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Q1: Desjardins Company’s December 31, 2017 year-end Financial Statements

Part A: Income Statement for the Year Ended December 31, 2017.

Income statement

Particulars

Amount ($)

Amount ($)

Consulting revenue

 

250000

Less: Expenses

 

 

Repairing

10000

 

Utilities

15000

 

Supplies

14000

 

Salaries

100000

 

Interest

6000

 

Depreciation

3000

 

 

 

148000

Earnings before income tax

 

102000

Less: Income tax expense

 

24000

Net income

 

78000

Part B: Statement of Changes in Equity for the Year Ended December 31, 2017

Retained Earnings, December 31, 2017: Retained Earnings, January 1, Year 2017 + Net Income - Dividends - Common Retained Earnings, December 31, 2017:

$26,000 + $78,000 - $25,000 Retained Earnings, December 31, 2017: $79,000

Part C: Balance Sheet as at December 31, 2017

Balance sheet:

Assets

Amount ($)

Amount ($)

Non-current assets

   

Equipment

65000

 

Less: accumulated depreciation

5000

 

Total non-current assets

 

60000

Current assets

   

Cash

56000

 

Accounts receivable

18000

 

Supplies

4000

 

Total current asset

 

78000

Total assets

 

138000

     

Liabilities & Equity

   

Non-current liabilities

0

 
     

Current liabilities

   

Notes payable

55000

 

Accounts payable

3000

 

Bank loan payable (4000-4000)

0

 

Total liabilities

 

58000

     

Equity:

   

Common shares

1000

 

Retained earnings

79000

 

Total equity

 

80000

Total liabilities and equity

 

138000

Q2: Journal Entries for Each Transaction of Mary’s Consulting

January 1:

 

Cash (Bank Account) Debit $2,000

Common Shares Credit $2,000

     

January 5:

 

Office Furniture Debit $500

Accounts Payable Credit $500

     

January 8:

 

Accounts Receivable Debit $3,000

Consulting Revenue Credit $3,000

     

(No entry required for receiving half the payment as it does not affect the accounting records at this point)

     

January 10:

 

Wages Expense Debit $200

Cash (Bank Account) Credit $200

     

January 13:

 

Cash (Bank Account) Debit $3,000

Accounts Receivable Credit $3,000

     

January 15:

 

Accounts Payable Debit $500

Cash (Bank Account) Credit $500

Q3:  Journal Entries for Fred’s Security

a) i) March 1, 2017:

Prepaid Insurance Debit $2,000

Cash (Bank Account) Credit $2,000

   

ii) December 31, 2017:

Insurance Expense Debit $1,667

Prepaid Insurance Credit $1,667

   

b) i) October 1, 2017:

Cash (Bank Account) Debit $10,000

Unearned Revenue Credit $10,000

   

ii) December 31, 2017:

Unearned Revenue Debit $2,500

Service Revenue Credit $2,500

   

c) December 31, 2017:

Salaries Expense Debit $2,286

Salaries Payable Credit $2,286

[($8,000 / 7) x 4] - The 4 days from December 28 to December 31

   

d) i) February 1, 2017:

Car Debit $15,000

Cash (Bank Account) Credit $15,000

   

ii) December 31, 2017:

Depreciation Expense Debit $500

Accumulated Depreciation Credit $500

[$15,000 / (10 years x 12 months)] - Depreciation for 11 months

Q4: July 31, 2018, Adjusted Trial Balance of Anderson Company

Close the revenue accounts:

Repairs Revenue Debit $55,000

Income Summary Credit $55,000

   

Close the expense accounts:

Wages Expense Debit $20,000

Supplies Expense Debit $1,000

Depreciation Expense Debit $3,000

Maintenance Expense Debit $5,000

Interest Expense Debit $2,000

Income Summary Credit $31,000

   

Close the dividend account:

Income Summary Debit $2,000

Dividends Credit $2,000

   

Close the income summary account:

Income Summary Debit $24,000

Retained Earnings Credit $24,000

Q5:  Journal Entries for Smith Inc. Bank Reconciliation

To record the deposit in transit:

July 31, 2017

Bank Account Debit $817

Accounts Receivable Credit $817

   

To record the NSF cheque from J Brown:

July 31, 2017

Accounts Receivable Debit $300

Bank Account Credit $300

   

To record the collected note receivable:

July 31, 2017

Bank Account Debit $408

Interest Income Debit $28

Notes Receivable Credit $380

Interest Revenue Credit $28

   

To record the bank fees:

July 31, 2017

Bank Service Charges Debit $18

Bank Account Credit $18

   

To correct the bookkeeper's error:

July 31, 2017

Accounts Payable Debit $9

Bank Account Credit $9

   

To correct the bookkeeper's error in recording the payment on account:

July 31, 2017

Accounts Payable Debit $9

Bank Account Credit $9

Q6: Smith Company’s Financial Year-End

Part A: Adjustment to Allowance for Doubtful Accounts 

Calculate the estimated uncollectible amount for each category:

0-30 days: $10,000 x 1% = $100

31-60 days: $4,000 x 5% = $200

61-90 days: $2,000 x 10% = $200

Over 90 days: $1,000 x 25% = $250

Sum up the estimated uncollectible amounts: $100 + $200 + $200 + $250 = $750

Calculation of the current balance in the Allowance for Doubtful Accounts account:

The current balance is $400.

Calculation of the adjustment required:

Desired Balance = Current Balance + Adjustment Desired Balance = $400 + Adjustment

To make the desired balance equal to the estimated uncollectible amount the equation is: $750 = $400 + Adjustment

Thus, the adjustment = $750 - $400 Adjustment = $350

Part B: Accounts Receivable

Accounts receivable, net would be disclosed on the balance sheet would be: 

 Accounts receivable less adjusted allowance for doubtful debt

(17,000 – 750) = 16,250

Part C: Allowance for Doubtful Accounts being in a Debit Balance

The most likely cause of the allowance for doubtful accounts being in a debit balance is that the company has previously written off more bad debts than it had provided for in the allowance. This means that the actual amount of uncollectible accounts exceeded the estimated amount recorded in the allowance for doubtful accounts.

Part D:  Journal Entry for Account Receivable from Marco Inc

Bad debt account Debit $300

Accounts receivable (Marco Inc.) Credit $300

Q7: Aberdeen Auto Mart Transactions for the month of May  

Part A: Inventory Record using the Weighted Average Method

Beginning Inventory:

Date: August 1

Units: 40

 

Cost/Price: $25.00

Total Cost: 40 x $25.00 = $1,000

   

Purchase:

Date: August 4

Units: 20

 

Cost/Price: $28.00

Total Cost: 20 x $28.00 = $560

   

Sale:

 

Date: August 15

Units: 50

 

Cost/Price: $60.00

Total Cost: 50 x $60.00 = $3,000

   

Purchase:

Date: August 21

Units: 20

 

Cost/Price: $29.00

Total Cost: 20 x $29.00 = $580

   

Purchase:

Date: August 26

Units: 70

 

Cost/Price: $30.00

Total Cost: 70 x $30.00 = $2,100

   

Sale:

 

Date: August 31

Units: 40

 

Cost/Price: $60.00

Total Cost: 40 x $60.00 = $2,400

   

To calculate the weighted average cost per unit:

Total Cost of Inventory = Total Cost of Beginning Inventory + Total Cost of Purchases

Total Cost of Inventory = $1,000 + $560 + $3,000 + $580 + $2,100

Total Cost of Inventory = $7,240

   

Total Units of Inventory = Units in Beginning Inventory + Units Purchased

Total Units of Inventory = 40 + 20 + 20 + 70

Total Units of Inventory = 150

   

Weighted Average Cost per Unit = Total Cost of Inventory / Total Units of Inventory

Weighted Average Cost per Unit = $7,240 / 150

Weighted Average Cost per Unit = $48.27

   

Inventory Record (using the weighted average method):

   

Date            Units    Cost per Unit    Total Cost

August 1     40       $25.00                $1,000

August 4     20       $28.00                $560

August 15  (50)     $48.27                $(2,413.50)

August 21  20        $29.00                $580

August 26  70        $30.00                $2,100

August 31  (40)     $48.27                $(1,930.80)

Part B: Prepare journal entry/entries for the August 31 sale

Record the decrease in inventory:

 Inventory Debit 40 units x $48.27 = $1,930.80

Cost of Goods Sold Credit 40 units x $48.27 = $1,930.80

Record the revenue generated from the sale:

Accounts Receivable Debit 40 units x $60.00 = $2,400

Sales Revenue Credit 40 units x $60.00 = $2,400 

Q8: Compute Depreciation of ABC Company’s Expense for Each Year of the Asset’s Life 

Calculation of straight-line depreciation rate: Straight-line depreciation rate = 1 / Useful life Straight-line depreciation rate = 1 / 5 years Straight-line depreciation rate = 0.20 or 20%

Calculation of double-declining balance depreciation rate: Double-declining balance depreciation rate = Straight-line depreciation rate x 2 Double-declining balance depreciation rate = 0.20 x 2 Double-declining balance depreciation rate = 0.40 or 40%

Calculation of Depreciation Expense for Each Year:

Year 2017:

Depreciation Expense = $25,000 x 40% Depreciation Expense = $10,000

Year 2018:

Depreciation Expense = ($25,000 - $10,000) x 40% Depreciation Expense = $15,000 x 40% Depreciation Expense = $6,000

Year 2019:

Depreciation Expense = ($25,000 - $10,000 - $6,000) x 40% Depreciation Expense = $9,000 X 40% Depreciation Expense = $3,600

Year 2020:

Depreciation Expense = ($25,000 - $10,000 - $6,000 - $3,600) X 40% Depreciation Expense = $5,400 X 40% Depreciation Expense = $2,160

Year 2021:

Depreciation Expense = ($25,000 - $10,000 - $6,000 - $3,600 - $2,160) x 40% Depreciation Expense = $3,240 X 40% Depreciation Expense = $1,296

Year 2022:

Depreciation Expense = ($25,000 - $10,000 - $6,000 - $3,600 - $2,160 - $1,296) x 40% Depreciation Expense = $1,944 X 40% Depreciation Expense = $777.60

Q9: Journal Entries for the life of the XYZ Company’s Truck

Purchase of the truck on October 1, 2017:

October 1, 2017

Truck Debit $60,000

Cash (Bank Account) Credit $60,000

   

Depreciation expense for each year:

Annual Depreciation Expense = (Cost - Residual Value) / Useful Life

Annual Depreciation Expense = ($60,000 - $10,000) / 10

Annual Depreciation Expense = $5,000

   

For each year (2017 to 2019), record the annual depreciation expense:

   

Year 2017:

December 31, 2017

Depreciation Expense Debit $5,000

Accumulated Depreciation Credit $5,000

   

Year 2018:

December 31, 2018

Depreciation Expense Debit $5,000

Accumulated Depreciation Credit $5,000

   

Year 2019:

July 1, 2019

Depreciation Expense Debit $2,500

Accumulated Depreciation Credit $2,500

(Recording depreciation for the first half of the year)

   

Sale of the truck on July 1, 2019:

July 1, 2019

Cash (Bank Account) Debit $54,000

Accumulated Depreciation Debit $7,500

Truck Credit $60,000

Gain on Sale of Truck Credit $1,500

 

Q10: DEF Company’s Financial Year End is July 31

Part A: Bond Amortization Table for the first 2 Years of the Bond

Date

Payment

Interest expense

Discount amortized

Carrying value

August 31, Year 7

65,633

26,400

39,233

960,767

February 28, Year 8

67,400

26,321

41,079

958,058

August 31, Year 8

67,319

26,167

41,152

954,218

b) Journal Entry for the Issuance of the Bond

August 31, Year 7

Cash (Bond Proceeds) Debit $960,000

Discount on Bonds Payable Debit $40,000

Bonds Payable Credit $1,000,000

 

C) Journal Entry for the First Semi-Annual Payment

February 28, Year 8

Interest Expense Debit $26,890

Discount on Bonds Payable Debit $1,110

Cash (Interest Payment) Credit $25,000

 

D) Journal Entry for the Year-End Adjustment

July 31, Year 8

Interest Expense Debit $23,256

Discount on Bonds Payable Debit $3,634

Interest Payable Credit $26,890

 

E) Journal Entry for the Second Semi-Annual Payment

August 31, Year 8

Interest Expense Debit $22,000

Discount on Bonds Payable Debit $3,000

Cash (Interest Payment) Credit $25,000

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