Quiz 1 (Chapters 1-3)
Note: Go to “Show solution” and type explanations!!!
Problem 2-6A
Selected financial statement data for recent year for Sheridan Corporation and Grouper Corporation, two
competitors, are as follows:
Service revenue
Operating expenses
Interest expense
Income tax expense
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Share price
Weighted average number of common shares
Sheridan
1,794,000
1,363,000
10,000
84,000
379,200
521,000
153,325
99,500
25
72,000
Grouper
581,000
398,000
3,700
31,000
188,400
134,700
116,700
37,700
15
46,000
a) Calculate working capital and the current ratio for each company (round current ratio to 1 decimal place)
Working capital = current assets – current liabilities
Sheridan:
Working capital = 379,200 – 153,325
Working capital = 225,875
Grouper:
Working capital = 188,400 – 116,700
Working capital = 71,700
Current ratio = (current assets)/(current liabilities)
Sheridan:
Current ratio = 379,200/153,325
Current ratio = 2.5
Grouper:
Current ratio = 188,400/116,700
Current ratio = 1.6
Sheridan is significantly more liquid than Grouper
b) Calculate the debt to total assets ratio for each company (round answers to 1 decimal place)
Debt to total assets ratio = (total liabilities)/(total assets)
Sheridan:
Total liabilities = 153,325 + 99,500 = 252,825
Total assets = 379,200 + 521,000 = 900,200
Debt to total assets ratio = 252,825/900,200
Debt to total assets ratio = 28.1%
Grouper:
Total liabilities = 116,700 + 37,700 = 154,400
Total assets = 188,400 + 134,700 = 323,100
Debt to total assets ratio = 154,400/323,100
Debt to total assets ratio = 47.8%
Grouper is considerably less solvent than Sheridan
c) Calculate the net income, basic earnings per share, and price-earnings ratio for each company. Assume that
the net income you calculate equals the income available to common shareholders. (Round basic earnings per
share to 2 decimal places and price-earnings ratio to 1 decimal place)
Net income = revenues – expenses
Sheridan:
Net income = (1,794,000) – (1,363,000 + 10,000 + 84,000)
Net income = 337,000
Grouper:
Net income = (581,000) – (398,000 + 3,700 + 31,000)
Net income = 148,300
Basic earnings per share = (income available to common shareholders)/(weighted average number of
commonshares)
Sheridan:
Basic earnings per share = 337,000/72,000
Basic earnings per share = 4.68
Grouper:
Basic earnings per share = 148,300/46,000
Basic earnings per share = 3.22
Price-earnings ratio = (price per share)/(earnings per share)
Sheridan:
Price-earnings ratio = 25/4.68
Price-earnings ratio = 5.3
Grouper:
Price-earnings ratio = 15/3.22
Price-earnings ratio = 4.7
Investors believe that Sheridan will be more profitable than Grouper in the future
Practice, Question 18
Joe Refreh Ltd. Began with retained earnings of $400,000. The company earned $150,000 during the year, and
paid a dividend of $100,000. The ending retained earnings balance is:
a) $150,000
b) $425,000
c) $450,000
d) $650,000
Retained earnings = beginning retained earnings + net income – dividends declared
Retained earnings = $400,000 + $150,000 - $100,000
Retained earnings = $450,000
Practice, Question 04
Which of the following should be classified as current assets?
a) accounts payable, income tax payable, and accounts receivable
b) prepaid expenses, equipment, and long-term investments
c) cash, prepaid expenses, and income tax payable
d) accounts receivable, cash, and prepaid expenses
Practice, Question 07
Which of the following statements about the statement of changes in equity is incorrect?
a) In the statement of changes in equity, profits for the period are added to the opening balance of retained
earnings - True
b) The statement of changes in equity describes the changes in each component of shareholders’ equity that
took place during the period - True
c) In the statement of changes in equity, dividends are shown as expenses - False
d) The closing balance of the statement of changes in equity is reported in the shareholders’ equity section of
the statement of financial position – True
Practice, Question 09
The following balances and amounts were taken from the financial statements of Frisbee, Inc. The items are
presented in alphabetical order.
Accounts payable
Accounts receivable
Cash
Common shares
Gross profit
Market price per share
Net sales
Other current liabilities
Net income
Salaries payable
Sheridan
35,000
47,500
180,000
8,000 shares
185,000
8
500,000
22,000
64,000
10,000
The price-earnings ratio is:
a) 2.
b) 1.5.
c) 12.
d) 1.
Price-earnings ratio = (market price per share)/(basic earnings per share)
Basic earnings per share = (income available to common shareholders)/(weighted average number of
commonshares)
Basic earnings per share = 64,000/8,000
Basic earnings per share = 8
Price-earnings ratio = 8/8
Price-earnings ratio = 1.0
Practice, Question 05
Volcano Inc. received $1,000 cash in advance for work to be performed. How will this transaction affect the
accounts?
a) Cash will increase by $1,000 and Service Revenue will increase by $1,000
b) Cash will decrease by $1,000 and Service Revenue will increase by $1,000
c) Unearned Revenue will increase by $1,000 and Cash will increase by $1,000
d) Service Revenue will increase by $1,000 and Unearned Revenue will decrease by $1,000
Practice, Question 07
Western Manufacturer bought two new machines at a cost of $20,000 each for use in its new plant extension.
Western made a $10,000 down payment and agreed to pay the balance owing within the next month. At the
time of purchase, the effect of this transaction on the accounts would be:
a) There is no effect on the accounting records at the time of purchase. The machines will be recorded when the
full amount is paid
b) A credit to Cash of $10,000, a debit to Machinery of $40,000 and a credit to Accounts Payable of
$30,000
c) A debit to Machinery of $40,000 and a debit to Cash of $40,000
d) A debit to Machinery of $40,000 and a credit to Accounts Payable of $40,000
Assets + Expenses + Dividends = Liabilities + Share Capital + Revenue
Cash is an asset that decreases by $10,000 – credit
Accounts payable is a liability that increases by $30,000 – credit
Equipment is an asset that increases by $40,000 – debit
Practice, Question 20
Which of the following statements about posting is true?
a) Posting accumulates the effects of journalized transactions in the individual accounts
- Transferring from general journal to general ledger accounts
b) Posting should be only at the end of a year
- It should be done at least monthly
c) Posting is performed before journalizing can be performed
- After journalizing
d) Posting is the only procedure where the debit and credit for a transaction are recorded together
- Journalizing not posting
Brief Exercise 1-3
Classify each item by type of business activity – operating, investing, or financing. Also indicate whether it
results in an inflow or outflow of cash.
Loan taken out from a bank
Cash received from customers
Sale of office equipment that company is done using
Dividends paid to shareholders
Common shares issued to investors
Loan repayment
Payment to supplier for inventory
Purchase of an office building
Salaries paid
Business Activity
Financing
Operating
Investing
Financing
Financing
Financing
Operating
Investing
Operating
Inflow/Outflow
Inflow
Inflow
Inflow
Outflow
Inflow
Outflow
Outflow
Outflow
Outflow
Exercise 1-2
Consider the following statements and indicate if each of the statements listen in the left-hand column of the
table is normally true or false for each of the types of business organization: proprietorship, partnership, public
corporation, and private corporation.
Proprietorship
Partnership
F
T
Public
Corporation
T
F
Private
Corporation
T
F
1. No personal liability
2. Owner(s) pay(s) personal
income tax on company income
3. Generally easiest form of
organization to raise capital
F
T
F
F
T
4. Ownership indicated by shares
5. Required to issue quarterly
financial statements
6. Owned by one person
7. Limited life
8. Usually easiest form of
organization to set up
F
F
F
F
T
T
T – False
True but not
“easiest”
T
F
T
T
T
F
F
F
F
F
F
9. Required to use IFRS as its
accounting standards
10. Shares are closely held
F
F
T
T – False
True but not
“easiest”
F
T
F
F
F
F
T
Exercise 1-7
Summaries of selected data from the financial statements of two corporations follow. Both companies have just
completed their first year of operations. Determine the missing amounts for [1] to [12]. Note that you may not
be able to solve the items in numerical order.
Income statement
Total revenues
Total expenses
Net income
Statement of changes in equity
Total shareholders’ equity, beginning of year
Cullumber Inc.
Bramble Inc.
950,000
820,000
130,000
325,000
280,000
45,000
0
0
Common shares, beginning of year
Issue of shares
Common shares, end of year
Retained earnings, beginning of year
Net income
Dividends declared
Retained earnings, end of year
Total shareholders’ equity, end of year
Statement of financial position
Total assets
Total liabilities
Total shareholders’ equity
0
110,000
110,000
0
130,000
40,000
90,000
200,000
0
20,000
20,000
0
45,000
10,000
35,000
55,000
1,100,000
900,000
200,000
200,000
145,000
55,000
1) Total expenses = total revenues – net income = 950,000 – 130,000 = 820,000
2) Common shares, end of year = common shares, beginning of year + issues of shares = 0 + 110,000
3) Net income given in income statement
4) Retained earnings = revenues – expenses – dividends declared
90,000 = 950,000 – 820,000 – dividends declared
Dividends declared = 40,000
5) Total shareholders’ equity, end of year = common shares, end of year + retained earnings, end of year =
110,000 + 90,000 = 200,000
6) Total shareholders’ equity = total assets – total liabilities = 1,100,000 – 900,000 = 200,000
7) Total revenues = total expenses + net income = 280,000 + 45,000 = 325,000
8) Issue of shares = common shares, end of year – common shares, beginning of year = 20,000 – 0 = 20,000
9) Net income given in income statement
10) Total shareholders’ equity, end of year = common shares, end of year + retained earnings, end of year =
20,000 + 35,000 = 55,000
11) Total assets = total liabilities + total shareholders’ equity = 145,000 + 55,000 = 200,000
12) Calculated in 10)
Practice Exercise 1-3
Consider the following business activities and classify each of the items by type of business activity: operating,
investing or financing.
Type of Activity
Operating
Investing
Investing
- Operating
4. Receipt of funds from the bank to finance the purchase of the additional
Investing
snow-making equipment
- Financing
5. Issue of shares to raise funds for a planned expansion
Financing
6. Repayment of a portion of the loan from the bank
Financing
7. Payment of interest on the bank loan
Financing
- Operating
8. Payment of salaries to the employees who operate the ski lifts
Operating
9. Receipt of a grant from the government for training a group of disabled skiers Financing
- Operating
10. Payment of dividend to shareholders
Financing
1. Cash receipts from customers paying for daily ski passes
2. Payments made to purchase additional snow-making equipment
3. Payments made to repair the grooming machines
Practice Exercise 1-4
Sandhill Corporation, a private corporation, was formed on July 1 2018. Only July 31, Guy Gelinas, the
company’s president, prepared the following statement of financial position:
Assets
Cash
Accounts receivable
Inventory
Boat
Sandhill Corporation
Statement of Financial Position
July 31,2018
Liabilities and Shareholders’ Equity
25,000
Accounts payable 50,000
53,000
Boat loan payable 42,000
38,000
Common shares
46,000
27,000
Retained earnings 5,000
$143,000
$143,000
Guy admits that his knowledge of accounting is somewhat limited and is concerned that his statement of
financial position might not be correct. He gives you the following additional information:
1. The boat actually belongs to Guy Gelinas, not to Sandhill Corporation. However, because Guy thinks he
might take customers out on the boat occasionally, he decided to list it as an asset of the company. To be
consistent, he also included as a liability of the company the personal bank loan that he took out on the boat.
2. Included in the accounts receivable balance is $10,000 that Guy personally loaned to his brother 5 years ago,
Guy included this in the receivables of Sandhill Corporation so that he wouldn’t forget that his brother owes
him money.
3. Guy’s statements didn’t balance. To make them balance, he adjusted the Common Shares account until assets
equalled liabilities and shareholders’ equity.
Prepare a correct statement of financial position. (Hint: To get the balance sheet to balance, adjust Common
Shares and list Assets in order of liquidity).
Cash
Accounts Receivable
Inventory
Total Assets
Sandhill Corporation
Statement of Financial Position
For the Month Ended July 31 2018
Corrected: July 31 2018
Assets
25,000
43,000
38,000
106,000
Liabilities and Shareholders’ Equity
Liabilities
Accounts Payable
Total Liabilities
Shareholders’ Equity
Common Shares
Retained Earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
50,000
50,000
51,000
5,000
56,000
106,000
Problem 1-9A
Incomplete financial statements for Wildhorse, Inc. follow.
a) Calculate the missing amounts for [1] to [13]
Service revenue
Operating expenses
Income before income tax
Income tax expense
Net income
Wildhorse, Inc.
Income Statement
Year Ended November 30, 2018
291,000
[1] 250,000
41,000
9,000
[2] 32,000
1) Operating expenses = service revenue – income before income tax = 291,000 – 41,000 = 250,000
2) Net income = income before income tax – income tax expense = 41,000 – 9,000 = 32,000
Balance, December 1 2017
Issued common shares
Net income
Dividends declared
Balance, November 30 2018
Wildhorse, Inc.
Statement of Changes in Equity
Year Ended November 30, 2018
Common Shares
Retained
Earnings
0
0
230,000
[3] 32,000
- 10,000
230,000
[4] 22,000
Total Equity
0
[5] 230,000
[6] 32,000
- 10,000
[7] 252,000
3) Solved in 2)
4) Balance (retained earnings) = net income – dividends declared = 32,000 – 10,000 = 22,000
5) Issues common shares given
6) Solved in 2)
7) Total equity = common shares + retained earnings = 230,000 + 22,000 = 252,000
Wildhorse, Inc.
Statement of Financial Position
November 30, 2018
Assets
Liabilities and Shareholders’ Equity
Cash
24,000
Liabilities
Accounts Receivable
35,000
Accounts Payable
[10] 92,000
Land
[8] 280,000
Bank loan payable
600,000
Buildings
390,000
Total liabilities
692,000
Equipment
215,000
Shareholders’ equity
Total assets
[9] 944,000
Common shares
[11] 230,000
Retained earnings
[12] 22,000
Total shareholders’ equity
[13] 252,000
Total liabilities and shareholders’ equity 944,000
9) Total assets = total liabilities and shareholders’ equity = 944,000
10) Accounts payable = total liabilities – bank loan payable = 692,000 – 600,000 = 92,000
11-13) Solved in Statement of Changes in Equity
8) Land = total assets – cash – accounts receivable – buildings – equipment = 944,000 – 24,000 – 35,000 –
390,000 – 215,000 = 280,000
WileyPLUS Problem 1-7
Businesses can be organized in different ways. From the list provided, choose the answer that best fits for each
of the three most common forms of business organizations.
Is the business private or public?
Does the business have a limited life?
What is the owner’s personal liability
for the business?
What do we call the owner or owners?
Who pays income tax on the net
income?
How many owners for the business?
Proprietorship
Private
Limited
Unlimited
Proprietor
Paid by the owner
One
Partnership
Usually private
Limited
Limited or
Unlimited
- Unlimited
Partners
Paid by the
partners
Two or more
Corporation
Private or public
Indefinite
Limited
Shareholders
Paid by the
corporation
Two or more
- One or more
WileyPLUS Problem 1-8
Match the items below by entering the appropriate code letter.
A. Internal users
B. Proprietorship
C. Expenses
D. Investing Activities
E. Financing Activities
F. Assets
G. Liabilities
H. Private corporation
I. Dividends
J. Public corporation
1. Consumed assets or services: C
2. Ownership is limited to one person: B
3. Officers and others who manage the business: A
4. Creditor claims against the assets of the company: G
5. A separate legal entity under provincial or federal laws that is listed on a Canadian, or other, stock exchange,
and is required to distribute their financial statements to the general public: J
6. Provides future economic benefits to the company: F
7. An activity that involves acquiring the resources necessary to run the business: D
8. An activity in which companies borrow money and sell shares: E
9. Payment to shareholders: I
10. A separate legal entity under provincial or federal laws where the shares are often said to be “closely held”:
H
Brief Exercise 2-4
Pharaoh Inc. reports the following current and non-current liabilities: accounts payable $24,000; salaries
payable $3,900; interest payable $5,600; unearned revenue $900; income tax payable $6,700; mortgage payable
(due within the year) $4,700; mortgage payable (due in more than one year) $47,000. Prepare the current
liabilities section of the statement of financial position.
Pharaoh Inc.
Statement of Financial Position (Partial)
Current Liabilities
Accounts payable
Salaries payable
Interest payable
Unearned revenue
Income tax payable
Mortgage payable (due within the year)
- Current portion of mortgage payable
Total Current Liabilities
24,00
3,900
5,600
900
6,700
4,700
45,800
Note: Mortgage payable (due in more than one year) is a non-current liability
Brief Exercise 2-9
Match the listed qualitative characteristics of useful financial information discussed in this chapter to each of
the following statements below.
a) Information that has predictive value, confirmatory value, and is material is said to have this fundamental
characteristic: relevance
b) Information that is complete, neutral, and free of error is said to have this fundamental characteristic: faithful
representation
c) Public accountants perform audits to determine this enhancing qualitative characteristic: verifiability
d) This quality requires that information cannot be selected to favour one position over another: neutrality
e) This enhancing qualitative characteristic describes information that a reasonably informed user can interpret
and comprehend: understandability
f) When information provides a basis for forecasting income for future periods, it is said to have this quality:
predictive value
g) This enhancing qualitative characteristic requires that similar companies should apply the same accounting
principles to similar events for successive accounting periods: comparability
h) This quality results in information that has nothing important omitted: completeness
i) This restriction requires that the value of the information presented should be greater than the cost of
providing it: cost constraint
j) This quality describes information that confirms or corrects users’ prior expectations: confirmatory value
k) This enhancing qualitative characteristic requires that information be available to decision makers before it
loses its ability to influence their decisions: timeliness
l) Faithful representation means that information is complete, neutral and this third quality: freedom from
error or bias
m) This quality allows items of insignificance that would not likely influence a decision not to be disclosed:
materiality
Exercise 2-2
The assets (in thousands) that follow were taken from the December 31, 2015, balance sheet for Big Rock
Brewery Inc.:
Accounts receivable
Accumulated depreciation – buildings
Accumulated depreciation – machinery and equipment
Accumulated depreciation – mobile equipment
Accumulated depreciation – office furniture and
equipment
Buildings
Cash
2,221
1,817
10,122
434
516
Intangible assets
Inventories
Land
Machinery and equipment
Mobile equipment
456
4,935
8,377
24,860
1,054
17,692
540
Office furniture and equipment
Prepaid expenses and other
1,286
1,573
Prepare the assets section of the statement of financial position. (List current assets in order of liquidity. List
Property, Plant, and Equipment in Land, Buildings, Machinery and Equipment, and Office Furniture. Show all
amounts in thousands of dollars).
Big Rock Brewery Inc.
Statement of Financial Position (Partial)
December 31, 2015
(in thousands)
Assets
Current Assets
Cash
Accounts receivable
Inventories
Prepaid expenses and other
Total Current Assets
Property, Plant and Equipment
Land
Buildings
Less accumulated depreciation
Machinery and Equipment
Less accumulated depreciation
Mobile equipment
Less accumulated depreciation
Office furniture and equipment
Less accumulated depreciation
Total Property, Plant and Equipment
Intangible Assets
Total Assets
540
2,221
4,935
1573
9,269
8,377
17,692
1,817
24,860
10,122
1,054
434
1,286
516
15,875
14,738
620
770
40,380
456
50,105
Exercise 2-3
The liabilities and shareholders’ equity items (in millions) that follow were taken from the March 31, 2016,
balance sheet for Saputo Inc.:
Accounts payable and accrued liabilities
896.6
Bank loans payable (current)
Common shares
Deferred income taxes payable (non-current)
Income taxes payable
Long-term debt
Other long-term liabilities
Retained earnings
423.1
821
475.6
37.1
1,208.3
61.8
3,180,8
Prepare the liabilities and shareholders’ equity sections of the statement of financial position (round answers to
1 decimal place)
Saputo Inc.
Statement of Financial Position (Partial)
March 31, 2016
(in millions)
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities
Bank loans payable (current)
Income taxes payable
Total Current Liabilities
Non-Current Liabilities
Deferred income taxes payable (non-current)
Long-term debt
Other long-term liabilities
Total Non-Current Liabilities
Total Liabilities
Shareholders’ Equity
Common shares
Retained earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
896.6
423.1
37.1
1356.8
475.6
1,208.3
61.8
1,745.7
3,102.5
821.0
3,180.8
4001.8
7,104.3
WileyPLUS Problem 2-10
Select from the following list the qualitative characteristic of useful information that best describes each of the
following items: predictive value, confirmatory value, materiality, completeness, neutrality, freedom from error,
verifiability, comparability
1. In order to keep the financial statements simple, Carlaw Consulting shows three items on its income
statement: Revenue, Expenses and Net income: completeness
2. The financial statements of Belbach Industries are audited on an annual basis by public accountants:
verifiability
3. Rydell Corporation is contemplating an investment in Fryan Ltd. Rydell has requested a copy of the
company’s year-end financial statements to assist them in their investment decision: predictive value
4. Chemical Reaction Inc. operates in both the US and Canada and restates its US financial statements
according to Canadian GAAP for its Canadian investors: comparability
5. The Controller for Location Inc. emphasizes that factual and unbiased information prevails in the preparation
of the company financial statements: neutrality
WileyPLUS Problem 2-8
Use the ratios below and statement of financial position to fill in the missing information. (Round debt to total
assets ratio to 1 decimal place).
Ayayai Corporation had the following comparative statements of financial position:
Ayayai Corporation
Statement of Financial Position
Dec. 31, 2018
Dec. 31, 2017
Assets
Current assets
Cash
Held for trading investments
Accounts receivable
Inventory
Prepaid expenses
Total current assets
Property, plant, and equipment (net)
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable
Salaries payable
Income tax payable
Total current liabilities
Mortgage payable
Total liabilities
Shareholders’ equity
Common shares
Retained earnings
Total liabilities and shareholders’ equity
85,000
114,000
140,000
232,000
94,000
665,000
197,000
862,000
90,000
162,000
135,500
207,000
61,000
655,500
200,000
855,500
315,385
108,750
50,865
475,000
60,578
535,578
308,000
87,000
41,000
436,000
75,795
511,795
275,000
51,422
862,000
275,000
68,705
855,500
Additional information:
Current ratio
Working capital
Debt to total assets
2018
1.4 : 1
$ 190,000
62.1%
2017
1.5 : 1
$ 219,500
59.8 %
Current ratio = (current assets)/(current liabilities)
2018:
1.4 = 665,000/current liabilities
current liabilities = 475,000
Salaries payable = current liabilities – accounts payable – income tax payable = 475,000 – 315,385 – 50,865 =
108,750
Total liabilities = current liabilities + mortgage payable = 475,000 + 60,578 = 535,578
Working capital = current assets – current liabilities = 665,000 – 475,000 = 190,000
2017:
Salaries payable = total liabilities – mortgage payable – income tax payable – accounts payable = 511,795 –
75,795 – 41,000 – 308,000 = 87,000
Current liabilities = accounts payable + salaries payable + income tax payable = 308,000 + 87,000 + 41,000 =
436,000
Total assets = total liabilities and shareholders’ equity = 855,500
Current assets = total assets – property, plant, and equipment (net) = 855,500 – 200,000 = 655,500
Held for trading investments = current assets – cash – accounts receivable – inventory – prepaid expenses =
655,500 – 90,000 – 135,500 – 207,000 – 61,000 = 162,000
Debt to total assets ratio = (total liabilities)/(total assets) = 511,795/855,500 = 59.8%
Brief Exercise 3-10
June
1
4
7
18
25
27
28
29
General Journal
Account Titles
Cash
Common Shares
Supplies
Accounts Payable
Accounts Receivable
Service Revenue
Cash
Accounts Receivable
No Entry
No Entry
Cash
Unearned Revenue
Accounts Payable
Cash
Income Tax Expense
Cash
Debit
2,710
Credit
2,710
231
231
318
318
212
212
0
0
201
201
231
231
95
95
Using T accounts, post the above journal entries to the general ledger. (Post entries in the order presented in the
problem).
June 1
June 18
June 27
Bal.
June 7
Bal.
June 4
June 28
Cash
2,710
June 28
212
June 29
201
2,797
Accounts Receivable
318
June 18
106
Supplies
231
Accounts Payable
231
June 4
Bal.
231
95
212
231
0?
Unearned Revenue
June 27
Common Shares
June 1
Service Revenue
June 7
Income Tax Expense
June 29
201
2,710
318
95
Brief Exercise 3-3
For each of the following accounts, indicate (a) whether it is an asset, liability, or shareholders’ equity account;
(b) the normal balance of the account; (c) whether a debit will increase or decrease the account; and (d) whether
a credit will increase or decrease the account.
1. Accounts Payable
2. Accounts Receivable
3. Cash
4. Common Shares
5. Dividends Declared
6. Equipment
7. Income Tax Expense
8. Retained Earnings
9. Service Revenue
10. Unearned Revenue
(a)
Basic Type
Liability
Asset
Asset
Shareholders’ Equity
Shareholders’ Equity
Asset
Liability
- Shareholders’ Equity
Shareholders’ Equity
Asset
- Shareholders’ Equity
Liability
(b)
Normal Balance
Credit
Debit
Debit
Credit
Debit
Debit
Credit
- Debit
Credit
Debit
- Credit
Credit
(c)
Debit Effect
Decrease
Increase
Increase
Decrease
Increase
Increase
Decrease
- Increase
Decrease
Increase
- Decrease
Decrease
(d)
Credit Effect
Increase
Decrease
Decrease
Increase
Decrease
Decrease
Increase
- Decrease
Increase
Decrease
- Increase
Increase
Assets + Expenses + Dividends = Liabilities + Share Capital + Revenues
Brief Exercise 3-6
Presented below are a number of economic events.
1. Purchased supplies on account, $240
2. Provided a service on account, $450
3. Paid salaries expense, $330
4. Issued common shares in exchange for cash, $5,230
5. Declared and paid $90 of dividends to shareholders
6. Received cash from a customer who had previously been billed for services provided, $450 (see item 2)
7. Paid account owed to supplier on account, $240 (see item 1)
8. Paid for insurance in advance, $100
9. Received cash in advance from a customer for services to be performed in the future, $280
10. Performed the service that the customer previously paid for (see item 9)
Journalize the transactions given above. (Credit account titles are automatically indented when the amount is
entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for
the amounts.)
No. Account Titles and Explanation
1. Supplies
Accounts Payable
2. Accounts Payable
- Accounts Receivable
Unearned Revenue
- Service Revenue
3. Salaries Expense
Cash
4. Cash
Common Shares
5. Dividends Declared
Cash
6. Unearned Revenue
- Cash
Accounts Receivable
7. Accounts Payable
Cash
8. Prepaid insurance
Cash
9. Cash
Unearned Revenue
10. Unearned Revenue
Service Revenue
Debit
240
240
450
450
330
330
5230
5230
90
90
450
450
240
240
100
100
280
550
450
Assets + Expenses + Dividends = Liabilities + Share Capital + Revenues
1. Performed the service that the customer previously paid for (see item 9)
Brief Exercise 3-9
Fill in the missing amounts from the following T accounts
Accounts Receivable
Aug. 10
15
18,400
6,300
Aug 23
Bal.
Sept. 5
(a) 16,000
8,700
(b) 4,300
Sept. 15
7,800
Bal. 5,300
Accounts Payable
Aug. 5
(c) 5,500
18 3,300
Aug. 29
Sept. 23
Credit
5,400
Bal.
Sept. 12
3,400
7,300
Bal.
(d) 4,200
6,500
280
450
550
Sales
Aug. 10
Aug. 12
15
Sept. 25
48,900
400
Bal.
Sept. 12
47,300
(e) 95,800
(f) 5,100
Bal.
100,400
500