term notes payable.................... 16,000
Total current liabilities..................................................... $29,170
Long-term notes payable (less current portion).............. 34,000
Total liabilities.................................................................... $ 63,170
Equity
Chris Challenger, capital.................................................... 67,130
Analysis component:
a) No, the error will not be discovered in completing the worksheet because it will balance.
Profit will be overstated by $10,800 (= $14,000 – $3,200) as a result and Supplies on the
balance sheet will be overstated by $10,800.
b) Yes, the error will be discovered in completing the worksheet because the worksheet will
not balance.
Ltd. 4-93
ALTERNATE PROBLEMS
Problem 4-1B (75 minutes)

Part 1
ANARA CO.
Income Statement
Revenues
Services revenue................................................................... $59,600
Rent revenue......................................................................... 4,500
Interest revenue.................................................................... 2,320

Total revenues...................................................................... $66,420
Expenses
Depreciation expense—Building........................................... 2,000
Depreciation expense—Equipment....................................... 1,000
Wages expense.................................................................... 22,030
Interest expense.................................................................... 1,550
Insurance expense................................................................ 1,525
Rent expense........................................................................ 3,600
Supplies expense.................................................................. 1,000
Property taxes expense........................................................ 4,825
Total expenses...................................................................... 37,530

Net income.............................................................................. $28,890
ANARA CO.
Statement of Owner's Equity
P. Anara, Capital, December 31 (prior year)........................... $ 52,800
Add: Investments by owner.................................................... $40,000
Net income.................................................................... 28,890 68,890
....................................................................121,690
Less: Withdrawals by owner.................................................... (8,000)
P. Anara, Capital, December 31 (current year)....................... $113,690
Ltd. 4-94
ANARA CO.
Balance Sheet
December 31
Assets
Current assets
Cash ................................................................................$ 7,400
Supplies................................................................................ 15,800
Prepaid insurance................................................................ 1,000
Plant assets
Equipment............................................................................$24,000
Accumulated depreciation—Equipment............................... (4,000)20,000
Building ..................................................................100,000
Accumulated depreciation—Building.................................... (10,000)90,000
Land ................................................................................ 30,500
Total plant assets................................................................. 140,500
Total assets............................................................................ $164,700
Liabilities
Current liabilities
Accounts payable................................................................. $ 3,500
Interest payable.................................................................... 1,750
Rent payable........................................................................ 400
Wages payable..................................................................... 1,280
Property taxes payable......................................................... 3,330
Unearned revenue............................................................... 9,150
Total current liabilities........................................................... $ 19,410

Long-term liabilities
Long-term notes payable...................................................... 31,600
Total liabilities......................................................................... 51,010
Equity
P. Anara, Capital.................................................................... 113,690
Total liabilities and equity....................................................... $164,700
Ltd. 4-95
Part 2
Closing entries (all dated December 31)
Instructor note: Entries are shown without an account reference column because no
posting is required.
(1)Services Revenue....................................................................... 59,600

Rent Revenue 4,500
Interest Revenue ................................................................2,320

Income Summary..................................................... 66,420
Close revenue accounts.
(2)Income Summary........................................................................ 37,530

Depreciation Expense—Building............................. 2,000
Depreciation Expense—Equipment......................... 1,000
Wages Expense....................................................... 22,030
Rent Expense.......................................................... 3,600
Property Taxes Expense......................................... 4,825
(3)Income Summary........................................................................ 28,890

P. Anara, Capital...................................................... 28,890
Close Income Summary account.
(4)P. Anara, Capital........................................................................ 8,000

P. Anara, Withdrawals............................................. 8,000
Close withdrawals account.
Ltd. 4-96
Part 1

Dec. 31 Sewing Revenue............................................................. 109,920
Income Summary..................................................... 109,920
To close the revenue.
31 Income Summary............................................................. 79,920

Wages Expense....................................................... 61,200
Rent Expense.......................................................... 4,800
Store Supplies Expense........................................... 2,600
31 Income Summary............................................................. 30,000

Vy Dillan, Capital...................................................... 30,000
31 Vy Dillan, Capital............................................................. 32,000

Vy Dillan, Withdrawals............................................. 32,000
Part 2
Dillan’s Tailoring Services

December 31, 2023
Acct.
101 Cash................................................................... $15,500
125 Store supplies.................................................... 6,500
128 Prepaid insurance.............................................. 3,800
167 Equipment.......................................................... 61,000
168 Accumulated depreciation, equipment............... $19,700
201 Accounts payable............................................... 39,400
210 Wages payable.................................................. 6,400
301 Vy Dillan, capital*............................................... 21,300
Totals................................................................. $86,800 $86,800
*Beginning capital $23,300 + Profit $30,000 – Withdrawals $32,000 =

Ending capital $21,300
Ltd. 4-97
Part 1
DILLAN’S TAILORING SERVICES
Income Statement
Revenue:
Sewing revenue....................................................... $109,920
Operating expenses:
Wages expense....................................................... $61,200
Rent expense........................................................... 4,800
Store supplies expense........................................... 2,600
Total operating expenses..................................... 79,920
Profit............................................................................ $ 30,000

Vy Dillan, capital, January 1........................................ $23,300
Profit ........................................................................... 30,000
Total......................................................................... $53,300
Less: Withdrawals........................................................ 32,000
Vy Dillan, capital, December 31................................... $21,300
Ltd. 4-98
Problem 4-3B (concluded)

Balance Sheet
December 31, 2023
Assets
Current assets:
Cash................................................................................... $15,500
Store supplies.................................................................... 6,500
Prepaid insurance.............................................................. 3,800
Total current assets............................................................ $25,800
Equipment.......................................................................... $61,000
Less: Accumulated depreciation..................................... 19,700 41,300
Total assets............................................................................... $67,100
Liabilities
Accounts payable............................................................... $39,400
Wages payable.................................................................. 6,400
Total current liabilities........................................................ $45,800
Equity
Vy Dillan, capital.................................................................... 21,300
Total liabilities and equity.......................................................... $67,100
Analysis component:
Profit is not a guarantee that a business can meet its current obligations. As a creditor, I would
review the current assets on the balance sheet to determine Vy’s ability to pay current
obligations during the year 2024. At December 31, 2023 Dillan’s Tailoring had $25,800 in
current assets and $45,800 in current liabilities. Therefore, as a creditor, I would be concerned
that current liabilities exceed current assets indicating that there are insufficient current assets
to meet current obligations.
Ltd. 4-99

Dec. 31 Photography Revenue................................................ 214,000
Interest Income........................................................... 480
Income Summary................................................... 214,480
31 Income Summary........................................................ 110,690

Depreciation Expense, Building............................. 20,800
Depreciation Expense, Equipment......................... 8,800
Wages Expense..................................................... 34,800
Interest Expense.................................................... 690
Insurance Expense................................................ 18,800
Supplies Expense.................................................. 13,600
Telephone Expense............................................... 5,200
Utilities Expense.................................................... 8,000
To close expense accounts.
31 Income Summary........................................................ 103,790

David Sale, Capital................................................ 103,790
31 David Sale, Capital..................................................... 3,800

David Sale, Withdrawals........................................ 3,800
Ltd. 4-100
DESTINATION WEDDING PHOTO

Income Statement
Revenues:
Photography revenue.......................................................... $214,000
Interest income.................................................................... 480
Total revenues................................................................. $214,480
Operating expenses:
Wages expense................................................................... $34,800
Depreciation expense, building........................................... 20,800
Utilities expense.................................................................. 8,000
Depreciation expense, equipment....................................... 8,800
Insurance expense.............................................................. 18,800
Interest expense.................................................................. 690
Supplies expense................................................................ 13,600
Telephone expense............................................................. 5,200
Total operating expenses................................................ 110,690
Profit ................................................................................. $103,790

David Sale, capital, January 1................................................. $16,290
Investments by owner............................................................. $83,000
Profit ....................................................................................... 103,790 186,790
Total..................................................................................... $203,080
Less: Withdrawals................................................................... 3,800
David Sale, capital, December 31........................................... $199,280
Ltd. 4-101

Balance Sheet
December 31, 2023
Assets
Current assets:
Cash............................................................................ $ 16,800
Current investments..................................................... 21,800
Supplies....................................................................... 8,400
Total current assets..................................................... $ 47,000
Notes receivable.......................................................... 46,000
Land............................................................................. $90,000
Building........................................................................ $168,000
Less: Accumulated depreciation.............................. 45,000 123,000
Equipment................................................................... $66,000
Less: Accumulated depreciation.............................. 22,000 44,000
Total property, plant and equipment............................ 257,000
Intangible assets:
Franchise..................................................................... 35,000
Total assets..................................................................... $385,000
Liabilities
Interest payable....................................................... 120
Unearned professional revenue............................... 27,800
Current portion of long-term notes payable.............. 49,000
Total current liabilities.............................................. $ 94,720
Long-term notes payable (less current portion)....... 91,000
Total liabilities.............................................................. $ 185,720
Equity
David Sale, capital....................................................... 199,280
Analysis component:
Liabilities must be separated between those that are due within one year of the balance sheet date
(current) and those that are due beyond one year of the balance sheet date (non-current) because
decision makers must be able to assess whether the business has sufficient current assets to cover its
current obligations. If the $49,000 current portion of the $140,000 long-term note was not shown as a
current liability on the balance sheet, it would have appeared that Destination Wedding Photo had
sufficient current assets to cover its current liabilities when in fact it does not.
Ltd. 4-102
Part 1
General Journal
2023
a. Dec 31 Depreciation Expense, Equipment.......................... 1,000
Accumulated Depreciation, Equipment............. 1,000
To record depreciation expense ($16,000/16
years).
b. 31 Wages Expense....................................................... 620
Wages Payable................................................. 620
To record accrued wages for December
($3,100/10 x 2).
c. 31 Accounts Receivable............................................... 5,000
Consulting Revenue......................................... 5,000
d. 31 Unearned Consulting Revenue................................ 3,000
Consulting Revenue......................................... 3,000
To record amount of advance payment earned.
Ltd. 4-103
Problem 4-6B (Continued)

Part 2
Bullseye Market Research Company
December 31, 2023
101 Cash................................................................... $ 1,500
104 Short-term investments...................................... 4,000
108 Accounts receivable (2,000+5,000).................... 7,000
126 Supplies.............................................................. 750
145 Notes receivable................................................. 5,000
167 Equipment.......................................................... 16,000
168 Accumulated depreciation, equipment (7,250+1,000) 8,250
183 Office furniture.................................................... 5,100

184 Accumulated depreciation, office furniture......... 3,100
194 Copyright............................................................ 4,200
201 Accounts payable............................................... 100
202 Wages payable (0+620)..................................... 620
203 Unearned consulting revenue (3,375-3,000)...... 375
233 Long-term notes payable.................................... 4,000
251 Dan Eagle, capital.............................................. 24,715
301 Dan Eagle, withdrawals...................................... 3,500
302 Consulting revenue (44,000+5,000+3,000)........ 52,000
401 Interest income................................................... 70
604 Depreciation expense, equipment (0+1,000)..... 1,000
606 Depreciation expense, office furniture................ 700
612 Wages expense (37,380+620)........................... 38,000
623 Interest expense................................................. 30
633 Insurance expense............................................. 600
637 Supplies expense............................................... 2,150
652 Telephone expense............................................ 470
688 Utilities expense................................................. 3,230
Totals $93,230 $93,230
Ltd. 4-104
Part 3

Dec. 31 Consulting Revenue..................................................... 52,000
Interest Income............................................................ 70
Income Summary.................................................... 52,070
To close the revenue accounts.
31 Income Summary......................................................... 46,180

Depreciation Expense, Equipment......................... 1,000
Depreciation Expense, Office Furniture.................. 700
Insurance Expense................................................. 600
Interest Expense..................................................... 30
Supplies Expense................................................... 2,150
Telephone Expense................................................ 470
Utilities Expense..................................................... 3,230
Wages Expense...................................................... 38,000
31 Income Summary .................................................... 5,890

Dan Eagle, Capital.............................................. 5,890
31 Dan Eagle, Capital................................................... 3,500

Dan Eagle, Withdrawals...................................... 3,500
Ltd. 4-105

Income Statement
Revenues:
Consulting revenue.................................................................. $52,000
Interest income......................................................................... 70
Total revenues.................................................................... $52,070
Operating expenses:
Wages expense........................................................................ $38,000
Utilities expense....................................................................... 3,230
Supplies expense..................................................................... 2,150
Depreciation expense, equipment............................................ 1,000
Depreciation expense, office furniture...................................... 700
Insurance expense................................................................... 600
Telephone expense.................................................................. 470
Interest expense....................................................................... 30
Total operating expenses................................................... 46,180
Profit............................................................................................ $ 5,890

Dan Eagle, capital, January 1............................................................. $24,715
Profit.................................................................................................... 5,890
Less: Withdrawals by owner.............................................................. $3,500
Dan Eagle, capital, December 31....................................................... $27,105
Ltd. 4-106

Balance Sheet
December 31, 2023
Assets
Current assets:
Cash............................................................................ $1,500
Current investments.................................................... 4,000
Supplies....................................................................... 750
Current portion of notes receivable............................. 1,500
Total current assets..................................................... $ 14,750
Notes receivable (less current portion)....................... 3,500
Equipment.................................................................... $16,000
Less: Accumulated depreciation............................... 8,250 $7,750
Office furniture.............................................................. 5,100
Less: Accumulated depreciation............................... 3,100 2,000
Total property, plant and equipment............................ 9,750
Intangible assets:
Copyright..................................................................... 4,200
Total assets $32,200
Liabilities
Accounts payable........................................................ $ 100
Wages payable............................................................ 620
Unearned consulting revenue..................................... 375
Current portion of long-term notes payable................. 2,500
Total current liabilities.................................................. $3,595
Non-current liabilities:.......................................................
Long-term notes payable (less current portion)............. 1,500
Total liabilities.................................................................... $ 5,095
Equity
Dan Eagle, capital............................................................ 27,105
Analysis component:
The business experienced an increase in equity during 2023 of $2,390 which will have caused
assets to increase and/or liabilities to decrease by a net amount of $2,390.
Ltd. 4-107
1.
Greenway Gardening Services
Income Statement
For Year Ended October 31, 2023
Revenues:
Service revenue............................................................................. $136,000
Operating expenses:
Wages expense............................................................................. $112,000
Supplies expense.......................................................................... 24,800
Depreciation expense, vehicles..................................................... 10,600
Depreciation expense, gardening equipment................................ 9,950
Fuel expense................................................................................. 9,200
Insurance expense........................................................................ 6,900
Utilities expense............................................................................. 1,800
Telephone expense....................................................................... 1,700
Interest expense............................................................................ 340
Total operating expenses....................................................... 177,290
Loss.................................................................................................... $ 41,290
Grant Greenway,
Capital
76,000 (Beg. bal.)
2. $76,000 – $41,290 – $10,000 = $24,710 OR (Loss) 41,290
(With.) 10,000
24,710 (End. bal.)
Ltd. 4-108

FairQuest Equipment Servicing
Income Statement
For Year Ended August 31, 2023
Revenues:
Equipment servicing revenue................................................... $171,080
Interest income......................................................................... 2,600
Total revenues.................................................................... $173,680
Operating expenses:
Wages expense........................................................................ $116,000
Insurance expense................................................................... 16,680
Telephone expense.................................................................. 2,800
Depreciation expense, furniture............................................... 2,060
Utilities expense....................................................................... 460
Total operating expenses................................................... 138,000
Profit............................................................................................ $ 35,680

For Year Ended August 31, 2023
Jade Fairquest, capital, September 1................................................. $11,400
Owner investments............................................................................. $50,000
Profit.................................................................................................... 35,680 85,680
Total............................................................................................. $97,080
Less: Withdrawals by owner.............................................................. 4,000
Jade Fairquest, capital, August 31, 2023........................................... $93,080
Ltd. 4-109

Balance Sheet
August 31, 2023
Assets
Current assets:
Cash...................................................................... $ 7,500
Accounts receivable.............................................. 16,000
Interest receivable................................................. 280
Office supplies...................................................... 1,700
Total current assets.............................................. $ 25,480
Investment in Nova shares................................... 35,000
Furniture .................................................................. $81,000
Less: Accumulated depreciation........................... 21,400 $59,600
Intangible assets:
Franchise.................................................................. 16,500
Total assets..................................................................... $136,580
Liabilities
Notes payable, due in 7 months............................... 3,200
Unearned servicing revenue..................................... 5,000
Current portion of long-term notes payable.............. 18,000
Total current liabilities............................................... $30,500
Long-term notes payable (less current portion)........ 13,000
Total liabilities............................................................... $ 43,500
Equity
Jade Fairquest, capital................................................. 93,080
Analysis component:
FairQuest Equipment Servicing might be tempted to report the investment in Nova shares as a
current asset on the August 31, 2023 balance sheet because total current assets would then
be greater than total current liabilities giving the misimpression that FairQuest is in a position to
cover its current obligations.
Ltd. 4-110
Part 1
Jan Delta, Capital
Jan Delta, capital = $95,434 - $10,700 - $250* = 95,434
$84,484 OR
(Loss) 250*
(With.) 10,700
84,484
*Loss = Revenues – Expenses

= (146,000 + 700) – (700 + 5,250 + 1,300 + 139,700)
= 146,700 – 146,950
= 250 loss
Part 2
Delta Tours
Balance Sheet
July 31, 2023
Assets
Current assets:
Cash............................................................................................ $25,300
Accounts receivable..................................................................... 21,300
Interest receivable....................................................................... 100
Notes receivable.......................................................................... 56,000
Prepaid insurance........................................................................ 2,100
Total current assets..................................................................... $104,800
Furniture...................................................................................... $29,000
Less: Accumulated depreciation........................................... 700 28,300
Total assets..................................................................................... $133,100
Liabilities
Accounts payable..................................................................... $27,000
Wages payable........................................................................ 2,016
Unearned tour revenue............................................................ 19,600
Total liabilities.................................................................................. $ 48,616
Equity
Jan Delta, capital............................................................................. 84,484
Total liabilities and equity.................................................................... $133,100
4-111
Problem 4-10B (Continued)
Part 3
Current Ratio =$104,800 / $48,616
=2.16
Debt to Equity Ratio =$48,616/ 84,484
=0.58
Problem 4-11B (90 minutes) Part 2
NOTE: The general ledger accounts are shown at the end of the solution (in both balance
column and T-account format) as they would appear after all entries have been posted.
Note: The account numbers in the PR column below would be included only during the posting
of these journal entries into the ledger accounts in Part 2 of Problem 4-11B.
2023
July 1 Cash................................................................ 101 40,000
Land...................................................................170 320,000
Buildings.......................................................... 173 240,000
Amy Young, Capital................................. 301 600,000
Owner invested in the business.
2 Equipment Rental Expense............................. 640 3,600
Cash......................................................... 101 3,600
Paid one month’s rent.
5 Office Supplies................................................. 124 4,600
Cash......................................................... 101 4,600
Acquired office supplies.
10 Prepaid Insurance............................................ 128 10,800
Cash......................................................... 101 10,800
Paid one year’s premium in advance.
14 Salaries Expense............................................. 622 1,800
Cash......................................................... 101 1,800
Paid two weeks’ salary.
24 Cash................................................................ 101 17,600
Storage Revenue..................................... 401 17,600
Collected revenue from customers.
Ltd. 4-112
28 Salaries Expense............................................. 622 1,800

Cash......................................................... 101 1,800
Paid two weeks’ salary.
29 Telephone Expense......................................... 688 600
Cash......................................................... 101 600
Paid the telephone bill.
30 Repairs Expense............................................. 684 1,700
Accounts Payable.................................... 201 1,700
Repaired the roof on account.
31 Amy Young, Withdrawals................................. 302 3,200
Cash......................................................... 101 3,200
Owner withdrew cash.
Ltd. 4-113
Problem 4-11B (continued)
Part 3

July 31 Insurance Expense.......................................... 637 600
Prepaid Insurance.................................... 128 600
To record expired insurance
($10,800/12 = $900/month;
2/3 × $900 per month).
31 Office Supplies Expense.................................. 650 1,500

Office Supplies......................................... 124 1,500
($4,600 – $3,100).
31 Depreciation Expense, Buildings..................... 606 2,400

Accumulated Depreciation, Buildings........ 174 2,400
31 Salaries Expense............................................. 622 360

Salaries Payable...................................... 209 360
31 Accounts Receivable....................................... 106 1,900

Storage Revenue..................................... 401 1,900
To record accrued storage revenue.
Note: The account numbers in the PR column above would be included only during the posting
of these journal entries into the ledger accounts in Part 3 of Problem 4-13B.
Ltd. 4-114
Part 4
YOUNG CO.
Income Statement
For Month Ended July 31, 2023
Revenue:
Storage revenue...................................................... $19,500
Operating expenses:
Salaries expense..................................................... $3,960
Equipment rental expense....................................... 3,600
Depreciation expense, buildings.............................. 2,400
Repairs expense...................................................... 1,700
Office supplies expense........................................... 1,500
Insurance expense.................................................. 600
Telephone expense................................................. 600
Profit............................................................................ $ 5,140
YOUNG CO.
Amy Young, capital, July 1.......................................... $ 0
Investments by owner.................................................. $600,000
Profit ........................................................................... 5,140 $605,140
Total......................................................................... $605,140
Less: Withdrawals by owner........................................ 3,200
Amy Young, capital, July 31........................................ $601,940
Ltd. 4-115
Part 4 (continued)
YOUNG CO.
Balance Sheet
July 31, 2023
Assets
Current assets:
Cash......................................................................................... $ 31,200
Accounts receivable................................................................. 1,900
Office supplies......................................................................... 3,100
Prepaid insurance.................................................................... 10,200
Land........................................................................................ $320,000
Buildings..................................................................................
$240,000
Less: Accumulated depreciation.......................................... 2,400 237,600 557,600
Total property, plant and equipment........................................
Total assets................................................................................. $604,000
Liabilities
Accounts payable.................................................................... $ 1,700
Salaries payable...................................................................... 360
Total liabilities.................................................................................. $ 2,060
Equity
Amy Young, capital..................................................................... 601,940
Total liabilities and equity................................................................ $604,000
Ltd. 4-116
Problem 4-11B (continued) Part 5

July 31 Storage Revenue.............................................. 401 19,500
Income Summary..................................... 901 19,500
31 Income Summary............................................. 901 14,360

Depreciation Expense, Buildings............. 606 2,400
Salaries Expense..................................... 622 3,960
Insurance Expense.................................. 637 600
Equipment Rental Expense..................... 640 3,600
Office Supplies Expense.......................... 650 1,500
Repairs Expense...................................... 684 1,700
Telephone Expense................................. 688 600
31 Income Summary............................................. 901 5,140

Amy Young, Capital................................. 301 5,140
31 Amy Young, Capital......................................... 301 3,200

Amy Young, Withdrawals......................... 302 3,200
Note: The account numbers in the PR column above would be included only during the posting of
these journal entries into the ledger accounts in Part 5 of Problem 4-13B.
Part 6
YOUNG CO.
July 31, 2023
Acct. No. Account Debit Credit
101 Cash................................................................. $ 31,200
106 Accounts receivable......................................... 1,900
124 Office supplies.................................................. 3,100
128 Prepaid insurance............................................ 10,200
170 Land................................................................. 320,000
173 Buildings........................................................... 240,000
174 Accumulated depreciation, buildings................ $ 2,400
201 Accounts payable............................................. 1,700
209 Salaries payable............................................... 360
301 Amy Young, capital.......................................... 601,940
Totals............................................................... $606,400 $606,400
Ltd. 4-117
Parts 1, 2, 3, 5:
Ledger as of July 31 (using balance column format):

Cash Acct. No. 101
2023
July 1 G1 40,000 40,000
2 G1 3,600 36,400
5 G1 4,600 31,800
10 G1 10,800 21,000
14 G1 1,800 19,200
24 G1 17,600 36,800
28 G1 1,800 35,000
29 G1 600 34,400
31 G1 3,200 31,200

2023
July 31 G2 1,900 1,900
Office Supplies Acct. No. 124

2023
July 5 G1 4,600 4,600
31 G2 1,500 3,100

2023
July 10 G1 10,800 10,800
31 G2 600 10,200
Land Acct. No. 170

2023
July 1 G1 320,000 320,000
Buildings Acct. No. 173

2023
July 1 G1 240,000 240,000
Ltd. 4-118
Accumulated Depreciation, Buildings Acct. No. 174

2023
July 31 G2 2,400 2,400

2023
July 30 G2 1,700 1,700
Salaries Payable Acct. No. 209

2023
July 31 G2 360 360
Amy Young, Capital Acct. No. 301

2023
July 1 G1 600,000 600,000
31 G3 5,140 605,140
31 G3 3,200 601,940
Amy Young, Withdrawals Acct. No. 302

2023
July 31 G1 3,200 3,200
31 G3 3,200 0
Storage Revenue Acct.No. 401

2023
July 24 G1 17,600 17,600
31 G2 1,900 19,500
31 G3 19,500 0
Depreciation Expense, Buildings Acct. No. 606

2023
July 31 G2 2,400 2,400
31 G3 2,400 0
Salaries Expense Acct. No. 622

2023
July 14 G1 1,800 1,800
28 G1 1,800 3,600
31 G2 360 3,960
31 G3 3,960 0

2023
July 31 G2 600 600
31 G3 600 0
Equipment Rental Expense Acct. No. 640

2023
July 2 G1 3,600 3,600
31 G3 3,600 0
Office Supplies Expense Acct. No. 650

2023
July 31 G2 1,500 1,500
31 G3 1,500 0
Repairs Expense Acct. No. 684

2023
July 30 G1 1,700 1,700
31 G3 1,700 0
Telephone Expense Acct. No. 688

2023
July 29 G1 600 600
31 G3 600 0

2023
July 31 G3 19,500 19,500
31 G3 14,360 5,140
31 G3 5,140 0
Cash 101 Accounts Receivable 106 Office Supplies 124
Jul 1 40,000 3,600 Jul 2 Jul 31 1,900 Jul 5 4,600 1,500 Jul 31
24 17,600 4,600 5 Bal. 3,100
10,800 10
1,800 14
1,800 28 Prepaid Insurance 128
600 29 Jul 10 10,800 600 Jul 31
3,200 31 Bal. 10,200
Bal. 31,200
Accum. Deprec.,
Land 170 Buildings 173 Building 174
Jul 1 320,000 Jul 1 240,000 2,400 Jul 31
Amy Young,
Accounts Payable 201 Salaries Payable 209 Capital 301
1,700 Jul 30 360 Jul 31 Jul 31 3,200 600,000 Jul 31
5,140 31
601,940 Bal.
Amy Young,
Withdrawals 302
Jul 31 3,200 3,200 Jul 31
Bal. -0-
Parts 1, 2, 3, 5
Ledger as of July 31 (using the T-account format):

Parts 1, 2, 3, 5
Deprec. Expense,
Storage Revenue 401 Building 606 Salaries Expense 622
Jul 31 19,500 17,600 Jul 24 Jul 31 2,400 2,400 Jul 31 Jul 14 1,800 3,960 Jul 31
1,900 31 28 1,800
31 360
-0- Bal. Bal. -0- Bal. -0-
Equipment Rental
Insurance Expense 637 Expense 640 Office Supplies Expense 650
Jul 31 600 600 Jul 31 Jul 2 3,600 3,600 Jul 31 Jul 31 1,500 1,500 Jul 31
Bal. -0- Bal. -0- Bal. -0-
Repairs Expense 684 Telephone Expense 688 Income Summary 901

Jul 30 1,700 1,700 Jul 31 Jul 29 600 600 Jul 31 Jul 31 14,360 19,500 Jul 31
Bal. -0- Bal. -0- 31 5,140 5,140 Bal.
-0- Bal.
2020 2019
Current ratio =$789.3M / $405.4M =$760.7M / $399.0M
=1.95 =1.91
Quick ratio =($320.6+$265.2+$73.4) / =($115.3 + $370.7 + 57 )/

$405.4 $399.0
=1.63 =1.36
Debt to equity ratio =$499.2 / $842.9 =$496 / $760.4
=0.59 =0.65
Comments:
Spin Master’s current ratio is strong for 2020 and indicates that the company has sufficient
current assets to pay its current liabilities. The current ratio increased from 2019 to 2020 from
1.91 to 1.95 respectively. This increase is favourable.
The company’s quick ratio is above one for 2020, which is favourable. The quick ratio
increased from 2019 to 2020 primarily due to a increase in cash and accounts receivable. The
company has more liquid assets (cash) in 2020, and enough liquid assets to cover its current
obligations.
The company’s debt to equity is low and is fairly stable between 2019 and 2020. The debt to
equity ratio indicates that the company is financed primarily through equity, which is associated
with lower risk than debt.
Overall, Spin Master shows a strong balance sheet through these three ratios.
Being able to compare Spin Master’s ratios with its competitors and other companies in the
industry would provide a better picture of the company’s performance.
*Problem 4-13B (30 minutes)
Part 1
a) Dec. 31 Salaries Expense........................................................... 5,250
Salaries Payable..................................................... 5,250
b) 31 Accounts Receivable..................................................... 8,250

Service Revenue.................................................... 8,250
To record accrued service revenue.
c) 31 Rent Receivable............................................................ 675

Rent Revenue......................................................... 675
To record accrued rent revenue;
$1,125 – $450.
d) 31 Office Supplies Expense................................................ 3,525

Office Supplies....................................................... 3,525
To record supplies used;
$4,200 – $675 left on hand = $3,525 used.
e) 31 Insurance Expense........................................................ 450

Insurance Payable.................................................. 450
To record insurance payable.
f) 31 Interest Expense ........................................................... 2,250

Interest Payable...................................................... 2,250
To record accrued interest;
$900 + $900 + $450 or 2,700 × 2.5/3.
g) 31 Unearned Service Revenue........................................... 11,700

Service Revenue.................................................... 11,700
To record revenue;
$18,000 – $6,300 still unearned = $11,700 earned.
h) 31 Interest Receivable........................................................ 175

Interest Income....................................................... 175
To record accrued interest.
*Problem 4-13B (continued)
Part 2
2024 Reversing entries:
Jan. 1 Salaries Payable.......................................................... 5,250
Salaries Expense.................................................. 5,250
a. To reverse accrued salaries.
1 Service Revenue......................................................... 8,250

Accounts Receivable............................................ 8,250
b. To reverse accrued service revenue.
1 Rent Revenue.............................................................. 675

Rent Receivable................................................... 675
c. To reverse accrued rent revenue.
1 Insurance Payable....................................................... 450

Insurance Expense............................................... 450
e. To reverse accrued insurance.
1 Interest Payable........................................................... 2,250

Interest Expense................................................... 2,250
f. To reverse accrued interest expense.
1 Interest Income............................................................ 175

Interest Receivable............................................... 175
h. To reverse accrued interest income.
Reversing entries not required for d & g.
*Problem 4-13B
Part 3
January 2021 transactions:

2024
Jan. 4 Salaries Expense......................................................... 7,500
Cash..................................................................... 7,500
To record payment of salaries.
12 Cash............................................................................ 1,800
Rent Revenue....................................................... 1,800
To record receipt of rent revenue; $675 + $1,125.
12 Insurance Expense...................................................... 450

Cash..................................................................... 450
To record payment of insurance.
Part 3 (concluded)
2024
Jan. 15 Interest Expense....................................................................... 2,700
Cash................................................................................... 2,700
To record payment of interest.
22 Cash.......................................................................................... 38,075
Note Receivable................................................................. 37,500
Interest income................................................................... 575
To record receipt of note plus interest; $37,500 + $575.
24 Cash.......................................................................................... 11,350
Service Revenue................................................................ 11,350
To record receipt of service revenue; $8,250 + $3,100.

Parts 1, 2 and 3
Daimler Tours-- Work Sheet
Balance Sheet &
Account Balance Adjustments Balance Income Statement Changes in Equity
Number Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
101 Cash 9,100 9,100 9,100
106 Accounts receivable 18,700 (g) 1,600 20,300 20,300
111 Notes receivable 16,000 16,000 16,000
128 Prepaid insurance 5,100 (d) 850 4,250 4,250
161 Furniture 6,750 6,750 6,750
201 Accounts payable 6,925 (b) 175 7,100 7,100
230 Unearned tour revenue 12,430 (f) 7,530 4,900 4,900
301 Jan Rider, capital 60,975 60,975 60,975
302 Jan Rider, withdrawals 0 0 0
(f) 7,530
403 Tour revenue 16,700 (g) 1,600 25,830 25,830
623 Wages expense 41,380 (e) 252 41,632 41,632
Totals 97,030 97,030
109 Interest receivable (a) 40 40 40
409 Interest income (a) 40 40 40
690 Utilities expense (b) 175 175 175
601 Depreciation expense, furniture (c) 210 210 210
162 Accumulated depreciation, (c) 210 210 210
furniture
637 Insurance expense (d) 850 850 850
210 Wages payable (e) 252* 252 252
Totals 10,657 10,657 99,307 99,307 42,867 25,870 56,440 73,437
Loss 16,997 16,997
Totals 42,867 42,867 73,437 73,437
*$315/5 days per week = $63/day × 2 days × 2 employees = $252

Parts 1, 2, and 3
Tucker Photographers
Work Sheet
For Month Ended December 31, 2023
Balance Sheet &

Unadjusted Adjusted Trial Income Statement of
Trial Balance Adjustments Balance Statement Changes in Equity
Cash...............................................
9,100 9,100 9,100
Accounts receivable........................ 13,000 13,000 13,000
Prepaid equipment rental............... 3,860 a) 2,000 1,860 1,860
Automobile...................................... 49,000 49,000 49,000
Accumulated deprec.,
automobile...................................... 0 b) 610 610 610
Accounts payable........................... 1,920 c) 940 2,860 2,860
Unearned revenue.......................... 5,740 d) 460 5,280 5,280
Jim Tucker, capital.......................... 65,700 65,700 65,700
Jim Tucker, withdrawals.................. 2,600 2,600 2,600
Service revenue.............................. 8,400 d) 460 8,860 8,860
Deprec. expense, automobile......... 0 b) 610 610 610
Equipment rental expense.............. 4,200 a) 2,000 6,200 6,200
Totals.......................................... 81,760 81,760
Utilities expense.............................. c) 940 940 940
Totals.......................................... 4,010 4,010 83,310 83,310 7,750 8,860 75,560 74,450
Profit............................................... 1,110 1,110
Totals.......................................... 8,860 8,860 75,560 75,560
*Problem 4-15B (concluded)
Part 4
Jim Tucker, Capital
65,700 (Beg. bal.)
$65,700 – $2,600 + $1,110 = $64,210 (With.) 2,600
OR
1,110 (Profit)
64,210 (End. bal.)
Analysis component:
A profit causes the equity in the accounting equation to increase. To offset the increase in
equity, liabilities would decrease and/or assets would increase.
Ltd. 4-131
*Problem 4-16B (90 minutes) Part 1

WEBSTER DEMOLITION COMPANY
Work Sheet
Balance Sheet
Adjusted and
Unadjusted Trial Income Statement of
Trial Balance Adjustments Balance Statement Changes in
Equity
No. Title Debit Credit Debit Credit. Debit Credit Debit Credit Debit Credit
101 Cash.......................................... 4,500 4,500 4,500
126 Supplies..................................... 8,200 (a) 1,400 6,800 6,800
128 Prepaid insurance....................... 7,300 (b) 5,750 1,550 1,550
167 Equipment.................................. 72,000 72,000 72,000
168 Accumulated deprec.,
equipment............................... 5,000 (c) 8,700 13,700 13,700
201 Accounts payable....................... 9,100 (d) 375 9,475 9,475
203 Interest payable.......................... (f) 110 110 110
210 Wages payable........................... (e) 1,100 1,100 1,100
251 Long-term notes payable............ 45,000 45,000 45,000
301 Rusty Webster, capital................ 21,400 21,400 21,400
302 Rusty Webster, withdrawals........ 2,100 2,100 2,100
401 Demolition Revenue................... 83,300 83,300 83,300
612 Depreciation expense,
equipment............................... (c) 8,700 8,700 8,700
623 Wages expense.......................... 27,400 (e) 1,100 28,500 28,500
633 Interest expense......................... 1,100 (f) 110 1,210 1,210
637 Insurance expense..................... (b) 5,750 5,750 5,750
640 Rent expense............................. 24,400 24,400 24,400
652 Supplies expense....................... (a) 1,400 1,400 1,400
683 Business tax expense................. 4,200 4,200 4,200
684 Repairs expense......................... 4,200 4,200 4,200
690 Utilities expense.......................... 8,400 (d) 375 8,775 8,775
Totals..................................... 163,800 163,800 17,435 17,435 174,085 174,085 87,135 83,300 86,950 90,785
Loss........................................... 3,835 3,835
Totals..................................... 87,135 87,135 90,785 90,785
Part 2
(a) June 30 Supplies Expense........................................................... 1,400
Supplies................................................................... 1,400
To record consumption of supplies.
(b) 30 Insurance Expense......................................................... 5,750

Prepaid Insurance................................................... 5,750
To record consumption of insurance coverage.
(c) 30 Depreciation Expense, Equipment................................. 8,700

Accumulated Depreciation, Equipment................... 8,700
(d) 30 Utilities Expense............................................................. 375

Accounts Payable.................................................... 375
To record accrued utilities costs.
(e) 30 Wages Expense.............................................................. 1,100

Wages Payable....................................................... 1,100
(f) 30 Interest Expense ............................................................ 110

Interest Payable....................................................... 110
Ltd. 4-133
Part 2 (continued)

June 30 Demolition Revenue........................................................ 83,300
Income Summary..................................................... 83,300
30 Income Summary............................................................. 87,135
Wages Expense....................................................... 28,500
Rent Expense.......................................................... 24,400
Business Tax Expense............................................. 4,200
Repairs Expense...................................................... 4,200
30 Rusty Webster, Capital.................................................... 3,835
Income Summary..................................................... 3,835
30 Rusty Webster, Capital.................................................... 2,100

Rusty Webster, Withdrawals.................................... 2,100
Part 3

Income Statement
Revenue:
Demolition Revenue................................................. $83,300
Operating expenses:
Wages expense....................................................... $28,500
Rent expense........................................................... 24,400
Supplies expense.................................................... 1,400
Business tax expense.............................................. 4,200
Repairs expense...................................................... 4,200
Interest expense...................................................... 1,210
Loss............................................................................. $ 3,835
Ltd. 4-134
Part 3 (continued)

Rusty Webster, capital, July 1..................................... $ 3,900
Investments by owner.................................................. 17,500
Total....................................................................... $21,400
Less: Withdrawals by owner........................................ $2,100
Loss.................................................................. 3,835 5,935
Rusty Webster, capital, June 30.................................. $15,465

Balance Sheet
June 30, 2023
Assets
Current assets:
Cash............................................................................. $ 4,500
Supplies........................................................................ 6,800
Prepaid insurance......................................................... 1,550
Total current assets...................................................... $12,850
Property, plant and equipment:........................................
Equipment.................................................................... $72,000
Less: Accumulated depreciation, equipment 13,700 58,300
Total assets......................................................................... $71,150
Liabilities
Accounts payable......................................................... $9,475
Interest payable............................................................ 110
Wages payable............................................................. 1,100
Current portion of long-term note payable.................... 2,000
Total current liabilities................................................... $12,685
Long-term note payable (less current portion)................ 43,000
Total liabilities................................................................... $55,685
Equity
Rusty Webster, capital..................................................... 15,465
Total liabilities and equity..................................................... $71,150
Ltd. 4-135
*Problem 4-16B (concluded)
Analysis component:
(a) This error enters the wrong amount in the correct accounts. The ending balance of the
Prepaid Insurance account should be $1,550, but the entry reduces that account by
$1,550. Because its unadjusted balance was $7,300, the adjusted balance will be $5,750
(= $7,300 – $1,550), which is $4,200 greater than the correct $1,550 balance. In addition,
the Insurance Expense account balance will be only $1,550 instead of $5,750.
The adjusted trial balance columns in the work sheet will be equal, but the error will cause
the work sheet’s profit to be overstated by $4,200 because of the understatement of the
expense. In addition, the balance sheet columns will include the overstated balance for
the Prepaid Insurance account. The Rusty Webster, Capital account will also be
overstated.
This error is not likely to be detected as a result of completing the work sheet. If it is not,
the income statement will overstate profit by $4,200, and the balance sheet will overstate
the cost of the unexpired insurance and equity by $4,200.
(b) This error inserts a debit in the balance sheet columns instead of the income statement
columns. In the unlikely event that this error is not immediately detected, it will cause the
work sheet measure of profit to be overstated because the total debits will incorrectly omit
the $4,200 expense for repairs.
In all likelihood, the error will be discovered in the process of drafting the balance sheet
because the accountant will realize that repairs expense is not an asset. If it is detected
and corrected, the financial statements will be unaffected. However, if the repairs expense
is erroneously included on the balance sheet, the reported profit will be overstated by
$4,200. On the balance sheet, a nonexistent asset will be reported for the repairs
expense and equity will be overstated by $4,200.
Ltd. 4-136
ANALYTICAL AND REVIEW PROBLEMS
A&R Problem 4-1
Part 1
Profit = $105,000 – ($147,000 – $126,000) = $84,000
Or
Owner, Capital
147,000
105,000 X = 84,000 NI
126,000
Total revenues = $84,000 + $168,000 = $252,000
Part 2
Dec. 31 Revenue................................................ 252,000

Income Summary........................... 252,000
To close revenue.
31 Income Summary.................................. 168,000

Wages Expense............................. 126,000
Advertising Expense...................... 42,000
To close expenses.
31 Income Summary.................................. 84,000

Owner, Capital.............................. 84,000
31 Owner, Capital...................................... 105,000

Owner, Withdrawal........................ 105,000
Ltd. 4-137
A&R Problem 4-2 Part 1
SANDY’S DELIVERY SERVICE

Work Sheet
For the Year Ended December 31, 2023
Balance Sheet
and
Unadjusted Adjusted Income Statement of
Trial Balance Adjustments Trial Balance Statement Changes in Equity
Cash...........................................................................................................
10,650 10,650 10,650
Accounts receivable....................................................................................
7,000 a) 2,000 9,000 9,000
Supplies .....................................................................................................
4,200 b) 2,600 1,600 1,600
Prepaid insurance.......................................................................................
2,400 c) 800 1,600 1,600
Prepaid rent................................................................................................
1,800 d) 900 900 900
Delivery trucks............................................................................................
40,000 40,000 40,000
Accounts payable.......................................................................................
3,130 3,130 3,130
Unearned delivery revenue......................................................................... 4,500 a) 2,500 2,000 2,000
Sandra Berlasty, capital..............................................................................
50,000 50,000 50,000
Sandra Berlasty, withdrawals.....................................................................
3,000 3,000 3,000
Delivery service revenue............................................................................
18,500 a) 4,500 23,000 23,000
Advertising expense...................................................................................
600 600 600
Gas and oil expense...................................................................................
680 680 680
Salaries expense........................................................................................
5,600 e) 400 6,000 6,000
Utilities expense..........................................................................................
200 200 200
Totals......................................................................................................
76,130 76,130
Insurance expense..................................................................................... c) 800 800 800
Rent expense............................................................................................. d) 900 900 900
Supplies expense....................................................................................... b) 2,600 2,600 2,600
Depreciation expense, delivery trucks........................................................ f) 2,000 2,000 2,000
Accumulated depreciation, delivery trucks................................................. f) 2,000 2,000 2,000
Salaries payable......................................................................................... e) 400 400 400
Totals...................................................................................................... 11,200 11,200 80,530 80,530 13,780 23,000 66,750 57,530
Profit........................................................................................................... 9,220 9,220
Totals...................................................................................................... 23,000 23,000 66,750 66,750
A&R Problem 4-2 (concluded)
Part 2
a) Dec. 31 Accounts Receivable........................................................... 2,000
Unearned Delivery Revenue................................................ 2,500
Delivery Service Revenue............................................ 4,500
b) 31 Supplies Expense................................................................ 2,600

Supplies........................................................................ 2,600
c) 31 Insurance Expense.............................................................. 800

Prepaid Insurance........................................................ 800
d) 31 Rent Expense...................................................................... 900

Prepaid Rent................................................................ 900
e) 31 Salaries Expense................................................................. 400

Salaries Payable.......................................................... 400
f) 31 Depreciation Expense, Delivery Trucks............................... 2,000

Accumulated Depreciation, Delivery Trucks................. 2,000
Closing entries:
31 Delivery Service Revenue................................................... 23,000
Income Summary......................................................... 23,000
31 Income Summary................................................................. 13,780

Advertising Expense..................................................... 600
Gas and Oil Expense................................................... 680
Salaries Expense.......................................................... 6,000
Utilities Expense........................................................... 200
Insurance Expense....................................................... 800
Rent Expense............................................................... 900
Supplies Expense......................................................... 2,600
Depreciation Expense, Delivery Trucks........................ 2,000
31 Income Summary................................................................. 9,220

Sandra Berlasty, Capital............................................... 9,220
31 Sandra Berlasty, Capital...................................................... 3,000

Sandra Berlasty, Withdrawals....................................... 3,000
4-139
ETHICS CHALLENGE
1. There are several courses of action that Jennifer could have taken:
a. Probably she should have consulted with the president and told him that the finalized
financial statements would not be ready by the time of the meeting. She should
explain that delay in final statement preparation is a normal event given the need to
wait for final information to prepare accurate adjustments. Possibly the meeting could
be rescheduled or Jennifer could have asked how the president preferred her to
proceed.
b. The estimation route was not a bad choice in itself. Jennifer probably should have
used worst case estimates instead of recording expenses on the low side. Users of
financial statements usually prefer knowing worst case scenarios over best case
outcomes.
The use of estimates gets the financial statements closer to their final form than ignoring the
adjustments completely.
2. Students may offer one of the above alternatives or another response they may think of, given
the situation.
4-140
FOCUS ON FINANCIAL STATEMENTS
FFS 4-1
Part 1
Sarda Electrical Servicing
Income Statement
Revenues
Electrical revenue......................................................................... $126,600
Operating expenses:
Salaries expense......................................................................... $27,000
Rent expense............................................................................... 21,000
Depreciation expense, truck........................................................ 3,600
Depreciation expense, tools......................................................... 2,250
Insurance expense....................................................................... 1,275
Interest expense.......................................................................... 900
Total operating expenses........................................................... 56,025
Profit................................................................................................ $ 70,575

Nymeth Sarda, capital, January 1................................................... $ 7,825
Profit................................................................................................ $70,575
Investments by owner .................................................................... 20,000 90,575
Total........................................................................................... $98,400
Less: Withdrawals for the year...................................................... 61,500
Nymeth Sarda, capital, December 31............................................. $36,900
4-141
FFS 4-1 (continued)

Balance Sheet
December 31, 2023
Assets
Current assets:...............................................................
Cash........................................................................... $ 5,000
Prepaid insurance....................................................... 1,050
Prepaid rent................................................................ 7,200
Electrical supplies....................................................... 19,000
Current portion of notes receivable............................. 2,000
Total current assets.................................................... $44,750
Notes receivable (less current portion)....................... 10,000
Tools........................................................................... $21,000
Less: Accumulated depreciation............................. 4,500 $16,500
Truck........................................................................... $40,500
Less: Accumulated depreciation............................. 21,000 19,500
Total property, plant and equipment........................... 36,000
Intangible assets:
Copyright.................................................................... 5,100
Total assets......................................................................... $95,850
Liabilities
Accounts payable...................................................... $21,000
Salaries payable........................................................ 3,150
Unearned electrical revenue...................................... 5,250
Notes payable, due June 1, 2024.............................. 2,550
Total current liabilities................................................ $31,950
Notes payable, due August 31, 2025.......................... 27,000
Total liabilities................................................................. $58,950
Equity
Nymeth Sarda, capital..................................................... 36,900
Total liabilities and equity..................................................... $95,850
4-142
FFS 4-1 (continued)
Part 2
Dec. 31 Electrical Revenue............................................................... 126,600
Income Summary.......................................................... 126,600
To close revenue accounts.
31 Income Summary................................................................. 56,025
Depreciation Expense, Tools................................. 2,250
Depreciation Expense, Truck....................................... 3,600
Insurance Expense....................................................... 1,275
Interest Expense........................................................... 900
Rent Expense............................................................... 21,000
Salaries Expense.......................................................... 27,000
31 Income Summary................................................................. 70,575
Nymeth Sarda, Capital................................................. 70,575
To close Income Summary to capital.
31 Nymeth Sarda, Capital......................................................... 61,500
Nymeth Sarda, Withdrawals......................................... 61,500
Part 3
December 31, 2023
Debits Credits
Cash.................................................................................................. $ 5,000
Accounts Receivable......................................................................... 10,500
Electrical Supplies............................................................................. 19,000
Prepaid Insurance............................................................................. 1,050
Prepaid Rent..................................................................................... 7,200
Notes Receivable.............................................................................. 12,000
Tools................................................................................................. 21,000
Accumulated Depreciation, Tools...................................................... $ 4,500
Truck................................................................................................. 40,500
Accumulated Depreciation, Truck..................................................... 21,000
Copyright........................................................................................... 5,100
Accounts Payable............................................................................. 21,000
Salaries Payable............................................................................... 3,150
Unearned Electrical Revenue........................................................... 5,250
Notes Payable, due June 1, 2024..................................................... 2,550
Notes Payable, due August 31, 2025............................................... 27,000
Nymeth Sarda, Capital...................................................................... 36,900
Totals................................................................................................ $121,350 $121,350
4-143
FFS 4-1 (concluded)
Analysis component:
Nymeth Sarda is not reinvesting profits. This is evident by the amount of his withdrawals: $61,500
which represents 87% of profit ($61,500/$70,575 × 100 = 87%). Reinvesting profits means that as
profit causes equity to increase, assets are retained by the business for the purpose of growth rather
than withdrawn which depletes assets.
A = L + E
Withdrawals cause equity and assets to decrease which depletes rather

than grows the assets.
FFS 4-2
Part 1
a.
December 31, December 31,
2024 2023
Cash....................................................................... $ 1,567 $ 1,447
Accounts receivable............................................... 3,743 3,238
Inventories and prepaid expenses......................... 6,848 5,289
Income taxes receivable........................................ 1,322 176
Total current assets................................................ $13,480 $10,150
b.
December 31, December 31,
2024 2023
Accounts payable and accrued liabilities............... $20,706 $17,755
Current borrowings................................................. 25,817 24,839
Customer deposits and prepaid dues.................... 10,965 6,037
Current portion of mortgages................................. 1,411 61
Total current liabilities............................................ $58,899 $48,692
Part 2
*c.
December 31, 2024 December 31, 2023
Current ratio. 13,480/58,899 = 0.23:1 10,150/48,692 = 0.21:1
*d. The change in the ratio was favourable. GolfLink had greater current
assets at December 31, 2024 to cover current obligations ($0.23 of current assets to
cover every $1.00 of current liability) than it had at December 31, 2023. However, it
appears that GolfLink may have difficulty in meeting current obligations.
4-144
CRITICAL THINKING QUESTION
CT 4-1
Note to instructor: Student responses will vary therefore the answer here is only suggested and not
inclusive of all possibilities; it is presented in point form for brevity.
Problem(s):
— Delton Property Rentals cannot pay employees in March and the bank will not lend it money
Goal(s)*:
— From the perspective of the bank, the bank needs to follow internal policies and procedures
regarding to whom it is appropriate to lend cash
Assumption(s)/Principle(s):
— That a decision to lend money will be based on the balance sheet prepared below
Facts:
— as presented in balance sheet below prepared from information provided
Conclusion(s)/Consequence(s):
— the balance sheet was weakened significantly from 2022 to 2023 given that liabilities were
32% of total assets (240,000/750,000 × 100) in 20 and 98% in 2023 (2,780,000/2,850,000 ×
100). It appears that the increase was caused by a note payable used to purchase land and
buildings.
— The $2,440,000 note payable requires a $200,000 annual payment and current assets on
hand as of March 31, 2023 total $98,000 (75,000 + 15,000 + 8,000); it appears that Delton
Property Rentals will be unable to make the payment.
— Given that accounts receivable have decreased significantly from 2022 to 2023, it could be
assumed that sales have decreased in a corresponding manner.
— Accounts payable have increased from $7,000 in 2022 to $340,000 in 2023 yet there are
current assets on hand as of March 31, 2023 totalling $98,000 (75,000 + 15,000 + 8,000); it
appears that Delton Property Rentals will be unable to pay its creditors.
— The 2023 current ratio is: (75,000 + 15,000 + 8,000)/540,000 = $0.18:$1.00 which indicates
that Delton will have difficulty meeting its current obligations; the 2022 current ratio was:
(215,000 + 40,000 + 50,000)/(7,000 + 200,000 + 29,000) = $1.29:$1.00 which indicates a
dramatic deterioration in Delton’s liquidity.
— If the bank lends Delton money, it risks noncollection; on the assumption that the $2,440,000
loan is with the same bank and that it is secured by the land and building, the bank should
not lend Delton the money.
*The goal is highly dependent on “perspective.”
4-145
CT 4-1 (concluded)
Delton Property Rentals

Balance Sheet
March 31
Assets 2023 2022
Current assets
Cash................................................................. $ 15,000 $ 40,000
Accounts receivable......................................... 75,000 215,000
Supplies............................................................ 8,000 50,000
Total current assets........................................ $ 98,000 $305,000
Property, plant and equipment
Land................................................................. $ 675,000 $150,000
Buildings........................................................... 2,112,000 430,000
Accumulated depreciation, buildings.............. -165,000 -150,000
Equipment........................................................ 45,000 45,000
Accumulated depreciation, equipment........... -35,000 -30,000
Total property, plant and equipment............... $2,632,000 $445,000
Non-current investments
Notes receivable, due Nov. 30, 2024............... 120,000 0
Total assets........................................................... $2,850,000 $750,000
Liabilities
Current liabilities
Accounts payable............................................. $ 340,000 $ 7,000
Unearned revenue............................................ 0 29,000
Current portion of notes payable...................... 200,000 200,000
Total current liabilities..................................... $ 540,000 $236,000
Non-current liabilities
Notes payable (less current portion)................. 2,240,000 4,000
Total liabilities........................................................ $2,780,000 $240,000
Equity
Teal Delton, capital.............................................. 70,000 510,000
Total liabilities and equity...................................... $2,850,000 $750,000
4-146
Cumulative Problem, Echo Systems (45 minutes)
Part 1
Closing entries and general ledger accounts:

Dec. 31 Computer Services Revenue............................. 403 52,200
Income Summary....................................... 901 52,200
31 Income Summary............................................... 901 35,940

Depreciation Expense, Office
Equipment.............................................. 612 1,500
Depreciation Expense, Computer
Equipment.............................................. 613 2,250
Wages Expense......................................... 623 6,200
Insurance Expense.................................... 637 1,080
Rent Expense............................................. 640 6,750
Computer Supplies Expense...................... 652 5,430
Advertising Expense................................... 655 5,820
Mileage Expense........................................ 676 2,800
Repairs Expense, Computer...................... 684 2,610
Charitable Donations Expense................... 699 1,500
31 Income Summary............................................... 901 16,260

Mary Graham, Capital................................ 301 16,260
31 Mary Graham, Capital........................................ 301 14,400

Mary Graham, Withdrawals........................ 302 14,400
Note: All accounts with numbers that start with the digit 1 (Assets)
or 2 (Liabilities) are unaffected by the closing process.
4-147
Cumulative Problem (continued)
NOTE: This solution includes all entries from prior months in the accounts. However, the Working
Papers shorten the solution by simply showing the balances of the accounts as of December 31,
2023.
Cash Acct. No. 101

2023
Oct. 1 G1 90,000 90,000
2 G1 9,000 81,000
5 G1 4,320 76,680
8 G1 2,640 74,040
15 G1 6,600 80,640
17 G1 1,410 79,230
20 G1 3,720 75,510
22 G1 2,400 77,910
31 G2 1,400 76,510
31 G2 7,200 69,310
Nov. 1 G2 1,000 68,310
2 G2 9,300 77,610
5 G2 1,920 75,690
18 G2 3,750 79,440
22 G2 1,500 77,940
28 G2 1,200 76,740
30 G2 2,800 73,940
30 G3 3,600 70,340
Dec. 3 G4 2,100 68,240
3 G4 1,200 67,040
4 G4 7,500 74,540
10 G4 1,200 73,340
14 G4 3,000 76,340
20 G4 11,250 87,590
28 G4 5,700 93,290
31 G4 600 92,690
31 G4 3,600 89,090
4-148

2023
Oct. 6 G1 6,600 6,600
12 G1 2,400 9,000
15 G1 6,600 2,400
22 G1 2,400 0
28 G2 6,450 6,450
Nov. 8 G2 8,700 15,150
18 G2 3,750 11,400
24 G2 7,500 18,900
Dec. 4 G4 7,500 11,400
28 G4 5,700 5,700
Computer Supplies Acct. No. 126

2023
Oct. 3 G1 2,640 2,640
Nov. 5 G2 1,920 4,560
Dec. 17 G4 2,310 6,870
31 G5 5,430 1,440

2023
Oct. 5 G1 4,320 4,320
Dec. 31 G5 1,080 3,240
Prepaid Rent Acct. No. 131

2023
Oct. 2 G1 9,000 9,000
Dec. 31 G5 6,750 2,250
Office Equipment Acct. No. 163

2023
Oct. 1 G1 18,000 18,000
Accumulated Depreciation, Office Equipment Acct. No.164

2023
Dec. 31 G5 1,500 1,500
4-149
Computer Equipment Acct. No. 167

2023
Oct. 1 G1 36,000 36,000
Accumulated Depreciation, Computer Equipment Acct. No. 168

2023
Dec. 31 G5 2,250 2,250

2023
Oct. 3 G1 2,640 2,640
8 G1 2,640 0
Dec. 17 G4 2,310 2,310
Wages Payable Acct. No. 210

2023
Dec. 31 G5 800 800
Unearned Computer Services Revenue Acct. No. 236

2023
Dec. 14 G4 3,000 3,000
Mary Graham, Capital Acct. No. 301

2023
Oct. 1 G2 144,000 144,000
Dec. 31 G6 16,260 160,260
31 G6 14,400 145,860
Mary Graham, Withdrawals Acct. No. 302

2023
Oct. 31 G2 7,200 7,200
Nov. 30 G3 3,600 10,800
Dec. 31 G4 3,600 14,400
31 G6 14,400 0
4-150
Computer Services Revenue Acct. No. 403

2023
Oct. 6 G1 6,600 6,600
12 G1 2,400 9,000
28 G2 6,450 15,450
Nov. 2 G2 9,300 24,750
8 G2 8,700 33,450
24 G2 7,500 40,950
Dec. 20 G4 11,250 52,200
31 G6 52,200 0
Depreciation Expense, Office Equipment Acct. No. 612

2023
Dec. 31 G5 1,500 1,500
31 G6 1,500 0
Depreciation Expense, Computer Equipment Acct. No. 613

2023
Dec. 31 G5 2,250 2,250
31 G6 2,250 0
Wages Expense Acct. No. 623

2023
Oct. 31 G2 1,400 1,400
Nov. 30 G2 2,800 4,200
Dec. 10 G4 1,200 5,400
31 G5 800 6,200
31 G6 6,200 0

2023
Dec. 31 G5 1,080 1,080
31 G6 1,080 0
Rent Expense Acct. No. 640

2023
Dec. 31 G5 6,750 6,750
31 G6 6,750 0
4-151
Computer Supplies Expense Acct. No. 652

2023
Dec. 31 G5 5,430 5,430
31 G6 5,430 0
Advertising Expense Acct. No. 655

2023
Oct. 20 G1 3,720 3,720
Dec. 3 G4 2,100 5,820
31 G6 5,820 0
Mileage Expense Acct. No. 676

2023
Nov. 1 G2 1,000 1,000
28 G2 1,200 2,200
Dec. 31 G4 600 2,800
31 G6 2,800 0
Repairs Expense, Computer Acct. No. 684

2023
Oct. 17 G1 1,410 1,410
Dec. 3 G4 1,200 2,610
31 G6 2,610 0
Charitable Donations Expense Acct. No. 699

2023
Nov. 22 G2 1,500 1,500
Dec. 31 G6 1,500 0

2023
Dec. 31 G6 52,200 52,200
31 G6 35,940 16,260
31 G6 16,260 0
4-152
Cumulative Problem (concluded)
Part 2
ECHO SYSTEMS
December 31, 2023
Acct.
101 Cash........................................................................ $ 89,090
106 Accounts receivable................................................. 5,700
126 Computer supplies................................................... 1,440
128 Prepaid insurance.................................................... 3,240
131 Prepaid rent............................................................. 2,250
163 Office equipment...................................................... 18,000
164 Accumulated depreciation, office equipment........... $ 1,500
167 Computer equipment............................................... 36,000
168 Accum. depreciation, computer equipment.............. 2,250
201 Accounts payable.................................................... 2,310
210 Wages payable........................................................ 800
236 Unearned computer revenue................................... 3,000
301 Mary Graham, capital............................................... 145,860
Totals....................................................................... $155,720 $155,720
4-153

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Last revised: September 2021.

Revised for the 17th Edition by:

Technical checks by: Rhonda Heninger, SAIT

Chapter 4 Completing the Accounting

Chapter Opening Critical Thinking Challenge Questions*

Knowledge Check-Up Questions

Concept Review Questions

The accounts are classified as follows:

Temporary Accounts Permanent Accounts

Quick Study 4-1

3. “d”; Temporary accounts accumulate data related to one accounting period.

Quick Study 4-2

Account (1) Temporary? (1) Permanent? (2) Financial Statement?

Quick Study 4-3

a. Income Summary balance after closing revenues and expenses:

Revenues: $35,000 + $3,500 ................................................. = $38,500

b. Peter Jontil, Capital balance after all closing entries:

Beginning balance......... $14,000 Peter Jontil, Capital

Quick Study 4–4

Assets Liabilities Capital

Withdrawals Revenue Expenses

Income Summary Income Summary Income Summary

Quick Study 4-5

(2) 31 Income Summary............................................. 140

Assets Liabilities Capital

Withdrawals Revenue Expenses

Quick Study 4-6

Silver Star Automotive

Quick Study 4-7

1. (f) Journalizing transactions.

Quick Study 4-8

Quick Study 4-9

Quick Study 4-10

Quick Study 4-11

Quick Study 4-12

Quick ratio = (Cash + Accounts Receivable)

Quick Ratio =($6,000 + $15,000) / ($10,000 + $4,000)

Quick Study 4-13

(Numbers in 2020 2019

Debt to equity ratio = ($427,927 + $1,397,608) / ($283,536) = ($1,488,322+$430,758) / ($344,986)

=$1,825,535 / $283,536 =$1,919,080/ $344,986

*Quick Study 4-14

*Quick Study 4-15

*Quick Study 4-16

Beginning capital............................................................. $50,000

*Quick Study 4-17

Beginning capital ............................................. $165,000

Exercise 4-1 (20 minutes)

30 Income Summary................................................... 31,800

30 Income Summary................................................... 9,250

30 Angel Zhang, Capital.............................................. 9,400

Angel Zhang, Capital

Exercise 4-2 (20 minutes)

31 Income Summary..................................................... 81,000

31 Trish Norris, Capital.................................................. 9,110

31 Trish Norris, Capital.................................................. 19,800

Exercise 4-3 (30 minutes)

Exercise 4-3 (Continued) Part 2

2023 Closing entries:

31 Income Summary .................................................... 118,600