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Accounting Principles, Third Canadian Edition
Chapter 4 Homework Solutions
BRIEF EXERCISE 4-1
The permanent accounts are:
Accounts payable
Accounts receivable
Income taxes payable
Long-term debt
Prepaid expenses
Property, plant and equipment
Short-term investments
Note that these are all balance sheet accounts.
The temporary accounts are:
Amortization expense
General and operating expenses
Interest on long-term debt expense
Other revenues
Note that these are all income statement accounts.
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BRIEF EXERCISE 4-2
(a)
Oct
31 Golf Fees Earned ................................ 160,000
Income Summary ...........................
160,000
31 Income Summary ............................... 121,000
Maintenance Expense ...................
Rent Expense .................................
Salaries Expense ...........................
25,000
12,000
84,000
31 Income Summary ............................... 39,000
N. Mosquera, Capital .....................
39,000
31 N. Mosquera, Capital .......................... 48,000
N. Mosquera, Drawings .................
48,000
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BRIEF EXERCISE 4-2 (continued)
(b)
Income Summary
121,000
160,000
39,000
39,000
0
N. Mosquera, Capital
75,000
39,000
48,000
66,000
N. Mosquera, Drawings
48,000
48,000
Golf Fees Earned
160,000
160,000
0
Maintenance Expense
25,000
25,000
0
Rent Expense
12,000
12,000
0
0
Salaries Expense
84,000
84,000
0
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BRIEF EXERCISE 4-3
MOSQUERA GOLF CLUB
Post-Closing Trial Balance
October 31, 2008
Debit
Cash .................................................................... $ 8,500
Prepaid expenses ............................................... 3,000
Equipment........................................................... 85,000
Accumulated amortization—equipment ...........
Accounts payable...............................................
Unearned golf fees .............................................
N. Mosquera, capital ..........................................
$96,500
Credit
$17,000
12,000
1,500
66,000
$96,500
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Accounting Principles, Third Canadian Edition
BRIEF EXERCISE 4-4
The proper sequencing of the required steps in the accounting
cycle is as follows:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Analyze business transactions
Journalize the transactions
Post to the ledger accounts
Prepare a trial balance
Journalize and post the adjusting entries
Prepare an adjusted trial balance
Prepare the financial statements
Journalize and post the closing entries
Prepare a post-closing trial balance
Filling in the blanks, the answers are 9, 6, 1, 4, 2, 8, 7, 5, 3.
BRIEF EXERCISE 4-5
(a)
1.
2.
Assets Liabilities
U
NA
U
U
Owner’s
Net
Equity Revenue Expenses Income
U
U
NA
U
NA
NA
NA
NA
(b)
1.
2.
Cash ............................................................
Service Revenue ....................................
880
Office Supplies ...........................................
Accounts Payable ..................................
Equipment ..............................................
1,850
880
270
1,580
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BRIEF EXERCISE 4-6
1
5
3
1
6
(a) Supplies
(b) Accounts Payable
(c) Building
(d) Prepaid Insurance
(e) Note Payable
(due in 5 years)
4 (f) Goodwill
5 (g) Unearned Revenue
1 (h) Accounts Receivable
3 (i) Accumulated Amortization—
Building
4 (j) Patents
2 (k) Land Held for Resale
2 (l) Note Receivable
(due in 3 years)
BRIEF EXERCISE 4-7
Reuben Company
Balance Sheet (Partial)
December 31, 2008
Current assets
Cash............................................................................... $ 18,400
Short-term investments................................................
8,200
Accounts receivable ..................................................... 12,500
Supplies.........................................................................
5,200
Prepaid insurance.........................................................
3,900
Total current assets ................................................. $48,200
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BRIEF EXERCISE 4-8
($ in thousands)
Working capital = Current assets - Current liabilities
2008: Working capital = $165,211 – $136,742 = $28,469
2007: Working capital = $190,548 – $72,410 = $118,138
Current ratio = Current assets ÷ Current liabilities
2008: Current ratio = $165,211 ÷ $136,742 = 1.21:1
2007: Current ratio = $190,548 ÷ $72,410 = 2.63:1
Cool Delight’s liquidity was weaker in 2008. Working capital
decreased in amount, and the current ratio decreased from 2.63:1
to 1.21:1.
BRIEF EXERCISE 4-9
Working capital = Current assets - Current liabilities
Big: Working capital = $1,000,000 - $900,000 = $100,000
Small: Working capital = $200,000 - $100,000 = $100,000
Current ratio = Current assets ÷ Current liabilities
Big: Current ratio = $1,000,000 ÷ $900,000 = 1.11:1
Small: Current ratio = $200,000 ÷ $100,000 = 2.00:1
The working capital is the same for both companies but Small
Company’s current ratio is much stronger. The current ratio is
more relevant.
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EXERCISE 4-1
(a)
June 30 Service Revenue ....................
Income Summary ...............
16,100
30 Income Summary ...................
Salaries Expense ...............
Supplies Expense ..............
Rent Expense .....................
14,100
30 Income Summary ...................
J. Roth, Capital...................
2,000
30 J. Roth, Capital .......................
J. Roth, Drawings ..............
2,500
16,100
9,800
1,300
3,000
2,000
2,500
(b) The ending balance in J. Roth’s Capital account should
agree with the capital account balance on the Statement of
Owner’s Equity and the Balance Sheet.
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EXERCISE 4-2
(a)
Date
GENERAL JOURNAL
Account Titles and Explanation
J15
Debit
Credit
July 31 Service Revenue................................. 73,800
Income Summary ...........................
73,800
31 Income Summary ............................... 77,850
Amortization Expense ...................
Salaries Expense ...........................
Interest Expense ............................
Rent Expense .................................
Supplies Expense ..........................
2,700
56,050
1,350
15,900
1,850
31 D. Rafael, Capital ...............................
Income Summary ...........................
4,050
31 D. Rafael, Capital ................................ 14,000
D. Rafael, Drawings .......................
4,050
14,000
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EXERCISE 4-2 (Continued)
(a) (Continued)
Date
Explanation
July 31 Balance
Cash
Ref.

Debit
Credit Balance
5,840
Accounts Receivable
Date
Explanation
Ref. Debit
July 31 Balance

Credit Balance
15,540
Prepaid Expenses
Date
Explanation
Ref. Debit
July 31 Balance

Credit Balance
1,620
Date
Explanation
July 31 Balance
Date
Explanation
July 31 Balance
Supplies
Ref.

Debit
Equipment
Ref. Debit

Credit Balance
470
Credit Balance
17,600
Accumulated Amortization—Equipment
Date
Explanation
Ref. Debit Credit Balance
July 31 Balance

5,400
Accounts Payable
Date
Explanation
Ref. Debit
July 31 Balance

Credit Balance
4,245
Interest Payable
Date
Explanation
Ref. Debit
July 31 Balance

Credit Balance
525
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Accounting Principles, Third Canadian Edition
EXERCISE 4-2 (Continued)
(a) (Continued)
Unearned Service Revenue
Date
Explanation
Ref. Debit Credit Balance
July 31 Balance

2,750
Notes Payable
Ref. Debit

Credit Balance
15,000
D. Rafael, Capital
Date
Explanation
Ref. Debit
July 31 Balance

31 Closing entry
J15 4,050
31 Closing entry
J15 14,000
Credit Balance
31,200
27,150
13,150
D. Rafael, Drawings
Date
Explanation
Ref. Debit
July 31 Balance

31 Closing entry
Credit Balance
14,000
14,000
0
Income Summary
Explanation
Ref. Debit
Balance

Closing entry
J15
Closing entry
J15 77,850
Closing entry
J15
Credit Balance
0
73,800
73,800
4,050 Dr.
4,050
0
Service Revenue
Date
Explanation
Ref. Debit
July 31 Balance

31 Closing entry
J15 73,800
Credit Balance
73,800
0
Date
Explanation
July 31 Balance
Date
July 31
31
31
31
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EXERCISE 4-2 (Continued)
(a) (Continued)
Amortization Expense
Date
Explanation
Ref. Debit
July 31 Balance

31 Closing entry
J15
Credit Balance
2,700
2,700
0
Salaries Expense
Date
Explanation
Ref. Debit
July 31 Balance

31 Closing entry
J15
Credit Balance
56,050
56,050
0
Interest Expense
Date
Explanation
Ref. Debit
July 31 Balance

31 Closing entry
J15
Credit Balance
1,350
1,350
0
Rent Expense
Date
Explanation
Ref. Debit
July 31 Balance

31 Closing entry
J15
Credit Balance
15,900
15,900
0
Supplies Expense
Date
Explanation
Ref. Debit
July 31 Balance

31 Closing entry
J15
Credit Balance
1,850
1,850
0
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EXERCISE 4-2 (Continued)
(b)
RAFAEL COMPANY
Post-Closing Trial Balance
July 31, 2008
Debit
Cash .................................................................... $ 5,840
Accounts receivable .......................................... 15,540
Prepaid expenses ............................................... 1,620
Supplies ..............................................................
470
Equipment........................................................... 17,600
Accumulated amortization—equipment ...........
Accounts payable...............................................
Interest payable ..................................................
Unearned service revenue .................................
Notes payable .....................................................
D. Rafael, capital ................................................ ______
$41,070
Credit
$ 5,400
4,245
525
2,750
15,000
13,150
$41,070
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Accounting Principles, Third Canadian Edition
EXERCISE 4-3
(a)
Dec. 31 Bowling Revenues .................
Income Summary ...............
14,180
31 Income Summary ...................
Amortization Expense .......
Insurance Expense ............
Interest Expense ................
10,830
31 Income Summary ...................
T. Bolgos, Capital ..............
3,350
31 T. Bolgos, Capital ...................
T. Bolgos, Drawings ..........
10,000
14,180
7,360
870
2,600
3,350
10,000
(b)
Clos.
Clos.
Bal.
Income Summary
10,830 Clos.
14,180
Bal.
3,350
3,350
0
T. Bolgos, Capital
Bal.
115,000
10,000 Clos.
3,350
Bal.
108,350
T. Bolgos, Drawings
Bal. 10,000
Clos. 10,000
Bal.
0
Bowling Revenues
Clos.
14,180 Bal.
14,180
Bal.
0
Amortization Expense
Bal.
7,360 Clos.
7,360
Bal.
0
Insurance Expense
870 Clos.
0
Interest Expense
Bal.
2,600 Clos.
2,600
Bal.
0
Clos.
Bal.
Bal.
870
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EXERCISE 4-3 (Continued)
(c)
Summit’s Bowl-A-Drome Alley
Post-Closing Trial Balance
December 31, 2008
Debit
$ 17,940
13,880
4,590
740
64,000
128,800
Credit
Cash .................................................................
Accounts receivable .......................................
Prepaid insurance ...........................................
Supplies ...........................................................
Land .................................................................
Building ............................................................
Accumulated amortization—building ............
$ 50,600
Equipment........................................................
62,400
Accumulated amortization—equipment ........
17,770
Accounts payable............................................
12,300
Unearned bowling revenue .............................
950
Interest payable ...............................................
2,600
Mortgage payable ............................................
99,780
T. Bolgos, capital............................................. _______ 108,350
$292,350 $292,350
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EXERCISE 4-4
1.
2.
3.
4.
5.
Accounts Payable ($920 - $290) .................
Cash.........................................................
630
Supplies .......................................................
Equipment ...............................................
Accounts Payable ...................................
560
L. Choi, Drawings ........................................
Salaries Expense ....................................
400
Office Equipment.........................................
Office Supplies........................................
1,200
Unearned Service Revenue ........................
Service Revenue .....................................
175
630
56
504
400
1,200
175
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EXERCISE 4-5
Account
Accounts payable and accrued liabilities
Cash and cash equivalents
Employee future benefit obligation
Goodwill
Income taxes payable
Income taxes recoverable
Inventories
Long-term debt
Long-term debt due within one year
Long-term lease obligation
Mortgages and loans receivable
Prepaid expenses
Property and equipment
Receivables
Retained earnings
Balance Sheet
Classification
Current Liabilities
Current Assets
Long-term Liabilities
Intangible Assets
Current Liabilities
Current Assets
Current Assets
Long-term Liabilities
Current Liabilities
Long-term Liabilities
Long-term Assets
Current Assets
Property, Plant, and
Equipment
Current Assets
Shareholder’s Equity
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EXERCISE 4-8
(a)
Working Capital = Current Assets - Current Liabilities
2005: $17,192,000 - $4,639,000 = $12,553,000
2004: $20,842,000 - $4,996,000 = $15,846,000
2003: $42,523,000 - $7,132,000 = $35,391,000
Current Ratio = Current Assets ÷ Current Liabilities
2005: $17,192,000 ÷ $4,639,000 = 3.71:1
2004: $20,842,000 ÷ $4,996,000 = 4.17:1
2003: $42,523,000 ÷ $7,132,000 = 5.96:1
(b) Based on the both working capital and the current ratios
Theratechnologies’ liquidity in 2005 is below that of 2004
and 2003, with 2003 being the best year. However, it is still a
very positive ratio, with sufficient current assets to cover
current liabilities.
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*EXERCISE 4-9
KWOK YUEN HO COMPANY
Work Sheet
Month Ended April 30, 2008
Unadjusted Trial
Balance
Account Titles
Cash
Accounts receivable
Prepaid rent
Equipment
Accum. amort.–equip.
Accounts payable
Notes payable
Interest payable
K. Ho, capital
K. Ho, drawings
Service revenue
Salaries expense
Rent expense
Amortization expense
Interest expense
Totals
Net Income
Totals
Solutions Manual
Dr.
Cr.
14,770
8,230
3,050
23,040
Adjustments
Dr.
Cr.
(1) 720
(2) 610
4,480
5,670
11,600
Adjusted Trial
Balance
Dr.
Cr.
28,960
11,870
(2) 610
(3) 640
(4) 58
62,580
2,028
(1) 720
2,028
Dr.
5,120
5,670
11,600
58
28,960
3,650
12,590
9,840
610
640
58
63,998
Cr.
14,770
8,950
2,440
23,040
3,650
9,840
Balance Sheet
5,120
5,670
11,600
58
28,960
(4) 58
62,580
Dr.
14,770
8,950
2,440
23,040
(3) 640
3,650
Cr.
Income
Statement
63,998
12,590
9,840
610
640
0
58
11,148
1,442
12,590
12,590
52,850
12,590
52,850
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51,408
1,442
52,850
Chapter 4
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PROBLEM 4-2A
(a)
Date
GENERAL JOURNAL
Account Titles and Explanation
Debit
Credit
Sept. 30 Accounts Receivable ........................... 1,150
Service Revenue ..............................
1,150
30 Insurance Expense ($4,140 x 8/12) ..... 2,760
Prepaid Insurance ...........................
2,760
30 Supplies Expense ($3,780 – $960) ...... 2,820
Supplies ...........................................
2,820
30 Amortization Expense .......................... 7,200
Accumulated Amortization
—Building ........................................
Accumulated Amortization
—Equipment .....................................
30 Salaries Expense ................................. 1,075
Salaries Payable ..............................
30 Interest Expense .................................
Interest Payable ...............................
($105,000 x 6% x 1/12)
2,450
4,750
1,075
525
30 Unearned Revenue .............................. 1,710
Service Revenue ..............................
525
1,710
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PROBLEM 4-2A (Continued)
(b)
EDGE SPORTS REPAIR SHOP
Adjusted Trial Balance
September 30, 2008
Account Titles
Debit
Credit
Cash ................................................................... $ 10,470
Accounts receivable ($1,450 + $1,150) ............ 2,600
Prepaid insurance ($4,140 – $2,760) ................ 1,380
Supplies ($3,780 – $2,820) ................................
960
Land ................................................................... 55,000
Building ............................................................. 98,000
Accumulated amortization—building
($17,150 + $2,450) ...........................................
$ 19,600
Equipment .......................................................... 38,000
Accumulated amortization—equipment
($9,500 + $4,750) .............................................
14,250
Accounts payable .............................................
4,300
Unearned revenue ($2,280 – $1,710) ................
570
Salaries payable ($0 + $1,075) ..........................
1,075
Interest payable ($0 + $525) .............................
525
Mortgage payable .............................................
105,000
L. Bachchan, capital .........................................
60,000
L. Bachchan, drawings ..................................... 93,525
Service revenue ($198,450 + $1,150 + $1,710)
201,310
Salaries expense ($75,900 + $1,075) ................ 76,975
Utilities expense ............................................... 11,100
Interest expense ($5,315 + $525) ...................... 5,840
Insurance expense ............................................ 2,760
Supplies expense ............................................. 2,820
Amortization expense ........................................
7,200 _______
$406,630 $406,630
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PROBLEM 4-2A (Continued)
(c)
EDGE SPORTS REPAIR SHOP
Income Statement
Year Ended September 30, 2008
Service revenue ............................................................... $201,310
Expenses
Salaries expense ........................................... $76,975
Utilities expense ............................................ 11,100
Interest expense ............................................ 5,840
Insurance expense ........................................ 2,760
Supplies expense .......................................... 2,820
Amortization expense ................................... 7,200
Total expenses ........................................................ 106,695
Net income ....................................................................... $ 94,615
EDGE SPORTS REPAIR SHOP
Statement of Owner's Equity
Year Ended September 30, 2008
L. Bachchan, capital, October 1, 2007 ($60,000 - $4,000) $56,000
Add: Investment .......................................
$ 4,000
Net income ......................................
94,615
98,615
154,615
Less: Drawings ............................................................ 0
93,525
L. Bachchan, capital, September 30, 2008 ..................... $61,090
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PROBLEM 4-2A (Continued)
(c) (Continued)
EDGE SPORTS REPAIR SHOP
Balance Sheet
September 30, 2008
Assets
Current assets
Cash ............................................................................. $ 10,470
Accounts receivable ...................................................
2,600
Prepaid insurance .......................................................
1,380
Supplies .......................................................................
960
Total current assets ................................................
15,410
Property, plant, and equipment
Land ..........................................................
$55,000
Building ....................................... $98,000
Less: Accumulated amortization 19,600 78,400
Equipment................................... $38,000
Less: Accumulated amortization 14,250 23,750 157,150
Total assets ............................................................. $172,560
Liabilities and Owner's Equity
Current liabilities
Accounts payable........................................................ $ 4,300
Salaries payable ..........................................................
1,075
Interest payable ...........................................................
525
Unearned revenue .......................................................
570
Current portion of mortgage payable ...................... 0
5,400
Total current liabilities............................................
11,870
Long-term liabilities
Mortgage payable ........................................................
99,600
Total liabilities ......................................................... 111,470
Owner's equity
L. Bachchan, capital....................................................
61,090
Total liabilities and owner's equity ........................ $172,560
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Accounting Principles, Third Canadian High School Edition
PROBLEM 4-2A (Continued)
(d)
Date
GENERAL JOURNAL
Account Titles and Explanation
Debit
Credit
Sept. 30 Service Revenue ............................... 201,310
Income Summary .........................
201,310
30 Income Summary .............................. 106,695
Salaries Expense ..........................
Utilities Expense ...........................
Interest Expense ...........................
Insurance Expense .......................
Supplies Expense .........................
Amortization Expense ...................
76,975
11,100
5,840
2,760
2,820
7,200
30 Income Summary .............................. 94,615
L. Bachchan, Capital ....................
94,615
30 L. Bachchan, Capital ......................... 93,525
L. Bachchan, Drawings ................
93,525
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Accounting Principles, Third Canadian High School Edition
PROBLEM 4-4A
(a)
(1)
INCORRECT ENTRY
(2)
CORRECT ENTRY
(3)
CORRECTING ENTRY
1. Cash
670
Cash
760
Cash
90
Accounts Receivable 670
Accounts Receivable
760
Accounts Receivable
2. Supplies
900
Equipment
Accounts Receivable 900
Accounts Payable
3. No entry
4. Misc. Expense
Cash
5. Salaries Expense
Cash
900
90
Equipment
900
900 Accounts Receivable 900
Supplies
900
Accounts Payable
900
Amortization expense 15
Amortization expense 15
Accumulated Amortization 15
Accumulated Amortization 15
50
Advertising Expense
50
Cash
2,000
Salaries Expense
2,000 Salaries Payable
Cash
75
Advertising Expense
75
Cash
Misc. Expense
1,250
750
Salaries Payable
Salaries Expense
2,000
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75
25
50
750
750
Weygandt, Kieso, Kimmel, Trenholm, Kinnear
Accounting Principles, Third Canadian High School Edition
PROBLEM 4-4A (Continued)
(a) Continued
(1) INCORRECT ENTRY
6. Equipment
Cash
7. Salary Expense
Cash
8. No entry
(2) CORRECT ENTRY
101
Repair Expense
101 Cash
(3) CORRECTING ENTRY
110
Repair Expense
110 Equipment
Cash
110
101
9
1,800
H. Maurice, Drawings 1,800
H. Maurice, Drawings 1,800
1,800
Cash
1,800 Salary Expense
1,800
Rent Expense
Cash
1,150
Rent Expense
1,150 Cash
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1,150
1,150
Weygandt, Kieso, Kimmel, Trenholm, Kinnear
Accounting Principles, Third Canadian High School Edition
PROBLEM 4-4A (Continued)
(b)
INTERACTIVE COMPUTER REPAIR
Trial Balance
March 31, 2008
Cash ($7,400 + $90 - $25 - $9 - $1,150) ..............
Accounts receivable ($3,600 - $90 + $900) .......
Supplies ($1,100 - $900) ....................................
Equipment ($11,400 + $900 - $101) ...................
Accumulated amortization ($5,795 + $15) ........
Accounts payable ($3,000 + $900) ...................
Salaries payable ($750 - $750) ...........................
Unearned revenue .............................................
H. Maurice, capital .............................................
H. Maurice, drawings ($0 + $1,800) ...................
Service revenue .................................................
Salaries expense ($5,100 - $750 - $1,800) ........
Advertising expense ($600 + $75) ....................
Miscellaneous expense ($210 - $50) .................
Amortization expense ($95 + $15) .....................
Repair expense ($150 + $110)............................
Rent expense ($0 + $1,150) ...............................
Solutions Manual
Debit
$ 6,306
4,410
200
12,199
Credit
$ 5,810
3,900
0
935
12,725
1,800
6,450
2,550
675
160
110
260
1,150
$29,820
______
$29,820
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Chapter 4
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Accounting Principles, Third Canadian High School Edition
PROBLEM 4-5A
(a)
Income Statement
Item
1.
2.
3.
4.
5.
6.
7.
8.
9.
(b)
Total
Revenue
NE
NE
O $350
NE
U $80
U $750
NE
O $300
NE
Expenses
O $700
NE
NE
O $270
NE
U $750
NE
NE
O$950
U $180
O$1,170
Balance Sheet
Net
Owner’s
Income Assets Liabilities Equity
U $ 700 U $700
NE
U $700
NE
O $600
O $600
NE
O $350
O $350
NE
O $350
U $270 U $270
NE
U $270
U $80
U$80
NE
U $80
NE
NE
NE
NE
NE
U $500
U $500
NE
O $300
NE
U $300
O $300
U$950
NE
NE
NE
U$1,350
U $600
U $200
U $400
Note that the accounting equations stay in balance, in the total row. Revenues (U$180) –
Expenses (O$1,170) = Net Income (U$1,350). Assets (U $600) = Liabilities (U$200) + Owner’s
Equity (U$400). The difference in net income (U $ 1,350) and the owner’s equity (U $400) is
item 9 which does result in an understatement of income but no net effect on owner’s equity.
PROBLEM 4-6A
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Chapter 4
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Accounting Principles, Third Canadian High School Edition
(a)
MATRIX CONSULTING SERVICES
Income Statement
Year Ended March 31, 2008
Revenues
Service revenue .......................................... $79,800
Interest revenue ..........................................
600
Expenses
Advertising expense ................................... $12,000
Amortization expense.................................
6,000
Insurance expense .....................................
4,000
Interest expense .........................................
2,000
Salaries expense.........................................
45,000
Supplies expense .......................................
3,700
Total expenses .......................................................
Net income .......................................................................
$80,400
72,700
$ 7,700
MATRIX CONSULTING SERVICES
Statement of Owner's Equity
Year Ended March 31, 2008
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Chapter 4
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Accounting Principles, Third Canadian High School Edition
N. Anderson, capital, April 1, 2007 ($41,000 - $3,600) ...
Add: Investment ............................................... $3,600
Net income .............................................. 7,700
Less: Drawings ...............................................................
N. Anderson, capital, March 31, 2008 ............................
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$37,400
11,300
48,700
12,000
$36,700
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Chapter 4
Weygandt, Kieso, Kimmel, Trenholm, Kinnear
Accounting Principles, Third Canadian High School Edition
PROBLEM 4-6A (Continued)
(a) (Continued)
MATRIX CONSULTING SERVICES
Balance Sheet
March 31, 2008
Assets
Current assets
Cash.............................................................................
Short-term investments..............................................
Accounts receivable ...................................................
Interest receivable ......................................................
Note receivable ...........................................................
Prepaid insurance.......................................................
Supplies.......................................................................
Total current assets ...............................................
Property, plant, and equipment
Computer equipment ..................................... $44,000
Less: Accumulated amortization .................. 18,000
Intangible asset
Patent ..........................................................................
Total assets .....................................................................
$ 4,600
4,000
7,400
800
10,000
4,400
2,300
33,500
26,000
16,000
$75,500
Liabilities and Owner's Equity
Current liabilities
Accounts payable ....................................................... $ 8,000
Salaries payable..........................................................
2,600
Interest payable .......................................................... 000, 1,000
Unearned revenue ......................................................
1,200
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Chapter 4
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Accounting Principles, Third Canadian High School Edition
Current portion of note payable ................................
Total current liabilities ...........................................
Long-term liabilities
Notes payable ($26,000 - $10,000) .............................
Total liabilities ........................................................
Owner's equity
N. Anderson, capital ...................................................
Total liabilities and owner's equity .......................
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10,000
22,800
16,000
38,800
36,700
$75,500
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Chapter 4
Weygandt, Kieso, Kimmel, Trenholm, Kinnear
Accounting Principles, Third Canadian High School Edition
PROBLEM 4-6A (Continued)
(b)
2008
2007
Working
Capital
$33,500 - $22,800
= $10,700
$30,700 - $15,950
= $14,750
Current
Ratio
$33,500 ÷ $22,800
= 1.47:1
$30,700 ÷ $15,950
= 1.92:1
Working capital is positive for 2008 and 2007 and the current ratios are both greater
than 1, which indicates the company can meet its currently maturing obligations. There
was a decline in both ratios from 2007 to 2008; indicating a weakening in the company’s
liquidity from 2007 to 2008.
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Chapter 4
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Accounting Principles, Third Canadian High School Edition
PROBLEM 4-7A
(a)
2005
2004
2003
Working
Capital
$12,770,157 –
$3,895,903
= $8,874,254
$9,947,060 –
$4,014,186
= $5,932,874
$10,006,747 –
$4,958,338
= $5,048,409
Current
Ratio
$12,770,157 ÷
$3,895,903
= 3.28:1
$9,947,060 ÷
$4,014,186 =
2.48:1
$10,006,747 ÷
$4,958,338 =
2.02:1
(b) Working capital is positive for 2003 through 2005 and the current ratios are all greater
than 1, which indicates the company can meet its currently maturing obligations. There
was a significant improvement in both ratios from 2003 to 2005; and, the company’s
liquidity has improved from 2003 to 2005.
*PROBLEM 4-9A
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Chapter 4
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Accounting Principles, Third Canadian High School Edition
(a)
KUMAR MANAGEMENT SERVICES
Work Sheet
Year Ended December 31, 2008
Adjusted Trial
Income
Account Titles Trial Balance
Adjustments
Balance
Statement
Debit Credit Debit Credit Debit Credit Debit Credit
Cash
12,550
12,550
Accts. rec.
23,600
(a) 1,500
25,100
Supplies
3,150
(b) 2,460
690
Prepaid insur.
3,100
(c) 1,700
1,400
Land
58,000
58,000
Building
112,500
112,500
Accum. amort.
—building
22,500
(d) 2,500
25,000
Equipment
51,000
51,000
Accum. amort.
—equipment
17,000
(d) 4,250
21,250
Accts payable
10,640
(e) 700
11,340
Sal. payable
(f) 845
845
Int. payable
(g) 1,250
1,250
Unearned rent
revenue
5,000 (h) 1,900
3,100
Mort. payable
100,000
100,000
Balance Sheet
Debit Credit
12,550
25,100
690
1,400
58,000
112,500
25,000
51,000
21,250
11,340
845
1,250
3,100
100,000
*PROBLEM 4-9A (Continued)
(a) (Continued)
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Chapter 4
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Account Titles
M. Kumar, cap.
M. Kumar,
draw.
Service rev.
Rent rev.
Salaries exp.
Utilities exp.
Prop. tax exp
Insurance exp.
Interest exp.
Amort. exp.
Supplies exp.
Totals
Net income
Totals
Key: (a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
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Accounting Principles, Third Canadian High School Edition
Trial Balance
Adjustments
Debit Credit Debit Credit
113,150
Adjusted Trial
Income
Balance
Statement
Debit Credit Debit Credit
113,150
28,500
28,500
66,100
24,000
38,675
15,800
5,265
(a) 1,500
(h) 1,900
Balance Sheet
Debit Credit
113,150
28,500
67,600
25,900
67,600
25,900
(f) 845
(e) 700
39,520
39,520
16,500
16,500
5,265
5,265
(c) 1,700
1,700
1,700
6,250
(g) 1,250
7,500
7,500
(d) 6,750
6,750
6,750
(b) 2,460
2,460
2,460
358,390 358,390 17,105 17,105 369,435 369,435 79,695 93,500 289,740 275,935
13,805
13,805
93,500 93,500 289,740 289,740
Service revenue accrued $25,100 - $23,600 - $1,500
Supplies used $3,150 - $690 = $2,460
Expired insurance $3,100 - $1,400 = $1,700
Amortization expense—building
$25,000 - $22,500 = $2,500
+ Amortization expense—equipment
$21,250 - $17,000 = $4,250
$6,750
Utilities expense accrued $11,340 - $10,640 = $700
Salaries accrued $845
Interest expense accrued $1,250
Rent revenue earned $5,000 - $3,100 = $1,900
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Chapter 4
Weygandt, Kieso, Kimmel, Trenholm, Kinnear
Accounting Principles, Third Canadian High School Edition
*PROBLEM 4-9A (Continued)
(b)
KUMAR MANAGEMENT SERVICES
Balance Sheet
December 31, 2008
Assets
Current assets
Cash ............................................................................. $ 12,550
Accounts receivable ...................................................
25,100
Supplies .......................................................................
690
Prepaid insurance .......................................................
1,400
Total current assets ................................................
39,740
Property, plant, and equipment
Land .............................................................. $58,000
Building ........................................ $112,500
Less: Accumulated amortization 25,000 87,500
Equipment.................................... $ 51,000
Less: Accumulated amortization 21,250 29,750 175,250
Total assets ............................................................. $214,990
Liabilities and Owner's Equity
Current liabilities
Accounts payable........................................................ $ 11,340
Salaries payable ..........................................................
845
Interest payable ...........................................................
1,250
Unearned rent revenue ...............................................
3,100
Current maturity of long-term debt ............................
10,000
Total current liabilities............................................
26,535
Long-term liabilities
Mortgage payable ........................................................
90,000
Total liabilities ......................................................... 116,535
Owner's equity
M. Kumar, capital ($113,150 + $13,805 – $28,500) .....
98,455
Total liabilities and shareholder’s equity .............. $214,990
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Accounting Principles, Third Canadian High School Edition
*PROBLEM 4-9A (Continued)
(c)
Dec. 31 Accounts Receivable .......................
Service Revenue..........................
1,500
31 Supplies Expense ............................
Supplies .......................................
2,460
31 Insurance Expense ..........................
Prepaid Insurance .......................
1,700
31 Amortization Expense .....................
Accumulated Amortization
—Building ................................
Accumulated Amortization
—Equipment ............................
6,750
31 Utilities Expense ..............................
Accounts Payable .......................
700
31 Salaries Expense .............................
Salaries Payable ..........................
845
31 Interest Expense ..............................
Interest Payable ...........................
1,250
31 Unearned Rent Revenue ..................
Rent Revenue ..............................
1,900
1,500
2,460
1,700
2,500
4,250
700
845
1,250
1,900
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Accounting Principles, Third Canadian High School Edition
*PROBLEM 4-9A (Continued)
(d)
Dec. 31 Service Revenue ..............................
Rent Revenue ...................................
Income Summary ........................
67,600
25,900
31 Income Summary .............................
Salaries Expense .........................
Utilities Expense..........................
Property tax Expense ..................
Insurance Expense ......................
Interest Expense..........................
Amortization Expense .................
Supplies Expense........................
79,695
31 Income Summary .............................
M. Kumar, Capital ........................
13,805
31 M. Kumar, Capital.............................
M. Kumar, Drawings ....................
28,500
93,500
39,520
16,500
5,265
1,700
7,500
6,750
2,460
13,805
28,500
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Accounting Principles, Third Canadian High School Edition
*PROBLEM 4-9A (Continued)
(e)
KUMAR MANAGEMENT SERVICES
Post-Closing Trial Balance
December 31, 2008
Debit
Credit
Cash ................................................................... $ 12,550
Accounts receivable ......................................... 25,100
Supplies .............................................................
690
Prepaid insurance ............................................. 1,400
Land ................................................................... 58,000
Building ............................................................. 112,500
Accumulated amortization—building ..............
$ 25,000
Equipment ......................................................... 51,000
Accumulated amortization—equipment ..........
21,250
Accounts payable ..............................................
11,340
Salaries payable .................................................
845
Interest payable ................................................
1,250
Unearned rent revenue .....................................
3,100
Mortgage payable .............................................
100,000
M. Kumar, capital .............................................. _______
98,455
$261,240 $261,240
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