# Chapter 1

## Solutions

### Exercise 1.3

Debit Credit
1 Service Revenue 13,450
Unearned Revenue 13,450
2 Accounts Receivable 15,200
Service Revenue 15,200
Allowance for Doubtful Accounts 1,700
4 Prepaid Insurance 5,200
Insurance Expense 5,200
5 Depreciation Expense 8,650
Accumulated Depreciation - Equipment 8,650
6 Interest Expense 83
Interest Payable 83
7 Prepaid Rent 2,100
Rent Expense 2,100
8 Salaries and Wages Expense 3,500
Salaries and Wages Payable 3,500
9 Dividends 1,000
Dividends Payable 1,000

### Exercise 1.4

1 Depreciation Expense 2,000
Accumulated Depreciation 2,000
\$12,000 / 6 years = \$2,000
2 Insurance Expense 725
Prepaid Insurance 725
\$4,350 / 12 month policy x 2 month expired = \$725
3 Supplies Expense 555
Supplies 555
\$1,520 on trial balance - \$965 on hand = \$555 used (expensed)
4 Unearned Revenue 1,780
Service Revenue 1,780
\$3,560 x 1/2 = \$1,780 earned
5 Accounts Receivable 2,345
Service Revenue 2,345
record the amount earned but not invoiced or recorded
6 Telephone Expense 580
Accounts Payable 580
record the amount of telephone expense incurred but not recorded

Worksheet

Trial Balance

Income Statement

Balance Sheet

Account Title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 7,465 7,465 7,465
Accounts Receivables 3,560 2,345 5,905 5,905
Prepaid insurance 4,350 725 3,625 3,625
Supplies 1,520 555 965 965
Equipment 12,000 12,000 12,000
Accumulated Depreciation - Equipment 1,200 2,000 3,200 3,200
Accounts Payable 3,060 580 3,640 3,640
Unearned revenue 3,560 1,780 1,780 1,780
Common Shares 10,000 10,000 10,000
Retained earnings 8,633 8,633 8,633
Service revenue 6,320 4,125 10,445 10,445
Depreciation Expense 2,000 2,000 2,000
Insurance Expense 725 725 725
Office expense 450 450 450
Salaries and wage expense 3,100 3,100 3,100
Supplies Expense 555 555 555
Telephone Expense 580 580 580
Totals \$32,773 \$32,773 \$7,985 \$7,985 \$37,698 \$37,698 \$7,738 \$10,445 \$29,960 \$27,253
\$2,707 \$2,707
\$10,445 \$10,445 \$29,960 \$29,960

### Exercise 1.5

 Unadjusted Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet Account Name Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Cash 46,984 46,984 Inventory 125,499 125,499 Accounts Receivable 365,941 365,941 Prepaid Rent 45,000 45,000 Land 632,500 632,500 Equipment 839,641 839,641 Equipment – Accumulated Depreciation 369,852 – 369,852 Accounts Payable 98,654 98,654 Sales Tax Payable 4,655 4,655 Bank Loan 350,000 350,000 Common Shares 250,000 250,000 Retained Earnings 483,449 483,449 Service Revenue 1,864,411 1,864,411 Depreciation Expense – Equipment 89,641 89,641 Interest Expense 35,000 35,000 Rent Expense 540,000 540,000 Salaries and Wages Expense 654,944 654,944 Utility Expense 45,871 45,871 – – – – 3,421,021 3,421,021 1,365,456 1,864,411 2,055,565 1,556,610 498,955 498,955 \$1,864,411 \$1,864,411 \$2,055,565 \$2,055,565

### Exercise 1.6

 1 Interest Expense 3,200.00 Interest Payable 3,200.00 \$320,000 × 4% × 3/12 2 Insurance Expense 13,541.67 Prepaid Insurance 13,541.67 \$32,500 × 5/12 expired (used up) 3 Unearned Revenue 17,433.33 Revenue 17,433.33 \$52,300 × 1/3 earned 4 Wages Expense 25,000.00 Wages Payable 25,000.00 \$62,500 × 2/5 (Tuesday = 2 days expense incurred from 1 weeks wage) 5 Depreciation Expense 6,000.00 Accumulated Depreciation 6,000.00 (\$32,000 ÷ 4 years) × 9/ 12 (April - December) 6 Accounts Receivable 31,800.00 Revenue 31,800.00 record the amount earned - but not yet recorded 7 Supplies Expense 2,121.00 Supplies (Inventory) 2,121.00 \$4,265 unadjusted - \$2,144 on hand = the amount used 8 Advertising Expense 3,200.00 Accounts Payable 3,200.00 record expense incurred but not recorded. 9 Revenue 21,000.00 Unearned Revenue 21,000.00 the revenue has not been earned and should not be included in revenue 10 Bad Debt Expense 12,560.00 Allowance for Doubtful Accounts 12,560.00 record the estimated expense