Solutions Manual

to accompany

Accounting:
Building Business
Skills
Fourth Edition

Prepared by

Shirley Carlon, Rosina Mladenovic-

McAlpine and Chrisann Palm

John Wiley & Sons Australia, Ltd 2012

Solutions manual to accompany Accounting: building business skills 4e

CHAPTER 3 – ACCRUAL ACCOUNTING CONCEPTS

ASSIGNMENT CLASSIFICATION TABLE

Brief
Learning Objectives Exercises Exercises Problems
1. Differentiate between the cash basis 1 1,9 7A
and the accrual basis of accounting.

2. Explain criteria for revenue recognition 2,3,4

and expense recognition.

3. Explain why adjusting entries are 2 5,9, 10, 1A, 2A,10A,

needed and identify the major types of 11,13 1B,2B.10B
adjusting entries.

4. Prepare adjusting entries for 3, 4 5, 6, 7, 8,9, ALL

prepayments and accruals. 10,11,12,13 PROBLEMS

5. Describe the nature and purpose of the 5 9,10,11 ALL

adjusted trial balance. PROBLEMS

6. Explain the purpose of closing entries. 6 12 3A, 4A,5A,6A,

7A,8A, 9A,10A,
3B, 4B, 5B,6B,
7B,8B,9B,10B

7. Describe the required steps in the 6, 7 3A, 5A,6A,8A,

accounting cycle. 9A,10A,3B,5B,
6B,8B,9B,10B

8. Describe the purpose and the basic 13 9A,10A

form of a worksheet. 7B,9B,10B

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 Chapter 3: Accrual accounting concepts

CHAPTER 3 – ACCRUAL ACCOUNTING CONCEPTS

ANSWERS TO QUESTIONS

1. (a) Under the accounting period concept, an accountant is required to determine

the impact of each accounting transaction or event in specific accounting
periods.
(b) An accounting time period of one year in length is referred to as a financial
year.

2. The accounting principles and the qualitative characteristics, together with

accounting standards, are collectively referred to as Australian generally accepted
accounting principles (GAAP). Generally accepted accounting principles that pertain
to adjusting the accounts include (choose two):
The revenue recognition criteria which states that revenues should be recognised in
the time period in which it is probable that any future economic benefits associated
with the revenue will flow to the entity and the revenue can be reliably measured;
The accounting period concept which states that the life of a business can be divided
into artificial periods, such as one month, six month, 12 months, and that useful
financial statements give feedback on the profitability of the business;
The expense recognition criteria which states that expenses should be recognised
when the outflow of future economic benefits associated with the expense is
probable and the expense can be measured reliably.

3. The law firm should recognise the revenue in April. The revenue recognition criterion
states that revenue should be recognised in the accounting period in which it is
probable that any future economic benefits associated with the revenue will flow to
the entity and the revenue can be reliably measured. If the engagement has been
completed the amount of revenue would typically be able to be measured reliably.

4. Expenses of $5500 should be deducted from the revenues in April in order to match
the revenue recognised in April.

5. The financial information in a trial balance may not be up-to-date because:

(1) Some events are not journalised daily because it is unnecessary and
inexpedient to do so.
(2) The expiration of some costs occurs with the reduction in an asset with the
passage of time.
(3) Some items may be unrecorded because the transaction data are not known.

6. The two categories of adjusting entries are prepayments and accruals. Prepayments
are either revenues received in advance or prepayments of amounts that provide
economic benefit for more than one period, e.g. prepaid rent. Accruals consist of
revenues and expenses earned or incurred but which have not been recorded
through daily transactions.

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Solutions manual to accompany Accounting: building business skills 4e

In a prepaid expense adjusting entry, expenses are debited and assets are credited.
In a revenue received in advance adjusting entry liabilities are debited and revenues
are credited.
7. Depreciation expense is an expense account whose normal balance is a debt. This
account shows the cost that has expired during the current accounting period.
Accumulated depreciation is a contra asset account whose normal balance is a
credit. The balance in this account is the depreciation that has been recognised from
the date of acquisition to the reporting date.

8. Liability and revenue. The revenue account is debited and liability account (Revenue
Received in Advance) is credited. This is the nature of the adjusting entry if the
original entry was to record the amount received as revenue.

9. An asset is debited and an expense is credited by the adjusting entry.

10. (a) Prepaid expenses (initially recorded as an expense)

or Accrued revenue
(b) Revenues received in advance.
(c) Accrued expenses
or revenue received in advance (initially recognised as revenue).
(d) Accrued expenses or prepaid expenses.
(e) Prepaid expenses.
(f) Accrued revenues or revenues received in advance.

11. A worksheet is a multi-columned form. The columns of the worksheet from left to
right are two columns each for the trial balance, adjustments, adjusted trial balance,
income statement and statement of financial position.

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 Chapter 3: Accrual accounting concepts

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3.1

Cash Retained Earnings

$ $
(a) -120 0
(b) 0 -60
(c) 0 +1,200
(d) +960 0
(e) -3,000 0
(f) 0 -1,200
(g) 0 0

BRIEF EXERCISE 3.2

Riko Ltd
(1) (2)
Item Type of Adjustment Accounts Before Adjustment

(a) Prepaid Expense Asset Overstated

Expense Understated
(b) Accrued Revenue Asset Understated
Revenue Understated
(c) Accrued Expense Expense Understated
Liability Understated
(d) Revenue Received in Advance Liability Overstated
Revenue Understated.

BRIEF EXERCISE 3.3

Shah Ltd

June 30 Depreciation Expense - Equipment 3 000

Accumulated Depreciation – Equipment 3 ,000
(Depreciation for the year )

Depreciation Expense – Equipment

30/6 Accumulated Depreciation 3 000

Accumulated Depreciation – Equipment

30/6 Depreciation Expense 3 000
FINANCIALSTATEMENT PRESENTATION IS NET
Equipment 25 000
Less Accumulated depreciation (3 000)
$22 000

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Solutions manual to accompany Accounting: building business skills 4e

BRIEF EXERCISE 3.4

DeVoe Ltd
General Journal
G 15
Date Account name(narration) Debit $ Credit $
(a) June 30 Interest Expense 400
Interest Payable 400
(Accrual of interest on loan)
(b) June 30 Service Revenue Receivable 1,400
Service Revenue 1,400
(Accrual of revenue)
(c) June 30 Salaries Expense 700
Salaries Payable 700
(Accrual of salaries)

BRIEF EXERCISE 3.5

Hoi Ltd
(1) (2)
Item Account Type of Adjustment Related Account

(a) Accounts Receivable Accrued Revenue Service Revenue

(b) Prepaid Insurance Prepaid Expense Insurance Expense
(c) Equipment Depreciation refer item (d)
(d) Accum. Depreciation – Prepaid Expense Depreciation Expense
Equipment
(e) Bank Loan Accrue interest refer item (f)
(f) Interest Payable Accrued Expense Interest Expense
(g) Service Revenue Received in Revenue Received in Advance Service Revenue
Advance
(h) Interest Receivable Accrued revenue Interest Revenue
(i) Wages Payable Accrued expense Wages Expense

BRIEF EXERCISE 3.6

Khanna Ltd
Account Financial Statement Post Closing
Trial Balance
(a) Accumulated Depreciation Statement of financial position Yes
(b) Depreciation Expense Income Statement No
(c) Retained Earnings Statement of financial position (and Yes
statement of changes in equity)
(d) Dividends Statement of changes in equity No
(e) Service Revenue Income Statement No
(f) Supplies Statement of financial position Yes
(g) Accounts Payable Statement of financial position Yes

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 Chapter 3: Accrual accounting concepts

BRIEF EXERCISE 3.7

The proper sequencing of the required steps in the accounting cycle is as follows:

1. (e) Analyse business transactions.

2. (a) Journalise the transactions.
3. (b) Post to ledger accounts.
4. (i) Prepare a trial balance.
5. (g) Journalise and post adjusting entries.
6. (d) Prepare an adjusted trial balance.
7. (h) Prepare financial statements.
8. (f) Journalise and post closing entries.
9. (c) Prepare a post-closing balance.

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Solutions manual to accompany Accounting: building business skills 4e

SOLUTIONS TO EXERCISES

EXERCISE 3.1
Ng Pty Ltd
(a)
Cash Basis Accrual Basis
$ $
Service Revenue 33,000 39,000
- Operating Expenses 20,250 22,500
- Insurance Expense 3,250            -
Profit $9,500 $16,500

(b) Both accrual basis and cash basis provide useful information. However, it can be
argued that the accrual basis of accounting provides more useful information about
performance for decision makers because it recognises the impact of accounting
transactions or events on specific accounting periods. The cash basis of accounting
only recognises cash transactions. The accrual basis of accounting provides a more
comprehensive picture of the business activities in the records. For example, accrued
basis profit takes account of all revenues and expenses for a period whether or not
cash is received or paid (provided recognition criteria are met). It also takes account
of internal events, such as the consumption of supplies or the depreciation of plant
assets.
However, cash basis accounting is also useful. For example, the statement of cash
flows shows how much cash is generated from ordinary operating activities (which will
invariably be greater or less than accrual basis profit).

EXERCISE 3.2

(a) 6. Going concern principle.

(b) 1. Accounting entity concept.
(c) 5. Full disclosure principle.
(d) 8. Monetary principle.
(e) 7. Materiality.
(f) 2. Accounting period concept.
(g) 4. Expense recognition criteria.
(h) 3. Cost principle.

EXERCISE 3.3

(a) Revenue recognition criteria.

(b) Accounting period concept.
(c) No violation (not a violation of cost as the principle used for inventory is
measurement at the lower of cost and net realisable value).
(d) Going concern principle.
(e) Cost principle.
(f) Accounting entity concept.

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 Chapter 3: Accrual accounting concepts

EXERCISE 3.4
(a) 9. Materiality.
(b) 7. Expense recognition criteria.
(c) 3. Monetary principle.
(d) 4. Accounting period concept.
(e) 8. Cost principle.
(f) 1. Accounting entity concept.
(g) 5. Full disclosure principle.
(h) 6. Revenue recognition criteria.

EXERCISE 3.5
Zimbabwe Ltd

(1) (2) (b)

Item Type of Adjustment Accounts Before Effect on profit
Adjustment Overstated
/(understated)
(a) Accrued Revenue Asset Understated Understated
Revenue Understated

(b) Prepaid Expense Asset Overstated Overstated

Expense Understated

(c) Accrued Expense Expense Understated Overstated

Liabilities Understated

(d) Revenue Received in Advance Liability Overstated Understated

Revenue Understated

(e) Accrued Expense Expense Understated Overstated

Liability Understated

(f) Prepaid Expense Asset Overstated Overstated

Expense Understated

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Solutions manual to accompany Accounting: building business skills 4e

EXERCISE 3.6
Dirty Laundry Ltd
General Journal

Post $ $
Date Account name(narration) Ref. Debit Credit

1. June 30 Depreciation Expense ($325 x 3) 420 975

Accumulated Depreciation – Equipment 121 975
(Depreciation for the year)
2. 30 Revenue Received in Advance 210 4 030
Rent Revenue ($12,090 x 1/3) 300 4 030
(Rent Revenue April-Jun now revenue)
3. 30 Interest Expense 400 650
Interest Payable 220 650
(Accrued interest)
4. 30 Supplies Expense 440 1 695
Supplies ($2,800 - $1105) 110 1 695
(supplies used)
5. 30 Insurance Expense ($390 x 3) 430 1 170
Prepaid Insurance 100 1 170
(Interest expense for the 3 months to June)

NB. Adjusting entries are made quarterly (i.e. every 3 months).

EXERCISE 3.7
James Dunn Dental Practice
General Journal
$ $
Date Account name(narration) Debit Credit
2013
a Jan 31 Accounts Receivable 750
Service Revenue 750
(Service preformed January)
b 31 Electricity Expense 520
Electricity Payable 520
(Accrued electricity)
c 31 Depreciation Expense 400
Accumulated Dep’n – Dental Equipment 400
(Depreciation for the month)
31 Interest Expense 500
Interest Payable 500
(Accrued interest)
d 31 Insurance Expense 1,000
Prepaid Insurance 1,000
(January insurance exp $12000/12)
e 31 Supplies Expense 1 100
Supplies ($1600 - $500 1 100
(Supplies used January))

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 Chapter 3: Accrual accounting concepts

EXERCISE 3.8

Wong Pty Ltd

General Journal
Date Account name (narration) Post $
ref Credit
2013
1. Oct. 31 Advertising Supplies Expense 505 900
Advertising Supplies ($2,500 - $1,600) 110 900
(Supplies used October )
2. 31 Insurance Expense 515 100
Prepaid Insurance 112 100
(Insurance expense October)
3. 31 Depreciation Expense 520 60
Accumulated Depreciation – Office Equipment 131 60
(Depreciation expense October)
4. 31 Service Revenue Received in Advance 213 300
Service Revenue 400 300
(Revenue now performed)
5. 31 Accounts Receivable 104 700
Service Revenue 400 700
(Accrued revenue)
6. 31 Interest Expense 518 80
Interest Payable 210 80
(Accrued interest)
7. 31 Salaries Expense 500 1 300
Salaries Payable 215 1 300
(Accrued salaries)

EXERCISE 3.9
Wolfmother Ltd
Income Statement
for the month ended 31 July 2014

Revenues: $ $
Service revenue ($5 500 + $800) 6 300
Expenses:
Wages expense ($2 300 + $300) 2 600
Supplies expense ($1 200 - $400) 800
Electricity expense 600
Insurance expense 300
Depreciation expense 150
Total expenses 4 450
Profit $1 850

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Solutions manual to accompany Accounting: building business skills 4e

EXERCISE 3.10
Speedy Carpet Cleaners Pty Ltd

Answer Calculation/Account Reconstruction

(a) Supplies balance 1/7= $1 Supplies expense $1425

200
Add: Supplies (31/7) 1050
Less: Supplies purchased (1275)
Supplies (1/7) $1200

Supplies
1/7* Bal. 1200 Expense 1425
Purchases 1275 31/7 Bal. 1050
2475 2,475

(b) Total premium = $7 200 Total premium = Monthly premium x 12; $600 x 12 =
$7,200

Purchase date = 31 Jan 2013 Purchase date: On 31 July there are 6 months coverage
remaining ($600 x 6). Thus, the purchase date was
6 months earlier on 31 January 2013.

(c) Salaries payable = $2 250 Cash paid $3750

Salaries payable (31/7 ) 1200
$4950
Less: Salaries expense 2700
Salaries payable (1/7 or 30/6) $2250

Salaries Payable
Salaries 3 750 1/7 Bal 2 250
paid
31/7 Bal 1 200 Salaries exp. 2 700
4 950 4 950
31/7 Bal 1 200

(d) Service revenue = $1 725 Service revenue $3 000

Amount received for July services 2 400
Revenue received in Advance now recognised 600

Service Revenue Received in Advance

Services 600 1/7 Bal. 1,725
Performed
31/7 Bal. 1,125        
1,725 1,150
31/7 Bal 1,125

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 Chapter 3: Accrual accounting concepts

EXERCISE 3.11
Martin Pty Ltd

Answer Calculation/Account Reconstruction

(a) Supplies balance 1/3= $800 Supplies expense $950

Add: Supplies (31/3) 700
Less: Supplies purchased (850)
Supplies (1/3) $800

Supplies
1/3* Bal. 800 Expense 950
Purchases 850 31/3 Bal. 700
1650 1650

(b) Total premium = $4 800 Total premium = Monthly premium x 12; $400 x 12 =
$4,800
At 31 March the prepaid amount is half the annual
premium so policy was purchased six months earlier on 1
October 2013
Purchase date = 31 Oct 2013

(c) Salaries payable = $1 500 Cash paid $2,500

Salaries payable (31/3 ) 800
$3,300
Less: Salaries expense 1,800
Salaries payable (1/3) $1500

Salaries Payable
Salaries 2,500 1/3 Bal 1,500
paid
31/3 Bal 800 Salaries exp. 1,800
3,300 3,300
31/3 Bal 800

(d) Service revenue = $1 ,150 Service revenue $2,000

Amount received for March services 1,600
Revenue received in Advance now recognised 400

Service Revenue Received in Advance

Services 400 1/3 Bal. 1,150
Performed
31/3 Bal. 750        
1,150 1,150
31/3 Bal 750

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Solutions manual to accompany Accounting: building business skills 4e

EXERCISE 3.12
Snowmass Ltd
General Journal

Date Account name (narration) $ $

Debit Credit
(a) July 10 Supplies 200
Cash 200

14 Cash 3 000
Service Revenue 3 000

15 Salaries Expense 1 200

Cash 1 200

20 Cash 700
Service Revenue Received in Advance 700

(b) July 31 Supplies Expense 500

Supplies 500

31 Salaries Expense 1 200

Salaries Payable 1 200

31 Service Revenue Receivable 500

Service Revenue 500

31 Service Revenue Received in Advance 900

Service Revenue 900

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 Chapter 3: Accrual accounting concepts

EXERCISE 3.13
Woks Ltd
General Journal
Date Account name (narration) $ $
Debit Credit
2013
1. June 30 Insurance Expense 10 570
Insurance Payable 10 570
Calculations:
$22200 ÷ 3 yrs = $7 400 per annum, 1.5 yrs remain
$6 340 ÷ 2 yrs= 3 170 per annum, 1 year remains
$10 570
Prepayment of B4564 at 30/6/13 is $11 100
Prepayment of A2958 at 30/6/09 is 3 170 $14 270
Pre adjustment balance or Prepaid Insurance $24 840
Adjustment required to be recognised as exp $10 570

2. 30 Subscription Revenue Received in Advance 16 859

Subscription Revenue 16 859
Calculations:
Apr 300 x $85 x 3/12 = $6 375
May 400 x $85 x 2/12 =5 667
Jun 680 x $85 x 1/12 = 4 817
Subscriptions earned and to
be recognised as revenue $16 859

3. 30 Interest Expense 2 550

Interest Payable 2 550
Calculation:
$85,000 x 9% x 4/12 = $2 550

4. 30 Salaries Expense 4 410

Salaries Payable 4 410
Calculations:
5 x $840 x 3/5 = $2 520
3 x $1050 x 3/5 = 1 890
$4 410

(b) Subscriptions are usually paid in advance and for revenue to be recognised it needs to meet
the revenue recognition criteria. The revenue is recognised as the work is performed not when the
cash is received.

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Solutions manual to accompany Accounting: building business skills 4e

SOLUTIONS TO PROBLEM
SET A

PROBLEM SET A 3.1

Hans Ltd
General Journal
(a).
Post $ $
Date Account Titles (Narration) Ref. Debit Credit
2012
1. June 30 Supplies Expense 505 3 200
Supplies ($6 800 - $3 600) 113 3 200
(To adjust supplies account to reflect supplies used)

2. 30 Electricity Expense 530 600

Electricity Payable 218 600
(Accrued electricity)

3. 30 Insurance Expense 515 800

Prepaid Insurance 112 800
(Prepaid insurance expired ($4800 ÷ 12 mth x 2)

4. 30 Service Revenue Received in Advance 213 1 500

Service Revenue 400 1 500
(Services performed in relation to revenue received
in advance)

5. 30 Salaries Expense 500 3 200

Salaries Payable 215 3 200
(Accrued salaries)

6. 30 Depreciation Expense 520 1 440

Accumulated Depreciation – Office 131 1 440
Equipment ($720 x 2 )
(Record depreciation expense)

7. 30 Accounts Receivable 104 4 000

Service Revenue 400 4 000
(Accrued revenue)

Students need to look and see what has been recorded in the ledgers to work out if one or two
months adjustments are required. For insurance and depreciation no expense had been
recorded to date.

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 Chapter 3: Accrual accounting concepts

(b) Hans Ltd General ledger

Cash 100
30/6 Balance 17 280

Accounts Receivable 104

30/6 Balance 13 020 30/6 Balance 17 020
30/6 Service Revenue 4 000         
17 020 17 020
1/7 Opening Balance 17 020

Prepaid Insurance 112

30/6 Balance 4 800 30/6 Insurance Expense 800
          30/6 Closing Balance 4 000
4 800 4 800
1/7 Opening Balance 4 000

Supplies 113
30/6 Balance 6 800 30/6 Supplies Expense 3 200
         30/6 Closing Balance 3 600
6 800 6 800
1/7 Opening Balance 3 600

Office Equipment 130

30/6 Balance 43 200

Accumulated Depreciation – Office Equipment 131

30/6 Depreciation Expense 1 440

Accounts Payable 200

30/6 Balance 9 900

Service Revenue Received in Advance 213

30/6 Service Revenue 1 500 30/6 Balance 2 400
30/6 Closing Balance 900         
2 400 2 400
1/7 Opening Balance 900

Salaries Payable 215

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Solutions manual to accompany Accounting: building business skills 4e

30/6 Salaries Expense 3 200

Electricity Payable 218

30/6 Electricity Expense 600

Share Capital 300

30/6 Balance 50 000

Service Revenue 400

30/6 Balance 38 300
30/6 Service Rev in Adv 1 500
30/6 Closing Balance 43 800 30/6 Accounts Receivable 4 000
43 800 43 800
1/7 Opening Balance 43 800

Salaries Expense 500

30/6 Balance 11 900
30/6 Salaries Payable 3 200
15 100

Supplies Expense 505

30/6 Supplies 3 200

Rent Expense 510

30/6 Balance 3 600

Insurance Expense 515

30/6 Prepaid Insurance 800

Depreciation Expense 520

30/6 Accumulated Depreciation 1
440

Electricity Expense 530

30/6 Electricity Expense 600

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 Chapter 3: Accrual accounting concepts

(c)
Hans Ltd
Adjusted Trial Balance
as at 30 June 2012

No. Account Name Debit Credit

$ $
100 Cash 17 280
104 Accounts Receivable 17 020
112 Prepaid Insurance 4 000
113 Supplies 3 600
130 Office Equipment 43 200
131 Accumulated Depreciation – Office Equipment 1 440
200 Accounts Payable 9 900
213 Service Revenue Received in Advance 900
215 Salaries Payable 3 200
218 Electricity Payable 600
300 Share Capital 50 000
400 Service Revenue 43 800
500 Salaries Expense 15 100
505 Supplies Expense 3 200
510 Rent Expense 3 600
515 Insurance Expense 800
520 Depreciation Expense 1 440
530 Electricity Expense 600             
$109 840 $109 840

(d) Profit for the month

Revenues $43 800 less expenses ($15100+3200+3600+800+1440+600) = $19 060

(e) If the cost of the equipment was allocated over the two years then the annual
depreciation expense would be $21 600 ($43200/2) instead of $8 640 which means
profit in the first 2 years would be $12 960 ($21600-$8640) less than if the depreciation
was charged over the useful life and this would mean the profit in year 3 4 and 5 would
be $8 640 more as no depreciation would be charged.
Note over the 5 years total depreciation is the same is $43 200 either rate used.

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Solutions manual to accompany Accounting: building business skills 4e

PROBLEM SET A 3.2

(a)

Combined Services Ltd

General Journal

Date Account Name (narration) Post $ $

Ref. Debit Credit
2014
1. June 30 Supplies Expense 505 250
Supplies 113 250
(Supplies used $750-$500)

2. 30 Electricity Expense 530 150

Electricity Payable 218 150
(Accrued expense)

3. 30 Insurance Expense 515 800

Prepaid Insurance 112 800
(Prepaid insurance expired)

4. 30 Revenue Received in Advance 213 1 500

Service Revenue 400 1 500

5. 30 Salaries Expense 500 2 300

Salaries Payable 215 2 300
(Accrued salaries)

6. 30 Depreciation Expense 520 2,000

Accumulated Depreciation 131 2,000
(Depreciation expense)

7. 30 Accounts Receivable 104 2 200

Service Revenue 400 2 200
(Accrued revenue)

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(b) COMBINED SERVICES LTD GENERAL LEDGER

Cash 100
30/6 Opening Balance 27 400

Accounts Receivable 104

30/6 Opening Balance 7 500
30/6 Service Revenue 2 000 30/6 Closing Balance 9 700
9 700 9 700
1/7 Opening Balance 9 700

Prepaid Insurance 112

30/6 Opening Balance 1 600 30/6 Insurance Expense 800
____ 30/6 Closing Balance 800
1 600 1 600
1/7 Opening Balance 800

Supplies 113
30/6 Opening Balance 750 30/6 Supplies Expense 250
____ 30/6 Closing Balance 500
750 750
1/7 Opening Balance 500

Office Equipment 130

30/6 Opening Balance 15 ,000

Accumulated Depreciation 131

30/6 Closing Balance 12 000 30/6 Opening Balance 10 000
           30/6 Depreciation Expense 2 000
12 000 12 000
1/7 Opening Balance 12 000

Accounts Payable 200

30/6 Opening Balance 3 700

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Service Revenue Received in Advance 213

30/6 Service Revenue 1 500 30/6 Opening Balance 2 000
30/6 Closing Balance 500 ........
2 000 2 000
1/7 Opening Balance 500
Salaries Payable 215
30/6 Salaries Expense 2 300

Electricity Payable 218

30/6 Electricity Expense 150

Share Capital 300

30/6 Opening Balance 30 000

Retained Earnings 310

30/6 Opening Balance 3 750

Service Revenue 400

30/6 Opening Balance 23 400
30/6 Serv. rev rec’d in advance 1 500
30/6 Accounts Receivable 2 200
27 100
Salaries Expense 500
30/6 Opening balance 17 000
30/6 Salaries Payable 2 300
19 300
Supplies Expense 505
30/6 Supplies 250

Rent Expense 510

30/6 Opening Balance 1 000

Insurance Expense 515

30/6 Opening Balance 600
30/6 Prepaid Insurance 800
1 400

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Depreciation Expense 520

30/6 Accumulated Depreciation 2 000

Electricity Expense 530

30/6 Opening balance 2 000
30/6 Electricity Payable 150
2 150

(c)
Combined Services Ltd
Adjusted Trial Balance
as at 30 June 2014

No. Account name Debit $ Credit $

100 Cash 27 400

104 Accounts Receivable 9 700

112 Prepaid Insurance 800

113 Supplies 500

130 Office Equipment 15 000

131 Accumulated Depreciation 12 000

200 Accounts Payable 3 700

Service Revenue Received in
213 500
Advance
215 Salaries Payable 2 300

218 Electricity Payable 150

300 Share Capital 30 000

310 Retained Earnings 3 750

400 Service Revenue 27 100

500 Salaries Expense 19 300

505 Supplies Expense 250

510 Rent Expense 1000

515 Insurance Expense 1 400

520 Depreciation Expense 2 000

530 Electricity Expense 2 150 _______

$79 500 $79 500

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(d) Profit for the year:

$ $
Service revenue 27 100
Less Expenses:
Salaries expense 19 300
Supplies expense 250
Rent expense 1 000
Insurance expense 1 400
Depreciation expense 2 000
Electricity expense 2 150 26 100
Profit $ 100

(e) To report a higher profit the expense adjustments would be avoided therefore adjustment
numbers 1, 2, 3, 5, and 6.

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PROBLEM SET A 3.3

(a)
Perth Business Park Ltd
General Journal
Date Account name (narration) Post Ref Debit $ Credit $
2013
Sept 30 Rent Expense 510 2 250
Prepaid Rent 120 2 250
(To record expired rent)

30 Supplies Expense 530 225

Supplies 130 225
(To record supplies consumed)

30 Depreciation Expense – Equipment 520 1 125

Accumulated Depreciation – Equipment 151 1 125
(To record depreciation expense)

30 Accounts Receivable 110 9 300

Commission Revenue 400 9 300
(To record commission revenue not yet received)

30 Interest Expense 550 150

Interest Payable 220 150
(To record interest accrued)

30 Rent Revenue Received in Advance 230 1 200

Rent Revenue 410 1 200
(To record services provided for revenue)

30 Salaries Expense 500 2 100

Salaries Payable 210 2 100
(To record accrued salaries)

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Solutions manual to accompany Accounting: building business skills 4e

(b)
Perth Business Park Ltd
Income Statement
for the three months ended 30 September 2013

$ $
Revenues:
Rent revenue 16 200
Commission revenue 11 100
Total revenues 27 300
Expenses:
Salaries expense 14 100
Rent expense 9 750
Depreciation expense 1 125
Supplies expense 225
Electricity expense 765
Interest expense 150
Total expenses 26 115
Profit $ 1 185

Perth Business Park Ltd

Calculation of retained earnings
for the three months ended 30 September 2013

Retained earnings, 1 July $ -

Add: Profit 1 185
1 185
Less: Dividends (900)
Retained earnings, 30 September $285

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Perth Business Park Ltd

Statement of financial position
as at 30 September 2013

$ $
Assets
Current assets
Cash 2 475
Accounts receivable 9 900
Supplies 450
Total current assets 12 825
Non-current assets
Equipment 22 500
Less: Accumulated depreciation – equipment (1 125) 21 375
Total assets 34 200

Liabilities
Accounts payable 2 265
Salaries payable 2 100
Interest payable 150
Rent revenue received in advance 900
Bank loan* 7 500
Total liabilities 12 915
Net Assets $21 285
Equity:
Share capital 21 000
Retained earnings 285
Total equity $21 285

* bank loan could also be classified as non-current

(c) The following accounts would be closed: Commission Revenue, Rent Revenue,
Salaries Expense, Rent Expense, Depreciation Expense, Supplies Expense, Electricity
Expense, Interest Expense, Dividends.

(d) 1 August 2013. Interest of 12% per year equals a monthly rate of 1%; monthly interest is
$75 ($7500 x 1%). Since total interest expense is $150, the loan has been outstanding
for two months.

OR

Monthly interest is [$7500 x .12) x 1/12] = $75

Since the total interest expense is $150, the company must have taken out the loan two
months ago on 1 August 2013. (Alternatively, 31 July 2013)

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Solutions manual to accompany Accounting: building business skills 4e

PROBLEM SET A 3.4

(a)
Frog Ltd
General Journal
Date Account name (narration) Post Ref Debit $ Credit $
2012
June 30 Accounts Receivable 110 900
Revenue 400 900
(To record revenue not yet received)

30 Office Supplies Expense 510 2 400

Office Supplies 120 2 400
(To record supplies consumed)

30 Insurance expense 530 2 250

Prepaid Insurance 130 2 250
(To record insurance expense)

30 Depreciation Expense – Equipment 540 1 800

Accumulated Depreciation – Equipment 141 1 800
(To record depreciation expense)

30 Salaries Expense 500 1 650

Salaries Payable 210 1 650
(To record accrued salaries)

30 Rent Revenue Received in Advance 220 1 200

Rent Revenue 410 1 200
(To record services provided for revenue)

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(b)
Frog Ltd
Income Statement
for the year ended 30 June 2012

$ $
Revenues:
Service revenue 51 900
Rent revenue 17 700
Total revenues 69 600
Expenses:
Salaries expense 27 150
Office Supplies expense 2 400
Rent expense 22 000
Insurance expense 2 250
Depreciation expense 1 800
Total expenses 55 600
Profit $14 000

Frog Ltd
Calculation of retained earnings
for the year ended 30 June 2012

Retained earnings, 1 July 5 600

Add: Profit 14 000
19 600
Less: Dividends (-)
Retained earnings, 30 September $19 600

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Solutions manual to accompany Accounting: building business skills 4e

Frog Ltd
Statement of financial position
as at 30 June 2012
$ $
Assets
Current assets
Cash 14 500
Accounts receivable 14 100
Office supplies 1 050
Prepaid insurance 3 750
Total current assets 33 400
Non-current assets
Equipment 18 000
Less: Accumulated depreciation – equipment (5 400)
Total non-current assets 21 375
Total assets 46 000
Liabilities
Accounts payable 8 700
Salaries payable 1 650
Rent revenue received in advance 1 050
Total liabilities 11 400
Net Assets $34 600
Equity
Share capital 15 000
Retained earnings 19 600
Total equity $34 600

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(c)
Frog Ltd
General Journal
Date Account name (narration) Post Ref Debit $ Credit $
2012
June 30 Service Revenue 400 51 900
Rent revenue 410 17 700
Income Summary 330 69 600
(To close revenue accounts)

30 Income Summary 330 55 600

Salaries expense 500 27 150
Office Supplies expense 510 2 400
Rent expense 520 22 000
Insurance expense 530 2 250
Depreciation expense 540 1 800
(To close expense accounts)

30 Income Summary 330 14 000

Retained earnings 310 14 000
(To close profit to retained earnings)

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Solutions manual to accompany Accounting: building business skills 4e

PROBLEM SET A 3.5

(a)
Albert Ltd
General Journal

Date Account name (narration) Post Ref $ $

Debit Credit
2013
Sept 30 Accounts Receivable 110 2 500
Sales Revenue 400 2 500
(To record Sales revenue)

30 Rent Expense 510 2 500

Prepaid Rent 120 2 500
(To record expired rent )

30 Supplies Expense 530 1 500

Supplies 130 1 500
(To record supplies consumed)

30 Depreciation Expense – Equipment 520 2 000

Accumulated Depreciation – Equipment 151 2 000
(To record depreciation expense)

30 Salaries Expense 500 3 600

Salaries Payable 210 3 600
(To record accrued salaries)

30 Interest Expense 550 200

Interest Payable 220 200
(To record interest accrued)

30 Comm Revenue Received in Advance 230 2 200

Commission Revenue 410 2 200
(To record services provided for revenue)

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(b)
Albert Ltd
Income Statement
for the three months ended 30 September 2013

$ $
Revenues:
Sales revenue 28 400
Commission revenue 17 200
Total revenues 45 600
Expenses:
Salaries expense 21 700
Rent expense 7 500
Depreciation expense 2 000
Supplies expense 1 500
Electricity expense 1 750
Interest expense 200
Total expenses 34 650
Profit $10 950

Albert Ltd
Calculation of retained earnings
for the three months ended 30 September 2013

Retained earnings, 1 July $ -

Add: Profit 10 950
10 950
Less: Dividends (1 000)
Retained earnings, 30 September $9 950

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Solutions manual to accompany Accounting: building business skills 4e

Albert Ltd
Statement of financial position
as at 30 September 2013

$ $
Assets
Current assets
Cash 38 150
Accounts receivable 4 300
Prepaid Rent 5 000
Supplies 1 500
Total current assets 48 950
Non-current assets
Equipment 40 000
Less: Accumulated depreciation – equipment (2 000) 38 000
Total assets 86 950

Liabilities
Accounts payable 6 400
Salaries payable 3 600
Interest payable 200
Commission revenue received in advance 1 800
Bank loan* 30 000
Total liabilities 42 000
Net Assets $44 950
Equity
Share capital 35 000
Retained earnings 9 950
Total equity $44 950

* bank loan could also be classified as non-current

(c) The following accounts would be closed: Sales Revenue, Commission Revenue,
Salaries Expense, Rent Expense, Depreciation Expense, Supplies Expense, Electricity
Expense, Interest Expense, Dividends.

(d) 1 September 2013. Interest of 8% per year on loan $30 000 = $2,400. Monthly interest
is $200 ($2400/12) Since total interest expense is $200, the loan has been outstanding
for one month.

(e) Useful live-need to calculate the depreciation rate.

Three months depreciation was $2 000 or $8 000 annually.
Useful life = cost/annual depreciation = $40 000/$8 000= Five years

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PROBLEM SET A 3.6

(a)
Characters Ltd
General Journal

Date Account name (narration) Post Ref Debit $ Credit $

2014
June 30 Insurance Expense 505 950
Prepaid Insurance 120 950
(To record expired insurance)

30 Supplies Expense 530 3 800

Supplies 130 3 800
(To record supplies consumed)

30 Depreciation Expense – Equipment 520 7 840

Accumulated Depreciation – Equipment 151 7 840
(To record depreciation expense)

30 Accounts Receivable 110 1 680

Revenue 400 1 680
(To record commission revenue not yet received)

30 Interest Expense 510 120

Interest Payable 220 120
(To record interest accrued)

30 Revenue Received in Advance 230 1 570

Revenue 400 1 570
(To record services provided for revenue)

30 Salaries Expense 500 1 400

Salaries Payable 240 1 400
(To record accrued salaries)

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Solutions manual to accompany Accounting: building business skills 4e

(b)
Characters Ltd
Income Statement
for the year ended 30 June 2014

$ $
:
Revenue 68 880
Expenses:
Salaries expense 12 600
Insurance expense 950
Interest expense 720
Depreciation expense 7 840
Supplies expense 3 800
Rent expense 4 880
Total expenses 30 390
Profit $38 490

Characters Ltd
Calculation of retained earnings
for the year ended 30 June 2014

Retained earnings, 1 July 2013 $6 160

Add: Profit 38 490
44 650
Less: Dividends (13 440)
Retained earnings, 30 June 2014 $31 210

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 Chapter 3: Accrual accounting concepts

Characters Ltd
Statement of financial position
as at 30 June 2014
$ $
Assets
Current assets
Cash 24 520
Accounts receivable 24 080
Supplies 5 600
Prepaid Insurance 2 800
Total current assets 57 000
Non-current assets
Equipment 67 200
Less: Accumulated depreciation (39 200)
Total non-current assets 28 000
Total assets 85 000
Liabilities
Current liabilities
Accounts payable 5 600
Salaries payable 1 400
Interest payable 120
Revenue received in advance 6 270
Total current liabilities 13 390
Non-current liabilities
Bank loan 18 000
Total liabilities 31 390
Net Assets $53 610
Equity
Share capital 22 400
Retained earnings 31 210
Total equity $53 610

(c) The following accounts would be closed: Revenue, Salaries Exp, Insurance Exp, Interest
Exp, Depreciation Exp, Supplies Exp, Rent Exp, and Dividends.

(d) The total interest expense for the six months is $720. So annually the interest is $1440.
Rate is $1 440 ÷ $18 000 = 8%.

(e) O/B? + exp$12 600 –Paid $13 400 = C/B $1 400

Opening balance 30 June 2013 = $2 200

(f) The effect on profit was to reduce profit by $10 860 ( $950+3800+7840 - 1680 +120 –
1570 + 1400).

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Solutions manual to accompany Accounting: building business skills 4e

(g) Information concerning the future forecast for the next year. What has been budgeted for
sales and expenses? Any new markets for the business? Who are the major
competitors? and what are the general economic conditions?

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 Chapter 3: Accrual accounting concepts

PROBLEM SET A 3.7

Showroom Rentals Ltd
Worksheet as at 30 June 2014
(a)
Trial Balance Adjustments Adjusted Trial Income Statement of financial
Balance. statement position
No. Account names Dr $ Cr $ Dr $ Cr $ Dr $ C $r Dr $ Cr $ Dr $ Cr $
100 Cash 5 000 5 000 5 000
112 Prepaid Insurance 3 600 900 1 2 700 2 700
113 Supplies 3 800 1 400 2 2 400 2 400
120 Land 30 000 30 000 30 000
122 Building 140 000 140 000 140 000
123 Acc’d Depn – Building 1 800 3 1 800 1 800
130 Furniture 33 600 33 600 33 600
131 Acc’d Depn –Furniture 1 500 3 1 500 1 500
200 Accounts Payable 9 400 9 400 9 400
212 Rent Rev Rec’d in Adv 7 200 3 000 5 4 200 4 200
214 Salaries Payable 600 6 600 600
215 Interest Payable 2 100 4 2 100 2 100
220 Mortgage Payable 70 000 70 000 70 000
300 Share Capital 120 000 120 000 120 000
400 Rent Revenue 18 400 3 000 5 21 400 21 400
505 Advertising Expense 1 000 1 000 1 000
506 Depreciation Expense 3 300 3 3 300 3 300
510 Electricity Expense 2 000 2 000 2 000
512 Insurance Expense 900 1 900 900
515 Interest Expense 2 100 4 2 100 2 100
525 Salaries Expense 6 000 600 6 6 600 6 600
530 Supplies Expense 1 400 2 1 400 1 400
$225 000 $225 000 $11 300 $11 300 $231 000 $231 000
Profit 4 100 4 100
$21 400 $21 400 $213 700 $213 700

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Solutions manual to accompany Accounting: building business skills 4e

(b)
Showroom Rentals Ltd
General Journal

Date Account name (narration) Post Ref Debit $ Credit $

2014
1 June 30 Insurance expense 512 900
Prepaid Insurance 112 900
(To record expired insurance)

2 30 Supplies Expense 530 1 400

Supplies 113 1 400
(To record supplies consumed)

3 30 Depreciation Expense 506 3 300

Accumulated Depreciation – Building 123 1 800
Accumulated Depreciation – Furniture 131 1 500
(To record depreciation expense for 3 months)

4 30 Interest Expense 513 2 100

Interest Payable 215 2 100
(To record interest accrued ($70,000 x12%)x3/12)

5 30 Rent Revenue Received in Advance 212 3 000

Rent Revenue 400 3 000
(To record June rent)

6 30 Salaries Expense 525 600

Salaries Payable 214 600
(To record accrued salaries)

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 Chapter 3: Accrual accounting concepts

(c) Showroom Rentals Ltd General Ledger

Cash 100
30/6 Balance 5 000

Prepaid Insurance 112

30/6 Balance 3 600 30/6 Insurance Expense 900
         30/6 Closing Balance 2 700
3 600 3 600
1/7 Opening Balance 2 700

Supplies 113
30/6 Balance 3 800 30/6 Supplies Expense 1 400
          30/6 Closing Balance 2 400
3 800 3 800
1/7 Opening Balance 2 400

Land 120
30/6 Balance 30000

Building 122
30/6 Balance 140 000

Accumulated Depreciation – Building 123

30/6 Depreciation Expense 1 800

Furniture 130
30/6 Balance 33 600

Accumulated Depreciation – Furniture 131

30/6 Depreciation Expense 1 500

Accounts Payable 200

30/6 Balance 9 400

Rent Revenue Received in Advance 212

30/6 Rent Revenue 3 000 30/6 Balance 7 200
30/6 Closing Balance 4 200         
7 200 7 200

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Solutions manual to accompany Accounting: building business skills 4e

1/7 Opening Balance 4 200

Salaries Payable 214

30/6 Salaries Expense 600

Interest Payable 215

30/6 Interest Expense 2 100

Mortgage Payable 220

30/6 Balance 70 000

Share Capital 300

30/6 Balance 120 000

Rent Revenue 400

30/6 Balance 18 400
30/6 Rent Revenue in Advance 3 000
21 400
Advertising Expense 505
30/6 Balance 1 000
Depreciation Expense 506
30/6 Accumulated Depreciation 3 300
Electricity Expense 510
30/6 Balance 2 000
Insurance Expense 512
30/6 Prepaid Insurance 900
515
Interest Expense
30/6 Interest Payable 2 100
Salaries Expense 525
30/6 Balance 6 000
30/6 Salaries Payable 600
6 600
Supplies Expense 530
30/6 Supplies 1 400

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 Chapter 3: Accrual accounting concepts

(d) Showroom Rentals Ltd

Adjusted Trial Balance
as at 30 June 2014
No. Account names Debit $ Credit $
100 Cash 5 000
112 Prepaid Insurance 2 700
113 Supplies 2 400
120 Land 30 000
122 Building 140 000
123 Accumulated Depreciation – Building 1 800
130 Furniture 33 600
131 Accumulated Depreciation – Furniture 1 500
200 Accounts Payable 9 400
212 Rent Revenue Received in Advance 4 200
214 Salaries Payable 600
215 Interest Payable 2 100
220 Mortgage Payable 70 000
300 Share Capital 120 000
400 Rent Revenue 21 400
505 Advertising Expense 1 000
506 Depreciation Expense 3 300
510 Electricity Expense 2 000
512 Insurance Expense 900
515 Interest Expense 2 100
525 Salaries Expense 6 600
530 Supplies 1 400               
$231 000 $231 000

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Solutions manual to accompany Accounting: building business skills 4e

(e)
Showroom Rentals Ltd
Income Statement
for the three months ended 30 June 2014

$ $
Revenues:
Rent revenue 21 400
Expenses:
Advertising expense 1 000
Depreciation expense 3 300
Electricity expense 2 000
Insurance expense 900
Interest expense 2 100
Salaries expense 6 600
Supplies expense 1 400
Total expenses 17 300
Profit $ 4 100

Showroom Rentals Ltd

Calculation of retained earnings
for the three months ended 30 June 2014

Retained earnings, 1 April $ -

Add: Profit 4 100
Retained earnings, 30 June 2014 $4 100

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 Chapter 3: Accrual accounting concepts

Showroom Rentals Ltd

Statement of financial position
as at 30 June 2014

$ $
Assets
Current Assets
Cash 5 000
Prepaid Insurance 2 700
Supplies 2 400
Total current assets 10 100
Non-current assets
Land 30 000
Building 140 000
Less: Accumulated depreciation (1 800) 138 200
Furniture 33 600
Less: Accumulated depreciation (1 500) 32 100
Total non-current assets 200 300
Total assets 210 400

Liabilities
Current Liabilities
Accounts payable 9 400
Rent revenue received in advance 4 200
Salaries payable 600
Interest payable 2 100
Total current liabilities 16 300
Non-current Liabilities
Mortgage Payable 70 000
Total liabilities 86 300
Net Assets $124 100
Equity
Share capital 120 000
Retained earnings 4 100
Total equity $124 100

(f) The following accounts would be closed: Rent Revenue, Advertising expense,
Depreciation Expense, Electricity Expense, Insurance Expense, Interest Expense,
Salaries Expense, Supplies Expense.

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Solutions manual to accompany Accounting: building business skills 4e

PROBLEM SET A 3.8

(a)
O’Brien Cleaning Ltd
General Journal
Date Account name (narration) Post Debit $ Credit $
Ref
2013
July 1 Cash 100 20 000
Share Capital 300 20 000
(Issued shares for cash)

1 Truck 170 16 000

Cash 100 5 000
Accounts Payable 200 11 000
(Purchased truck)

3 Cleaning Supplies 120 1 200

Accounts Payable 200 1 200
(Purchased cleaning supplies)

5 Prepaid Insurance 130 4 800

Cash 100 4 800
(Paid insurance annual policy July 1)

12 Accounts Receivable 110 5 240

Service Revenue 400 5 240
(Invoiced customers)

18 Accounts Payable 200 3 800

Cash 100 3 800
(Paid accounts payable)

20 Salaries Expense 540 3 200

Cash 100 3 200
(Paid salaries)

21 Cash 100 4 000

Accounts Receivable 110 4 000
(Collected cash from customers on account)

25 Accounts Receivable 110 3 600

Service Revenue 400 3 600
(Invoiced customers)
31 Petrol & Oil Expense 500 400
Cash 100 400
(Paid for petrol and oil)
31 Dividends 315 750
Cash 100 750
(Paid cash dividend)

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 Chapter 3: Accrual accounting concepts

(b), (e) & (h)

Cash 100
1/7 Share Capital 20 000 1/7 Motor Vehicles 5 000
21/7 Accounts Receivable 4 000 5/7 Prepaid Insurance 4 800
18/7 Accounts Payable 3 800
20/7 Salaries Expense 3 200
31/7 Petrol & Oil 400
Expense
31/7 Dividends 750
           31/7 Closing Balance 6 050
24 000 24 000
1/8 Opening Balance 6 050

Accounts Receivable 110

12/7 Service Revenue 5 240 21/7 Cash 4 000
25/7 Service Revenue 3 600
31/7 Service Revenue* 2 000 31/7 Closing Balance 6 840
10 840 10840
1/8 Opening Balance 6 840
* (e) adjusting entry, balance was $4840 dr before adjusting entry

Cleaning Supplies 120

3/7 Accounts Payable 1 200 31/7 Cleaning Supplies Expense* 800
      31/7 Closing Balance 400
800 800
1/8 Opening Balance 400
* (e) adjusting entry, balance was $1200 dr before adjusting entry

Prepaid Insurance 130

5/7 Cash 4 800 31/7 Insurance Expense* 400
         31/7 Closing Balance 4 400
4 400 4 400
1/8 Opening Balance 4 400
* (e) adjusting entry, balance was $4 800 dr before adjusting entry

Truck 170
1/7 Cash/Accounts 16 000
Payable

Accumulated Depreciation – Trucks 171

31/7 Depreciation Expense* 250
* (e) adjusting entry, nil balance before adjusting entry

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Solutions manual to accompany Accounting: building business skills 4e

Accounts Payable 200

18/7 Cash 3 800 1/7 Motor Vehicles 11 000
31/7 Closing Balance 8 400 3/7 Cleaning Supplies 1 200
12 200 12 200
1/8 Opening Balance 8 400

Salaries Payable 210

31/7 Salaries Expense* 300

* (e) adjusting entry, nil balance before adjusting entry

Share Capital 300

1/7 Cash 20 000

Retained Earnings 310

31/7 Dividends 750 31/7 Income Summary 5 490
31/7 Closing Balance 4 740         
5 490 5 490
1/8 Opening Balance 4 740

Dividends 315
31/7 Cash 750 31/7 Retained Earnings 750

Income Summary 320

31/7 Expenses 5 350 31/7 Revenue 10 840
31/7 Retained Earnings 5 490          
5,000 5,000
Entries to this account are closing entries. It has a nil balance before and after closing entries
because the balance, profit, is closed to retained earnings,

Service Revenue 400

31/7 Income Summary 10 840 12/7 Accounts Receivable 5 240
25/7 Accounts Receivable 3 600
          31/7 Accounts Rec’ble* 2 000
10 840 10 840
* (e) Adjusting entry,$8840 cr balance before adjusting entry, $10 840 cr after adjustment,
before closing

Petrol & Oil Expense 500

31/7 Cash 400 31/7 Income Summary 400

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 Chapter 3: Accrual accounting concepts

Cleaning Supplies Expense 510

31/7 Cleaning Supplies* 800 31/7 Income Summary 800

* (e) Adjusting entry, nil balance before adjusting entry, $200 dr after adjustment, before closing

Depreciation Expense 520

31/7 Accumulated Depreciation* 250 31/7 Income Summary 250

* (e) adjusting entry, nil balance before adjusting entry

Insurance Expense 530

31/7 Prepaid Insurance* 400 31/7 Income Summary 400

* (e) Adjusting entry, nil balance before adjusting entry, $200 dr after adjustment, before closing

Salaries Expense 540

20/7 Cash 3 200 31/7 Income Summary 3 500
31/7 Salaries Payable* 300        
3 500 3 500
* (e) adjusting entry, $3200 dr balance before adjusting entry, $3 500 dr after adjusting entry
before closing.

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Solutions manual to accompany Accounting: building business skills 4e

(c) & (f)

O’Brien Cleaning Ltd
Trial Balance
as at 31 July 2013
(c) Unadjusted (f) Adjusted
No. Account name Debit $ Credit $ Debit $ Credit $
100 Cash 6 050 6 050
110 Accounts Receivable 4 840 6 840
120 Cleaning Supplies 1 200 400
130 Prepaid Insurance 4 800 4 400
170 Trucks 16 000 16 000
171 Accumulated Depreciation – Trucks 250
200 Accounts Payable 8 400 8 400
210 Salaries Payable 300
300 Share Capital 20 000 20 000
310 Dividends 750 750
400 Service Revenue 8 840 10 840
500 Petrol & Oil Expense 400 400
510 Cleaning Supplies Expense 800
520 Depreciation Expense 250
530 Insurance Expense 400
540 Salaries Expense 3 200              3 500             
$37 240 $37 240 $39 790 $39 790

(d) O’Brien Cleaning Ltd

General Journal
Date Account name (narration) Post Ref. Debit $ Credit $
1. July 31 Accounts Receivable 110 2 000
Service Revenue 400 2 000
(Accrued revenue)
2. 31 Depreciation Expense 520 250
Accumulated Depreciation 172 250
(Depreciation expense)
3. 31 Insurance Expense 530 400
Prepaid Insurance 130 400
(Prepaid insurance expired)
4. 31 Cleaning Supplies Expense 510 800
Cleaning Supplies 120 800
(Supplies used)
5. 31 Salaries Expense 540 300
Salaries Payable 210 300
(Accrued salaries)

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(g)
O’Brien Cleaning Ltd
Income Statement
for the month ended 31 July 2013
$ $
Revenues:
Service revenue 10 840
Expenses:
Salaries expense 3 500
Cleaning supplies expense 800
Depreciation expense 250
Petrol & Oil expense 400
Insurance expense 400
Total expenses 5 350
Profit $5 490

O’Brien Cleaning Ltd

Calculation of retained earnings
for the month ended 31 July 2013

Retained earnings 1 July $ -

Add: Profit 5 490
5 490
Less: Dividends (750)
Retained earnings 31 July $4 740

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Solutions manual to accompany Accounting: building business skills 4e

O’Brien Cleaning Ltd

Statement of financial position
as at 31 July 2013
$ $
ASSETS
Current assets
Cash 6 050
Accounts receivable 6 840
Cleaning supplies 400
Prepaid insurance 4 400
Total current assets 17 690
Non-current assets
Property, plant and equipment:
Motor Vehicles 16 000
Less: Accumulated depreciation (250)
Total non-current assets 15 750
Total assets 33 440
LIABILITIES
Current liabilities
Accounts payable 8 400
Salaries payable 300
Total liabilities 8 700
NET ASSETS $24 740
EQUITY
Share capital 20 000
Retained earnings 4 740
TOTAL EQUITY $24 740

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(h) O’Brien Cleaning Ltd

General Journal

Date Account name (narration) Post Debit $ Credit $

Ref
July 31 Service Revenue 400 10 840
Income Summary 320 10 840
(Close revenue accounts)

31 Income Summary 320 5 350

Petrol & Oil Expense 500 400
Cleaning Supplies Expense 510 800
Depreciation Expense 520 250
Insurance Expense 530 400
Salaries Expense 540 3 500
(Close expense accounts)

31 Income Summary 320 5 490

Retained Earnings 310 5 490
(Close Income summary account)

31 Retained Earnings 310 750

Dividends 315 750
(Close dividends account)

(i)
O’Brien Cleaning Ltd
Post-Closing Trial Balance
as at 31 July 2013
No. Account name Debit $ Credit $
100 Cash 6 050
110 Accounts Receivable 6 840
120 Cleaning Supplies 400
130 Prepaid Insurance 4 400
170 Trucks 16 000
171 Accumulated Depreciation – Trucks 250
200 Accounts Payable 8 400
210 Salaries Payable 300
300 Share Capital 20 000
310 Retained Earnings              4 740
$33 690 $33 690

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Solutions manual to accompany Accounting: building business skills 4e

(j) Today’s society is aware of their social responsibility and as such business’s can only operate
successfully if they meet society’s expectations and as such are willing to take actions which is
socially responsible. This means using environmentally friendly resources even though it may not
be the cheapest. Triple bottom line reporting means measuring success not only the economic
return but also the environment and the social dimensions.

PROBLEM SET A 3.9

(a) Chart of accounts: students may have different account numbers as long as they are
grouped to sections of the ledger
100 Cash
110 Accounts receivable
120 Supplies
130 Prepaid rent
150 Store equipment
151 Accumulated Depreciation
200 Accounts Payable
210 Service Revenue Received in Advance
215 Salaries Payable
300 Share Capital
310 Retained earnings
400 Service Revenue
510 Depreciation Expense
515 Supplies Expense
520 Salaries Expense
525 Rent Expense

(b), (d) and (f)

Bulwara Ltd
General Ledger

Cash 100
1/7 Opening Balance 5 000 8/7 Salaries Expense/Payable 3 000
10/7 Accounts Receivable 2 000 24/7 Accounts Payable 2 000
12/7 Service Revenue 800 24/7 Rent Expense/prepaid 800
27/7 Revenue Rec’d in Advance 1 300 25/7 Salaries Expense 3 000
          31/7 Closing Balance 300
9 100 9 100
1/8 Opening Balance 300

Accounts Receivable 110

1/7 Opening Balance 5 600 10/7 Cash 2 000
27/7 Service Revenue 2 300 31/7 Closing Balance 5 900
7 900 7 900
1/8 Opening Balance 5 900

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Supplies 120
1/7 Opening Balance 2 000 31/7 Supplies Expense 2 200
17/7 Accounts Payable 3 400 31/7 Closing Balance 3 200
5 400 5 400
1/8 Opening Balance 3 200
Balance before adjusting entry $2000 + $3400 = $5400
Prepaid rent 130
24/7 Cash 400

Store Equipment 150

1/7 Opening Balance 20 000 31/7 Closing Balance 28 000
15/7 Accounts Payable 8 000           
28 000 28 000
1/8 Opening Balance 28 000

Accumulated Depreciation – Store Equipment 151

31/7 Closing Balance 1/7 Opening Balance 1 000
       31/7 Depreciation Expense 240
1 240 1 240
1/8 Opening Balance 1 240
Balance before adjusting entry $1000

Accounts Payable 200

24/7 Cash 2 000 1/7 Opening Balance 4 200
15/7 Store Equipment 8 000
31/7 Closing Balance 13 600 17/7 Supplies 3 400
15 600 15 600
1/8 Opening Balance 13 600

Service Revenue Received in Advance 210

31/7 Service Revenue 600 1/7 Opening Balance 800
31/7 Closing Balance 1 500 27/7 Cash 1 300
3 100 3 100
1/8 Opening Balance 1 500
Balance before adjusting entry $800 + $1300 = $2100

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Solutions manual to accompany Accounting: building business skills 4e

Salaries Payable 215

8/7 Cash 1 000 1/7 Opening Balance 1 000
31/7 Closing Balance 1 000 31/7 Salaries Expense 1 000
1 000 1 000
1/8 Opening Balance 1 000
Balance before adjusting entry, $1000 - $100 = $0
Share Capital 300
1/7 Opening Balance 20 000

Retained Earnings 310

1/7 Opening Balance 5 600

Service Revenue 400

12/7 Cash 800
27/7 Accounts Receivable 2 300
31/7 Service Revenue in Advance 600
3 700
Balance before adjusting entry $800+ $2300 = $3100

Depreciation Expense 510

31/7 Accumulated Depreciation 240
Nil balance before adjusting entry

Supplies Expense 515

31/7 Supplies 2 200
Nil balance before adjusting entry
Salaries Expense 520
8/7 Cash 2 000
25/7 Cash 3 000
31/7 Salaries Payable 1 000
6 000
Balance before adjusting entry $2000 + $3000 = $5000

Rent Expense 525

24/7 Cash 400

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(c) Bulwara Ltd

General Journal
Date Account name (narration) Post Debit $ Credit $
Ref
2013
July 8 Salaries Payable 215 1 000
Salaries Expense 520 2 000
Cash 100 3 000
(Payment of salaries for June and July)

10 Cash 100 2 000

Accounts Receivable 110 2 000
(Cash received from customers on account)

12 Cash 100 800

Service Revenue 400 800
(To record service revenue)

15 Store Equipment 150 8 000

Accounts Payable 8 000
(Purchased store equipment on account)

17 Supplies 120 3 400

Accounts Payable 200 3 400
(Purchased supplies on account)

24 Accounts Payable 200 2 000

Cash 100 2 000
(Paid creditors on account)

24 Rent Expense 525 400

Prepaid rent 130 400
Cash 100 800
(Paid July/August rent)

25 Salaries Expense 520 3 000

Cash 100 3 000
(Paid salaries)

July 27 Accounts Receivable 110 2 300

Service Revenue 400 2 300
(To record service revenue)

27 Cash 100 1 300

Service Revenue Received in Advance 210 1 300
(Received cash from customers in advance)

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Solutions manual to accompany Accounting: building business skills 4e

(e) and (g)

Bulwara Ltd
Trial Balance
as at 31 July 2013

Unadjusted Adjusted
No Account names Debit $ Credit $ Debit $ Credit4
100 Cash 300 300
110 Accounts Receivable 5 900 5 900
120 Supplies 5 400 3 200
130 Prepaid Rent 400 400
150 Store Equipment 28 000 28 000
151 Accumulated Depreciation 1 000 1240
200 Accounts Payable 13 600 13 600
210 Service Revenue Received in Advance 2 100 1 500
215 Salaries Payable 1 000
300 Share Capital 20 000 20 000
310 Retained Earnings 5 600 5 600
400 Service Revenue 3 100 3 100
510 Depreciation Expense 240
515 Supplies Expense 2 00
520 Salaries Expense 5 000 6 000
525 Rent Expense       400              400             
$45 400 $45 400 $46 640 $46 640

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(f) Bulwara Ltd

General Journal

Date Account names (narration) Post Debit Credit

Ref $ $
1. July 31 Supplies Expense 515 2 200
Store Supplies ($5400 - $3200) 120 2 200
(To record supplies used)

2. 31 Salaries Expense 520 1 000

Salaries Payable 215 1 000
(To record accrued salaries)

3. 31 Depreciation Expense 510 240

Accumulated Depr. – Store Equipment 151 240
(To record one month’s depreciation expense)

4. 30 Service Revenue Received in Advance 210 600

Service Revenue 400 600
(To record revenue)

(h)
Bulwara Ltd
Income statement
for the month ended 31 July 2013

Revenues: $ $
Service revenue 3 700
Expenses:
Salaries expense 6 000
Supplies expense 2 200
Rent expense 400
Depreciation expense 240
Total expenses 8 840
Loss ($5 140)

Bulwara Ltd
Calculation of retained earnings
for the month ended 31 July 2013
$
Retained earnings 1 July 5 600
Less: Loss (5140)
Retained earnings 31 July $ 460

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Solutions manual to accompany Accounting: building business skills 4e

Bulwara Ltd
Statement of financial position
as at 31 July 2013
$ $
ASSETS
Current Assets
Cash 300
Accounts receivable 5 900
Supplies 3 200
Prepaid Rent 400
Total current assets 9 800
Non-current assets
Store equipment 28000
Less: Accumulated depreciation (1 240)
Total non-current assets 26 760
Total assets 36 560

LIABILITIES
Accounts payable 13 600
Salaries payable 1 000
Service revenue received in advance 1 500
Total liabilities 16 100

NET ASSETS $20 460

EQUITY
Share capital 20 000
Retained earnings 460
TOTAL EQUITY $20 460

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PROBLEM SET A 3.9 (i)

Bulwara Ltd
Worksheet as at 31 July 2013
.
Trial Balance Adjustments Adjusted Income Statement of
Trial Balance. Statement Financial Position
No. Account names Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $
10 Cash 300 300 300
0
11 Accounts 5 900 5 900 5 900
0 receivable
12 Supplies 5 400 2 200 3 200 3 200
0
13 Prepaid rent 400 400 400
0
15 Store equipment 28 000 28 000 28 000
0
15 Accumulated 1 000 240 1 240 1 240
1 Depreciation
20 Accounts Payable 13 600 13 600 13 600
0
21 Service Rev Rec’d 2 100 600 1 500 1 500
0 in Advance
21 Salaries Payable 1 000 1 000 1 000
5
30 Share Capital 20 000 20 000 20 000
0
31 Retained earnings 5 600 5 600 5 600
0
40 Service Revenue 3 100 600 3 700 3 700
0
51 Depreciation Exp 240 240
0
51 Supplies Expense 2 200 2 200
5
52 Salaries Expense 5 000 1 000 6 000
0
52 Rent Expense 400 400

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Solutions manual to accompany Accounting: building business skills 4e

Loss 5 140 5 140

______ ______ ______ ______ ______ ______ _____ _____ ______ ______
_ _ _ _ _ _ _ _ _
Totals $45 400 $45 400 $4 040 $4 040 $46 640 $46 640 $8 840 $8 840 $42 940 $42
940

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PROBLEM SET A 3.10

(a)
Cortex Cleaning Ltd
General Journal
Date Account name (narration) Post Debit $ Credit $
Ref.
2014
April 1 Cash 100 75 000
Share Capital 300 75 000
(Issued shares for cash)

1 Motor Vehicles 171 45 000

Cash 100 25 000
Accounts Payable 200 20 000
(Purchased truck)

5 Cleaning Supplies 120 9 750

Accounts Payable 200 9 750
(Purchased cleaning supplies)

7 Prepaid Insurance 130 11 640

Cash 100 11 640
(Paid insurance annual policy July 1)

14 Accounts Receivable 110 13 700

Service Revenue 400 13 700
(Invoiced customers)

21 Accounts Payable 200 24 250

Cash 100 24 250
(Paid accounts payable)

21 Salaries Expense 540 6 800

Cash 100 6 800
(Paid salaries)

23 Cash 100 5 500

Accounts Receivable 110 5 500
(Collected cash from customers on account)

25 Accounts Receivable 110 11 950

Service Revenue 400 11 950
(Invoiced customers)

30 Petrol & Oil Expense 500 864

Cash 100 864
(Paid for petrol and oil)
30 Dividends 315 1 200
Cash 100 1 200

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Solutions manual to accompany Accounting: building business skills 4e

(Paid cash dividend)

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 Chapter 3: Accrual accounting concepts

(b), (e) & (h)

Cortex Cleaning Ltd General Ledger

Cash 100
1/4 Share Capital 75 000 1/4 Motor Vehicles 25 000
23/4 Accounts Receivable 5 500 7/4 Prepaid Insurance 11 640
21/4 Accounts Payable 24 250
21/4 Salaries Expense 6 800
30/4 Petrol & Oil Exp 864
30/4 Dividends 1 200
           30/4 Closing Balance 10 746
80 000 24 000
1/5 Opening Balance 10 746

Accounts Receivable 110

14/4 Service Revenue 13 700 23/4 Cash 5 500
25/4 Service Revenue 11 950
30/4 Service Revenue* 2 300 30/4 Closing Balance 22 450
27 950 27 950
1/8 Opening Balance 22 450
* (e) adjusting entry, balance was $20 150 dr before adjusting entry

Cleaning Supplies 120

5/4 Accounts Payable 9 750 30/4 Cleaning Supplies Exp* 8 250
      30/4 Closing Balance 1 500
9 750 9 750
1/8 Opening Balance 1 500
* (e) adjusting entry, balance was $9 750 dr before adjusting entry

Prepaid Insurance 130

7/4 Cash 11 640 30/4 Insurance Expense* 970
         30/4 Closing Balance 10 670
11 640 11 640
1/8 Opening Balance 10 670
* (e) adjusting entry, balance was $11 640 dr before adjusting entry

Motor vehicle 171

1/4 Cash/Accounts 45 000
Payable

Accumulated Depreciation – Trucks 172

30/4 Depreciation Expense* 750
* (e) adjusting entry, nil balance before adjusting entry

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Solutions manual to accompany Accounting: building business skills 4e

Accounts Payable 200

21/4 Cash 24 250 1/4 Motor Vehicles 20 000
30/4 Closing Balance 5 500 5/4 Cleaning Supplies 9 750
29750 29 750
1/8 Opening Balance 5 500

Salaries Payable 210

30/4 Salaries Expense* 2 400

* (e) adjusting entry, nil balance before adjusting entry

Share Capital 300

1/4 Cash 75 000

Retained Earnings 310

30/4 Dividends 1 200 30/4 Income Summary 7 916
30/4 Closing Balance 6 716
7 916 7 916
1/8 Opening Balance 6 716

Dividends 315
30/4 Cash 1 200 30/4 Retained Earnings 1 200

Income Summary 320

30/4 Expenses 20 034 30/4 Revenue 27 950
30/4 Retained Earnings 7 916
27 950 27 950
Entries to this account are closing entries. It has a nil balance before and after closing entries
because the balance, profit, is closed to retained earnings,

Service Revenue 400

30/4 Income Summary 27 950 14/4 Accounts Receivable 13 700
25/4 Accounts Receivable 11 950
          30/4 Accounts Rec’ble* 2 300
27 950 27 950
* (e) Adjusting entry,$25 650 cr balance before adjusting entry, $27 950 cr after adjustment,
before closing

Petrol & Oil Expense 500

30/4 Cash 864 30/4 Income Summary 864

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Cleaning Supplies Expense 510

30/4 Cleaning Supplies* 8 250 30/4 Income Summary 8 250

* (e) Adjusting entry, nil balance before adjusting entry, $8 250 dr after adjustment, before
closing

Depreciation Expense 520

30/4 Accumulated Depreciation* 750 30/4 Income Summary 750

* (e) adjusting entry, nil balance before adjusting entry

Insurance Expense 530

30/4 Prepaid Insurance* 970 30/4 Income Summary 970

* (e) Adjusting entry, nil balance before adjusting entry, $200 dr after adjustment, before closing

Salaries Expense 540

21/4 Cash 6 800 30/4 Income Summary 9 200
30/4 Salaries Payable* 2400        
9 200 9 200
* (e) adjusting entry, $6800 dr balance before adjusting entry, $9200 dr after adjusting entry
before closing.

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Solutions manual to accompany Accounting: building business skills 4e

(c) & (f)

Cortex Cleaning Ltd
Trial Balance
as at 30 April 2014
(c) Unadjusted (f) Adjusted
No. Account name Debit $ Credit $ Debit $ Credit $
100 Cash 10 746 10 746
110 Accounts Receivable 20 150 22 450
120 Cleaning Supplies 9 750 1 500
130 Prepaid Insurance 11 640 10 670
171 Motor Vehicles 45 000 45 000
172 Accumulated Depreciation – Motor 750
vehicles
200 Accounts Payable 5 500 5 500
210 Salaries Payable 2 400
300 Share Capital 75 000 75 000
310 Dividends 1 200 1 200
400 Service Revenue 25 650 27 950
500 Petrol & Oil Expense 864 864
510 Cleaning Supplies Expense 8 250
520 Depreciation Expense 750
530 Insurance Expense 970
540 Salaries Expense 6 800              9 200             
$106 150 $106 150 $111 600 $111 600

(d) Cortex Cleaning Ltd

General Journal
Date Account name (narration) Post ref. Debit $ Credit $
1. April 30 Accounts Receivable 110 2 300
Service Revenue 400 2 300
(Accrued revenue)
2. 30 Depreciation Expense 520 750
Accumulated Depreciation 172 750
(Depreciation expense)
3. 30 Insurance Expense 530 970
Prepaid Insurance 130 970
(Prepaid insurance expired)
4. 30 Cleaning Supplies Expense 510 8 250
Cleaning Supplies 120 8 250
(Supplies used)
5. 30 Salaries Expense 540 2 400
Salaries Payable 210 2 400
(Accrued salaries)

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(g)
Cortex Cleaning Ltd
Income Statement
for the month ended 30 April 2014
$ $
Revenues:
Service revenue 27 950
Expenses:
Salaries expense 9 200
Cleaning supplies expense 8 250
Depreciation expense 750
Petrol & Oil expense 864
Insurance expense 970
Total expenses 20 034
Profit $7 916

Cortex Cleaning Ltd

Calculation of retained earnings
for the month ended 30 April 2014

Retained earnings 1 April $ -

Add: Profit 7 916
7 916
Less: Dividends ( 1 200)
Retained earnings 30 April $6 716

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Solutions manual to accompany Accounting: building business skills 4e

Cortex Cleaning Ltd

Statement of financial position
as at 30 April 2014

$ $
ASSETS
Current assets
Cash 10 746
Accounts receivable 22 450
Cleaning supplies 1 500
Prepaid insurance 10 670
Total current assets 45 366
Non-current assets
Motor Vehicles 45 000
Less: Accumulated depreciation (750)
Total non-current assets 44 250
Total assets 89 616
LIABILITIES
Current liabilities
Accounts payable 5 500
Salaries payable 2 400
Total liabilities 7 900
NET ASSETS $81 716
EQUITY
Share capital 75 000
Retained earnings 6 716
TOTAL EQUITY $81 716

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(h) Cortex Cleaning Ltd

General Journal

Date Account name (narration) Post Debit $ Credit $

Ref
July 31 Service Revenue 400 27 950
Income Summary 320 27 950
(Close revenue accounts)

31 Income Summary 320 20 034

Petrol & Oil Expense 500 864
Cleaning Supplies Expense 510 8 250
Depreciation Expense 520 750
Insurance Expense 530 970
Salaries Expense 540 9 200
(Close expense accounts)

31 Income Summary 320 7 916

Retained Earnings 310 7 916
(Close Income summary account)

31 Retained Earnings 310 1 200

Dividends 315 1 200
(Close dividends account)

(i)
Cortex Cleaning Ltd
Post-Closing Trial Balance
as at 30 April 2014
No. Account name Debit $ Credit $
100 Cash 10 746
110 Accounts Receivable 22 450
120 Cleaning Supplies 1 500
130 Prepaid Insurance 10 670
171 Motor vehicles 45 000
172 Accumulated Depreciation – MV 750
200 Accounts Payable 5 500
210 Salaries Payable 2 400
300 Share Capital 75000
310 Retained Earnings              6 716
$90 366 $90 366

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Solutions manual to accompany Accounting: building business skills 4e

PROBLEM SET A 3.10 (j)

Cortex Cleaning Ltd
Worksheet as at 30 April 2014
Prepare +adjusting entries and adjusted trial balance using a worksheet.
Trial Balance Adjustments Adjusted Income Statement of
Trial Balance. Statement Financial Position
No. Account names Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $
100 Cash 10 746 10 746 10 746
110 Accounts receivable 20 150 2 300 22 450 22 450
120 Cleaning Supplies 9 750 8 250 1 500 1 500
130 Prepaid insurance 11 640 970 10 670 10 670
171 Motor vehicles 45 000 45 000 45 000
172 Accumulated Depreciation 750 750 750
200 Accounts Payable 5 500 5 500 5 500
210 Salaries Payable 2 400 2 400 2 400
300 Share Capital 75 000 75 000 75 000
310 Retained earnings
315 Dividends 1 200 1 200
320 Income Summary
400 Service Revenue 25 650 2 300 27 950 27 950
500 Petrol & oil expense 864 864 864
510 Cleaning Supplies 8 250 8 250 8 250
Expense
520 Depreciation Expense 750 750 750
530 Insurance Expense 970 970 970
540 Salaries Expense 6 800 2 400 9 200 9 200

Profit 7 916 7 916

Totals $106 $106 150 $14 670 $14 670 $111 $111 600 $27 $27 $91 566 $91 566
150 600 950 950

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Solutions manual to accompany Accounting: building business skills 4e

SOLUTIONS TO PROBLEM
SET B

PROBLEM SET B 3.1

(a).
Solo Ltd
General Journal
Post $ $
Date Account name (narration) Ref. Debit Credit
2013
1. June 30 Supplies Expense 505 700
Supplies ($2000 - $1300) 113 700
(To adjust supplies account to reflect supplies
used)

2. 30 Electricity Expense 530 150

Electricity Payable 218 150
(Accrued electricity)

3. 30 Insurance Expense 515 200

Prepaid Insurance 112 200
(Prepaid insurance ($2400 ÷ 12 months)

4. 30 Service Revenue Received in Advance 213 2 500

Service Revenue 400 2 500
(Services performed in relation to revenue received
in advance)

5. 30 Salaries Expense 500 1 500

Salaries Payable 215 1 500
(Accrued salaries)

6. 30 Depreciation Expense 520 250

Accumulated Depreciation – Office 131 250
Equipment ($15,000 ÷ 60 months)
(Record depreciation expense for month)

7. 30 Service revenue Receivable 104 3 000

Service Revenue 400 3 000
(Accrued revenue)

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 Chapter 3: Accrual accounting concepts

(b) General Ledger Solo Ltd

Cash 100
30/6 Balance 7 750

Accounts Receivable 104

30/6 Balance 6 000 30/6 Balance 9 000
30/6 Service Revenue 3 000         
9 000 9 000
1/7 Opening Balance 9 000

Prepaid Insurance 112

30/6 Balance 2 400 30/6 Insurance Expense 200
          30/6 Closing Balance 2 200
2 400 2 400
1/7 Opening Balance 2 200

Supplies 113
30/6 Balance 2 000 30/6 Supplies Expense 700
         30/6 Closing Balance 1 300
2 000 2 000
1/7 Opening Balance 1 300

Office Equipment 130

30/6 Balance 15 000

Accumulated Depreciation – Office Equipment 131

30/6 Depreciation Expense 250

Accounts Payable 200

30/6 Balance 4 500

Service Revenue Received in Advance 213

30/6 Service Revenue 2 500 30/6 Balance 4 000
30/6 Closing Balance 1 500         
4 000 4 000
1/7 Opening Balance 1 500

Salaries Payable 215

30/6 Salaries Expense 1 500

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Solutions manual to accompany Accounting: building business skills 4e

Electricity Payable 218

30/6 Electricity Expense 150

Share Capital 300

30/6 Balance 21 750

Service Revenue 400

30/6 Balance 7 900
30/6 Accounts Receivable 3 000
30/6 Service Revenue in Advance 2 500
13 400

Salaries Expense 500

30/6 Balance 4 000
30/6 Salaries Payable 1 500
5 500

Supplies Expense 505

30/6 Supplies 700

Rent Expense 510

30/6 Balance 1 000

Insurance Expense 515

30/6 Prepaid Insurance 200

Depreciation Expense 520

30/6 Accumulated Depreciation 250

Electricity Expense 530

30/6 Electricity Expense 150

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(c)
Solo Ltd
Adjusted Trial Balance
as at 30 June 2013

No. Account name Debit Credit

$ $
100 Cash 7 750
104 Accounts Receivable 9 000
112 Prepaid Insurance 2 200
113 Supplies 1 300
130 Office Equipment 15 000
131 Accumulated Depreciation – Office Equipment 250
200 Accounts Payable 4 500
213 Service Revenue Received in Advance 1 500
215 Salaries Payable 1 500
218 Electricity Payable 150
300 Share Capital 21 750
400 Service Revenue 13 400
500 Salaries Expense 5 500
505 Supplies Expense 700
510 Rent Expense 1 000
515 Insurance Expense 200
520 Depreciation Expense 250
530 Electricity Expense 150             
$43 050 $43 050

(d) Profit for the month

Revenues $13 400 less expenses ($5500 +$700 +$10500+ $200+ $250 + $150) =
$5 600

(e) If the cost of the equipment was allocated over the two years then the annual
depreciation expense would be $7 500 ($15000/2) instead of $3 000 which means
profit in the first 2 years would be $4 500 ($7500-$3000 ) less than if the depreciation
was charged over the useful life and this would mean the profit in year 3 4 and 5
would be $4 500 more as no depreciation would be charged.
Note over the 5 years total depreciation is the same is $15 000 either rate used.

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Solutions manual to accompany Accounting: building business skills 4e

PROBLEM SET B 3.2

(a).
Coen Ltd
General Journal
Post $ $
Date Account name (narration) Ref. Debit Credit
2013
1. June 30 Supplies Expense 505 3 720
Supplies ($4700 - $980) 113 3 720
(To adjust supplies account to reflect supplies
used)

2. 30 Electricity Expense 530 220

Electricity Payable 218 220
(Accrued electricity)

3. 30 Insurance Expense 515 2 100

Prepaid Insurance 112 2 100
(Prepaid insurance( ($5040 ÷ 12 months)x 5
months))

4. 30 Service Revenue Received in Advance 213 1 600

Service Revenue 400 1 600
(Services performed in relation to revenue received
in advance)

5. 30 Salaries Expense 500 1 540

Salaries Payable 215 1 540
(Accrued salaries)

6. 30 Depreciation Expense 520 3 750

Accumulated Depreciation – Office 131 3 750
Equipment ($45,000 ÷ 60 months x 5)
(Record depreciation expense)

7. 30 Accounts Receivable 104 3 000

Service Revenue 400 3 000
(Accrued revenue)

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(b) Coen Ltd General Ledger

Cash 100
30/6 Balance 18 960

Accounts Receivable 104

30/6 Balance 6 300 30/6 Balance 9 300
30/6 Service Revenue 3 000         
9 300 9 300
1/7 Opening Balance 9 300

Prepaid Insurance 112

30/6 Balance 5 040 30/6 Insurance Expense 2 100
          30/6 Closing Balance 2 940
5 040 5 040
1/7 Opening Balance 2 940

Supplies 113
30/6 Balance 4 700 30/6 Supplies Expense 3 720
         30/6 Closing Balance 980
4 700 4 700
1/7 Opening Balance 980

Office Equipment 130

30/6 Balance 45 000

Accumulated Depreciation – Office Equipment 131

30/6 Depreciation Expense 3 750

Accounts Payable 200

30/6 Balance 3 100

Service Revenue Received in Advance 213

30/6 Service Revenue 1 600 30/6 Balance 3 000
30/6 Closing Balance 1 400         
3 000 3 000
1/7 Opening Balance 1 400

Salaries Payable 215

30/6 Salaries Expense 1 540

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Electricity Payable 218

30/6 Electricity Expense 220

Share Capital 300

30/6 Balance 40 000

Service Revenue 400

30/6 Balance 50 990
30/6 Accounts Receivable 3 000
30/6 Service Revenue in
Advance 1 600
55 590

Salaries Expense 500

30/6 Balance 6 590
30/6 Salaries Payable 1 540
8 130

Supplies Expense 505

30/6 Supplies 3 720

Rent Expense 510

30/6 Balance 10 500

Insurance Expense 515

30/6 Prepaid Insurance 2 100

Depreciation Expense 520

30/6 Accumulated Depreciation 3 750

Electricity Expense 530

30/6 Electricity Expense 220

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(c)
Coen Ltd
Adjusted Trial Balance
as at 30 June 2013

No. Account name Debit Credit

$ $
100 Cash 18 960
104 Accounts Receivable 9 300
112 Prepaid Insurance 2 940
113 Supplies 980
130 Office Equipment 45 000
131 Accumulated Depreciation – Office Equipment 3 750
200 Accounts Payable 3 100
213 Service Revenue Received in Advance 1 400
215 Salaries Payable 1 540
218 Electricity Payable 220
300 Share Capital 40 000
400 Service Revenue 55 590
500 Salaries Expense 8 130
505 Supplies Expense 3 720
510 Rent Expense 10 500
515 Insurance Expense 2 100
520 Depreciation Expense 3 750
530 Electricity Expense 220               
$105 600 $105 600

(d) To report the higher profit the adjustments to accrue expense and not write down
assets would be avoided hence depreciation, writing down supplies and the prepaid
insurance, recognising salaries and electricity expense. The shareholders old and
potential new shareholders and the creditors would be affected as they would make
incorrect assumptions about the profitability and liquidity of the business

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PROBLEM SET B 3.3

(a)
Matrix Ltd
General Journal

Date Account name (narration) Post Debit $ Credit $

Ref.
2013
Sept. 30 Commission Receivable 110 780
Commission Revenue 400 780
(To record accrued commission revenue)

30 Rent Expense 510 780

Prepaid Rent 120 780
(To record expired prepaid rent)

30 Supplies Expense 530 260

Supplies 130 260
(To record supplies used)

30 Depreciation Expense 520 455

Accumulated Depreciation – 151 455
Equipment
(To record depreciation expense)

30 Salaries Expense 500 520

Salaries Payable 210 520
(To record accrued salaries)

30 Interest Expense 550 65

Interest Payable 220 65
(To record accrued interest)

30 Rent Revenue Received in Advance 230 390

Rent Revenue 410 390
(To record revenue)

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(b)
Matrix Ltd
Income Statement
for the quarter ended 30 September 2013

$ $
Revenues:
Commission revenue 18 980
Rent revenue 910
Total revenues 19,890
Expenses:
Salaries expense 12 220
Rent expense 1 950
Depreciation expense 455
Supplies expense 260
Electricity expense 663
Interest expense 65
Total expenses 15 613
Profit $4 277

Matrix Ltd
Calculation of retained earnings
for the quarter ended 30 September 2013

$
Retained earnings 1 July 0
Add: Profit 4 277
4 277
Less: Dividends (780)
Retained earnings 30 September $3 497

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Matrix Ltd
Statement of financial position
as at 30 September 2013

$ $
ASSETS
Current assets
Cash 8 710
Accounts receivable 1 300
Prepaid rent 1 170
Supplies 1 00
Total Current assets 12 80
Non-current assets
Equipment 19 500
Less: Accumulated depreciation – equipment (455) 19 045
Total assets 31 525
LIABILITIES
Liabilities:
Accounts payable 1 963
Salaries payable 520
Interest payable 65
Rent revenue received in advance 780
Bank loan 6 500
Total liabilities 9 828
NET ASSETS $21 697

EQUITY
Share capital 18 200
Retained earnings 3 497
TOTAL EQUITY $21 697

*bank loan could also be classified as non-current

(c) The following accounts would be closed: Commission Revenue, Rent Revenue,
Salaries Expense, Rent Expense, Depreciation Expense, Supplies Expense,
Electricity Expense, Interest Expense, Dividends.

(d) 31 August 2013. Interest of 12% per year equals a monthly rate of 1%; monthly
interest is $65 ($6,500 x 1%). Since total interest expense is $65, the loan has been
outstanding one month.

OR

Monthly interest is [$6,500 x .12) x 1/12] = $65

Since the total interest expense is $65, the company must have taken out the loan
one month ago on 31 August 2013. (Alternatively, 1 September 2013)

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PROBLEM SET B 3.4

(a)
Digital Ltd
General Journal
Date Account name (narration) Ref $ $
# Debit Credit

June 30 Accounts Receivable 110 600

Service Revenue 400 600
(To accrue revenue)
30 Office Supplies Expense 510 1600
Office Supplies 120 1600
(Record use of supplies)
30 Insurance Expense 530 1 500
Prepaid Insurance 130 1 500
(to write down prepaid insurance)
30 Depreciation Expense 540 1 200
Accumulated Depreciation – Office Equipment 141 1200
( To record depreciation)
30 Salaries Expense 500 1 100
Salaries Payable 210 1 100
(to accrue salaries)
30 Rent Revenue Received in Advance 220 800
Rent Revenue 410 800
(to record rent revenue now earned)
(b)
Digital Ltd
Income Statement
for the year ended June 30 2014
$ $
Revenues:
Service revenue 34 600
Rent revenue 11 800
Total revenue 46 400

Expenses:
Salaries expense 18 100
Office supplies expense 1 600
Rent expense 15 000
Insurance expense 1 500
Depreciation expense 1,200
Total expenses 37 400
Profit $9 000

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Digital Ltd
Calculation of Retained Earnings
for the year ended June 30 2014
$
Retained earnings, 1 July 2013 5 600
Add: Profit 9 000
Retained earnings, 30 June 2014 $14 600

Digital Ltd
Statement of financial position
as at 30 June 2014
$ $
ASSETS
Current Assets
Cash 10 400
Service revenue receivable 9 400
Office supplies 700
Prepaid insurance 2 500
Total current assets 23 000
Non-Current Assets
Office equipment 14 000
Less: Accumulated depreciation – office equipment (4 800) 9 200
Total assets 32 200

LIABILITIES
Accounts payable 5 800
Salaries payable 1 100
Rent received in advance 700
Total liabilities 7 600
NET ASSETS $24 600

EQUITY
Share capital 10 000
Retained earnings 14 600
TOTAL EQUITY $24 600

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(c )
Digital Ltd
General Journal
Date Account name (narration) Ref Debit $ Credit $
#
June 30 Service Revenue 34 600
Rent Revenue 11 800
Income Summary 46 400
(Closing entry)
30 Income Summary 37 400
Salaries Expense 18 100
Office Supplies Expense 1 600
Rent Expense 15 000
Insurance Expense 1 500
Depreciation Expense 1 200
(Closing entry )
30 Income Summary 9 000
Retained Earnings 9 000
(Closing Entry)

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PROBLEM SET B 3.5

(a)
McPherson Ltd
General Journal

Date Account name (narration) Post Ref Debit Credit

2012
Mar 31 Accounts Receivable 110 5 500
Sales Revenue 400 5 500
(Accrues revenue)
31 Supplies Expense 530 900
Supplies 4,760
(Supplies used)
31 Rent Expense 510 2 000
Prepaid Rent 120 2 000
(Rent now expensed)
31 Depreciation Expense 520 1 750
Acc’d Depreciation - Equipment 151 1 750
(to record depreciation)
31 Interest Expense 550 250
Interest Payable 220 250
(Interest accrued)
31 Rent Revenue Received in Advance 230 500
Rent Revenue 410 1,960
(Rent revenue now earned)
31 Salaries Expense 500 1 800
Salaries Payable 210 1 800
(Accrued salaries)

(b)
McPherson Ltd
Income Statement
for the 3 months ended 31 March 2012
$ $
Revenues:
Sales revenue 18 600
Rent revenue 12 000
30 600
Expenses:
Salaries expense 11 340
Rent expense 6 000
Depreciation expense 1 750
Supplies expense 900
Electricity expense 750
Interest expense 250
Total expenses 20 990
Profit $ 9 610

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McPherson Ltd
Calculation of Retained Earnings
for the 3 months ended 31 March 2012

Retained earnings, 1 January $ -

Add: Profit 9 610
9 610
Less: Dividends (600)
Retained earnings, 31 December $9 010

McPherson Ltd
Statement of financial position
as at 31 March 2012
$ $
ASSETS
Current Assets
Cash 15 750
Accounts receivable 6 800
Supplies 600
Total Current Assets 23 150

Non-Current Assets
Equipment 32 000
Less: Accumulated Depreciation (1 750)
Total Non-Current Assets 30 250
Total Assets 53 400
LIABILITIES
Current Liabilities
Accounts Payable 1 840
Interest Payable 250
Salaries Payable 1 800
Rent Revenue Received in Advance 500
Total Current Liabilities 4 390

Non-Current Liabilities
Bank Loan 15 000
Total Non-Current Liabilities 15 000
Total Liabilities 19 390
NET ASSETS $34 010

EQUITY
Share Capital 25 000
Retained Earnings 9 010
TOTAL EQUITY $34 010

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(c) Accounts to be closed:

Sales Revenue and Rent Revenue, Salaries Expense, Rent Expense, Depreciation
Expense, Supplies Expense, Electricity Expense, Interest Expense,

(d) Loan was taken out 31 January 2012 or 1 February 2012.

Bank loan $15 000 x 10%= $1,500 annually or $125 monthly. Interest expense is
$250 so the loan was taken out 2 months before reporting date.

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PROBLEM SET B 3.6

(a)
Pete’s Advertising Agency Pty Ltd
General Journal

Date Account name (narration) Post Ref Debit $ Credit $

2014
Dec 31 Accounts Receivable 110 2 100
Advertising Revenue 400 2 100
(accrue revenue)
31 Art Supplies Expense 530 4 760
Art Supplies 130 4 760
(supplies used)
31 Insurance Expense 505 1 190
Prepaid Insurance 140 1 190
(insurance expired)
31 Depreciation Expense 520 9 800
Acc’d Depreciation - Equipment 151 9 800
(depreciation for year)
31 Interest Expense 510 210
Interest Payable 220 210
(Interest expense accrued)
31 Advertising Revenue Received in Advance 230 1 960
Advertising Revenue 400 1 960
(Revenue now earned)
31 Salaries Expense 500 1 820
Salaries Payable 240 1 820
(Salaries accrued)

(b)
Pete’s Advertising Agency Pty Ltd
Income Statement
for the year ended 31 December 2014

$ $
Revenues:
Advertising revenue 86 100
Expenses:
Salaries expense 15 820
Depreciation expense 9 800
Rent expense 5 600
Art supplies expense 4 760
Insurance expense 1 190
Interest expense 700
Total expenses 37 870
Profit $48 230

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Pete’s Advertising Agency Pty Ltd

Calculation of Retained Earnings
for the year ended 31 December 2014

Retained earnings, 1 January $ 7 700

Add: Profit 48 230
55 930
Less: Dividends (16 00)
Retained earnings, 31 December $39 130

Pete’s Advertising Agency Pty Ltd

Statement of financial position
as at 31 December 2014
ASSETS $ $ $
Current Assets
Cash 15 400
Accounts receivable 30 100
Art supplies 7 000
Prepaid Insurance 3 500
Total Current Assets 56 000

Non-Current Assets
Printing Equipment $84 000
Less: Accumulated Depreciation (49 000)
Total Non-Current Assets 35 000
Total Assets 91 000
LIABILITIES
Current Liabilities
Accounts Payable 7 000
Interest Payable 210
Salaries Payable 1 820
Advertising Revenue Received in Advance 7 840
Total Current Liabilities 16 870

Non-Current Liabilities
Bank Loan 7 000
Total Non-Current Liabilities 7 000
Total Liabilities 23 870
NET ASSETS $67 130

EQUITY
Share Capital $28 000
Retained Earnings 39 130
TOTAL EQUITY $67 130

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(c) Accounts to be closed:

Advertising Revenue, Salaries Expense, Depreciation Expense, Rent Expense, Art
Supplies Expense, Insurance Expense, Interest Expense, Dividends

(d) Annual Interest Rate on Bank Loan:

Interest Expense for 6 months = $700

Interest Expense for 12 months = $1,400
Interest Rate = 1,400 ÷ 7,000
Interest Rate = 20%

(e) Salaries Payable on 31 December 2013:

Salaries paid in 2011 $15 600

Salaries Payable 31 December 2014 1 820
17,420
Salaries Expense for 2011 (15 20)
Salaries Payable 31 December 2013 $1 ,600

(f) The effect of profit from the adjustments is a net decrease of $ 13 720.

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Problem SET B 3.7

(a)
Palpatine Hotel Ltd
Worksheet for month ended 31 May 2013
Trial Balance Adjustments Adjusted Trial Income Statement of financial
Balance. statement position
No. Account names Dr $ Cr $ Dr $ Cr $ Dr $ C $r Dr $ Cr $ Dr $ Cr $
100 Cash 4 500 4 500 4 500
112 Prepaid Insurance 2 520 210 1 2 310 2 310
113 Supplies 2 660 980 2 1 680 1 680
120 Land 21 000 21 000 21 000
122 Building 98 000 98 000 98 000
123 Acc’d Depn – Building 420 3 420 420
130 Furniture 23 520 23 520 23 520
131 Acc’d Depn –Furniture 350 3 350 350
200 Accounts Payable 6 580 6 580 6 580
212 Rent Rev Rec’d in Adv 5 040 2 100 5 2 940 2 940
214 Salaries Payable 420 6 420 420
215 Interest Payable 500 4 500 500
220 Mortgage Payable 50 000 50 000 50 000
300 Share Capital 84 000 84 000 84 000
400 Rent Revenue 12 880 2 100 5 14 980 14 980
505 Advertising Expense 700 700 700
506 Depreciation Expense 770 3 770 770
510 Electricity Expense 1 400 1 400 1 400
512 Insurance Expense 210 1 210 210
515 Interest Expense 500 4 500 500
525 Salaries Expense 4 200 420 6 4 620 4 620
530 Supplies Expense 980 2 980 980
$158 500 $158 500 $4 980 $4 980 $160 190 $160 190
Profit 5 800 5 800
$14 980 $14 980 $151 010 $151 010

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PROBLEM SET B 3.7 CONTINUED

(b)
The Palpatine Hotel Ltd
General Journal
Date Account Name (narration) Post Debit $ Credit
ref $
2013
1. May 31 Insurance Expense 512 210
Prepaid Insurance 112 210
(To record expired insurance)

2. 31 Supplies Expense 530 980

Supplies 113 980
(To record supplies consumed)

3. 31 Depreciation Expense 506 770

Accumulated Depreciation – Building 123 420
Accumulated Depreciation –Furniture 131 350
(To record monthly depreciation expense)

4. 31 Interest Expense 515 500

Interest Payable [($50,000 x 12%) x 215 500
1/12]
(To record interest accrued)

5. 31 Rent Revenue Received in Advance 212 2 100

Rent Revenue 400 2 100
(To record services provided for revenue)

6. 31 Salaries Expense 525 420

Salaries Payable 214 420
(To record accrued salaries)

(c) General ledger

Cash 100
31/5 Balance 4 500

Prepaid Insurance 112

31/5 Balance 2 520 31/5 Insurance Expense 210
         31/5 Closing Balance 2 310
2,520 2 520
1/6 Opening Balance 2 310

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Solutions manual to accompany Accounting: building business skills 4e

Supplies 113
31/5 Balance 2 660 31/5 Supplies Expense 980
          31/5 Closing Balance 1 680
2 660 2 660
1/6 Opening Balance 1 680

Land 120
31/5 Balance 21 000

Building 122
31/5 Balance 98 000

Accumulated Depreciation – Building 123

31/5 Depreciation Expense 420

Furniture 130
31/5 Balance 23 520

Accumulated Depreciation – Furniture 131

31/5 Depreciation Expense 350

Accounts Payable 200

31/5 Balance 6 580

Rent Revenue Received in Advance 212

31/5 Rent Revenue 2 100 31/5 Balance 5 040
31/5 Closing Balance 2 940         
5 040 5 040
1/6 Opening Balance 2 940

Salaries Payable 214

31/5 Salaries Expense 420

Interest Payable 215

31/5 Interest Expense 500

Mortgage Payable 220

31/5 Balance 50 000

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Share Capital 300

31/5 Balance 84 000

Rent Revenue 400

31/5 Balance 12 880
31/5 Rent Revenue in Advance 2 100
14 980

Advertising Expense 505

31/5 Balance 700

Depreciation Expense 506

31/5 Accumulated Depreciation 770

Electricity Expense 510

31/5 Balance 1 400

Insurance Expense 512

31/5 Prepaid Insurance 210

Interest Expense 515

31/5 Interest Payable 500

Salaries Expense 525

31/5 Balance 4,200
31/5 Salaries Payable 420
4 620

Supplies Expense 530

31/5 Supplies 980

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(d)
The Palpatine Hotel Ltd
Adjusted Trial Balance
as at 31 May 2013

No. Account name Debit $ Credit $

$ $
100 Cash 4 500
112 Prepaid Insurance 2 310
113 Supplies 1 680
120 Land 21 000
122 Building 98 000
123 Accumulated Depreciation – Building 420
130 Furniture 23 520
131 Accumulated Depreciation – Furniture 350
200 Accounts Payable 6 580
212 Rent Revenue Received in Advance 2 940
214 Salaries Payable 420
215 Interest Payable 500
220 Mortgage Payable 50 000
300 Share Capital 84 000
400 Rent Revenue 14 980
505 Advertising Expense 700
506 Depreciation Expense 770
510 Electricity Expense 1 400
512 Insurance Expense 210
515 Interest Expense 500
525 Salaries Expense 4 620
530 Supplies Expense 980               
$160 190 $160 180

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(e)
The Palpatine Hotel Ltd
Income Statement
for the month ended 31 May 2013

$ $
Revenues:
Rent revenue $14 980
Expenses:
Salaries expense 4 620
Electricity expense 1 400
Supplies expense 980
Advertising expense 700
Interest expense 500
Insurance expense 210
Depreciation expense 770
Total expenses 9 180
Profit $5 800

The Palpatine Hotel Ltd

Calculation of retained earnings
for the month ended 31 May 2013

$
Retained earnings, 1 May 2013 0
Add: Profit 5 800
Retained earnings, 31 May 2013 $5 800

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The Palpatine Hotel Ltd

Statement of financial position
as at 31 May 2013

$ $
ASSETS
Current assets
Cash 3 500
Prepaid insurance 2 310
Supplies 1 680
Total current assets 8 490
Non-current assets
Land 21 000
Buildings 98 000
Less: Accumulated depreciation – building (420) 97 580
Furniture 23 520
Less: Accumulated depreciation – furniture (350) 23 170
Total non-current 141 750
Total assets 150 240
LIABILITIES
Current Liabilities
Accounts payable 6,580
Rent revenue received in advance 2,940
Salaries payable 420
Interest payable 500
Total current liabilities 10 440
Non-current liabilities
Mortgage payable 50 000 50 000
Total liabilities 60 440
NET ASSETS $89 800
EQUITY
Share capital 84 000
Retained earnings 5 800
TOTAL EQUITY $89,800

(f) The following accounts would be closed:

Rent Revenue, Salaries Expense, Electricity Expense, Advertising Expense, Interest

Expense, Insurance Expense, Supplies Expense, Depreciation Expense

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PROBLEM SET B 3.8

(a)
Corellian Windows Ltd
General Journal
Date Account name (narration) Post $ $
Ref. Debit Credit
2012
July 1 Cash 100 13 500
Share Capital 300 13 500
(Issued shares for cash)

1 Motor Vehicles 171 9 000

Cash 100 4 500
Accounts Payable 200 4 500
(Purchased truck)

3 Cleaning Supplies 120 1 350

Accounts Payable 200 1 350
(Purchased cleaning supplies)

5 Prepaid Insurance 130 1 800

Cash 100 1 800
(Paid insurance)

12 Accounts Receivable 110 3 750

Service Revenue 400 3 750
(Invoiced customers)

18 Accounts Payable 200 2 250

Cash 100 2 250
(Paid accounts payable)

20 Salaries Expense 540 1 800

Cash 100 1 800
(Paid salaries)

21 Cash 100 2 100

Accounts Receivable 110 2 100
(Collected cash from customers on account)

25 Accounts Receivable 110 3 000

Service Revenue 400 3 000
(Invoiced customers)

31 Petrol & Oil Expense 500 300

Cash 100 300
(Paid for petrol and oil)

31 Dividends 315 900

Cash 100 900
(Paid cash dividend)

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(b), (e) & (h)

Cash 100
1/7 Share Capital 13,500 1/7 Motor Vehicles 4,500
21/7 Accounts Receivable 2,100 5/7 Prepaid Insurance 1,800
18/7 Accounts Payable 2,250
20/7 Salaries Expense 1,800
31/7 Petrol & Oil 300
Expense
31/7 Dividends 900
           31/7 Closing Balance 4,050
15,600 15,600
1/8 Opening Balance 4,050

Accounts Receivable 110

12/7 Service Revenue 3,750 21/7 Cash 2,100
25/7 Service Revenue 3,000
31/7 Service Revenue* 1,650 31/7 Closing Balance 6,300
8,400 8,400
1/8 Opening Balance 6,300
* (e) adjusting entry, balance was $4,650 dr before adjusting entry

Cleaning Supplies 120

3/7 Accounts Payable 1,350 31/7 Cleaning Supplies Expense* 450
      31/7 Closing Balance 900
1,350 1,350
1/8 Opening Balance 900
* (e) adjusting entry, balance was $1,350 dr before adjusting entry

Prepaid Insurance 130

5/7 Cash 1,800 31/7 Insurance Expense* 150
         31/7 Closing Balance 1,650
1,800 1,800
1/8 Opening Balance 1,650
* (e) adjusting entry, balance was $1,800 dr before adjusting entry
Motor Vehicles 171
1/7 Cash/Accounts 9,000
Payable

Accumulated Depreciation – Motor Vehicles 172

31/7 Depreciation Expense* 300
* (e) adjusting entry, nil balance before adjusting entry

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Accounts Payable 200

18/7 Cash 2,250 1/7 Motor Vehicles 4,500
31/7 Closing Balance 3,600 3/7 Cleaning Supplies 1,350
5,850 5,850
1/8 Opening Balance 3,600

Salaries Payable 210

31/7 Salaries Expense* 600

* (e) adjusting entry, nil balance before adjusting entry

Share Capital 300
1/7 Cash 13,500

Retained Earnings 310

31/7 Dividends 900 31/7 Income Summary 4,800
31/7 Closing Balance 3,900         
4,800 4,800
1/8 Opening Balance 3,900

Dividends 315
31/7 Cash 900 31/7 Retained Earnings 900

Income Summary 320

31/7 Expenses 3,600 31/7 Revenue 8,400
31/7 Retained Earnings 4,800          
8,400 8,400
Entries to this account are closing entries. It has a nil balance before and after closing entries
because the balance, profit, is closed to retained earnings,
Service Revenue 400
31/7 P & L Summary 8,400 12/7 Accounts Receivable 3,750
25/7 Accounts Receivable 3,000
          31/7 Accounts 1,650
Receivable*
8,400 8,400
* (e) Adjusting entry,$6,750 cr balance before adjusting entry, $8,400 cr after adjustment,
before closing

Petrol & Oil Expense 500

31/7 Cash 300 31/7 P & L Summary 300

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Cleaning Supplies Expense 510

31/7 Cleaning Supplies* 450 31/7 P & L Summary 450

* (e) Adjusting entry, nil balance before adjusting entry, $450 dr after adjustment, before
closing

Depreciation Expense 520

31/7 Accumulated 300 31/7 P & L Summary 300
Depreciation*

* (e) adjusting entry, nil balance before adjusting entry

Insurance Expense 530
31/7 Prepaid Insurance* 150 31/7 P & L Summary 150

* (e) Adjusting entry, nil balance before adjusting entry, $150 dr after adjustment, before closing
Salaries Expense 540
20/7 Cash 1,800 31/7 P & L Summary 2,400
31/7 Salaries Payable* 600        
2,400 2,400
* (e) adjusting entry $1800 dr balance before adjusting entry, $2400 dr after adjusting entry
before closing

(c) & (f)

Corellian Windows Ltd
Trial Balance
as at 31 July 2012

(c) Unadjusted (f) Adjusted

No. Account name Debit $ Credit $ Debit $ Credit $
100 Cash 4 050 4 050
110 Accounts Receivable 4 650 6 300
120 Cleaning Supplies 1 350 900
130 Prepaid Insurance 1 800 1 650
171 Motor Vehicles 9 000 9 000
172 Acc’ed Depreciation – M. Vehicles 300
200 Accounts Payable 3 600 3 600
210 Salaries Payable 600
300 Share Capital 13 500 13 500
310 Dividends 900 900
400 Service Revenue 6 750 8 400
500 Petrol & Oil Expense 300 300
510 Cleaning Supplies Expense 450
520 Depreciation Expense 300
530 Insurance Expense 150
540 Salaries Expense 1 800              2 400             
$23 850 $23 850 $26 400 $26 400

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(d)
General Journal Corellian Windows Ltd
Date Account name (narration) Post Debit Credit
Ref.
1. July 31 Accounts Receivable 110 1 650
Service Revenue 400 1 650
(Accrued revenue)

2. 31 Depreciation Expense 520 300

Accumulated Depreciation 172 300
(Depreciation expense)

3. 31 Insurance Expense 530 150

Prepaid Insurance 130 150
(Prepaid insurance expired)

4. 31 Cleaning Supplies Expense 510 450

Cleaning Supplies 120 450
(Supplies used)

5. 31 Salaries Expense 540 600

Salaries Payable 210 600
(Accrued salaries)

(g)
Corellian Windows Ltd
Income Statement
for the month ended 31 July 2012
$ $
Revenues:
Service revenue 8 400
Expenses:
Salaries expense 2 ,400
Cleaning supplies expense 450
Depreciation expense 300
Petrol & Oil expense 300
Insurance expense 150
Total expenses 3 600
Profit $4 800

Corellian Windows Ltd

Calculation of retained earnings
for the month ended 31 July 2012

Retained earnings 1 July $-

Add: Profit 4 800
4 800
Less: Dividends (900)

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Retained earnings 31 July $3 900

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Corellian Windows Ltd

Statement of financial position
as at 31 July 2012

$ $
ASSETS
Current assets
Cash 4 050
Accounts receivable 6 300
Cleaning supplies 900
Prepaid insurance 1 650
Total current assets 12 900
Non-current assets:
Motor Vehicles 9 000
Less: Accumulated depreciation (300)
Total non-current assets 8 700
Total assets 21 600
LIABILITIES
Current liabilities:
Accounts payable 3 600
Salaries payable 600
Total current liabilities 4 200
NET ASSETS $17 400

EQUITY:
Share capital 13 500
Retained earnings 3 900
TOTAL EQUITY $17 400

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(h)
Corellian Windows Ltd
General Journal closing entries

Date Account name (narration) Post Debit Credit

Ref
July 31 Service Revenue 400 8 400
Income Summary 320 8 400
(Close revenue accounts)

31 Income Summary 320 3 600

Petrol & Oil Expense 500 300
Cleaning Supplies Expense 510 450
Depreciation Expense 520 300
Insurance Expense 530 150
Salaries Expense 540 2 400
(Close expense accounts)

31 Income Summary 320 4 800

Retained Earnings 310 4 800
(Close Income summary account)

31 Retained Earnings 310 900

Dividends 315 900
(Close dividends account)

(i)
Corellian Windows Ltd
Post-Closing Trial Balance
as at 31 July 2012

No. Account name Debit $ Credit

$
100 Cash 4 050
110 Accounts Receivable 6 300
120 Cleaning Supplies 900
130 Prepaid Insurance 1 650
150 Motor Vehicles 9 000
151 Accumulated Depreciation – Motor Vehicles 300
200 Accounts Payable 3 600
210 Salaries Payable 600
300 Share Capital 13 500
310 Retained Earnings              3 900
$21 900 $21 900

(j) After the adjusting entries reported profit increased by $ 150

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PROBLEM SET B 3.9

(a) Chart of accounts: students may have different account numbers as long as they
are grouped to sections of the ledger
100 Cash
110 Accounts receivable
120 Supplies
150 Store equipment
151 Accumulated Depreciation
200 Accounts Payable
210 Service Revenue Received in Advance
215 Salaries Payable
300 Share Capital
310 Retained earnings
400 Service Revenue
510 Depreciation Expense
515 Supplies Expense
520 Salaries Expense
525 Rent Expense

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Naboo Equipment Ltd

General Ledger
(b), (d) and (f)
Cash 100
1/11 Opening Balance 3 348 8/11 Salaries Expense/Payable 1 320
10/11 Accounts Receivable 1 440 20/11 Accounts Payable 3 000
12/11 Service Revenue 1 680 22/11 Rent Expense 360
29/11 Revenue Rec’d in 660 25/11 Salaries Expense 1 00
Advance
          30/11 Closing Balance 1 248
7,128 7,128
1/12 Opening Balance 1 248

Accounts Receivable 110

1/11 Opening Balance 3 012 10/11 Cash 1 440
27/11 Service Revenue 1 080 30/11 Closing Balance 2 652
4,092 4 092
1/12 Opening Balance 2 652

Supplies 120
1/11 Opening Balance 1 200 30/11 Supplies Expense 1 080
17/11 Accounts Payable 1 800 30/11 Closing Balance 1 920
3 000 3 000
1/12 Opening Balance 1 920

Store Equipment 150

1/11 Opening Balance 12 000 30/11 Closing Balance 15 600
15/11 Accounts Payable 3 600           
15 600 15 600
1/12 Opening Balance 15 600

Accumulated Depreciation 151

30/11 Closing Balance 744 1/11 Opening Balance 600
       30/11 Depreciation Expense 144
744 744
1/12 Opening Balance 744
Accounts Payable 200
20/11 Cash 3 000 1/11 Opening Balance 2 520
15/11 Store Equipment 3 00
30/11 Closing Balance 4 920 17/11 Supplies 1 800
7 920 7 920
1/12 Opening Balance 4 920

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Service Revenue Received in Advance 210

30/11 Service Revenue 360 1/11 Opening Balance 480
30/11 Closing Balance 780 29/11 Cash 660
1 140 1 140
1/12 Opening Balance 780

Salaries Payable 215

8/11 Cash 600 1/11 Opening Balance 600
30/11 Closing Balance 600 30/11 Salaries Expense 600
1,200 1,200
1/12 Opening Balance 600

Share Capital 300

1/11 Opening Balance 12 000

Retained Earnings 310

1/11 Opening Balance 3 360

Service Revenue 400

12/11 Cash 1 680
27/11 Accounts Receivable 1 080
30/11 Service Revenue in 360
Advance*
3
120
 Adjusting entry balance before adjusting entry $ 2 760

Depreciation Expense 510

30/11 Accumulated Depreciation 144

Supplies Expense 515

30/11 Supplies 1 080

Salaries Expense 520

8/11 Cash 720
25/11 Cash 1 200
30/11 Salaries Payable 600
2 520
*balance before adjusting entry $ 1 920
Rent Expense 525

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22/11 Cash 360

(c)
Naboo Equipment Ltd
General Journal

Date Account name (narration) Post Debit $ Credit $

ref
2012
Nov 8 Salaries Payable 215 600
Salaries Expense 520 720
Cash 100 1 320
(Payment of salaries for October &
November)

10 Cash 100 1 440

Accounts Receivable 110 1 440
(Cash received from customers on account)

12 Cash 100 1 680

Service Revenue 400 1 680
(To record service revenue)

15 Store Equipment 150 3 600

Accounts Payable 200 3 600
(Purchased store equipment on account)
17 Supplies 120 1 800
Accounts Payable 200 1 00
(Purchased supplies on account)

20 Accounts Payable 200 3 000

Cash 100 3 000
(Paid creditors on account)

22 Rent Expense 525 360

Cash 100 360
(Paid November rent)

25 Salaries Expense 520 1 200

Cash 100 1 00
(Paid salaries)

27 Accounts Receivable 110 1 080

Service Revenue 400 1 080
(To record service revenue)

29 Cash 100 660

Service Revenue Rec’d in Advance 210 660
(Received cash from customers for future
services)

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(e) & (g
Naboo Equipment Ltd
Trial Balance
as at 30 November 2012

Unadjusted Adjusted
Account name s Debit Credit Debit Credit

Cash $1 248 $1 248

Accounts Receivable 2 652 2 652
Supplies 3 000 1 920
Store Equipment 15 600 15 600
Accumulated Depreciation $ 600 $ 744
Accounts Payable 4 920 4 920
Service Revenue Received in Advance 1 140 780
Salaries Payable 600
Share Capital 12,000 12 000
Retained Earnings 3 360 3 360
Service Revenue 2 760 3 120
Depreciation Expense 144
Supplies Expense 1 080
Salaries Expense 1 920 2 520
Rent Expense       360              360             
$24 780 $24 780 $25 524 $25 524

(f)
Naboo Equipment Ltd
General Journal

Date Account name (narration) Post ref Debit $ Credit $

2012
1. Nov. 30 Supplies Expense 515 1 080
Supplies ($3,000 - $1,920) 120 1 080
(To record supplies used)

2. 30 Salaries Expense 520 600

Salaries Payable 215 600
(To record accrued salaries)

3. 30 Depreciation Expense 510 144

Accum Depreciation. 151 144
(To record one month’s depreciation
expense)

4. 30 Service Revenue Received in Advance 210 360

Service Revenue 400 360
(To record revenue)

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(g)
Naboo Equipment Ltd
Income Statement
for the month ended 30 November 2012
Revenues:
Service revenue $3 120
Expenses:
Salaries expense $2 520
Supplies expense 1 080
Rent expense 360
Depreciation expense 144
Total expenses 4 104
Loss ($ 984)

Naboo Equipment Ltd

Calculation of retained earnings
For the month ended 30 November 2012

Retained earnings 1 November $3 360

Less: Loss (984)
Retained earnings 30 November $2 376

Naboo Equipment Ltd

Statement of financial position
as at 30 November 2012
ASSETS $ $
Current Assets
Cash 1 248
Accounts receivable 2 652
Supplies 1 920
Total Current assets 5 820
Non-current assets
Store equipment 15 600
Less: Accumulated depreciation (744) 14 856
Total assets 20 676

LIABILITIES
Accounts payable 4 920
Salaries payable 600
Service revenue received in advance 780
Total liabilities 6 300
NET ASSETS $14 376

EQUITY
Share capital 12 000
Retained earnings 2 376
TOTAL EQUITY $14 376

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PROBLEM SET B 3.9 (i)

Naboo Equipment Ltd
Worksheet as at 30 November 2012

Trial Balance Adjustments Adjusted Income Statement of

Trial Balance. Statement Financial
Position
No Account names Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $
.
10 Cash 1 248 1 248 1 248
0
11 Accounts receivable 2 652 2 652 2 652
0
12 Supplies 3000 1 080 1 920 1 920
0
15 Store equipment 15 600 15 600 15 600
0
15 Acc’d Depreciation 600 144 744 744
1
20 Accounts Payable 4 920 4 920 4 920
0
21 Service revenue rec’d in 1 140 360 780 780
0 advance
21 Salaries Payable 600 600 600
5
30 Share Capital 12 000 12 000 12 000
0
31 Retained earnings 3 360 3 360 3 360
0
40 Service Revenue 2 760 360 3 120 3 120
0
51 Depreciation Expense 144 144 144
0
51 Supplies Expense 1 080 750 750
5
52 Salaries Expense 1 920 600 2 520 2 520
0
52 Rent Expense 360 9 200 9 200

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Loss 984 984

Totals $24 780 $24 780 $2 184 $2 184 $25 524 $25 524 $4 104 $4 104 $22 404 $22 404

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PROBLEM SET B 3.10

Spick and Span Services Ltd
General Journal
Date Account name (narration) Post Debit $ Credit $
Ref.
2012
Sept 1 Cash 100 50 000
Share Capital 300 50 000
(Issued shares for cash)

1 Motor Vehicles 171 30 000

Cash 100 15 000
Accounts Payable 200 15 000
(Purchased truck)

5 Cleaning Supplies 120 6 200

Accounts Payable 200 6 200
(Purchased cleaning supplies)

7 Prepaid Insurance 130 9 000

Cash 100 9 000
(Paid insurance annual policy Sept1)

14 Accounts Receivable 110 8 900

Service Revenue 400 8 900
(Invoiced customers)

21 Accounts Payable 200 18 500

Cash 100 18 500
(Paid accounts payable)

21 Salaries Expense 540 5 100

Cash 100 5 100
(Paid salaries)

23 Cash 100 6 000

Accounts Receivable 110 6 000
(Collected cash from customers on account)

25 Accounts Receivable 110 9 500

Service Revenue 400 9 500
(Invoiced customers)

30 Petrol & Oil Expense 500 660

Cash 100 660
(Paid for petrol and oil)
30 Dividends 315 300
Cash 100 300
(Paid cash dividend)

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(b), (e) & (h)

Spick and Span Services Ltd
General Ledger

Cash 100
1/9 Share Capital 50 000 1/9 Motor Vehicles 15 000
23/9 Accounts Receivable 6 000 7/9 Prepaid Insurance 9 000
21/9 Accounts Payable 18 500
21/9 Salaries Expense 5 100
30/9 Petrol & Oil Exp 660
30/9 Dividends 300
           30/9 Closing Balance 7 440
56 000 56 000
1/10 Opening Balance 7 440

Accounts Receivable 110

14/9 Service Revenue 8 900 23/9 Cash 6 000
25/9 Service Revenue 9 500
30/9 Service Revenue* 1 800 30/9 Closing Balance 14 200
20 200 20 200
1/10 Opening Balance 14 200
* (e) adjusting entry, balance was $12400 dr before adjusting entry

Cleaning Supplies 120

5/9 Accounts Payable 6 200 30/9 Cleaning Supplies Exp* 5 000
         30/9 Closing Balance 1 200
6 200 6 200
1/8 Opening Balance 1 200
* (e) adjusting entry, balance was $6 200 dr before adjusting entry

Prepaid Insurance 130

7/9 Cash 9 000 30/9 Insurance Expense* 750
         30/9 Closing Balance 8 250
9 000 9 000
1/8 Opening Balance 8 250
* (e) adjusting entry, balance was $9000 dr before adjusting entry

Motor vehicle 171

1/9 Cash/Accounts 30 000
Payable

Accumulated Depreciation – Trucks 172

30/9 Depreciation Expense* 500
* (e) adjusting entry, nil balance before adjusting entry

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Accounts Payable 200

21/9 Cash 18 500 1/9 Motor Vehicles 15 000
30/9 Closing Balance 2 700 5/9 Cleaning Supplies 6 200
24 000 21 200
1/10 Opening Balance 2 700

Salaries Payable 210

30/9 Salaries Expense* 1 800

* (e) adjusting entry, nil balance before adjusting entry

Share Capital 300

1/9 Cash 50 000

Retained Earnings 310

30/9 Dividends 300 30/9 Income Summary
30/9 Closing Balance         
5 490 5 490
1/10 Opening Balance

Dividends 315
30/9 Cash 300 30/9 Retained Earnings 300

Income Summary 320

30/9 Expenses 30/9 Revenue 20 200
30/9 Retained Earnings          
5,000 5,000
Entries to this account are closing entries. It has a nil balance before and after closing entries
because the balance, profit, is closed to retained earnings,

Service Revenue 400

30/9 Income Summary 20 200 14/9 Accounts Receivable 8 900
25/9 Accounts Receivable 9 500
          30/9 Accounts Rec’ble* 1 800
20 200 20 200
* (e) Adjusting entry,$18400 cr balance before adjusting entry, $20200 cr after adjustment,
before closing

Petrol & Oil Expense 500

30/9 Cash 660 30/9 Income Summary 660

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Cleaning Supplies Expense 510

30/9 Cleaning Supplies* 5 000 30/9 Income Summary 5 000

* (e) Adjusting entry, nil balance before adjusting entry, $5000 dr after adjustment, before
closing

Depreciation Expense 520

30/9 Accumulated Depreciation* 500 30/9 Income Summary 500

* (e) adjusting entry, nil balance before adjusting entry

Insurance Expense 530

30/9 Prepaid Insurance* 750 30/9 Income Summary 750

* (e) Adjusting entry, nil balance before adjusting entry, $750 dr after adjustment, before closing

Salaries Expense 540

21/9 Cash 5 100 30/9 Income Summary 6 900
30/9 Salaries Payable* 1 800        
6 900 6 900
* (e) adjusting entry, $5100 dr balance before adjusting entry, $6900 dr after adjusting entry
before closing.

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(c) & (f)

Spick and Span Services Ltd
Trial Balance
as at 30 September 2012
(c) Unadjusted (f) Adjusted
No. Account name Debit $ Credit $ Debit $ Credit $
100 Cash 7 440 7 440
110 Accounts Receivable 12 400 14 200
120 Cleaning Supplies 6 200 1 200
130 Prepaid Insurance 9 000 8 250
171 Motor Vehicles 30 000 30 000
172 Accumulated Depreciation – Motor 500
vehicles
200 Accounts Payable 2 700 2 700
210 Salaries Payable 1 800
300 Share Capital 50 000 50 000
310 Dividends 300 300
400 Service Revenue 18 400 20 200
500 Petrol & Oil Expense 660 660
510 Cleaning Supplies Expense 5 000
520 Depreciation Expense 500
530 Insurance Expense 750
540 Salaries Expense 5 100              6 900             
$71 100 $71 100 $75 200 $75 200

(d) General Journal

Date Account name (narration) Post $ $
Ref. Debit Credit
1. Sept 30 Accounts Receivable 110 1 800
Service Revenue 400 1 800
(Accrued revenue)
2. 30 Depreciation Expense 520 500
Accumulated Depreciation 172 500
(Depreciation expense)
3. 30 Insurance Expense 530 750
Prepaid Insurance 130 750
(Prepaid insurance expired)
4. 30 Cleaning Supplies Expense 510 5 000
Cleaning Supplies 120 5 000
(Supplies used)
5. 30 Salaries Expense 540 1 800
Salaries Payable 210 1 800
(Accrued salaries)

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(g)
Spick and Span Services Ltd
Income Statement
for the month ended 30 September 2012
$ $
Revenues:
Service revenue 20 200
Expenses:
Salaries expense 6 900
Cleaning supplies expense 5 000
Depreciation expense 500
Petrol & Oil expense 660
Insurance expense 750
Total expenses 13 810
Profit $6 390

Spick and Span Services Ltd

Calculation of retained earnings
for the month ended 30 September 2012

Retained earnings 1 September $-

Add: Profit 6 390
6 390
Less: Dividends ( 300)
Retained earnings 30 September $6 090

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Spick and Span Services Ltd

Statement of financial position
as at 30 September 2012

$ $
ASSETS
Current assets:
Cash 7 440
Accounts receivable 14 200
Cleaning supplies 1 200
Prepaid insurance 8 250
Total current assets 31 090
Non-current assets:
Motor Vehicles 30 000
Less: Accumulated depreciation (500)
Total non-current assets 29 500
Total assets 60 590
LIABILITIES
Current liabilities:
Accounts payable 2 700
Salaries payable 1 800
Total liabilities 4 500
NET ASSETS $56 090
EQUITY
Share capital 50 000
Retained earnings 6 090
TOTAL EQUITY $56 090

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(h) Spick and Span Services Ltd

General Journal
Date Account name (narration) Post Debit Credit
Ref
July 31 Service Revenue 400 20 200
Income Summary 320 20 200
(Close revenue accounts)

31 Income Summary 320 13 810

Petrol & Oil Expense 500 660
Cleaning Supplies Expense 510 5 000
Depreciation Expense 520 500
Insurance Expense 530 750
Salaries Expense 540 6 900
(Close expense accounts)

31 Income Summary 320 6 390

Retained Earnings 310 6 390
(Close Income summary account)

31 Retained Earnings 310 300

Dividends 315 300
(Close dividends account)

(i)
Spick and Span Services Ltd
Post-Closing Trial Balance
as at 30 September 2012
No. Account name Debit $ Credit $
100 Cash 7 440
110 Accounts Receivable 14 200
120 Cleaning Supplies 1 200
130 Prepaid Insurance 8 250
171 Motor vehicles 30 000
172 Accumulated Depreciation – MV 500
200 Accounts Payable 2 700
210 Salaries Payable 1 800
300 Share Capital 50 000
310 Retained Earnings              6 090
$61 090 $61 090

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PROBLEM SET B 3.10 (j)

Spick and Span Services Ltd
Worksheet as at 30 September 2012
Trial Balance Adjustments Adjusted Income Statement Statement of
Trial Balance. Financial Position
No. Account names Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $ Dr $ Cr $
10 Cash 7 440 7 440 7 440
0
11 Accounts receivable 12 400 1 800 14 200 14 200
0
12 Cleaning Supplies 6 200 5 000 1 200 1 200
0
13 Prepaid insurance 9 000 750 8 250 8 250
0
17 Motor vehicles 30 000 30 000 30 000
1
17 Accumulated 500 500 500
2 Depreciation
20 Accounts Payable 2 700 2 700 2 700
0
21 Salaries Payable 1 800 1 800 1 800
0
30 Share Capital 50 000 50 000 50 000
0
31 Retained earnings
0
31 Dividends 300 300 300
5
32 Income Summary
0
40 Service Revenue 25 650 1 800 20 200 20 200
0
50 Petrol & oil expense 660 660 660
0
51 Cleaning Supplies Exp 5 000 5 000 5 000
0
52 Depreciation Expense 500 500 500
0

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53 Insurance Expense 750 750 750

0
54 Salaries Expense 5 100 1 800 6 900 6 900
0

Profit 6 390 6 390

Totals $71 100 $71 100 $75 200 $75 200 $75 200 $75 200 $20 200 $2 200 $61 390 $61 390

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BUILDING BUSINESS SKILLS

FINANCIAL REPORTING AND

ANALYSIS

BUILDING BUSINESS SKILLS 3.1 FINANCIAL REPORTING PROBLEM

Domino’s Pizza Enterprises Ltd

(a) Items that may have resulted in adjusting entries for accruals are:

 Franchise income (accrued, note 3.8.2)

 Royalties (accrued, note 3.8.4)
 Interest revenue (accrued, note 3.8.5)
 Income tax expense (accrued note 3.10 but explanation is somewhat obscure for
introductory students)
 Borrowing costs (accrued note 3.16)
 Employee benefits(Wages, salaries and annual leave) (accrued, note 3.21)
 Provisions (accrued, note 3.22)

(b) The employee benefits provision was $2,323,000. The split between current and non-
current is unclear .Other provisions of $324,000 are included and of total provisions
$2,647,000 ($2,323,000 +$324,000) -- $2,171,000 is classified as current and $476,000
as non-current.
There is also a note stating that $1,953,000 of the current employee benefit provisions
relates to annual leave and long service leave which is not expected to be paid out
within the next twelve months ( that is it is technically current but Dominos do not expect
all employees to claim their leave entitlements within the next year.).

(c) The statement of cash flows reports income taxes paid in 2010 of $3 720 000. The
income statement reports income tax expense of $5 908 000.

BUILDING BUSINESS SKILLS 3.2 FINANCIAL REPORTING PROBLEM

Domino’s Pizza Enterprises Ltd

(a) The different forms of revenue recorded by Domino’s are:

Extract from Note 3.8 Revenue recognition of the 2010 Domino’s financial report
“3.8 REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration received or receivable.
3.8.1 Sale of goods
Revenue from the sale of goods is recognised when the Consolidated entity has transferred to the
buyer the significant risks and rewards of ownership of the goods.
3.8.2 Franchise income
Franchise income is recognised on an accrual basis in accordance with the substance of the
relevant agreement.
3.8.3 Rendering of services

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Service revenue relates primarily to store building services and is recognised by reference to the
stage of completion of the contract.
3.8.4 Royalties
Royalty revenue is recognised on an accrual basis in accordance with the substance of the
relevant agreement (provided that it is probable that the economic benefits will flow to the
Consolidated entity and the amount of revenue can be measured reliably). Royalties determined
on a time basis are recognised on a straight-line basis over the period of the agreement. Royalty
arrangements that are based on sales and other measures are recognised by reference to the
underlying arrangement.
3.8.5 Dividend and interest revenue
Dividend revenue from investments is recognised when the shareholder’s right to receive
payment has been established (provided that it is probable that the economic benefits will flow to
the Consolidated entity and the amount of revenue can be reliably measured).
Interest revenue is recognised when it is probable that the economic benefits will flow to
the Consolidated entity and the amount of revenue can be measured reliably. Interest
revenue is accrued on a time basis, by reference to the principal outstanding and at the
effective interest rate applicable, which is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial asset to that asset’s net carrying
amount on initial recognition.”

(b) The recognition of revenue for the sale of goods is consistent with the principles of
recognition discussed in the chapter.
As stated in the chapter,
AASB 118 and NZ IAS 18 ‘Revenue’ prescribes principles for the recognition of revenue
for the sale of goods. Revenue is recognised on the sale of goods when all of the
following conditions are satisfied:

(a) the entity has transferred to the buyer the significant risks and rewards of
ownership of the goods;

(b) the entity retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods;

(c) the amount of revenue can be recognised reliably;

(d) it is probable that the economic benefits of the revenue will flow to the entity; and

(e) the associated costs can be measured reliably.

Students should notice that the wording in the Dominos accounts are similar to the
accounting standard

(c) The distinction between revenue and other income flows from the source. Page 142 of the
textbook explains the definition from the conceptual Framework. Income encompasses
both revenue and other gains. Revenue arises in the course of the ordinary activities of
an entity and is referred to by a variety of different names including sales, fees, interest,

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dividends, royalties and rent. You examined the definition and recognition criteria for
these items in your answer to part (a)

Gains represent other items that meet the definition of income and may, or may not,
arise in the course of the ordinary activities of an entity. Gains represent increases in
economic benefits and as such are no different in nature from revenue. Hence, they are
not regarded as constituting a separate element in this Framework. Gains include, for
example, those arising on the disposal of non-current assets. See Note 8 of the
Domino’s a financial statement.

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BUILDING BUSINESS SKILLS 3.3 INTERPRETING FINANCIAL STATEMENTS

Chip Ltd
General Journal
(a) (Amounts in millions)

Account name (narration) Debit $ Credit $

$M $M
1. Depreciation Expense 30
Accumulated Depreciation 30
(Depreciation for the year)
2. Office Supplies Expense 1
Office Supplies 1
(To record office supplies used)
3. Administrative Salaries Expense 7.5
R&D salaries Expense 7.5
Salaries Payable 15
(To accrue salaries)
4. Insurance Expense 2.5
Prepaid Insurance 2.5
(balance of Prepaid Insurance now expired))

5. Rent Expense 7
Prepaid Rent 7
(Prepaid rent now expensed)
6. Interest Expense 10
Interest Payable 10
(To accrue interest expense)

(b) The accounts are considered in the order of the journal entries:

General Ledger Account Income Statement Item Increased

(Decreased)
Depreciation Expense Selling general and administrative Increased
Accumulated Depreciation N/A (statement of financial position)
Office Supplies Expense Selling, general and administrative Increased
Office Supplies N/A (statement of financial position)
Administrative Salaries Selling, general and administrative Increased
Expense
R&D Salaries Expense Research and development Increased
Salaries Payable N/A (statement of financial position)
Insurance Expense Selling, general and administrative Increased
Prepaid Insurance N/A (statement of financial position)
Rent Expense Selling, general and administrative Increased
Prepaid Rent N/A (statement of financial position)
Interest Expense Interest expense Increased
Interest Payable N/A (statement of financial position)

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(c) Chip Ltd

Income statement (partial)
For the year ended 30June 2013
Revenues:
Net sales $5,738.0
Interest revenue and other 279.0
6,017.0

Expenses:
Cost of sales 4,700.0
Selling, general and administrative 795.0 (1)
Research and development 231.5 (2)
Interest expense 250.0 (3)
5,976.5

Profit before income tax $40.5

(1) Original figure $747 million + 30, depreciation, + 1, office supplies, +

7.5, salaries, +2.5, insurance expense, + 7, rent expense, = $795 million.

(2) Original figure $224 million + $7.5, salaries, = $231.5 million

(3) Original figure $240 million + $10 million not recorded = $250 million.

BUILDING BUSINESS SKILLS 3.4 FINANCIAL ANALYSIS ON THE WEB

Telecom New Zealand

This solution is based on the 2011 Annual Report of Telecom
See p84 part note 1 to the financial statements
(a) General policy -Telecom recognises revenues as it provides services or delivers
products to customers.
Then you have specific services_
 Billings for telecommunications services (including fixed line, mobile, broadband and
internet access billings) are made on a monthly basis. Unbilled revenues from the
billing cycle date to the end of each month are recognised as revenue during the month
the service is provided. Revenue is deferred in respect of the portion of fixed monthly
charges that have been billed in advance. (this will help with response to part b)
 sale of prepaid mobile units is initially deferred, with recognition occurring when the
prepaid units are used by the customer.
 installations and connections are recognised upon completion of the installation or
connection.
 equipment sales is recognised upon delivery of equipment to the customer.

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 Revenue from contractual arrangements, including contracts to design and build ICT
solutions, is recognised by reference to the stage of completion method, when the
outcome of the arrangement can be estimated reliably.
Telecom uses appropriate measures of the stage of completion, such as services
performed to date, as a percentage of total services to be performed or the proportion
that costs incurred to date bear to the estimated total costs of the transaction.
When the outcome of a transaction, or achievement of milestones, cannot be
estimated reliably, and it is not probable that the costs incurred will be recovered,
revenue is not recognised and the costs incurred are recognised as an expense.

 For long-term IT services contracts that equate to the provision of an indeterminate

number of acts over a specified period of time for an agreed price, revenue is recognised
on a straight-line basis over the term of the arrangement. Where the contract allows for
billing as services are delivered then revenue is recognised as those services or
materials are delivered.

 interconnect fees is recognised at the time the services are performed. In some
instances, management may be required to estimate levels of traffic flows between
networks in order to determine amounts receivable or payable for interconnection.

Where multiple products or services are bundled together on sale, revenue is allocated to
each element in proportion to its fair value and recognised as appropriate for that element.

Revenue is recognised to the extent that it is not contingent on the provision or delivery of a
future service.

(b) Accrual adjustments are required for the unbilled services such as calls made between
the last billing date and reporting date. Accrual adjustments are required for fixed
charges because revenue is received in advance and only recognised when the period
to which it relates lapses. The revenue on prepaid cellular time requires accrual
adjustment for minutes used by the customer. Any revenue received in advance for
connections, installations or other services billed in advance, would require accrual
adjustment when the connection or installation is completed, or as the service has been
performed.

(c) Yes. The revenue becomes probable and able to be measured reliably when the service
is provided. AASB 118 and NZ IAS 18 ‘Revenue’ prescribe tests for determining when
the outcome of a transaction involving the rendering of services can be estimated
reliably. All of the following conditions must be satisfied: (a) the amount of revenue can
be measured reliably; (b) it is probable that the economic benefits associated with the
transaction will flow to the entity; (c) the stage of completion of the transaction at the
reporting date can be measured reliably; and (d) the costs incurred for the transaction
and the costs to complete the transaction can be measured reliably.

Telecom’s policies can be summarised as accruing revenue for calls made by customers
that have not been billed, and deferring revenue for services (prepaid time, installations
and connections) until the time lapses or the service is performed. Accruing revenue
when calls have been made is consistent because costs and revenue can be measured
reliably (as they know how many calls were made), the stage of completion is known
(100% as the call has been made) and it is probable that benefits will flow because a
valid claim exists against the customer. Deferral of revenue until time services,
installation or connection is complete is consistent. The relevant tests are (b) and (d)
above. The provision of the service, passage of time or completion of installation or

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connection gives rise to an enforceable claim as it would then be too late for the
customer to cancel. Further, in some instances, such as installation, Telecom may be
unable to measure the cost (e.g. resources spent on installation) until completion.

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CRITICAL THINKING

BUILDING BUSINESS SKILLS 3.5 GROUP DECISION CASE

(a)
Holiday Travel Australasia
Income Statement
for the year ended 31 March 2014

$ $
Revenues:
Service revenue ($150000 - $16000) 134 000
Expenses:
Advertising expense
(8700 +15000 – 5200+3200) 18 800
Wages expense ($56400 + $300) 56 700
Electricity expense ($4600 + $320) 4 920
Depreciation expense 1 200
Repair expense ($4000 + $2000) 6 000
Insurance expense ($21000 x 9/12) 15 750
Interest expense ($20000 x 10%x 3/12) 500
Total expenses 115 670
Profit $19 330

(b) Accrual accounting was not followed with respect to several items of revenue and
expense. Revenue recognition criteria had not been followed as revenue of $16,000 had
been recognised for services not yet performed.

Similarly, expense recognition principles were not followed. Expenses were not recorded
even though a decrease in economic benefits had occurred (consumption of supplies,
expiry of insurance) and they could be measured reliably.

Likewise not recording the advertising, electricity and repair expenses (and
corresponding liabilities), was inconsistent with the expense and recognition criteria; it is
probable that an outflow will occur because the parties who have invoiced Holiday Travel
Australasia have a valid and enforceable claim, and the amount can be recognised
reliably as the invoice has been received. Similarly, the expense recognition criteria were
not followed with respect to wages expense and interest expense. While these amounts
were not invoiced they could be measured reliably by calculating the unpaid wages and
interest.

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BUILDING BUSINESS SKILLS 3.6 COMMUNICATION ACTIVITY

Sam Portafello

(a) – (d)

Report on Comparison of Cash-Based and Accrual Accounting

Executive Summary

This report examines two alternative forms of accounting: cash-based and accrual accounting.
Adoption of accrual accounting is recommended because it provides more information about the
financial position of the business, in particular, assets and liabilities, and results in a more
inclusive measure of profit that reflects increases and decreases in all assets and liabilities, and
not only movements in cash.

Detailed Report

Accrual accounting records the events in the periods in which the events occur, rather than in
the periods in which the entity receives or pays cash. This report presents an argument in
favour of the use of accrual accounting for business reporting.

Cash-based accounting records transactions when cash is paid or received. Thus some items
that may be relevant to assessing how the business has performed during the period may be
omitted because the resulting cash is received or paid in a different period. For example, wages
and other expenses, such as telephone and electricity expenses, are omitted to the extent that
they are unpaid at the end of the period. Further, revenues for which the customer has not yet
paid are omitted by cash-based accounting.

Some items are included as revenues and expenses under cash-based accounting that would
be separately identified as assets and liabilities under accrual accounting. For example, a
receipt for rent revenue in advance is accounted for as revenue under cash-based accounting.
Under accrual accounting only that portion of the rental receipt that pertains to the current
reporting period is recognised as revenue; and the amount of the rental payment received for a
rental period that has not expired at the reporting date, is recognised as a liability (rent received
in advance). Examples of omitted assets include prepaid insurance and prepaid rent. Under
cash-based accounting, all insurance premiums and rental paid are treated as expenses even
though the periods covered by the premiums and rentals may not have expired.

Another omitted item under cash-based accounting is depreciation. Accrual accounting

allocates the cost of long-lived assets over their useful life. Under cash-based accounting the
asset is expensed in the period in which it is paid for. Depreciation spreads the cost of the asset
over the periods in which the economic benefits are consumed. In doing so, it provides better
performance measurement because the consumption of economic benefits is spread over the
periods in which the benefits are realised through using the asset.

The differences between accrual accounting and cash-based accounting are more pronounced
when non-current assets are involved. Non-current assets involve large payments and benefits
which extend over more reporting periods than other forms of prepayments (such as insurance
premiums). Accordingly, the acquisition of non-current assets causes greater distortion of profit

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in a single period, thus making the use of accrual accounting more appropriate for the
measurement of profitability.

Information presented on an accrual basis is useful because it reveals relationships that are
likely to be important in predicting future results. Conversely, under cash basis accounting,
revenue is recorded only when cash is received, and an expense is recognised only when cash
is paid. This results in the omission of assets and liabilities. As a result, the cash basis of
accounting often leads to misleading financial statements. Accordingly, accrual accounting is
recommended for your business to provide more comprehensive information about its financial
position and financial performance to assist decision makers.

BUILDING BUSINESS SKILLS 3.7 ETHICS CASE

Wellcovered Insurance Ltd

(a) The stakeholders in this situation include anyone who relies on the press release.

(b) Ed’s application of the timeliness constraint is inappropriate. The constraint refers to
situations where delaying the reporting of information until all aspects of a transaction or
event are known may cause loss of relevance. Thus it may be necessary to report
information before all aspects of a transaction are known. In the case of Wellcovered
Insurance, Ed Honcho is suggesting that the information be reported before ANY
aspects of the relevant transactions are known.

(c) Ed’s actions are inconsistent with reliability, which is one of the principal qualitative
characteristics identified in the Framework for the Preparation and Presentation of
Financial Statements. One aspect of reliability is that the information is free of material
error. Ed and Ben are unable to determine the reliability of the information due to the
effects of the computer virus. Accordingly the estimated numbers may be very
misleading,

(d) It would be unethical to report the financial results without full disclosure that they are
estimates, and that actual figures are unavailable due to the computer virus. Users
relying on the information should be aware of its inherent uncertainty and the associated
risks.

(e) A significant overestimation of profit is likely to

increase the share price. However, this would be a temporary gain because the share price
would fall when the actual information is disclosed. Shareholders who sold while the price was
high would make a gain at the expense of those who purchased them. More long-term damage
to the company (in the form of share price and reputation) may occur when shareholders and
investors observe that the company disclosed information that was subsequently found to be
materially in error; they may have less confidence in information provided by the company in
future.

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BUILDING BUSINESS SKILLS 3.8 COMMUNICATION ACTIVITY

Woolworths Limited sustainability report
Note to instructor the response will depend on which sustainability report the student accesses.
Below is the link to Woolworths the sustainability report may be on the front page if not
click on our responsibilities tab
Woolworths
[Link]

Students were asked to outline Woolworths approach and then summarise the achievements
in community and the environment.

It would be expected that the students after outlining the general approach would then list the
goal and how it was measured and how the achievement in that area was measured.

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