Financial Accounting Workbook Version 1

Financial Accounting
Workbook
(Version 1.0)
Tony Bell
© Tony Bell, 2016
1
Table of Contents
A Note to Instructors ............................................................................................................. 3
Module 1: Introduction to the Financial Statements .............................................................. 4
Module 2: Recording Transactions ....................................................................................... 14
Module 3: Adjusting Entries and Closing Entries ................................................................... 23
Module 4: Cash ................................................................................................................... 32
Module 5: Receivables ......................................................................................................... 37
Module 6: Inventory Purchases, Sales, Returns and Discounts .............................................. 45
Module 7: Cost of Inventory (FIFO, LIFO, Weighted Average, and Specific Identification) ...... 52
Module 8: Property, Plant and Equipment ........................................................................... 57
Module 9: Liabilities ............................................................................................................ 62
Module 10: Equity ............................................................................................................... 68
Module 11: Statement of Cash Flows ................................................................................... 73
Module 12: Ratios and Financial Statement Analysis ............................................................ 82
2
A Note to Instructors
I hope you find this workbook useful, I just want to point out three key features:
1.) This book is totally free to you and your students. Feel free to copy it or post it to your
course website and feel free to share it with colleagues.
2.) Although I am widely distributing a PDF file, I have gone to great effort to make a fully
editable Word version of this document. Please contact me if you’d like to have a copy
of the Word version. You can edit any of these problems to better fit in your class or
simply copy and paste an entire problem into an assignment or test, with the attribution
“Source: accountingworkbook.com”, or “Adapted from: accountingworkbook.com”.
3.) Every problem in this workbook has a video walkthrough available at
http://accountingworkbook.com. I suspect the true value in this book lies in the video
walkthroughs, as it will be useful for homework and particularly useful for “flipping the
classroom”.
Please let me know if you would like to see additional question-types or topics included in
the future. I intend to add to this book frequently based on your input. Also, any feedback
you can provide (particularly student feedback) would be greatly appreciated.
Please note, you do not have my permission to use this for a commercial purpose, nor do you
have permission to recreate the videos found at http://accountingworkbook.com. Send me an
email if you have any questions about use or attribution.
Thanks for checking out this workbook, and I hope you’ll have a look at the companion
website: http://accountingworkbook.com !
Tony Bell
[email protected]
3
Module 1: Introduction
to the Financial
Statements
4
1-1A – Accounting Equation
Fill in the missing information below:
Assets Liabilities Shareholders’ Equity
Business #1 ? $181,000 $212,000

Business #2 $74,800 ? $36,200
Business #3 $30,000 $21,400 ?
Business #4 $25,000 ? ($8,800)*
* Business #4’s equity is in an accumulated deficit position.
1-1B – Accounting Equation

Fill in the missing information below:
Assets Liabilities Shareholders’ Equity
Business #1 ? $80,000 $60,000

Business #2 $1,250,000 ? $1,100,000
Business #3 $75,000 $48,500 ?
Business #4 $52,000 ? ($7,600)*
* Business #4’s equity is in an accumulated deficit position.
5
1-2A – Account Classification
Each of the following accounts is either an Asset (A), Liability (L), Shareholders’ Equity (SE),
Revenue (Rev), Expense (Exp) or Dividend (Div) account.
Mark the first blank with the appropriate classification – A, L, SE, Rev, Exp or Div.
If you have identified an item as either an Asset or Liability, mark the second blank as “C” if the
item is current.
A/L/SE/Rev/Exp/Div C?
Long-term investments
Accounts receivable
Consulting revenue
Rent revenue
Computer
Mortgage payable
Salaries payable
Cash
Equipment
Retained earnings
Temporary investments
Accounts payable
Income tax expense
Car
Salaries expense
Utilities expense
Land
Inventory
Building
Interest expense
Bank loan payable
Common shares
Telephone expense
6
1-2B – Account Classification
Each of the following accounts is either an Asset (A), Liability (L), Shareholders’ Equity (SE),
Revenue (Rev), Expense (Exp) or Dividend (Div) account.
Mark the first blank with the appropriate classification – A, L, SE, Rev, Exp or Div.
If you have identified an item as either an Asset or Liability, mark the second blank as “C” if the
item is current.
A/L/SE/Rev/Exp/Div C?
Car loan
Software
Wages expense
Office furniture
Long-term investments
Inventory
Small tools
Accounts payable
Retained earnings
Accounts receivable
Property
Repair revenue
Maintenance expense
Interest expense
Salaries payable
Subscription revenue
Common shares
Equipment
Prepaid insurance
Income tax expense
Mortgage payable
Cash
Insurance expense
7
1-3A – Basic Financial Statements
Sherry’s Shuttles is a bus company offering rides to outdoor adventurers. In the summer, she
caters to mountain bikers and in winter to skiers. Sherry’s company has the following account
balances, all on December 31, 2017 and for the year then ended unless otherwise noted:
Wages payable $1,600 Insurance expense $4,000
Dividends 3,000 Telephone expense 400
Cash 5,000 Equipment, net 30,000
Common shares (Jan 1, 2017) 60,000 Bank loan 45,000
Accounts payable 2,200 Retained earnings (January 1, 2017) 10,000
Buildings, net 100,000 Accounts receivable 1,000
Shuttle revenue 69,300 Office supplies 500
Fuel expense 11,000 Wages expense 30,000
Depreciation expense 2,000 Utilities expense 1,200
The company did not issue or repurchase any common shares during the year.
Required:
a.) Prepare an income statement for the year ended December 31, 2017.
b.) Prepare a statement of changes in equity for the year ended December 31, 2017.
c.) Prepare a statement of financial position as at December 31, 2017.
d.) Based on your financial statements, compute:
i. The current ratio
ii. The debt ratio
iii. The equity ratio
8
1-3B – Basic Financial Statements
John’s Jungle Gyms is an indoor play area for children. Parents bring their toddlers to play on
germ-covered slides, ladders, ball pits, monkey bars and other pieces of equipment. The
following account balances relate to the company’s October 31, 2017 month end financial
statements:
Retained earnings (Oct. 1, 2017) $118,090 Admission revenue $25,000

Cash 14,000 Mortgage 178,000
Accounts payable 5,000 Buildings, net 225,000
Wages payable 2,000 Wages expense 6,000
Repair expense 1,500 Insurance expense 3,000
Accounts receivable 500 Common shares (Oct. 1, 2017) 10
Dividends 200 Equipment, net 75,000
Depreciation expense 2,600 Utilities expense 300
There were no common shares issued or repurchased during the month.
Required:
a.) Prepare an income statement for the month ended October 31, 2017.
b.) Prepare a statement of changes in equity for the month ended October 31, 2017.
c.) Prepare a statement of financial position as at October 31, 2017.
ii. The debt ratio
9
1-4A – More Complex Financial Statements
Industrial Relations Ltd. offers mediation services for unionized companies. When there is a
contract dispute between a union and company management, often the two sides require an
outside consultant to assist in the negotiations – Industrial Relations Ltd. fills this role. The
following account balances relate to the company’s June 30, 2017 year-end financial statements:
Accumulated depreciation - buildings $12,000 Travel expense $6,000

Wages expense 35,000 Retained earnings (July 1, 2016) 34,900
Equipment 7,000 Accumulated depreciation - equipment 1,500
Supplies 500 Supplies expense 3,500
Depreciation expense 2,500 Interest expense 3,000
Consulting revenue 88,000 Common shares (July 1, 2016) 100
Buildings 125,000 Mortgage payable 60,000
Cash 3,000 Accounts receivable 1,000
Dividends 6,000 Notes payable 5,000
Income tax expense 11,000 Accounts payable 2,000
 There were no common shares issued or repurchased during the year.

Notes:
 The current portion of the mortgage payable was $8,000.
Required:
a.) Prepare an income statement for the year ended June 30, 2017.
b.) Prepare a statement of changes in equity for the year ended June 30, 2017.
c.) Prepare a statement of financial position as at June 30, 2017.
ii. The debt ratio
10
1-4B – More Complex Financial Statements
Ragequit PC Repair specializes in computer equipment repair following incidents of “gamer
rage”. After losing online games some gamers enter a fit of irrational rage, and break gaming
controllers, monitors, notebook computers, mice, keyboards and televisions*. This rage has been
lucrative for the Ragequit PC Repair. The following account balances relate to the company’s
November 30, 2017 year-end financial statements:
Bank loan payable 4,000 Income tax expense 200

Interest expense 250 Repair revenue 55,000
Dividends 700 Accounts payable 400
Common shares (Dec 1, 2016) 50 Rent expense 8,500
Wages expense 38,000 Accounts receivable 100
Supplies 1,200 Accumulated depreciation – tools and equipment 1,500
Supplies expense 5,000 Cash 900
Tools and Equipment 6,000 Notes payable 800
Retained earnings (Dec 1, 2016) 500 Depreciation expense 1,400
 There were no common shares issued or repurchased during the year.

Notes:
 The current portion of the bank loan payable was $600.
Required:
a.) Prepare an income statement for the year ended November 30, 2017.
b.) Prepare a statement of changes in equity for the year ended November 30, 2017.
c.) Prepare a statement of financial position as at November 30, 2017.
ii. The debt ratio
*Like when your opponent (who had unbelievable RNG luck the whole game) top-decks the
exact card he needed to beat you, even though you outplayed him, and are clearly smarter and
better than him. Ridiculous. Hearthstone is for babies.
11
1-5A – More Complex Financial Statements (Net Loss and Share Issuance)
On Time Delivery Service is attempting to disrupt the package delivery industry. The company
allows customers to use an app to track the exact location of their package at all times (with
GPS). Its proprietary computer algorithm allows the company to estimate the delivery time of its
packages very accurately. The company has taken on a round of venture capital investment in
the most recent year. The following account balances relate to the company’s December 31,
2017 year-end financial statements:
Depreciation expense 24,000 Accumulated depreciation - equipment 61,000

Wages expense 230,000 Accumulated depreciation - computers 42,000
Common shares (Jan 1, 2017) 10,000 Accounts receivable 17,000
Supplies expense 15,000 Supplies 6,000
Interest expense 12,000 Insurance expense 9,000
Income tax refund (negative expense) 7,000 Bank loan payable 140,000
Computers 168,000 Delivery revenue 260,000
Delivery equipment 215,000 Dividends 10,000
Cash 184,000 Retained earnings (Jan 1, 2017) 94,000
Interest payable 8,000 Accounts payable 18,000
 The company issued $250,000 of common shares during the year.

Notes:
 There were no shares repurchased during the year.

 The current portion of the bank loan payable was $30,000.
Required:
a.) Prepare an income statement for the year ended December 31, 2017.
b.) Prepare a statement of changes in equity for the year ended December 31, 2017.
c.) Prepare a statement of financial position as at December 31, 2017.
ii. The debt ratio
12
1-5B – More Complex Financial Statements (Share Issuance)
Accountingworkbook.com is a website that offers accounting tutorial videos for dazed and
confused accounting students all over the world, many of whom stumble on to the website late at
night while cramming for exams. The following account balances relate to the company’s
January 31, 2017 year-end financial statements:
Utilities expense 1,500 Accounts payable 300

Depreciation expense 350 Common shares (February 1, 2016) 50
Income tax expense 1,150 Bank loan payable 1,000
Retained earnings (February 1, 2016) 4,000 Interest expense 200
Web server expense 1,000 Computers 2,500
Subscription revenue 7,000 Supplies 100
Advertising expense 700 Supplies expense 600
Cash 6,000 Dividends 50
Accumulated depreciation - computers 700 Interest payable 100
 The company issued $1,000 of common shares during the year.

Notes:
 There were no shares repurchased during the year.

 The current portion of the bank loan payable was $500.
Required:
a.) Prepare an income statement for the year ended January 31, 2017.
b.) Prepare a statement of changes in equity for the year ended January 31, 2017.
c.) Prepare a statement of financial position as at January 31, 2017.
ii. The debt ratio
13
Module 2: Recording
Transactions
14
2-1A – Basic Journal Entries – New Company
Joe’s Car Repairs started operating on June 1, 2017. The following transactions occurred during
June:
June 1 Joe invested $10,000 cash and invested equipment valued at $20,000 in exchange
for 500 common shares.
June 2 Paid rent on a small downtown garage for $2,500 (cash) to cover the month of
June.
June 3 Purchased equipment on account. $8,000 is due to be paid on April 3, 2017.
June 6 Paid $100 to sponsor a local sports team.
June 10 Paid $250 dividend to shareholders.
June 14 Paid employees’ salaries of $2,000.
June 15 Performed car repair work for the first two weeks of June. Billed and received
$7,000.
June 16 Performed car repair work for customer #233 - $1,000. The customer did not pay
but agreed to pay within 30 days.
June 22 Paid for the equipment purchase from June 3.
June 26 Received one half of the amount owed from the June 16 transaction.
June 30 Paid employees’ salaries of $2,000.
June 30 Received a telephone bill for $125 for June. Not yet paid.
Required:
Record all necessary journal entries based on the transactions above.
15
2-1B – Basic Journal Entries – New Company
Fred McCarthy started his company, Cheapo Tours to take customers to the Grand Canyon from
Las Vegas. The company began operations in March, 2017. The following transactions
occurred during the company’s first month:
March 1 Fred invested $10,000 cash and a van valued at $7,500 in exchange for 50,000
common shares.
March 3 Paid $1,000 cash to advertise online.
March 5 Purchased equipment on account: $3,000.
March 6 Purchased a second van for $8,000. Paid $2,000 and took the rest as a car loan.
March 15 Took first tour group to see the Grand Canyon. The trip was a success.
Customers paid $1,000 each for their tour. In total, thirteen customers on the tour
paid $12,000. One customer was not able to pay, but promised to pay his $1,000
by the end of the month.
March 16 Joe paid his employees’ salaries of $3,000.
March 17 Purchased fuel for the vehicles: $500
March 19 Paid $800 to repair a broken window on one of the vans.
March 20 Paid for the March 5 equipment purchase.
March 22 Received a utilities bill: $200. Did not pay yet.
March 25 Received the last $1,000 from the March 15 tour.
March 31 Took a second tour group of 15 people. Each paid $1,000.
March 31 Paid employees’ salaries of $3,000.
March 31 Took a dividend of $5,000.
Required:
Record all necessary journal entries based on the transactions above.
16
2-2A – Basic Journal Entries, T-Accounts, Trial Balance – New Company
In August 2017, Maria Chen started her new taxidermy business: The Right Stuff Inc. The
business focused on preserving family pets after they passed away. The following transactions
occurred during August:
August 1 Maria invested $1,000 cash in exchange for 250 common shares.
August 1 Rented work space. Paid $600 for the month of August.
August 2 The company borrowed $5,000 in the form of a long-term bank loan. The money
was planned to purchase much of the equipment that would be needed.
August 5 Purchased equipment: $4,000. Paid $1,000 with the rest payable at the end of
August.
August 10 Received and completed first taxidermy job – a poodle named Rex. Received
$400 cash.
August 12 Purchased supplies on account: $200.
August 13 Completed second taxidermy job: A chocolate Labrador retriever named KitKat:
$600 on account.
August 14 Took a dividend of $500 to pay for personal expenses.
August 19 Received and paid the utilities bill, $200.
August 20 Paid for the August 5 equipment purchase.
August 21 Received a telephone bill: $200. Did not pay yet.
August 24 Received payment for the August 13th job.
August 27 Completed third taxidermy job: A calico cat named Spot: $250. Received
payment.
August 31 Paid salaries of $1,000.
Required:
a.) Record all necessary journal entries based on the transactions above.
b.) Post the transactions to T-Accounts.
c.) Prepare a trial balance dated August 31.
17
2-2B – Basic Journal Entries, T-Accounts, Trial Balance – New Company
Sandy Bell opened a “Zip Line” eco-adventure park in July of 2017. The following transactions
occurred in the first month of operations:
July 1 Sandy invested $1,000 cash in exchange for 50 common shares.
July 1 Purchased equipment on account - $15,000 due August 1.
July 2 The company borrowed $25,000 in the form of a long-term bank loan. The
money was planned to pay off the equipment loan.
July 5 Purchased insurance for the year: paid $8,000 cash. (Note this amount should not
be expensed as it represents an asset to the company.
July 8 Paid off equipment purchased on July 1.
July 9 Took first group through an adventure tour. Collected $1,000 cash.
July 12 Purchased fuel: $500 cash.
July 16 Purchased supplies: $100 cash.
July 18 Took a dividend of $1,000 to pay for personal expenses.
July 20 Received but did not pay the telephone bill, $200.
July 21 Took another tour group out. Billed the group $2,000. Payment has not yet been
received.
July 26 Received a utilities bill: $250. Did not pay yet.
July 28 Took out a tour group. Received payment in full: $1,500.
July 31 Paid employees’ salaries of $3,000.
Required:
c.) Prepare a trial balance dated July 31.
18
2-3A –Journal Entries, T-Accounts, Trial Balance – Existing Company
ABC Carpet Cleaners had been operating for several years. On March 1, 2017 the company had
the following account balances: Cash $5,000; Accounts Receivable $300; Equipment (net)
$3,000; Accounts Payable $500; Bank Loan $2,000; Common Shares $100; and Retained
Earnings $5,700.
The following transactions occurred during the month of March.
March 1 Purchased (and used) cleaning supplies for cash: $600.
March 2 Paid off the $500 that was owed from February.
March 4 Completed a major cleaning job. Billed $3,000 but did not collect.
March 9 Purchased a new Super Sucker brand vacuum for $6,000 on account. Payment is
due in 30 days.
March 11 Collected amount owed to us from February.
March 15 Completed a cleaning job. Billed $1,000, collected half.
March 19 Paid $500 to repair a broken vacuum.
March 22 Received and paid a heating bill: $100.
March 24 Received a telephone bill: $50, did not pay.
March 28 Collected money from the March 4 cleaning job.
March 29 Completed major cleaning job. Billed $7,000, payment is due on April 29.
March 31 Paid interest of $75 on the bank loan.
March 31 Shareholders took a dividend totaling $700.
Required:
c.) Prepare a trial balance dated March 31.
19
2-3B –Journal Entries, T-Accounts, Trial Balance – Existing Company
Teacher’s Pet Tutoring Service provides extra help for students. The company has been
operating successfully for several years and has the following account balances entering April,
2017: Cash $8,000; Accounts Receivable $1,500; Supplies $5,000; Computers (net) $15,000;
Accounts Payable $300; Bank Loan Payable $3,500; Common Shares $50; Retained Earnings
$25,650.
The following transactions occurred in April:
April 1 Paid off account payable owing from March.
April 3 Paid $3,000 for advertising for the month of April.
April 4 Purchased supplies on account: $1,000.
April 6 Collected the $1,500 receivable from March.
April 8 Received, but did not pay a $250 electricity bill.
April 12 An employee who was short of money borrowed $500. He signed a note and
promised to repay the company after payday. He is a good employee and the
company chose not to charge him any interest or fees.
April 15 Paid employees’ salaries of $4,000.
April 18 Employee repaid the $500 loan.
April 20 Borrowed $10,000 from the bank with the intention of purchasing new computers.
April 21 Purchased new computers $8,500.
April 24 Received and paid telephone bill $150.
April 26 Paid employees’ salaries of $4,000.
April 29 Paid electricity bill received on April 8.
April 30 Paid interest on the loans for the month of $100.
April 30 Billed $18,000 for the month of tutoring service. Collected $16,000 in cash,
awaiting payment for the remainder.
Required:
c.) Prepare a trial balance dated April 30.
20
2-4A – Comprehensive Problem, Journal Entries, T-Accounts, Trial Balance, Financials
Adworks Inc. is a web-based advertising agency that develops animated commercials and banner
ads for clients. The company had the following account balances entering the month of January:
Cash $12,000; Accounts Receivable $4,000; Supplies $500; Equipment $17,000; Accumulated
Depreciation – Equipment $6,000; Accounts Payable $3,500; Bank Loan $9,000; Common
Shares $1,000; and Retained Earnings $14,000.
The following transactions occurred during the month:
January 1 Spent $1,100 on Google “Adwords” to promote the business.
January 2 Renewed insurance. Paid $4,000 for a one-year insurance renewal.
January 4 Collected accounts receivable from the prior month.
January 9 Purchased new computer: $1,500 on account.
January 11 Paid accounts payable from December.
January 15 Paid employees’ salaries of $3,000.
January 16 Issued 4,000 common shares, received $15,000.
January 19 Hired two new employees who will start in February and March. Both will receive
monthly salaries of $4,000 (each).
January 22 Billed and collected $15,000 from clients.
January 24 Received but did not yet pay cable internet bill: $400.
January 28 Received, but did not pay the electric bill: $200.
January 29 Completed a job and billed a client $3,000 but did not collect.
January 31 Paid dividends to shareholders of $2,000.
January 31 Paid income taxes for the month $1,000.
January 31 Received an advance of $5,000 from a client. (Note, we had not done any work.)
Required:
c.) Prepare a trial balance dated January 31.
d.) Prepare draft financial statements:
i. An income statement for the month of January.
ii. A statement of changes in equity for the month of January.
iii. A balance sheet as at January 31.
21
2-4B – Comprehensive Problem, Journal Entries, T-Accounts, Trial Balance, Financials
Freida’s Ferns is a Landscaping Business. The company had the following account balances
entering February, 2017: Cash $1,000; Accounts Receivable $500; Supplies $1,500; Equipment
$12,000; Accumulated Depreciation – Equipment $7,000; Accounts Payable $400; Bank Loan
$2,600; Common Shares $2,000; and Retained Earnings $3,000.
The following transactions occurred during February:
February 1 Purchased supplies on account: $500.
February 3 Collected the amount receivable from January.
February 5 Borrowed $5,000 from the bank.
February 7 Purchased new lawn mower for $3,000 cash.
February 8 Paid off accounts payable from January.
February 14 Performed lawn mowing work for the first two weeks. Charge a flat rate of $20 per lawn,
the company mowed 150 lawns. Collected from all but 5 customers.
February 15 Paid employee’s salary of $2,000.
February 17 Collected from 4 of the 5 unpaid customers from the first two weeks of February.
February 20 Issued 1,000 common shares for $2,000 cash.
February 21 Purchased fuel for the mowers: $1,200 cash.
February 28 Performed lawn mowing work for the first two weeks. Charge $20 per lawn, the
company mowed 180 lawns. Collected from all but 8 customers.
February 28 Paid employee’s salary of $2,000.
February 28 Paid income tax installment of $500.
February 28 Paid interest on the loan: $200.
February 28 Paid dividends to shareholders: $1,000.
Required:
c.) Prepare a trial balance dated February 28.
d.) Prepare draft financial statements:
i. An income statement for the month of February.
ii. A statement of changes in equity for the month of February.
iii. A balance sheet as at February 28.
22
Module 3: Adjusting
Entries and Closing
Entries
23
3-1A – 5 types of Adjustments
This problem explores 5 common types of adjusting journal entries. All problems relate to ABC
Company, which has a fiscal year-end of December 31.
a.) Prepaid expenses - Insurance

ABC Company purchases a one-year insurance policy on June 1, 2017 for $1,800 cash.
Required
Record the entry for the purchase of insurance and for the year-end adjustment.
b.) Depreciation
ABC Company purchases a vehicle on August 31, 2017 for $15,000 cash. The vehicle is
expected to be useful for 10-years, after which time it will have no residual value. The company
wishes to use straight-line depreciation.
Required
Record the journal entry for the purchase of the vehicle and for the year-end adjustment.
c.) Accrued expenses - Interest

On May 1, 2017, ABC Company borrows $10,000 from the bank and signs a note payable.
The debt carries annual interest of 10% and is repaid in full (with interest) on July 31, 2018.
Required
Record the journal entry for the initial borrowing, the year-end adjustment and the repayment of
the debt.
d.) Accrued revenues

As at December 31, 2017, ABC Company had provided 3 months of consulting service to a
client at a rate of $1,000 per month, but had not yet billed the client or collected any money. On
January 31, 2018 the client was billed for four months of service and paid one week later on
February 8, 2018.
Required
Record the journal entry for the year-end adjustment, and any other entries required.
e.) Unearned revenues

A client pre-pays ABC Company on November 1, 2017 for five months of consulting service
(from November through the end of March). The company pays $15,000. ABC Company earns
the money evenly over the life of the project, and has fulfilled its obligations up to December 31.
Required
Record the journal entry November 1 and for the year-end adjustment.
24
3-1B – 5 types of Adjustments
This problem explores 5 common types of adjusting journal entries. All problems relate to XYZ
Company, which has a fiscal year-end of December 31.
a.) Prepaid expenses - Supplies

On December 15, XYZ Company was completely out of supplies, so the company
purchased $1,500 of supplies on account. On December 31, a supply count revealed $200 of
supplies were on hand.
Required
Record the entry for the purchase of supplies and for the year-end adjustment.
b.) Depreciation
XYZ Company purchases a new building for $800,000 on April 1, 2017. The building is
fully financed by a mortgage. The building is expected to be useful for 30 years, after which
time it will have no residual value. The company wishes to use straight-line depreciation.
Required
Record the journal entry for the purchase of the building and for the year-end adjustment.
c.) Accrued expenses - Salaries

XYZ Company pays salaries of $4,000 every Friday. The company has a 5-day workweek
and is open from Monday to Friday. This year, the December 31 falls on a Thursday.
Required
Record the year-end adjustment and the entry for when salaries are paid on Friday, January 1.
d.) Accrued revenues - interest

On October 1, 2017, XYZ Company loaned an employee (Fred Smith) $1,000. Fred signed a
note promising to pay back the $1,000 in full plus interest at annual rate of 12%. On May 1,
Fred pays back the note and accrued interest.
Required
Record the journal entry for the initial loan, the year-end adjustment and the repayment.
e.) Unearned revenues

On December 1, 2017, three customers each prepaid $500 for a 5-month consulting package.
XYZ Company fulfilled its obligations up to December 31.
Required
Record the journal entry December 1 and for the year-end adjustment.
25
3-2A – Recording transactions and adjusting entries
Iginla Inc. has a fiscal year end of December 31, 2017. Below are transactions that occurred
during the year:
a.) On February 1, the company purchased a 1-year insurance policy for $4,800 cash.
b.) On May 17, the company purchased $2,000 of supplies on account. The supplies
were counted at year end, and there were $450 remaining.
c.) On August 31, the company purchased a truck for $38,000. The truck’s estimated
useful life is 12 years, and there is no expected residual value.
d.) On September 30, the company signed a note payable, borrowing $10,000 cash from
a local credit union at an annual interest rate of 7%. They promised to repay $10,000
plus interest on May 1, 2018.
e.) On November 1, the company loaned $1,000 cash to an employee. The employee
promised to repay the company the principal plus 3% annual interest on January 31,
2018.
f.) On November 20, the company received a $5,000 advance payment for cleaning
services it would deliver for the months of December and January. As of December
31, it had successfully fulfilled its first month of obligation.
Required:
For the transactions above, record a journal entry for the original transaction and record the
required year-end adjustment. (If no journal entry is required, write “no entry”.)
26
3-2B – Recording transactions and adjusting entries
Doan Inc. has a fiscal year end of March 31, 2018. The following transactions occurred during
the year:
a.) April 30, 2017: Purchased insurance for the year: $6,000.
b.) June 1, 2017: Purchased equipment on account: $4,000. The equipment had an
expected useful life of 8 years and no expected residual value.
c.) July 21, 2017: Purchased supplies for cash: $2,000. A count at year-end revealed the
company still had $1,700 of supplies remaining.
d.) August 31, 2017: Borrowed $8,000 cash in the form of a note payable. The note has
annual interest at a rate of 11%. The company expects to repay the note on August 1,
2018.
e.) December 1, 2017: Loaned $3,000 cash signing a note receivable. The note has an
annual interest rate of 6%. The company expects to be repaid on June 30, 2018.
f.) January 1, 2018: The company received a $12,000 prepayment for software
development services it would be delivering over the next four months. As of fiscal
year end, the first three months of the service had been delivered on time and on
schedule with one more month remaining.
Required:
For the transactions above, record a journal entry for the original transaction and record the
required year-end adjustment. (If no journal entry is required, write “no entry”.)
27
3-3A – Adjusting Entries, the Adjusted Trial Balance Worksheet, Financial Statements and
Closing Entries (and the kitchen sink.)
Below is the June 30, 2017 unadjusted trial balance of Netlock Security, a firm that offers hacking prevention
services to large companies.
Unadjusted TB Adjustments Adjusted TB
DR CR DR CR DR CR
Cash $38,000
Accounts receivable 12,000
Supplies 5,000
Prepaid insurance 28,000
Computers 214,000
A.D. – Computers $46,000
Accounts payable 8,000
Salaries payable
Interest payable
Unearned security revenue 15,000
Note payable 30,000
Common shares 40,000
Retained earnings 87,000
Dividends 10,000
Security revenue 485,000
Salaries expense 320,000
Interest expense
Depreciation expense
Supplies expense
Repairs expense 17,000
Insurance expense
Rent expense 60,000
Income tax expense 7,000
Total $711,000 $711,000
The company’s fiscal year end is June 30, and the following items require adjustment:
a.) A count of supplies reveals $300 were on hand on June 30.

b.) The $28,000 insurance policy was purchased on March 1, 2017.
c.) The computers were purchased years ago for 214,000. At the time of purchase, the estimated life of the
computers was 10 years with no estimated residual value.
d.) The $30,000 note payable was issued on February 1, 2017 and accrues interest at a 10% annual rate. The
note is expected to be repaid in late-2017.
e.) On May 1, 2017 the company entered into a 3-month contract to provide security for a major corporation,
the corporation paid $15,000 for their 3-month contract on May 1, and that amount was correctly recorded
as unearned revenue. On June 30, Netlock had fulfilled the first 2 months of the contract.
f.) The company had three employees who were owed for two days of salaries at year end. Each employee
earns $250 per day.
g.) On June 1, 2017, the company entered into an agreement to provide service for a new client at a rate of
$4,000 per month. At the end of June the client had received their first month of service but had not yet
been billed.
Required:
a.) As necessary, record adjusting journal entries based on items a.) through g.) above.
b.) Using your adjusting journal entries, complete the adjusted trial balance (an excel copy of the template
above is available at: http://bit.ly/AdjustedTB )
c.) Based on the adjusted trial balance, prepare an income statement, statement of changes in equity and a
balance sheet. Assume no common shares were issued during the year.
h.) Prepare closing entries for the company.
28
3-3B – Adjusting Entries, the Adjusted Trial Balance Worksheet, Financial Statements,
Closing Entries (and the kitchen sink.)
Below is the September 30, 2017 unadjusted trial balance of CleanPanes Window Washers:
Unadjusted TB Adjustments Adjusted TB
DR CR DR CR DR CR
Cash $1,600
Accounts receivable 750
Supplies 400
Prepaid rent 800
Equipment 20,000
A.D. – Equipment $2,000
Accounts payable 900
Wages payable
Interest payable
Unearned washing revenue 600
Note payable 4,000
Common shares 1,000
Dividends 1,000
Washing revenue 38,000
Wages expense 12,000
Interest expense
Depreciation expense
Supplies expense
Maintenance expense 100
Insurance expense
Rent expense 8,800
Total $49,050 $49,050
The company’s fiscal year end is September 30, and the following items require adjustment:
a.) A count of supplies reveals $50 were on hand on September 30.

b.) The $1,600 insurance policy was purchased on February 1, 2017.
c.) The equipment was purchased last year. At the time of purchase, the estimated life of the equipment was
10 years with no estimated residual value.
d.) The $4,000 note payable was issued on July 1, 2017 and accrues interest at a 7% annual rate. The note is
expected to be repaid in January of 2018.
e.) On September 1, 2017 the company entered into a 6-month contract to provide window washing for a local
restaurant. The restaurant paid $600 in advance for the service. CleanPanes has washed the restaurant’s
windows properly up to September 30.
f.) The company had an employee who had unpaid wages of $100 on September 30.
g.) As of September 30, the company had completed, but not yet billed $250 worth of work.
Required:
a.) As necessary, record adjusting journal entries based on items a.) through g.) above.
b.) Using your adjusting journal entries, complete the adjusted trial balance (an excel copy of the template
above is available at: http://bit.ly/AdjustedTB )
c.) Based on the adjusted trial balance, prepare an income statement, statement of changes in equity and a
balance sheet. Assume no common shares were issued during the year.
d.) Prepare closing entries for the company.
29
3-4A – Closing Entries and Post-Closing Trial Balance
Below is XYZ Consulting Inc.’s adjusted trial balance on its fiscal year end: December 31, 2017.
Adjusted TB
DR CR
Cash $125,000
Supplies 15,000
Prepaid rent 8,000
Equipment 225,000
Accumulated depreciation - equipment $52,000
Salaries payable 1,000
Unearned consulting revenue 10,000
Notes payable 85,000
Common shares 4,000
Dividends 2,000
Consulting revenue 350,000
Interest expense 4,000
Depreciation expense 9,000
Insurance expense 26,000
Rent expense 96,000
Total $696,000 $696,000
Required:
Based on the adjusted trial balance above, prepare the necessary closing entry/entries, and a post-
closing trial balance.
30
3-4B – Closing Entries and Post-Closing Trial Balance
Below is ABC Consulting Inc.’s adjusted trial balance on its fiscal year end: December 31, 2017.
Adjusted TB
DR CR
Cash $3,000
Accounts receivable 500
Supplies 1,000
Prepaid insurance 200
Buildings 125,000
Accumulated depreciation - buildings $32,000
Accounts payable 100
Wages payable 300
Interest payable 600
Unearned consulting revenue 1,200
Mortgage payable 65,000
Common shares 200
Dividends 1,200
Consulting revenue 85,000
Maintenance expense 1,000
Rent expense 2,800
Total $198,600 $198,600
Required:
Based on the adjusted trial balance above, prepare the necessary closing entry/entries, and a post-
closing trial balance.
31
Module 4: Cash
32
4-1A – Bank Reconciliation
ZipFlyer Inc.’s cash T-Account for May shows the following information:
Cash
Date Comments Amount Date Comments Amount
May 1 Opening balance $13,846 May 1 Cheque #75 $550
May 1 Deposit 1,550 May 3 Cheque #76 875
May 3 Deposit 2,700 May 4 Cheque #77 1,256
May 31 Deposit 3,000 May 13 Cheque #80 486
May 17 Cheque #81 548
May 21 Cheque #82 3,058
May 25 Cheque #83 1,244
May 31 Ending Balance $14,619
The following comes from the company’s April 2017 Bank Statement:
Date Description Withdrawals Deposits Balance

April 30 Balance Forward $13,846
May 2 Deposit 1,550 15,396
May 3 Cheque #75 550 14,846
May 4 Deposit 2,700 17,546
May 6 Cheque #77 1,256 16,290
May 7 NSF Cheque – W. White 600 15,690
May 8 Cheque #76 875 14,815
May 10 Cheque #78 3,684 11,131
May 11 Bank Collection 4,300 15,431
May 13 Cheque #79 1,100 14,331
May 14 EFT – Utilities bill 300 14,031
May 15 Deposit 4,950 18,981
May 18 Cheque #80 468 18,513
May 21 Deposit 2,600 21,113
May 24 EFT - Telephone 100 21,013
May 25 Cheque #82 3,058 17,955
May 27 Cheque #83 1,244 16,711
May 31 Bank plan fee 5 16,706
May 31 Interest 1 16,707
Additional Information:
A – The correct amount of cheque #80 – a payment of an account payable is $468. ZipFlyer’s
bookkeeper made an error.
B – The bank collection was a note receivable. The note included principal of $4,000 and
interest of $300. No previous interest accruals had been made on the note.
Required
a.) Prepare a bank reconciliation dated May 31, 2017.
b.) Record any required adjustments based on your reconciliation.
33
4-1B – Bank Reconciliation
Biggie Burger’s cash T-Account for July shows the following information:
Cash
July 1 Opening balance $6,843 July 1 Cheque #143 $550
July 1 Deposit 2,200 July 3 Cheque #144 1,225
July 3 Deposit 500 July 4 Cheque #145 300
July 15 Deposit 1,800 July 7 Cheque #146 1,350
July 21 Deposit 800 July 10 Cheque #147 62
July 25 Deposit 400 July 13 Cheque #148 1,640
July 31 Deposit 1,600 July 17 Cheque #149 543
July 21 Cheque #150 2,400
July 25 Cheque #151 300
July 31 Ending Balance $4,363
The following comes from the company’s April 2017 Bank Statement:

July 1 Balance forward $6,843
July 2 Deposit 2,200 9,043
July 3 Cheque #143 550 8,493
July 3 Deposit 500 8,993
July 4 EFT - Maintenance 150 8,843
July 5 Cheque #144 1,252 7,591
July 7 Cheque #145 300 7,291
July 9 Bank Collection 600 7,891
July 12 Cheque #147 62 7,829
July 14 NSF Cheque – J. Carver 500 7,329
July 16 Deposit 1,800 9,129
July 17 Cheque #148 1,640 7,489
July 23 Cheque #150 2,400 5,889
July 24 Cheque #149 543 5,346
July 28 Cheque #151 300 5,446
July 31 Bank plan fee 10 5,436
July 31 Interest 2 5,438
A – The correct amount of cheque #144 – a payment of an account payable is $1,252. Biggie
Burger’s bookkeeper made an error.
B – The bank collection was a note receivable. The note included principal of $500 and interest
of $100. No previous interest accruals had been made on the note.
Required
a.) Prepare a bank reconciliation dated July 31, 2017.
34
4-2A – Bank Reconciliation (Clearing Prior Month Items)
Dentalworks Inc.’s bank reconciliation dated February 28, 2017 is shown below.
Dentalworks Inc.
Bank Reconciliation
February 28
Ending Balance per bank: $24,500

Add: Deposits in transit 1,800
Deduct: Outstanding cheques

Cheque #2895 $500
Cheque #2897 300
Cheque #2898 1,300
(2,100)
Reconciling Balance $24,200
The company’s cash T-Account for March shows the following information:
Cash
March 1 Opening balance 24,200 March 2 Cheque #2899 600
March 6 Deposit 1,500 March 3 Cheque #2900 750
March 11 Deposit 800 March 5 Cheque #2901 885
March 30 Deposit 2,700 March 8 Cheque #2902 2,600
March 31 Deposit 1,250 March 11 Cheque #2903 1,100
March 16 Cheque #2904 50
March 21 Cheque #2906 1,900
March 31 Cheque #2909 1,500
19,090
The following comes from the company’s March 2017 Bank Statement:
March 1 Balance Forward 24,500
March 2 Deposit 1,800 26,300
March 4 Cheque #2899 600 25,700
March 5 Cheque #2898 1,300 24,400
March 6 EFT - Maintenance 105 24,295
March 7 Cheque #2900 750 23,545
March 7 Deposit 1,500 25,045
March 8 Bank Collection 840 25,885
March 10 Cheque #2897 300 25,585
March 11 Cheque #2902 2,600 22,985
March 13 Cheque #2903 1,100 21,885
March 13 Deposit 800 22,685
March 21 Cheque #2905 850 21,835
March 23 Cheque #2901 858 20,977
March 25 Cheque #2907 225 20,752
March 31 EFT – Rent (April) 1,300 19,452
March 31 Bank plan fee 15 19,437
March 31 Interest 1 19,438
A – The correct amount of cheque #2901 – a payment of an account payable is $858. The company’s bookkeeper
made an error.
B – The bank collection was a note receivable. The note included principal of $800 and interest of $40. No
previous interest accruals had been made on the note.
Required
a.) Prepare a bank reconciliation dated March 31, 2017.
35
4-2B – Bank Reconciliation (Clearing Prior Month Items)
CompuStore Inc.’s bank reconciliation dated August 31, 2017 is shown below.
CompuStore Inc.
Bank Reconciliation
August 31
Ending Balance per bank: $32,800

Add: Deposits in transit 1,500
Deduct: Outstanding cheques

Cheque #824 $700
Cheque #825 1,100
Cheque #826 1,000
(2,800)
Reconciling Balance $31,500
The company’s cash T-Account for September shows the following information:
Cash
Sept 1 Opening balance 31,500 Sept 1 Cheque #827 450
Sept 5 Deposit 3,000 Sept 3 Cheque #828 4,800
Sept 21 Deposit 2,500 Sept 10 Cheque #829 325
Sept 19 Cheque #832 700
Sept 21 Cheque #833 7,600
Sept 22 Cheque #834 1,950
27,265
The following comes from the company’s September 2017 Bank Statement:
Sept 1 Balance forward $32,800
Sept 1 Cheque #824 700 32,100
Sept 2 Cheque #825 1,100 31,000
Sept 2 NSF Cheque – J. Staples 500 30,500
Sept 2 Deposit 1,500 32,000
Sept 4 Cheque #827 450 31,550
Sept 6 Deposit 3,000 34,550
Sept 8 Cheque #828 4,800 29,750
Sept 10 EFT - Utilities 150 29,600
Sept 16 Cheque #830 1,520 28,080
Sept 18 Cheque #829 352 27,728
Sept 21 Deposit 2,500 30,228
Sept 23 Bank collection 2,200 32,428
Sept 24 Cheque #832 700 31,728
Sept 27 Deposit 6,000 37,728
Sept 28 Cheque #834 1,950 35,778
Sept 30 Cheque #835 50 35,728
Sept 30 Bank plan fee 25 35,703
Sept 30 Interest 3 35,706
A – The correct amount of cheque #829 – a payment of an account payable is $325. The bank made an error.
B – The bank collection was a note receivable. The note included principal of $2,000 and interest of $200. No
previous interest accruals had been made on the note.
Required
a.) Prepare a bank reconciliation dated September 30, 2017.
36
Module 5: Receivables
37
5-1A –Note receivable
On July 1, 2017, Lender Co. loaned $56,000 to B. Smith who signed a one-year 7% note.
Lender Co. has a November 30 fiscal year end.
Required:
Assuming the note is paid back in full on July 1, 2018, record all journal entries and adjustments
relevant to the note (from Lender Co’s perspective.)
5-1B –Note receivable

On April 30, 2017, Bell Co. loaned $7,000 to Y. Chang who signed a one-year 4% note. Bell
Co. has a June 30 fiscal year end.
Required:
Assuming the note is paid back in full on April 30, 2018, record all journal entries and
adjustments relevant to the note (from Bell Co’s perspective.)
5-2A –Notes receivable

Smith Company has the following transactions involving notes receivable:
January 1 Provided consulting services for D. Becker. Becker was unable to pay cash, but
signed a note for $9,000 bearing 5% annual interest.
March 1 Loaned $15,000 to A. Owusu. Owusu signed a one-year 10% note.
July 31 Becker repaid the note from January 1.
September 30 Loaned $20,000 to W. Branchflower. Branchflower signed a 6-month 7% note.
December 31 Accrued interest on all outstanding notes payable at year-end.
Required:
Record all entries and adjustments based on the information above.
5-2B –Notes receivable

Jones Company has the following transactions involving notes receivable:
May 31 Loaned $6,000 to Y. Yang. She signed a 5% note.

June 15 Yang repaid her loan.
August 1 Loaned $3,000 to A. Fergus. He signed a one-year 6% note.
November 15 Completed maintenance work for Redflag Construction. The company could not
pay and signed a one-year 8% note for $10,000.
January 31 Accrued interest on all outstanding notes payable at year-end. Interest is rounded
to the nearest ½ month.
Required:
Record all entries and adjustments based on the information above.
38
5-3A –Percentage of Sales Method
Salazar Inc. shows the following information on May 31, 2017, the company’s fiscal year-end:
Account Debit Credit

Accounts receivable $235,000
Allowance for doubtful accounts 2,000
Sales ($448,000 cash sales) $1,850,000
The company’s accountant estimates bad debts to be 2% of credit sales.
Required:
a.) Prepare the adjustment to allowance for doubtful accounts based on the information
above.
b.) Show how accounts receivable, net would be disclosed on the balance sheet.
5-3B –Percentage of Sales Method
Nethery Co. shows the following account balances on October 31, 2017, its fiscal year-end.

Allowance for doubtful accounts $300
Sales ($60,000 cash sales) 430,000
The company’s accountant estimates bad debts to be 3.5% of credit sales.
Required:
above.
39
5-4A – Aging of Receivables Method
Stormer Company shows the following information on July 31, 2017, the company’s fiscal year-
end:

Allowance for doubtful accounts 500
Sales ($5,000 cash sales) $75,000
The company’s accountant generated the following aging schedule of accounts receivable:
Number of Days Amount Estimated

Outstanding Receivable Uncollectible
0-30 days $3,000 1%
31-60 days 1,000 5%
61-90 days 600 10%
Over 90 days 400 40%
Required:
above.
40
5-4B – Aging of Receivables Method
Kilt Company shows the following information on January 31, 2017, the company’s fiscal year-
end:

Allowance for doubtful accounts $1,000
Sales ($55,000 cash sales) $981,000
The company’s accountant generated the following aging schedule of accounts receivable:
Number of Days Amount Estimated

Outstanding Receivable Uncollectible
0-30 days $42,000 1%
31-60 days 15,000 4%
61-90 days 6,000 8%
Over 90 days 5,000 25%
Required:
above.
41
5-5A – Writing off bad debts
On August 11, 2017, Aamco Carpet Cleaners wants to write off a $4,000 account receivable
from a customer: Good Sleep Hotels.
Required
Record the journal entry to write off this receivable.
5-5B – Writing off bad debts
On July 21, 2017, ABC Company wishes to write off a $200 receivable from XYZ Company.
Required
Record the journal entry to write off this receivable.
42
5-6A – Recording receivables transactions
On November 1, 2017, Recchi Company showed the following account balances:

During the next fiscal year, the following events occurred:
a.) Consulting revenues for the year were $425,000. 95% were on account, 5% were
cash sales.
b.) Collections for the year were $375,000.
c.) $5,000 was added to the total accounts receivable due to interest on overdue accounts.
d.) Writeoffs of uncollectible accounts totaled $3,500.
e.) One of the accounts written off in part d.) was collected: $750.
f.) On October 31, 2018 (the company’s fiscal-year end), using the aging-of-receivables
method, the allowance for doubtful accounts was estimated to be $3,500.
Required:
a.) Record journal entries based on the summary events above.
b.) Show how net receivables will be presented on the October 31, 2018 balance sheet.
43
5-6B – Recording receivables transactions
On January 1, 2017, Brown Company showed the following account balances:

During the next fiscal year, the following events occurred:
a.) Repair revenues for the year were $5,850,000. 75% were on account, 25% were cash
sales.
b.) Collections for the year were $4,705,000.
c.) $35,000 was added to the total accounts receivable due to interest on overdue
accounts.
d.) Writeoffs of uncollectible accounts totaled $27,000.
e.) One of the accounts written off in part d.) was collected: $2,250.
f.) On December 31, 2017 (the company’s fiscal-year end), using the aging-of-
receivables method, the allowance for doubtful accounts was estimated to be $33,000.
Required:
a.) Record journal entries based on the summary events above.
b.) Show how net receivables will be presented on the December 31, 2017 balance sheet.
44
Module 6: Inventory
Purchases, Sales, Returns
and Discounts
45
6-1A –Inventory Purchases and Returns
The following transactions occurred for Bellco:
May 7 Purchased $1,000 of inventory on account. Terms 2/10, n/30.

May 10 Some of the goods were damaged. Received a credit memo of $250.
May 14 Paid the bill.
Bellco uses a perpetual inventory system.
Required:
Prepare journal entries based on the transactions above.
6-1B –Inventory Purchases and Returns
The following transactions occurred for Chang Inc:
August 28 Purchased $5,000 of inventory on account. Terms 3/15, n/30.

September 3 Returned $400 of merchandise (not satisfied with the quality).
September 10 Paid the bill.
Chang Inc. uses a perpetual inventory system.
Required:
46
6-2A –Inventory Sales and Returns
The following transactions occurred for Smithco – a plumbing retailer:
January 6 Sold $3,000 of inventory on account. The inventory cost $1,200. Terms 2/10,
n/30.
January 11 Inventory was returned (it was not broken or damaged, just the wrong item.) A
$100 credit was applied to the customer’s account. The returned inventory had a
cost of $40.
January 15 Received payment for the amount owing.
Smithco uses a perpetual inventory system.
Required:
6-2B –Inventory Sales and Returns
The following transactions occurred for Bob Company:
July 14 Sold $1,000 of inventory on account. The inventory cost $700. Terms 3/10, n/30.
July 19 Inventory was returned broken. The inventory could not be repaired, and the
customer did not want a replacement. The inventory was discarded. A credit of
$200 was applied to their account. The original cost of the inventory was $120.
July 21 Received payment for the amount owing.
Bob Company uses a perpetual inventory system.
Required:
47
6-3A –Inventory Purchases, Sales, Returns and More!
The following transactions occurred for Romney Inc.:
February 1 Purchased inventory on account: $3,400. Terms: 2/10, n/30.

February 2 Paid freight on inventory of $200. (Paid cash).
February 5 Returned $400 of inventory from the February 1 purchase.
February 9 Paid for the inventory purchase of February 1.
February 11 Sold inventory for $3,500 on account. The inventory cost $1,600. Terms 2/10,
n/30.
February 14 Purchased inventory on account: $2,500. Terms: 1/15, n/30.
February 19 Sold inventory for $1,500 on account. The cost of inventory was $600. Terms
2/10, n/30.
February 21 Paid for inventory purchase from February 14.
February 24 Customer from February 11 transaction paid the amount owing.
February 25 Customer from the February 19 transaction returns $100 of inventory (cost: $40).
The inventory was in good condition and put back on the shelf for resale.
February 28 Customer from the February 19 sale pays the amount owing.
Romney Inc. uses a perpetual inventory system.
Required:
48
6-3B –Inventory Purchases, Sales, Returns and More!
The following transactions occurred for Perry Inc.:
March 1 Sold inventory on account for $1,500. The inventory cost $800. Terms 2/10,
n/30.
March 3 Purchased inventory on account: $2,800. Terms: 2/10, n/30.
March 5 Inventory was returned from the March 3 sale. The inventory was badly damaged
and was thrown out. A credit of $200 was given. The inventory had an original
cost of $110.
March 9 Received payment for the inventory sold on March 1.
March 16 Purchased inventory on account: $500. Terms: 1/5, n/15.
March 18 Paid freight on March 16 inventory purchase: $50.
March 22 Sold inventory for $3,000 on account. The cost of inventory was $1,100. Terms
2/10, n/30.
March 24 Paid for inventory purchase from March 16.
March 31 Customer from the March 22 sale paid the amount owing.
Perry Inc. uses a perpetual inventory system.
Required:
49
6-4A – Preparing a Merchandiser’s Financial Statements
Below is the adjusted trial balance of Julie’s Plumbing Supplies:
Julie’s Plumbing Supplies

Trial Balance
31-Mar-17
Debit Credit
Cash $24,000
Inventory 54,000
Equipment 125,000
Accumulated depreciation - equipment 20,000
Wages payable 7,000
Unearned revenues 5,000
Bank loan payable 84,000
Common shares 1,000
Dividends 6,000
Sales revenues 365,000
Sales returns and allowances 25,000
Cost of goods sold 150,000
Bad debt expense 5,000
Advertising expense 12,000
Utilities expense 2,000
Rent expense 15,000
Total $541,000 $541,000
Required:
a.) Assuming no shares were issued or repurchased during the year, in good form, prepare an
income statement, statement of changes in shareholders’ equity for the year ended March
31, 2017 and a balance sheet as at March 31, 2017.
b.) Compute the gross profit percentage based on your answer for requirement a.)
50
6-4B – Preparing a Merchandiser’s Financial Statements
Below is the adjusted trial balance of Fred’s Fishing Gear:
Fred’s Fishing Gear

Trial Balance
August 31, 2017
Debit Credit
Cash $85,000
Inventory 436,000
Prepaid rent 12,000
Office equipment 260,000
Accumulated depreciation - equipment 45,000
Salaries payable 12,000
Unearned revenues 53,000
Long-term note payable 185,000
Common shares 5,000
Dividends 12,000
Sales revenues 853,000
Sales returns and allowances 20,000
Salaries expense 125,000
Bad debt expense 25,000
Marketing expense 35,000
Utilities expense 12,000
Rent expense 28,000
Total $1,633,000 $1,633,000
Required:
a.) Assuming no shares were issued or repurchased during the year, in good form, prepare an
income statement, statement of changes in shareholders’ equity for the year ended August
31, 2017 and a balance sheet as at August 31, 2017.
b.) Compute the gross profit percentage based on your answer for requirement a.)
51
Module 7: Cost of
Inventory (FIFO, LIFO,
Weighted Average, and
Specific Identification)
52
7-1A – FIFO, LIFO and Weighted Average Inventory Records
Lakeshore Ltd. uses a perpetual inventory system and reports the following transactions for the
month of January:
Date Explanation Units Cost/Price

January 1 Beginning inventory 200 $25.00
January 5 Purchase 50 24.00
January 15 Sale 260 65.00
January 30 Sale 125 65.00
Required:
a.) Prepare inventory records using:
i. The FIFO method
ii. The LIFO method
iii. The weighted average method
b.) Under each of the methods you prepared in part a.) above, compute Sales, Cost of
Goods Sold and Gross Profit.
NOTE: Download the template at: http://bit.ly/inventorytemplate
7-1B – FIFO, LIFO and Weighted Average Inventory Records
Riverside Inc. uses a perpetual inventory system and reports the following transactions for the
month of July:

July 1 Beginning inventory 12 $100.00
July 4 Purchase 8 103.00
July 17 Sale 21 249.99
July 31 Sale 6 249.99
Required:
i. The FIFO method
ii. The LIFO method
53
7-2A – FIFO, LIFO and Weighted Average Inventory Records and Entries
Aberdeen Auto Mart uses a perpetual inventory system and reports the following transactions for
the month of May for one of its products:

May 1 Beginning inventory 20 $3.00
May 5 Purchase 5 3.25
May 13 Sale 22 7.99
May 31 Sale 13 7.99
Required:
i. The FIFO method
ii. The LIFO method
c.) Prepare journal entries for May 24 and May 31 under all methods.
7-2B – FIFO, LIFO and Weighted Average Inventory Records and Entries
Northhills Super Save uses a perpetual inventory system and reports the following transactions
for the month of December for one of its products:

December 1 Beginning inventory 6 $40.00
December 6 Purchase 4 42.00
December 11 Sale 7 88.99
December 31 Sale 10 88.99
Required:
i. The FIFO method
ii. The LIFO method
c.) Prepare journal entries for December 21 and December 31 under all methods.
54
7-3A – Lower of Cost and Net Realizable Value
On May 3, 2017, Smith Computing (a computer retailer) purchases a tablet computer for $300,
and immediately puts the tablet on sale for $449. The tablet received poor reviews in the press,
and it does not sell. On July 1, Smith Computing discounts the tablet to $399. It still doesn’t
sell. On August 15, the tablet gets further discounted to $349, but doesn’t sell. On December 26
(Boxing Day) the tablet gets discounted to $269. The tablet sells on January 8, 2018 for its
discounted price of $269.
Required
Record all entries required for the life of the tablet.
7-3B – Lower of Cost and Net Realizable Value

On June 1, 2017, Bill’s Ski World buys a new pair of Cambria Carbon Pro skis for $500 and puts
them on sale for $999. The skis do not sell, and see price reductions as follows:
August 18 - $900
September 30 - $750
November 15 - $700
December 26 - $550
February 14 - $450
April 1 - $400
The skis finally sell on April 6, 2018 for $400.
Required
Record all entries required for the life of the skis.
55
7-4A – Inventory Ratios
The following information relates to Apple (in millions of dollars):
2014 2013 2012

Cost of goods sold $112,258 $106,606 $87,846
Inventory 2,111 1,764 791
Required:
a.) Compute inventory turnover for 2013 and 2014
b.) Compute days sales in inventory for 2013 and 2014
c.) Comment on the results from parts a.) and b.)
7-4B – Inventory Ratios
The following information relates to Home Depot (in millions of dollars):
2015 2014 2013

Cost of goods sold $54,222 $51,422 $48,912
Inventory 11,079 11,057 11,710
Required:
a.) Compute inventory turnover for 2014 and 2015
b.) Compute days sales in inventory for 2014 and 2015
c.) Comment on the results from parts a.) and b.)
56
Module 8: Property,
Plant and Equipment
57
8-1A – Asset Cost
Frugal Bakery purchased a large oven on October 31, 2017. The costs included the cost of the
oven: $32,000; the cost of delivery: $2,000; insurance on the delivery: $200; insurance on the
oven for the year: $750; staff safety training to use the oven properly: $1,000 and installation:
$1,500. The company paid cash for the oven and all of the related costs.
Required:
Record the journal entry for the purchase of the oven.
8-1B – Asset Cost
Island Glass makes specialty doors and windows. On July 17, 2017, the company purchased a
new piece of equipment with the following costs: equipment: $2,500; delivery: $500; sales tax
(refundable) $300; insurance on delivery: $50; installation: $300; and employee training: $800.
The company paid cash for the equipment and all of the related costs.
Required:
Record the journal entry for the purchase of the equipment.
58
8-2A – Depreciation – Full Year, All Methods
On January 1, 2017, Table Co. purchased a new piece of equipment for $150,000. The
equipment had an expected useful life of five years, and an expected residual value of $40,000.
The company expected that in those five years, the machine would operate for 2,000 hours based
on the following schedule:
2017 – 300 hours

2018 – 500 hours
2019 – 550 hours
2020 – 450 hours
2021 – 200 hours
Required:
Assuming a December 31 fiscal year-end, prepare a depreciation schedule for the life of the asset
using:
a.) Straight-line depreciation
b.) Units-of-production depreciation
c.) Double-declining-balance depreciation
8-2B – Depreciation – Full Year, All Methods
On January 1, 2017, Stool Co. purchased a new vehicle for $45,000. The vehicle had an
expected useful life of six years, and an expected residual value of $15,000. The company
expected that in those six years, the vehicle would be driven for 150,000 kilometers based on the
following schedule:
2017 – 13,000 kilometers

Required:
using:
59
8-3A – Depreciation – Partial Year, All Methods
On July 31, 2017, Payton Inc. purchased a new piece of equipment for $500,000. The equipment
had an expected useful life of four years, and an expected residual value of $90,000. The
company expected that in those four years, the machine would produce 40,000 units based on the
following schedule:
2017 – 3,000 units

2018 – 11,000 units
2019 – 12,000 units
2020 – 10,000 units
2021 – 4,000 units
Required:
using:
8-3B – Depreciation – Partial Year, All Methods
On May 1, 2017, Kemp Co. purchased a new vehicle for $15,000. The vehicle had an expected
useful life of five years, and an expected residual value of $4,000. The company expected that in
those five years, the vehicle would be driven for 70,000 kilometers based on the following
schedule:

Required:
using:
60
8-4A – Disposing of Depreciable Assets at a Gain or Loss
Bill’s Towing purchased a new tow truck on April 1, 2017 for $110,000 cash. The company
expects to keep the tow truck for 10 years, after which time it plans to sell the truck for $20,000.
The company’s accountant wishes to use straight-line depreciation. Bill’s Towing has a fiscal
year end of August 31.
Required:
a.) Record the journal entry for the purchase of the truck
b.) Record the required year-end adjustment
c.) On November 30, 2017, Bill sells the truck. Record depreciation up to the date of the
sale.
d.) Assume that Bill sold the truck for:
i. $106,000 cash, record the journal entry for the sale
ii. $85,000 cash, record the journal entry for the sale
8-4B – Disposing of Depreciable Assets at a Gain or Loss
Gaby’s Family Restaurant purchases a new stove on July 31, 2017. The company pays $7,000
cash. Gaby expects the stove to be useful for 5 years after which time she expects to sell it for
$500. The company has a December 31 fiscal-year end and would like to use straight-line
depreciation.
Required:
a.) Record the journal entry for the purchase of the stove.
b.) Record the required year-end adjustment
c.) On March 31, 2018, Gaby sells the stove. Record depreciation up to the date of the
sale.
d.) Assume that Bill sold the truck for:
i. $6,600 cash, record the journal entry for the sale
ii. $3,300 cash, record the journal entry for the sale
61
Module 9: Liabilities
62
9-1A – Short-Term Note Payable
On September 1, 2017, Taylor Inc. borrowed $30,000 and signed a note promising to pay back
the principal plus 5% interest after nine months. The company’s fiscal-year end is January 31.
Required:
Assuming the company makes the repayment as agreed, record all journal entries and
adjustments required for the note.
9-1B – Short-Term Note Payable
On May 31, 2017, Anderson Co. borrowed $55,000 and signed a note promising to pay back the
principal plus 9% interest after eight months. The company’s fiscal-year end is November 30.
Required:
Assuming the company makes the repayment as agreed, record all journal entries and
adjustments required for the note.
63
9-2A – Long-Term Loan
On July 31, 2017, Wade Co. borrowed $500,000, signing a 20-year, 5% mortgage. The
mortgage calls for annual blended payments of $40,121 on July 31 starting in 2018. The
company’s fiscal-year end is December 31.
Required
a.) Prepare a schedule for the first three annual payments showing the interest and principal
amounts being paid.
b.) Prepare journal entries for:
i. The loan
ii. The fiscal year-end
iii. The first payment
9-2B – Long-Term Loan
On October 31, 2017, Bunting Inc. borrowed $100,000, signing a 5-year, 6% mortgage. The
mortgage calls for annual blended payments of $23,317 starting in 2018. The company’s fiscal-
year end is December 31.
Required
a.) Prepare a schedule for the first three annual payments showing the interest and principal
amounts being paid.
b.) Prepare journal entries for:
i. The loan
ii. The fiscal year-end
iii. The first payment
64
9-3A – Bond Issued at a Discount
On February 1, 2017, Tinger Inc. issues a $250,000 10-year 5% bond. The market rate of interest
is 6%. Because the market rate is higher than the bond rate, the bonds issue at a discount. The
bond quote is: 92.561. The bonds pay interest semi-annually on February 1 and August 1. The
company’s fiscal-year end is September 30.
Required
a.) Prepare a bond amortization schedule for the issuance and the first three interest periods.
b.) Record the journal entry required on:
i. The issuance of the bond. (February 1, 2017)
ii. The first interest payment. (August 1, 2017)
iii. The company’s fiscal year-end. (September 30, 2017)
iv. The second interest payment. (February 1, 2018)
9-3B – Bond Issued at a Discount
On November 1, 2017, Terry Co. issues a $50,000 5-year 3% bond. The market rate of interest is
5%. Because the market rate is higher than the bond rate, the bonds issue at a discount. The
bond quote is: 91.248. The bonds pay interest semi-annually on May 1 and November 1. The
company’s fiscal-year end is May 31.
Required
i. The issuance of the bond. (November 1, 2017)
ii. The first interest payment. (May 1, 2018)
iii. The company’s fiscal year-end. (May 31, 2018)
iv. The second interest payment. (November 1, 2018)
65
9-4A – Bond Issued at a Premium
On April 30, 2017, Smokey Inc. issues a $100,000 10-year 7% bond. The market rate of interest
is 6%. Because the market rate is lower than the bond rate, the bonds issue at a premium. The
bond quote is: 107.439. The bonds pay interest semi-annually on October 31 and April 30. The
Required
i. The issuance of the bond. (April 30, 2017)
ii. The first interest payment. (October 31, 2017)
iii. The company’s fiscal year-end. (December 31, 2017)
iv. The second interest payment. (April 30, 2018)
9-4B – Bond Issued at a Premium
On July 31, 2017, Bandit Inc. issues a $1,250,000 10-year 5% bond. The market rate of interest
is 4.5%. Because the market rate is lower than the bond rate, the bonds issue at a premium. The
bond quote is: 103.991. The bonds pay interest semi-annually on January 31 and July 31. The
Required
i. The issuance of the bond. (July 31, 2017)
ii. The company’s fiscal year-end. (December 31, 2017)
iii. The first interest payment. (January 31, 2018)
iv. The second interest payment. (July 31, 2018)
66
9-5A – Computing Bond Issue Price
On November 30, 2017, Jones Inc. issues a $5,000,000 20-year 7% bond. The market rate of
interest is 6%.
Required
a.) Compute the issue price of the bond.

b.) Compute the bond quote.
9-5B – Computing Bond Issue Price
On July 31, 2017, Birthday Store Co. issues a $1,000,000 10-year 5% bond. The market rate of
interest is 5.5%.
Required
a.) Compute the issue price of the bond.

b.) Compute the bond quote.
67
Module 10: Equity
68
10-1A – Equity transactions, Statement of Changes in Shareholders’ Equity
The December 31, 2016 shareholders’ equity section of Bossman Inc.’s balance sheet is shown
below:
Preferred shares, $10 non-cumulative, 500 issued $50,000

Common shares, 20,000 issued 200,000
Total shareholders’ equity $1,000,000
The following equity transactions occurred during 2017:
Jan 31 Issued 5,000 common shares for $12 each.

May 14 Issued 100 preferred shares in exchange for equipment with a fair value of
$90,000.
July 1 Declared the regular cash dividend on preferred shares.
July 15 Paid the regular cash dividend on preferred shares.
August 7 Declared and issued a 20% stock dividend on common shares at a time when the
market price was $13 per share.
Required:
a.) Journalize the transactions above.
b.) Assuming net income for the year was $125,000, prepare the statement of changes of
shareholders’ equity for the year ended December 31, 2017.
69
10-1B – Equity transactions, Statement of Changes in Shareholders’ Equity
The December 31, 2016 shareholders’ equity section of Kamala Co.’s balance sheet is shown
below:
Preferred shares, $2 cumulative, 1,000 issued $25,000

Common shares, 10,000 issued 150,000
Total shareholders’ equity $375,000
The following equity transactions occurred during 2017:
Jan 15 Issued 1,000 common shares for a piece of land with a fair value of $160,000.
Mar 21 Issued 100 preferred shares for $3000 cash.
August 1 Declared the regular cash dividend on preferred shares.
August 10 Paid the regular cash dividend on preferred shares.
November 8 Declared and issued a 10% stock dividend on common shares at a time when the
market price was $18 per share.
Required:
a.) Journalize the transactions above.
b.) Assuming net income for the year was $50,000, prepare the statement of changes of
shareholders’ equity for the year ended December 31, 2017.
70
10-2A – Equity section analysis
The December 31, 2017 shareholders’ equity section of Hart Inc.’s balance sheet is shown
below:
Preferred shares, $6 non-cumulative, 1,500 issued $75,000

Common shares, 1,000,000 authorized, 40,000 issued 80,000
Total shareholders’ equity $275,000
Required:
a.) How much were the preferred shares issued for?
b.) How much were the common shares issued for?
c.) What does authorized mean as it relates to common shares?
d.) What does the term “non-cumulative” mean in relation to preferred shares?
e.) What amount must the preferred shareholders receive before common shareholders can
be paid a dividend?
f.) Assume the company declared and paid the preferred dividend and also paid a dividend
of $2 per common share. Journalize the transaction.
71
10-2B – Equity section analysis
The December 31, 2017 shareholders’ equity section of Hart Inc.’s balance sheet is shown
below:
Preferred shares, $2 cumulative, 2,500 issued $250,000

Common shares, 10,000,000 authorized, 10,000 issued 500,000
Total shareholders’ equity $1,050,000
Required:
a.) How much were the preferred shares issued for?
b.) How much were the common shares issued for?
c.) What does authorized mean as it relates to common shares?
d.) What does the term “cumulative” mean in relation to preferred shares?
e.) What amount must the preferred shareholders receive before common shareholders can
be paid a dividend?
f.) Assume the company has not paid any dividends in 2016 or 2017. On January 15, 2018
the company wishes to pay common shareholders a dividend of $1 per share. How much
must they pay preferred shareholders at that time? Record the journal entry for both the
preferred and common dividends.
72
Module 11: Statement of
Cash Flows
73
11-1A – Basic Cash Flow Statement
The financial statements of Bait and Tackle are presented below:
Bait and Tackle

Balance Sheet
As at December 31
2017 2016
Cash $39,000 $24,000
Accounts receivable 64,000 50,000
Inventory 58,000 88,000
Equipment 325,000 250,000
Accumulated depreciation (92,000) (125,000)
Total assets $394,000 $287,000
Accounts payable $32,000 $40,000

Income taxes payable 10,000 11,000
Bank loan payable 20,000 0
Common shares 60,000 50,000
Retained earnings 272,000 186,000
Total liabilities and shareholders’ equity $394,000 $287,000
Bait and Tackle

Income Statement
For the Year Ended December 31, 2017
Sales $635,000
Gross profit 315,000
Operating expenses 135,000
Operating income 180,000
Income before taxes 179,000
Income taxes 43,000
Net income $136,000
Additional information:
1.) Operating expenses are composed of: Depreciation $12,000; Salaries $50,000; Loss on Sale of Equipment
$9,000; other operating expenses $64,000.
2.) Other operating expenses are cash expenses.
3.) Equipment was purchased during the year for $135,000 cash.
4.) Equipment was sold for cash during the year. The original cost of the equipment was $60,000, and the
accumulated depreciation was $45,000.
5.) Dividends were declared and paid during the year.
Required:
Prepare a cash flow statement using the direct method or indirect method or both (depending on what your instructor
assigns).
74
11-1B – Basic Cash Flow Statement
The financial statements of Safety First are presented below:
Safety First
Balance Sheet
As at December 31
2017 2016
Cash $2,600 $500
Accounts receivable 500 700
Inventory 2,500 2,300
Equipment 21,000 17,000
Total assets $22,800 $17,500
Accounts payable $200 $600

Income taxes payable 400 200
Common shares 200 100
Safety First
Income Statement
For the Year Ended December 31, 2017
Sales $51,000
Gross profit 22,000
Interest expense 100
Income taxes 2,000
Net income $4,900
$400; other operating expenses $800.
2.) Other operating expenses are cash expenses.
Required:
assigns).
75
11-2A –Cash Flow Statement
The financial statements of Simmons Inc. are presented below:
Simmons Inc.
Balance Sheet
As at May 31
2017 2016
Cash $37,000 $35,000
Inventory 18,000 15,000
Prepaid insurance 2,000 3,000
Building and equipment 92,000 77,000
Total assets $132,000 $123,000

Salaries payable 4,000 6,000
Bank loan payable 30,000 10,000
Simmons Inc.
Income Statement
For the Year Ended May 31, 2017
Sales $425,000
Income taxes 10,000
Net income $39,000
1.) Operating expenses are composed of: Depreciation $21,000; Salaries $134,000; Gain on Sale of Equipment
2.) Prepaid insurance is related to the other operating expenses.
Required:
assigns).
76
11-2B –Cash Flow Statement
The financial statements of Kimmel Inc. are presented below:
Kimmel Inc.
Balance Sheet
As at July 31
2017 2016
Cash $104,000 $123,000
Inventory 409,000 368,000
Total assets $1,091,000 $1,056,000

Total liabilities and shareholders’ equity $1,091,000 $1,056,000
Kimmel Inc.
Income Statement
For the Year Ended July 31, 2017
Sales $931,000
Income taxes 40,000
Net income $125,000
Required:
assigns).
77
11-3A –Cash Flow Statement
The financial statements of Vita Cleanse Inc. are presented below:
Vita Cleanse Inc.

Balance Sheet
As at June 30
2017 2016
Cash $326,000 $385,000
Inventory 1,325,000 1,105,000
Building and equipment 1,591,000 1,659,000
Total assets $2,275,000 $2,375,000

Dividends payable 4,000 6,000
Bank loan payable 1,500,000 1,700,000
Vita Cleanse Inc.

Income Statement
For the Year Ended June 30, 2017
Sales $3,650,000
Cost of goods sold 2,140,000
Gross profit 1,510,000
Income taxes 115,000
Net income $327,000
1.) Operating expenses are composed of: Depreciation $238,000; Salaries $588,000; Loss on Sale of
Equipment $23,000; other operating expenses $76,000.
Required:
assigns).
78
11-3B –Cash Flow Statement
The financial statements of CGP Inc. are presented below:
CGP Inc.
Balance Sheet
As at April 30
2017 2016
Cash $58,500 $18,000
Inventory 41,000 37,000
Total assets $176,500 $141,200

Dividends payable 1,000 500
Income taxes payable 800 2,000
CGP Inc.
Income Statement
For the Year Ended April 30, 2017
Sales $125,000
Gross profit 77,000
Income taxes 4,500
Net income $13,000
1.) Operating expenses are composed of: Depreciation $8,000; Salaries $41,000; Gain on Sale of Equipment
Required:
assigns).
79
11-4A –Cash Flow Statement – Challenging Problem
The financial statements of Brady Inc. are presented below:
Brady Inc.
Balance Sheet
As at September 30
2017 2016
Cash $600 $2,000
Inventory 48,000 24,000
Total assets $100,100 $74,500

Dividends payable 600 500
Interest payable 800 100
Unearned revenues 6,000 4,000
Income taxes payable 100 300
Brady Inc.
Income Statement
For the Year Ended September 30, 2017
Sales $108,000
Gross profit 54,000
Income taxes 1,000
Net income $3,500
4.) Equipment was sold for cash during the year.
6.) Unearned revenues are collected from customers.
7.) Paid off $2,000 of long-term note and issued a new note for cash.
Required:
assigns).
80
11-4B –Cash Flow Statement – Challenging Problem
The financial statements of Wilson Inc. are presented below:
Wilson Inc.
Balance Sheet
As at October 31
2017 2016
Cash $821,000 $580,000
Inventory 850,000 880,000
Building and equipment 3,512,000 3,400,000
Accumulated depreciation (1,940,000) (1,800,000)
Total assets $3,648,000 $3,448,000

Dividends payable 65,000 50,000
Interest payable 25,000 15,000
Unearned revenues 200,000 180,000
Bank loan payable 1,400,000 1,100,000
Retained earnings 1,278,000 1,408,000
Wilson Inc.
Income Statement
For the Year Ended October 31, 2017
Sales $1,500,000
Income taxes 35,000
Net income $120,000
1.) Operating expenses are composed of: Depreciation $200,000; Salaries $420,000; Gain on Sale of
Equipment $15,000; other operating expenses $75,000.
4.) Equipment was sold for cash during the year.
6.) Unearned revenues are collected from customers.
7.) Paid off $100,000 of bank loan and signed a new loan for additional cash.
Required:
assigns).
81
Module 12: Ratios and
Financial Statement
Analysis
82
Common Financial Ratios
Liquidity
Current Ratio Current Assets
Current Liabilities
Acid-Test Ratio Cash + Short-term investments + Net current receivables
Current liabilities
Turnover
Inventory Turnover Cost of goods sold
Average inventory
Days’ sales in inventory 365 days d
Inventory turnover
Accounts receivable Net credit sales d
turnover Average net accounts receivable
Collection period 365 days d
Accounts receivable turnover
Long-Term Debt Paying Ability
Debt ratio Total liabilities
Total assets
Times-interest-earned Income from operations
Interest expense
Profitability
Gross profit percentage Gross profit
Net sales
Return on sales Net income
Net sales
Return on assets Net income + Interest expense
Average total assets
Return on equity Net income – Preferred dividends
Average common shareholders’ equity
Earnings per share Net income – Preferred dividends d
Average number of common shares outstanding
Stock Market Performance
Price/earnings ratio Market price per common share
Earnings per share
Dividend yield Dividends per share
Market price per share
83
12-1A – Horizontal Analysis
Below is a comparative income statement for Elky Co.:
Elky Co.
Income Statement
For the years ended December 31
2017 2016
Sales $168,000 $151,000
Cost of goods sold 90,000 78,000
Gross profit 78,000 73,000
Operating expenses 32,000 30,000
Operating income 46,000 43,000
Interest expense 2,000 3,000
Income before taxes 44,000 40,000
Income taxes 11,000 10,000
Net income $33,000 $30,000
Required:
a.) Prepare a horizontal analysis for the company calculating the change and percentage
change of each line item from one year to the next. (Round your answers to the nearest
tenth of a percent, ie 0.13578  13.6%)
b.) Which item/items in your analysis would you wish to investigate? Why?
84
12-1B – Horizontal Analysis
Below is a comparative income statement for Dwan Inc.:
Dwan Inc.
Income Statement
For the years ended July 31
2017 2016
Sales $580,000 $415,000
Gross profit 295,000 210,000
Net income $125,000 $105,000
Required:
a.) Prepare a horizontal analysis for the company calculating the change and percentage
change of each line item from one year to the next. (Round your answers to the nearest
tenth of a percent, ie 0.13578  13.6%)
b.) Which item/items in your analysis would you wish to investigate? Why?
85
12-2A – Vertical Analysis
Harpreet Gill is concerned about his company’s financial performance and financial position. He
has obtained the financial statements of his largest competitor, Hossain Inc. and notes that the
company is over ten times larger than his, so it is making the numbers difficult to compare.
Below is condensed financial information from Hossain Inc. and Gill Inc.:
Hossain Inc. and Gill Inc.

Income Statements
For the years ended August 31, 2017
Hossain Gill
Sales $5,600,000 $450,000
Cost of goods sold 2,300,000 160,000
Gross profit 3,300,000 290,000
Operating expenses 2,200,000 125,000
Operating income 1,100,000 165,000
Income before taxes 1,040,000 160,000
Net income $740,000 $112,000
Hossain Inc. and Gill Inc.

Balance Sheets
As at August 31, 2017
Hossain Gill
Current assets $1,450,000 $85,000
Long-term assets 3,000,000 250,000
Total assets $4,450,000 $335,000
Current liabilities $500,000 $68,000

Long-term liabilities 1,500,000 120,000
Total liabilities 2,000,000 188,000
Shareholders’ equity 2,450,000 147,000
Total liabilities and shareholders’ equity $4,450,000 $335,000
Required:
a.) Prepare a vertical analysis for the companies calculating the relative percentages of each
item in the financial statements. (Round your answers to the nearest tenth of a percent, ie
0.13578  13.6%)
b.) Comment on the common-sized income statements of the companies (prepared in part a.).
c.) Comment on the common-sized balance sheets of the companies (prepared in part a.).
86
12-2B – Vertical Analysis
Siracusa Inc. and Arment Co. are competing technology retailers.
Below is condensed financial information from the companies:
Siracusa Inc. and Arment Co.

Income Statements
For the years ended December 31, 2017
Siracusa Arment
Sales $850,000 $250,000
Gross profit 550,000 140,000
Net income $165,000 $55,000
Siracusa Inc. and Arment Inc.

Balance Sheets
As at December 31, 2017
Siracusa Arment
Current assets $225,000 $50,000
Long-term assets 750,000 250,000
Total assets $975,000 $300,000
Current liabilities $200,000 $20,000

Long-term liabilities 450,000 100,000
Total liabilities 650,000 120,000
Shareholders’ equity 325,000 180,000
Required:
a.) Prepare a vertical analysis for the companies calculating the relative percentages of each
item in the financial statements. (Round your answers to the nearest tenth of a percent, ie
0.13578  13.6%)
b.) Comment on the common-sized income statements of the companies (prepared in part a.).
c.) Comment on the common-sized balance sheets of the companies (prepared in part a.).
87
12-3A – Ratio Analysis
Below are the financial statements of Squirrel Co.
Squirrel Co.
Income Statement
For the Year Ended November 30
2017 2016
Sales, net $3,600,000 $3,900,000
Cost of goods sold 1,500,000 1,600,000
Gross profit 2,100,000 2,300,000
Operating expenses 1,600,000 2,000,000
Net income $215,000 $110,000
Squirrel Co.
Balance Sheet
As at November 30
2017 2016 2015
Cash $150,000 $53,000 $125,000
Accounts receivable, net 140,000 80,000 55,000
Inventory 450,000 350,000 300,000
Prepaid insurance 35,000 20,000 25,000
Total current assets 775,000 503,000 505,000
Property, plant and equipment, net 600,000 550,000 400,000
Total assets $1,375,000 $1,053,000 $905,000
Accounts payable $350,000 $185,000 $160,000

Salaries payable 37,000 50,000 35,000
Total current liabilities 387,000 235,000 195,000
Bank loan payable 550,000 500,000 450,000
Total liabilities 937,000 735,000 645,000
Preferred shares $20 (1,000 shares all years) 150,000 150,000 150,000
Common shares (50,000 shares all years) 100,000 100,000 100,000
Retained earnings 188,000 93,000 10,000
Total shareholders’ equity 438,000 343,000 260,000
Total liabilities and shareholders’ equity $1,375,000 $1,053,000 905,000
2017 2016 2015
Market price per share $150 $50 $35
Dividends per share $2.00 $1.00 $0.50
Required:
a.) For 2016 and 2017, compute all “Common Financial Ratios” from the beginning of this module. For each
ratio note whether it is getting Better (B) or Worse (W).
b.) Comment on the financial performance and position of the company.
88
12-3B – Ratio Analysis
Below are the financial statements of Moose Co.
Moose Co.
Income Statement
For the Year Ended May 31
2017 2016
Sales, net $2,100,000 $1,600,000
Gross profit 1,200,000 950,000
Income taxes 120,000 100,000
Net income $355,000 $305,000
Moose Co.
Balance Sheet
As at May 31
2017 2016 2015
Cash $175,000 $220,000 $155,000
Accounts receivable, net 61,000 150,000 100,000
Inventory 525,000 450,000 400,000
Prepaid insurance 40,000 35,000 50,000
Total current assets 801,000 855,000 705,000
Property, plant and equipment, net 950,000 703,000 750,000
Total assets $1,751,000 $1,558,000 $1,455,000
Accounts payable $25,000 $175,000 $160,000

Salaries payable 40,000 30,000 60,000
Unearned revenues 90,000 140,000 125,000
Total current liabilities 155,000 345,000 345,000
Bank loan payable 660,000 500,000 600,000
Total liabilities 815,000 845,000 945,000
Preferred shares $4 (500 shares all years) 50,000 50,000 50,000
Common shares (10,000 shares all years) 150,000 150,000 150,000
Retained earnings 736,000 513,000 310,000
Total shareholders’ equity 936,000 713,000 510,000
Total liabilities and shareholders’ equity $1,751,000 $1,558,000 $1,455,000
2017 2016 2015
Market price per share $200 $190 $160
Dividends per share $13.00 $12.00 $10.00
Required:
a.) For 2016 and 2017, compute all “Common Financial Ratios” from the beginning of this module. For each
ratio note whether it is getting Better (B) or Worse (W).
b.) Comment on the financial performance and position of the company.
89

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Financial Accounting

© Tony Bell, 2016

Assets Liabilities Shareholders’ Equity

Business #1 ? $181,000 $212,000

* Business #4’s equity is in an accumulated deficit position.

1-1B – Accounting Equation

Assets Liabilities Shareholders’ Equity

Business #1 ? $80,000 $60,000

* Business #4’s equity is in an accumulated deficit position.

Income tax expense

Bank loan payable

Income tax expense

Wages payable $1,600 Insurance expense $4,000

Dividends 3,000 Telephone expense 400

Cash 5,000 Equipment, net 30,000

Common shares (Jan 1, 2017) 60,000 Bank loan 45,000

Accounts payable 2,200 Retained earnings (January 1, 2017) 10,000

Buildings, net 100,000 Accounts receivable 1,000

Shuttle revenue 69,300 Office supplies 500

Fuel expense 11,000 Wages expense 30,000

Depreciation expense 2,000 Utilities expense 1,200

Retained earnings (Oct. 1, 2017) $118,090 Admission revenue $25,000

There were no common shares issued or repurchased during the month.

Accumulated depreciation - buildings $12,000 Travel expense $6,000

 There were no common shares issued or repurchased during the year.

 The current portion of the mortgage payable was $8,000.

Bank loan payable 4,000 Income tax expense 200

 There were no common shares issued or repurchased during the year.

 The current portion of the bank loan payable was $600.

Depreciation expense 24,000 Accumulated depreciation - equipment 61,000

 The company issued $250,000 of common shares during the year.

 There were no shares repurchased during the year.

Utilities expense 1,500 Accounts payable 300

 The company issued $1,000 of common shares during the year.

 There were no shares repurchased during the year.

June 3 Purchased equipment on account. $8,000 is due to be paid on April 3, 2017.

June 6 Paid $100 to sponsor a local sports team.

June 10 Paid $250 dividend to shareholders.

June 14 Paid employees’ salaries of $2,000.

June 22 Paid for the equipment purchase from June 3.

June 30 Paid employees’ salaries of $2,000.

Record all necessary journal entries based on the transactions above.

March 3 Paid $1,000 cash to advertise online.

March 5 Purchased equipment on account: $3,000.

March 16 Joe paid his employees’ salaries of $3,000.

March 17 Purchased fuel for the vehicles: $500

March 19 Paid $800 to repair a broken window on one of the vans.

March 20 Paid for the March 5 equipment purchase.

March 22 Received a utilities bill: $200. Did not pay yet.

March 25 Received the last $1,000 from the March 15 tour.

March 31 Took a second tour group of 15 people. Each paid $1,000.

March 31 Paid employees’ salaries of $3,000.

March 31 Took a dividend of $5,000.

Record all necessary journal entries based on the transactions above.

August 12 Purchased supplies on account: $200.

August 14 Took a dividend of $500 to pay for personal expenses.

August 19 Received and paid the utilities bill, $200.

August 20 Paid for the August 5 equipment purchase.

August 21 Received a telephone bill: $200. Did not pay yet.

August 24 Received payment for the August 13th job.