Solution manual Financial accounting 6th kieso kimmel ch04

www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition CHAPTER Accrual Accounting Concepts ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Exercises A Problems B Problems BYP *1 Explain when revenue and expenses are recognized and how this forms the basis of accrual accounting 1, 2, 3, 1, 1, 1A, 6A 1B, 6B 5, *2 Describe the types of adjusting entries and prepare adjusting entries for prepayments 5, 6, 7, 8, 9, 10, 11, 12, 16 3, 4, 3, 4, 6, 7, 2A, 4A, 5A, 6A, 7A, 8A, 11A 2B, 4B, 5B, 6B, 7B, 8B, 11B 1, 2, 3, 4, 5, *3 Prepare adjusting entries for accruals 10, 11, 12, 13, 14, 16 5, 6, 7, 8, 5, 6, 7, 3A, 4A, 5A, 6A, 7A, 8A, 11A 3B, 4B, 5B, 6B, 7B, 8B, 11B 1, 2, 3, 4, 5, *4 Prepare an adjusted trial balance 15, 17, 18 10, 11 8, 9, 10 6A, 7A, 8A, 10A, 11A, 6B, 7B, 8B, 10B, 11B 3, *5 Prepare closing entries and a postclosing trial balance 16, 17, 18, 19, 20, 21, 22 12, 13, 14 11 9A, 10A, 12A 9B, 10B, 12B 1, Solutions Manual 4-1 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Calculate profit on cash and accrual bases Moderate 25-35 2A Prepare transaction and adjusting entries for prepayments Simple 20-30 3A Prepare adjusting and subsequent entries for accruals Simple 20-30 4A Prepare transaction and adjusting entries Simple 20-30 5A Prepare adjusting entries Simple 20-30 6A Convert cash to accrual basis; prepare financial statements Complex 40-50 7A Prepare and post adjusting entries; prepare adjusted trial balance Moderate 30-40 8A Complete accounting cycle through to preparation of financial statements Moderate 70 9A Prepare and post closing entries; prepare postclosing trial balance Simple 25-35 10A Prepare adjusted trial balance, closing entries and post-closing trial balance Moderate 40-50 11A Prepare and post adjusting entries; prepare adjusted trial balance and financial statements; assess financial performance Moderate 40-50 12A Prepare and post closing entries; prepare postclosing trial balance Simple 25-35 1B Calculate profit on cash and accrual bases Moderate 25-35 2B Prepare transaction and adjusting entries for prepayments Simple 20-30 Solutions Manual 4-2 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE (Continued) Problem Number Description Difficulty Level Time Allotted (min.) 3B Prepare adjusting and subsequent entries for accruals Simple 20-30 4B Prepare transaction and adjusting entries Simple 20-30 5B Prepare adjusting entries Simple 20-30 6B Convert cash to accrual basis; prepare financial statements Complex 40-50 7B Prepare and post adjusting entries; prepare adjusted trial balance Moderate 30-40 8B Complete accounting cycle through to preparation of financial statements Moderate 70 9B Prepare and post closing entries; prepare postclosing trial balance Simple 25-35 10B Prepare adjusted trial balance, closing entries and post-closing trial balance Moderate 40-50 11B Prepare and post adjusting entries; prepare adjusted trial balance and financial statements; assess financial performance Moderate 40-50 12B Prepare and post closing entries; prepare postclosing trial balance Simple 25-35 Solutions Manual 4-3 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition ANSWERS TO QUESTIONS Adjusting entries are made to adjust the accounts at the end of the period to ensure revenues and expenses are recorded when they are earned or incurred When revenues and expenses should be recognized in the accounting records is dictated by recognition criteria Revenue is recognized or recorded when, due to ordinary activities, an increase in future economic benefits arising from an increase in an asset or a decrease in a liability has occurred In general, revenue recognition occurs when the sales or performance effort is substantially complete, the amount is determinable (measurable), and collection is reasonably assured In a service company, revenue is considered to be earned when the service is provided In a merchandising company, revenue is considered to be earned when the merchandise is sold (normally at the point of sale) Expenses are recognized in the income statement when, due to an ordinary activity, there is a decrease in future economic benefits related to a decrease in an asset or an increase in a liability and this change can be measured reliably The law firm should recognize the revenue in April because that is when it was earned; the work was performed during that month Expenses of $4,500 should be deducted from the revenues in April because that is when the expenses were incurred and the revenues earned Under the cash basis of accounting, events are only recognized in the period that cash is paid or received Under the accrual basis, revenue is recognized when the goods or services are delivered or performed and expenses are recognized when incurred Information presented on an accrual basis is more useful because it records events when they actually occurred and the timing of their recognition cannot be manipulated by delaying or speeding up the time at which the related cash flow occurs Because of this, accrual basis information is better at predicting future performance (a) Prepaid expenses are assets because they have a future benefit since they were paid for before they are used or consumed (b) As the benefit of the prepayment expires (often with the passage of time) the asset must be reduced and an expense recognized This requires an adjustment at the end of each accounting period, to expense the portion of the prepaid that has expired (been used up) during the period Solutions Manual 4-4 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) (a) Unearned revenue arises when cash is received for goods or services to be provided in the future It represents a liability because the cash has not yet been earned—the company has a future obligation to provide the goods or services (b) Unearned revenues must be adjusted at the end of an accounting period to reflect any revenues that have been earned No Depreciation is the process of allocating the cost of a long-lived asset to expense over its useful life Depreciation results in the presentation of the carrying amount (cost less accumulated depreciation) of the asset, not its fair value (a) Depreciation expense is an expense account with a normal debit balance and is reported on the income statement as part of the operating expenses This account shows the portion of the cost of a long-lived asset that has expired during the current accounting period Accumulated depreciation is a contra asset account with a normal credit balance that is reported on the statement of financial position as a reduction of a depreciable asset (such as building and equipment) The balance in the accumulated depreciation account is the total depreciation that has been recognized from the date of acquisition to the statement of financial position date (b) Cost is the original cost of the asset when purchased The carrying amount (also known as net book value) is the original cost of the asset less its related accumulated depreciation, and represents the portion of the asset that has not yet been depreciated A contra asset account is an account with a credit balance that is deducted from the related asset account on the statement of financial position Using a contra asset account discloses both the original cost of the asset and the total estimated cost which has expired or been used up to date This information is useful to the financial statement user 10 Yes, I agree A “simple” adjusting entry affects one statement of financial position account and one income statement account An adjusting entry reallocates amounts between a statement of financial position account and an income statement account For example: to record the expiration of insurance the following entry would be recorded; a debit to Insurance Expense (an income statement account) and a credit to Prepaid Insurance (a statement of financial position account) Compound adjusting journal entries are also possible which would affect more accounts, but at least one statement of financial position account and one income statement account is always affected whether a simple adjusting entry or a compound adjusting entry is made Solutions Manual 4-5 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) 11 Disagree Adjusting entries never involve the Cash account In making adjusting entries for prepayments, the cash has already been paid or received and recorded The adjusting journal entry is prepared to reflect the fact that a portion of the unearned revenue or prepaid expense arising in the past when the cash flow occurred is now earned or incurred, respectively In making adjusting entries for accruals, we record the fact that although the cash has not been paid or received, revenue has been earned or an expense has been incurred Again, there is no impact on the Cash account because cash has not yet been received or paid 12 To ensure that the adjusting entry is properly calculated and prepared, the preparer of the adjusting entry must first properly understand the original cash payment transaction that lead to the recording of the prepayment On the other hand, in the case of an accrual, there is no cash payment to look up in the accounts Consequently no original entry can be examined in the process of preparing an adjusting entry related to an accrual 13 Before the recording of adjusting entries to accrued revenues in the amount of $780 and accrued expenses in the amount of $510, the profit would be understated by the net of the amount of unrecorded revenue of $780, less unrecorded expense of $510 or $270 14 Reactor should recognize the expense in the period that it was incurred—December— and set up the corresponding liability to the utility company On December 31, Utility Expense should be debited and an accrued liability account such as Accounts Payable should be credited 15 Financial statements are prepared from an adjusted trial balance because the balances of all accounts have been adjusted to show the effects of all financial events that have occurred during the accounting period An unadjusted trial balance is not up to date for prepayments and accruals Solutions Manual 4-6 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) 16 Adjusting entries are only recorded at the end of the accounting period, prior to the preparation of the financial statements Transaction entries are made throughout the accounting period when transactions arise As well, adjusting entries never affect the Cash account and always result in an adjustment to a statement of financial position account and an income statement account Transaction entries often result in a debit or credit to Cash and can affect any account on the statement of financial position or the income statement (or both) Closing entries are required to reset the revenue and expense (income statement) and dividend accounts to zero and to update the balance in Retained Earnings to the closing balance per the statement of changes in equity Unlike adjusting entries, which are prepared before the financial statements and could be prepared more than once per year, closing entries are only prepared and posted after the year-end financial statements have been completed 17 The unadjusted, adjusted, and post-closing trial balances are similar in that they prove the equality of the total debit and total credit balances Another similarity between the unadjusted and adjusted trial balances is that they are prepared at the end of an accounting period Where trial balances differ is that the unadjusted trial balance is prepared before any adjusting entries have been recorded or posted An adjusted trial balance is prepared after the adjusting entries have been posted to the accounts The financial statements are prepared from the adjusted trial balance After the financial statements have been prepared, closing entries are prepared and posted The postclosing trial balance is then prepared and used to form the basis of the opening balances for the next accounting period Unlike the adjusted trial balance which will list temporary (revenue, expense, dividend) account balances prior to recording the closing entries, a post-closing trial balance will not list temporary account balances as these have now been closed out to the Retained Earnings account Unadjusted and adjusted trial balances are prepared whenever financial statements are prepared but a post-closing trial balance is prepared only at the end of the year 18 The retained earnings balance on the unadjusted and adjusted trial balances are often the same since the account does not yet reflect the changes that arise from the recording of closing entries After the adjusted trial balance and financial statements are prepared, closing entries are recorded These will change the retained earnings balance by updating it for the effect of any profit or loss and dividends Consequently, the retained earnings balance on the post-closing trial balance will be different from the balance shown on the adjusted trial balance 19 Closing entries are prepared to transfer temporary account balances to retained earnings, a permanent account, so retained earnings will show an up-to-date amount Secondly, closing entries produce a zero balance in each temporary account so that the temporary accounts are ready for the next accounting period, where only transactions relating to that period are recorded in them Solutions Manual 4-7 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) 20 The Dividends account is not closed with the expense accounts because it is not an expense; it was not incurred for the purpose of generating revenue and does not appear on the income statement Dividends represent a distribution of retained earnings and are reported on the statement of changes in equity The Dividends account is also a temporary account and therefore requires a closing entry 21 (a) (1) (2) (3) (4) Profit: (Dr) Individual revenue accounts and (Cr) Income Summary (Dr) Income Summary and (Cr) Individual expense accounts (Dr) Income Summary and (Cr) Retained Earnings (Dr) Retained Earnings and (Cr) Dividends (b) (1) (2) (3) (4) Loss: (Dr) Individual revenue accounts and (Cr) Income Summary (Dr) Income Summary and (Cr) Individual expense accounts (Dr) Retained Earnings and (Cr) Income Summary (Dr) Retained Earnings and (Cr) Dividends Note that it is only step that differs between the two situations 22 Steps in the accounting cycle that may be done on a daily basis include: 1) Analyzing business transactions 2) Journalizing the transactions Steps in the accounting cycle that are done on a periodic basis include: 3) Posting to the general ledger accounts 4) Preparing a trial balance 5) Journalizing and posting adjusting entries (prepayments and accruals) 6) Preparing an adjusted trial balance 7) Preparing the financial statements – income statement, statement of changes in equity, statement of financial position, and statement of cash flows Steps in the accounting cycle that are usually only done at the company’s year-end include: 8) Journalizing and posting closing entries 9) Preparing a post-closing trial balance Solutions Manual 4-8 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 4-1 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) Cash –$ 100 0 +800 –5,000 +1,000 +500 0 Profit $ –75 +1,000 0 –1,000 –50 +200 –250 BRIEF EXERCISE 4-2 (a) Accrual Basis Collected $200 cash from customers for services provided in August $200 Collected $500 cash from customers for services provided in September 500 500 Billed customers $600 for services provided in September 600 Provided $100 services to customers who paid in advance in August 100 0 $1,200 100 $800 Received $100 from customers in advance for services to be provided in October Total revenue $ (b) Cash Basis Solutions Manual 4-9 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition BRIEF EXERCISE 4-3 (a) May Supplies Accounts Payable 4,800 4,800 (b) Supplies Used = $1,500 + $4,800 – $2,300 = $4,000 (c) Dec 31 Supplies Expense Supplies 4,000 4,000 (d) Open bal May Dec 31 Bal Supplies 1,500 4,800 Dec 31 Adj 2,300 Supplies Expense Dec 31 Adj 4,000 4,000 Solutions Manual 4-10 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition BYP 4-7 (Continued) (a) and (c) Note: June balances were taken from the answer to BYP 3-7 June Bal Cash 18,674 Accumulated Depreciation-Equipment June Bal 14,000 30 Adj 7,035 June Bal 21,035 Accounts Receivable June Bal 10,490 30 Adj 1,600 June Bal 12,090 June Bal Merchandise Inventory June Bal 16,250 June Bal June Bal June Bal June Bal Supplies 4,375 June 30 Adj 3,775 Vehicles 52,500 Accumulated Depreciation-Vehicles June 30 Adj 5,250 600 Prepaid Insurance 27,360 June 30 Adj 1,280 30 Adj 6,000 20,080 Land June Bal 100,000 Accounts Payable June Bal 6,140 30 Adj 1,025 June Bal 7,165 Unearned Revenue June Bal 500 Salaries Payable June 30 Adj 208 Interest Payable June 30 Adj 55 Buildings June Bal 165,000 Accumulated Depreciation-Buildings June Bal 137,500 30 Adj 5,500 June Bal 143,000 June Bal Equipment 44,520 Solutions Manual 4-121 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition BYP 4-7 (Continued) (a) and (c) (Continued) Bank Loan Payable June Bal June Bal Freight Out 18,000 22,500 June Bal Mortgage Payable June Bal 53,200 Common Shares June Bal Utilities Expense June Bal 12,100 30 Adj 1,025 June Bal 13,125 300 Retained Earnings June Bal 66,788 Dividends 30,000 Rent Revenue June Bal 6,000 Sales June Bal 643,758 30 Adj 1,600 June Bal 645,358 Advertising Expense June Bal 9,000 30 Adj 600 June Bal 9,600 Insurance Expense June 30 Adj 1,280 30 Adj 6,000 June Bal 7,280 June Bal Property Tax Expense 5,950 Sales Returns and Allowances June Bal 5,000 Interest Expense June Bal 5,299 30 Adj 55 June Bal 5,354 Cost of Goods Sold June Bal 102,386 June Bal June Bal 30 Adj June Bal Income Tax Expense 33,000 Salaries Expense 290,782 208 290,990 Depreciation Expense June 30 Adj 5,500 30 Adj 7,035 30 Adj 5,250 June Bal 17,785 Solutions Manual 4-122 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition BYP 4-7 (Continued) (d) KOEBEL’S FAMILY BAKERY LTD Adjusted Trial Balance June 30, 2014 Debit Cash Accounts receivable Merchandise inventory Supplies Prepaid insurance Land Buildings Accumulated depreciation—buildings Equipment Accumulated depreciation—equipment Vehicles Accumulated depreciation—vehicles Accounts payable Unearned revenue Salaries payable Interest payable Bank loan payable Mortgage payable Common shares Retained earnings Dividends Rent revenue Sales Sales returns and allowances Cost of goods sold Salaries expense Depreciation expense Freight out Utilities expense Advertising expense Insurance expense Property tax expense Interest expense Income tax expense Total Credit $ 18,674 12,090 16,250 3,775 20,080 100,000 165,000 $143,000 44,520 21,035 52,500 5,250 7,165 500 208 55 22,500 53,200 300 66,788 30,000 6,000 645,358 5,000 102,386 290,990 17,785 18,000 13,125 9,600 7,280 5,950 5,354 33,000 $971,359 0000000 $971,359 Solutions Manual 4-123 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (a) Date July 3 10 13 14 16 18 20 Account Titles Debit Cash Common Shares 50,000 Prepaid Insurance Cash 3,600 Prepaid Rent Cash 8,000 Supplies Cash 3,800 Equipment Cash Bank Loan Payable 24,000 Credit 50,000 3,600 8,000 3,800 4,000 20,000 No entry required (consulting agreement) Cash Accounts Receivable 1,200 Unearned Revenue Fees Earned 1,120 Accounts Payable Cash 400 Cash Unearned Revenue 12,000 Salaries Expense Cash 11,000 Accounts Receivable Fees Earned 28,000 1,200 1,120 400 12,000 11,000 28,000 Solutions Manual 4-124 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (Continued) (a) (Continued) Date July 20 23 27 31 31 31 31 31 31 31 31 Account Titles Debit Professional Fees Expense Accounts Payable 2,200 Unearned Revenue Fees Earned 10,000 Cash Accounts Receivable 15,000 Insurance Expense Prepaid Insurance ($3,600 × 1/12) 300 Rent Expense Prepaid Rent 4,000 Supplies Expense Supplies 1,250 Depreciation Expense Accumulated Depreciation—Equipment ($24,000 ữ ì 1/12) 500 Interest Expense Interest Payable ($20,000 × 6% × 1/12) 100 Salaries Expense Salaries Payable 11,000 Utilities Expense Accounts Payable 800 Income Tax Expense Income Tax Payable 1,200 Credit 2,200 10,000 15,000 300 4,000 1,250 500 100 11,000 800 1,200 Solutions Manual 4-125 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (Continued) (b) Cash July July Bal 5,230 July 3,600 50,000 8,000 10 1,200 3,800 16 12,000 4,000 27 15,000 14 400 18 11,000 31 Bal 52,630 Accounts Receivable July July Bal 1,200 July 20 28,000 31 Bal 13,000 10 1,200 27 15,000 Prepaid Insurance July July 31 Bal 3,600 July 31 Adj 300 31 Adj 1,250 31 Adj 3,300 Supplies July July Bal 690 July 3,800 31 Bal 3,240 Prepaid Rent July July 31 Bal 8,000 July 4,000 4,000 Solutions Manual 4-126 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (Continued) (b) (Continued) Equipment July 24,000 July 31 Bal 24,000 Accumulated Depreciation—Equipment July 31 Adj 500 July 31 Bal 500 Accounts Payable July 14 400 July Bal 20 2,200 31 Adj July 400 31 Bal 800 3,000 Interest Payable July 31 Adj 100 July 31 Bal 100 Salaries Payable July 31 Adj 11,000 July 31 Bal 11,000 Income Tax Payable July 31 Adj 1,200 July 31 Bal 1,200 Solutions Manual 4-127 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (Continued) (b) (Continued) Unearned Revenue July 13 1,120 23 10,000 July Bal 1,120 16 12,000 July 31 Bal 2,000 Bank Loan Payable July 20,000 July 31 Bal 20,000 Common Shares July Bal 3,600 50,000 July 31 Bal 53,600 Retained Earnings July Bal 2,000 July 31 Bal 2,000 July 31 CE3 6,770 July 31 Bal 8,770 Fees Earned July 31 CE1 July 13 1,120 20 28,000 23 10,000 July 31 Bal 39,120 39,120 July 31 Bal Note: CE means closing entry Solutions Manual 4-128 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (Continued) (b) (Continued) Salaries Expense July 18 11,000 July 31 Adj 11,000 July 31 Bal 22,000 July 31 CE2 July 31 Bal 22,000 Rent Expense July 31 Adj 4,000 July 31 Bal 4,000 July 31 CE2 July 31 Bal 4,000 Professional Fees Expense July 20 2,200 July 31 Bal 2,200 July 31 CE2 July 31 Bal 2,200 Supplies Expense July 31 Adj 1,250 July 31 Bal 1,250 July 31 CE2 July 31 Bal 1,250 Solutions Manual 4-129 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTER S – (Continued) (b) (Continued) Utilities Expense July 31 Adj 800 July 31 Bal 800 July 31 CE2 July 31 Bal 800 Depreciation Expense July 31 Adj 500 July 31 Bal 500 July 31 CE2 July 31 Bal 500 Insurance Expense July 31 Adj 300 July 31 Bal 300 July 31 CE2 July 31 Bal 300 Interest Expense July 31 Adj 100 July 31 Bal 100 July 31 CE2 July 31 Bal 100 Income Tax Expense July 31 Adj 1,200 July 31 Bal 1,200 July 31 July 31 Bal CE2 1,200 Solutions Manual 4-130 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (Continued) (c) RED RIVER COMPUTER CONSULTANTS LTD Adjusted Trial Balance July 31, 2015 Cash Accounts receivable Prepaid insurance Supplies Prepaid rent Equipment Accumulated depreciation—equipment Accounts payable Interest payable Salaries payable Income tax payable Unearned revenue Bank loan payable Common shares Retained earnings Fees earned Salaries expense Rent expense Professional fees expense Supplies expense Utilities expense Depreciation expense Insurance expense Interest expense Income tax expense Debit $ 52,630 13,000 3,300 3,240 4,000 24,000 Credit $ 22,000 4,000 2,200 1,250 800 500 300 100 1,200 $132,520 500 3,000 100 11,000 1,200 2,000 20,000 53,600 2,000 39,120 $132,520 Solutions Manual 4-131 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (Continued) (d) (1) RED RIVER COMPUTER CONSULTANTS LTD Income Statement Month Ended July 31, 2015 Revenues Service revenue Expenses Salaries expense Rent expense Professional fees expense Supplies expense Utilities expense Depreciation expense Insurance expense Interest expense Total expenses Profit before income tax Income tax expense Profit $39,120 $22,000 4,000 2,200 1,250 800 500 300 100 31,150 7,970 1,200 $ 6,770 (2) RED RIVER COMPUTER CONSULTANTS LTD Statement of Changes in Equity Month Ended July 31, 2015 Balance, July Issued common shares Profit Balance, July 31 Common Shares $ 3,600 50,000 00 0000 $53,600 Retained Earnings $2,000 6,770 $8,770 Total Equity $ 5,600 50,000 6,770 $62,370 Solutions Manual 4-132 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (Continued) (d) (Continued) (3) RED RIVER COMPUTER CONSULTANTS LTD Statement of Financial Position July 31, 2015 Assets Current assets Cash Accounts receivable Prepaid rent Prepaid insurance Supplies Total current assets Property, plant, and equipment Equipment Less: Accumulated depreciation Total assets $52,630 13,000 4,000 3,300 3,240 76,170 $24,000 500 Liabilities and Shareholders’ Equity Current liabilities Accounts payable $ 3,000 Salaries payable 11,000 Interest payable 100 Income tax payable 1,200 Unearned revenue 2,000 Total current liabilities Non-current liabilities Bank loan payable Total liabilities Shareholders’ equity Common shares $53,600 Retained earnings 8,770 Total shareholders’ equity Total liabilities and shareholders’ equity 23,500 $99,670 $17,300 20,000 37,300 62,370 $99,670 Solutions Manual 4-133 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (Continued) (e) Date July 31 31 31 (f) Account Titles Debit Service Revenue Income Summary 39,120 Income Summary Salaries Expense Rent Expense Professional Fees Expense Supplies Expense Utilities Expense Depreciation Expense Insurance Expense Interest Expense Income Tax Expense 32,350 Income Summary Retained Earnings 6,770 Credit 39,120 22,000 4,000 2,200 1,250 800 500 300 100 1,200 6,770 Current ratio $76,170 $17,300 = 4.4:1 Red River has exceeded the benchmark of 2.5:1 for its current ratio Solutions Manual 4-134 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Legal Notice Copyright Copyright © 2014 by John Wiley & Sons Canada, Ltd or related companies All rights reserved The data contained in these files are protected by copyright This manual is furnished under licence and may be used only in accordance with the terms of such licence The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified, made available on a network, used to create derivative works, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permission of John Wiley & Sons Canada, Ltd (MMXV i F3) Solutions Manual 4-135 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited ... www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) 16 Adjusting entries are only recorded at the end of the accounting. .. trial balance and financial statements; assess financial performance Moderate 40-50 12B Prepare and post closing entries; prepare postclosing trial balance Simple 25-35 Solutions Manual 4-3 Chapter... transmission of this page is strictly prohibited www.downloadslide.net Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition ANSWERS TO QUESTIONS Adjusting entries