Handsout Financial Accounting

Supplemental Instruction Handouts
Financial Accounting
Review of Chapters 8, 9, 11, and Appendix I
Answer Key
1. On December 31, 2019, at the end of the current accounting period for Apex Company,
the allowance for doubtful accounts had a credit balance of $750. On the following March
18, 2019, management decided the $490 account of M. Peters was uncollectible and
wrote it off using the allowance method. About three months later, on June 20, 2019,
Peters unexpectedly paid the amount previously written off. On December 31, 2019,
Apex Company made their year-end adjustment to the allowance account by calculating
5% of credit sales. The company’s credit sales were $55,000 for the year.
Required:
Prepare the necessary general journal entries for March 18, June 20 and December 31,
2019.
General Journal Page ____

Date Account Titles and Explanations PR Debit Credit
Mar 18 Allowance for Doubtful Accounts 490
Accounts Receivable – M. Peters 490
June 20 Accounts Receivable – M. Peters 490

Allowance for Doubtful Accounts 490
June 20 Cash 490

Accounts Receivable – M. Peters 490
Dec 31 Bad Debts Expense 2,750

Allowance for Doubtful Accounts 2,750
Academic Success Centre www.rrc.mb.ca/asc

These answers were created by Michael Reimer and corrected by Gerry Richards for the
Academic Success Centre.
2. At the end of each year, Store Ur Stuff Self Storage Company uses their ending balance
in accounts receivable to estimate their bad debts for the coming year. On December 31,
2019, the company’s year-end, it has outstanding accounts receivable of $65,000 and
estimates that 6% will be uncollectible.
Required:
Prepare the necessary general journal entry to record bad debts expense for 2019 under
each of the following unrelated assumptions:
A. There is a $967 credit balance in the allowance account before the adjustment.

($65,000 x 0.06 = $3,900 – $967 = $2,933)
B. There is a $1,584 debit balance in the allowance account before the adjustment.

($65,000 x 0.06 = $3,900 + $1,584 = $5,484)

3. The Bettis Company had the following transactions involving notes receivable:
2019:
November 1 Accepted a $4,500, five month, 7% note dated today from S. Smith in
granting a time extension on his past due account.
December 31 Made an adjusting entry to record the accrued interest on the S. Smith note.
2020:
January 25 Accepted a $2,300, 90 day, 5% note dated today from L. Saunders in granting a
time extension on her past due account.
April 1 S. Smith dishonored his note when presented for payment.
April 24 L. Saunders honored her note when presented for payment.
December 31 After exhausting all legal means of collection, wrote off S. Smith’s account
using the allowance method.
Required:
Prepare general journal entries for each transaction described above.

2019
Nov 1 Notes Receivable 4,500
Accounts Receivable – S. Smith 4,500
Dec 31 Interest Receivable 52.50

Interest Income ($4,500 x 0.07 x 2/12) 52.50
2020
Jan 25 Notes Receivable 2,300
Accounts Receivable – L. Saunders 2,300
April 1 Accounts Receivable – S. Smith 4,631.25

Interest Receivable 52.50
Notes Receivable 4,500
April 24 Cash 2,328.36

Notes Receivable 2,300
Dec 31 Allowance for Doubtful Accounts 4,631.25

Accounts Receivable – S. Smith 4,631.25
4. The accountant for your company has prepared a schedule of the December 31, 2019,
accounts receivable by age and, on the basis of past experience, has estimated the
percentage of the receivables in each age category that will become uncollectible. This
information is summarized in the following table:
December 31, 2019 Age of Expected Percentage

Accounts Receivable Accounts Receivable Uncollectible
$112,500 Not Due (under 30 days) 3%
$48,500 1 to 30 days past due 6%
$23,650 31 to 60 days past due 12%
$12,750 61 to 90 days past due 36%
$4,300 Over 90 days past due 75%
Required:
Prepare the necessary year end adjusting entry based on the following independent
assumptions:
A. The allowance account has a credit balance of $4,350.

($112,500 x 0.03) + ($48,500 x 0.06) + ($23,650 x 0.12) + ($12,750 x 0.36) + ($4,300 x 0.75)
= $3,375 + $2,910 + $2,838 + $4,590 + $3,225 = $16,938 – $4,350 = $12,588
B. The allowance account has a debit balance of $2,250.

$16,938 + $2,250 = $19,188

5. On January 14, 2015, at the end of the first pay period of the year, a company’s Payroll
Register showed that its employees had earned $25,000 of sales salaries and $14,250 of
office salaries. Withholdings from the employees’ salaries were to include $679 of EI,
$1,943 of CPP, $7,850 of income taxes, $1,500 of hospital insurance, and $650 of union
dues.
Required:
A. Prepare the journal entry to record the January 14 employee’s payroll.

Jan 14 Sales Salaries Expense 25,000
Office Salaries Expense 14,250
EI Payable 679
CPP Payable 1,943
Income Tax Payable 7,850
Hospital Insurance Payable 1,500
Union Dues Payable 650
Salaries Payable 26,628
B. Prepare a journal entry to record the employer’s payroll expenses resulting from the
January 14 payroll.

Jan 14 EI Expense 950.60
CPP Expense 1,943
EI Payable (679 x 1.4) 950.60
CPP Payable 1,943
C. Prepare the journal entry the employer would make to pay the payroll deductions to
the government on January 28.

Jan 28 EI Payable (679 + 950.60) 1629.60
CPP Payable (1943 + 1943) 3,886
Income Tax Payable 7,850
Cash 13,365.60

6. The following information as to earnings and deductions for the weekly pay period
ended May 20, 2015 was taken from a company’s payroll records:
Employees Weekly Earnings Income Health A. EI A. CPP A. Total B. Net

(3,500/52)
Gross to End of Taxes Insurance (Gross (Gross Pay Deductions Pay
Pay Previous Deductions Pay x – 67.31) x
0.0495
Week 0.0188)
M. Cullen $ 840 $16,800 $168 $24 $15.79 $38.25 $246.04 $593.96
J. Hanson $ 920 $18,400 $184 $24 $17.30 $42.21 $267.51 $652.49
A. Lee $ 760 $15,200 $152 $36 $14.29 $34.29 $236.58 $523.42
M. Mann $1,200 $24,000 $240 $24 $22.56 $56.07 $342.63 $857.37
Totals $3,720 $744 $108 $69.94 $170.82 $1,092.76 $2,627.24
Required:
A. In the chart above calculate the employee’s EI, CPP withholdings and Total Deductions.
B. In the chart above calculate each employees net pay.
C. Prepare a general journal entry to record the employee’s payroll assuming all
employees work in the office.

May 20 Office Salaries Expense 3,720
Income Tax Payable 744
Hospital Insurance Payable 108
EI Payable 69.94
CPP Payable 170.82
Salaries Payable 2,627.24

7. On January 3, 2019, your company purchased a machine for $23,000 with terms of
2/10, n/60, and FOB shipping point. The company always pays within the discount period.
The seller sent a second invoice for the shipping charges of $520. The machine required a
special steel mounting plate and a new power connection at a cost of $2,940. Assembly of
the machine cost $750 to get it into operation. While the machine was being moved onto
the steel mounting plate it was dropped and damaged. The cost of repairs was $380 to get
it working properly. Later, $100 of raw materials was consumed in adjusting the machine
so that it would produce a satisfactory product. The adjustments were normal for this
type of machine and were not the result of the damage. However, the items produced
while the adjustments were being made were not sellable.
Required:
A. Prepare a calculation to show the cost of this machine.
$23,000 x (1 – 0.02) = $22,540 + $520 + $2,940 + $750 + $100 = $26,850
B. Prepare the general journal entry on January 3rd for the purchase of the machine,
assuming the company paid cash for the machine.

Jan 3 Machine 26,850
Cash 26,850
C. Calculate the depreciation for the machine for 2020 using the double – declining
balance method. Your company believes this machine will have a useful life of 3 years and
a residual value of $500.
2019 2020
$26,850 x 2/3 = $17,900 ($26,850 – $17,900) x 2/3 = $5,966.67
D. Prepare the adjusting journal entry for the end of the year, December 31, 2020.

Dec 31 Depreciation Expense 5,966.67
Accumulated Depreciation – Machine 5,966.67

8. On March 20, 2019, Piper Plumbing Company paid $184,125 for real estate plus $9,800
in closing costs. The real estate included land appraised at $83,160; land improvements
appraised at $27,720 and a building appraised at $87,120.
Required:
A. Prepare a calculation showing the allocation of the total cost amongst the three items
purchased.
184,125 + 9,800 = 193,925 Total Paid
Land $83,160/$198,000 = 0.42 x $193,925 = $81,448.50

Land Improvements $27,720/$198,000 = 0.14 x $193,925 = $27,149.50
Building +$87,120/$198,000 = 0.44 x $193,925 = $85,327. 00
Total $198,000 $193,925.00
B. Prepare a general journal entry to record the purchase assuming Piper Plumbing
Company paid cash.

Mar 20 Land 81,448.50
Land Improvements 27,149.50
Building 85,327.00
Cash 193,925
C. Calculate the depreciation for the building for 2019 using the straight – line method to
the nearest month. Piper Plumbing Company feels that the building can be used for 15
years with a $5,000 trade – in value.
($85,327 – $5,000) / 15 = $5355.13 x 9/12 = $4,016.35

9. After planning to build a new manufacturing plant, Jammers Casual Wear purchased a
lot on which a small building was located. The negotiated purchase price for this real
estate was $150,000 for the lot plus $80,000 for the building. The company paid $23,000
to have the old building torn down and $34,000 for landscaping the lot. Finally, it paid
$960,000 in construction costs, which included the cost of a new building plus $57,000 for
lighting and paving a parking lot next to the building.
Required:
A. Calculate the value of the land, land improvements and the building.
Land Land Improvements Building

$150,000 $57,000 $960,000
$80,000 -$57,000
$23,000 $903,000
$34,000
$287,000
B. Present a single general journal entry to record the costs incurred by Jammers, all of
which were paid in cash, on April 15, 2019.

April 15 Land 287,000
Land Improvements 57,000
Building 903,000
Cash 1,247,000

10. Moon Paper Company installed a computerized machine in its factory at a cost of
$84,600 on March 3, 2017. The machine has a useful life of 5 years or 700,000 units with
a resale value of $14,600. Moon Paper Company’s year-end is December 31. Calculate the
annual depreciation to the nearest whole month for 2017.
Year Units Produced

2017 75,000
2018 180,000
2019 135,000
2020 190,000
2021 150,000
Total Units
Produced 730,000
Required:
Using the space provided:
A. Calculate the depreciation expense for each year of the machine’s life using the units –
of – production method.
($84,600 – $14,600) / 700,000 = $0.10 depreciation rate per unit produced
2017 – 75,000 x $0.10 = $7,500

2018 – 180,000 x $0.10 = $18,000
2019 – 135,000 x $0.10 = $13,500
2020 – 190,000 x $0.10 = $19,000
2021 – 730,000 (Total Units Produced) – 700,000 (Estimated Units of Production) = 30,000
Extra units produced over the estimated units of production. We cannot depreciate these
extra 30,000 units because these units are over the units the company has estimated.
So: 150,000 (Actual Units Produced in 2021) – 30,000 (Extra Units Produced) = 120,000
(Depreciable Units for 2021) x $0.10 = $12,000
B. Calculate the depreciation expense for each year of the machine’s life using the double
– declining balance method.
2÷5 = 0.40 (Yearly depreciation rate)
2017 – $84,600 x 0.40 = $33,840 x 10÷12 = $28,200

2018 – $84,600 – $28,200 = $56,400 x 0.40 = $22,560
2019 – $84,600 – $28,200 – $22,560 = $33,840 x 0.40 = $13,536
2020 – $84,600 – $28,200 – $22,560 – $13,536 = $20,304 – $14,600 = $5,704
2021 – $0

11. On April 4th, 2018, Lake Excavating Services purchased a trencher for $500,000. The
machine was expected to have a five year life and a residual value of $50,000. In early
January of 2020, it was decided that the machine would last a total of 7 years and have a
new residual value of $14,375. This company uses the straight – line method of
depreciation to the nearest month. The company has a year-end of December 31st.
Required:
A. Calculate the depreciation for the trencher for 2018.
($500,000 – $50,000) / 5 = $90,000 x 9/12 = $67,500
B. Calculate the book value for the trencher at the end of 2019.
2019
$500,000 – $67,500 – $90,000 = $342,500
C. Calculate the depreciation for the trencher for 2020.
2020
($342,500 – $14,375) / (7 – 1.75) = $328,125 / 5.25 = $62,500
12. Plum Hill Industries purchased and installed a machine on January 3, 2018, at a total cost of $185,500.
Straight line depreciation was taken each year for four years, based on the assumption of a seven year life
and no resale value. The machine was disposed of on July 2, 2022, during its fifth year of operation. Plum
Hill Industries has recorded $119,250 of accumulated depreciation on the machine to July 2, 2022.
Required:
A. The machine is sold for $70,000 cash.

July 2 Cash 70,000
Accumulated Depreciation – Machine 119,250
Gain on disposal 3,750
Machine 185,500
Book Value = $185,500 - $119,250 = $66,250

Gain or Loss = $70,000 (Cash Received) - $66,250 (Book Value) = $3,750 (Gain)

B. The machine is destroyed in a fire and Plum Hill receives an insurance settlement of
$60,000.

July 2 Cash 60,000
Accumulated Depreciation – Machine 119,250
Loss on disposal 6,250
Machine 185,500
Book Value = $185,500 - $119,250 = $66,250

Gain or Loss = $60,000 (Cash Received) - $66,250 (Book Value) = $($6,250) (Loss)
C. The machine and $100,000 cash were traded for a new machine that had a fair value of
$187,000.

July 2 Machine 187,000
Accumulate Depreciation – Machine 119,250
Gain on exchange 20,750
Machine 185,500
Cash 100,000
Book Value = $185,500 - $119,250 = $66,250

Assets being given up = $66, 250 (Machine’s Book Value) + $100,000 (Cash Paid) =
$166,250
Gain or Loss = $187,000 (New Machine fair value) - $166,250 (Assets being given up) =
$20,750 (Gain)

13. On December 31, 2019, RH Company’s year-end, RH Company is doing their annual
year end reevaluation of its property, plant and equipment assets to see if any of their
assets has incurred an impairment loss.
Asset: Cost Total Accumulated Recoverable

Depreciation Amount
Building $450,000 $180,000 $240,000
Equipment $95,000 $45,000 $55,000
Land $125,000 N/A $145,000
Truck $122,000 $80,000 $42,000
Required:
A. Calculate the book value of each asset listed above.

Cost – Accumulated Depreciation = Book Value
Building: $450,000 – $180,000 = $270,000
Equipment: $95,000 – $45,000 = $50,000
Land: $125,000 – $0 = $125,000
Truck: $122,000 – $80,000 = $42,000
B. Calculate impairment loss for each asset that has a book value more than replacement
value. Building is the only asset with a book value greater than the replacement value.
Book Value – Recoverable Amount = Impairment Loss
Building: $270,000 – $240,000 = $30,000 (Impairment Loss)
C. Prepare a general journal for December 31, 2019 to record impairment loss.

Dec 31 Impairment Loss 30,000
Building 30,000

14. Newberg and Scampi began a partnership by investing $52,000 and $78,000,
respectively. During its first year, the partnership earned a profit of $180,000. The
partnership has a year-end of December 31.
Required:
A. The partners failed to agree on a method of sharing profit and losses.
180,000/2 = 90,000
B. The partners agreed to share profits and losses in their investment ratio.
Newton $52,000 ÷ $130,000 = 0.4 x $180,000 = $72,000

Scampi $78,000 ÷ $130,000 = 0.6 x $180,000 = $108,000
Total $130,000
C. The partners agreed to share profits and losses by allowing an $85,000 per year salary
allowance to Newberg, $65,000 per year salary allowance to Scampi, 10% interest on
beginning capital balances, and the remainder equally.
Newberg Scampi Total

180,000
Salary 85,000 65,000 150,000
Interest
$52,000 x 0.10 5,200 5,200
$78,000 x 0.10 7,800 7,800
17,000
$17,000/2 8,500 8,500 17,000
98,700 81,300 0
D. Prepare the year end closing journal entry based on your answer in part C.

Dec 31 Income Summary 180,000
Newberg, Capital 98,700
Scampi, Capital 81,300

15. The Harris – Bartlett Partnership has total partners’ equity of $380,000, which is made
up of Harris, Capital, $300,000, and Bartlett, Capital, $80,000. The partners share profits
and losses in a ratio of 3:1. On July 1, Megan is admitted to the partnership and given a
20% interest in equity.
Required:
A. $95,000

July 1 Cash 95,000
Megan, Capital 95,000
($380,000 + $95,000 = $475,000 x 0.2 = $95,000)
B. $115,000

July 1 Cash 115,000
Harris, Capital ($16,000 x ¾) 12,000
Bartlett, Capital ($16,000 x ¼) 4,000
($380,000 + $115,000 = $495,000 x 0.2 = $99,000
$115,000 – $99,000 = $16,000)
C. $55,000

July 1 Cash 55,000
Harris, Capital ($32,000 x ¾) 24,000
Bartlett, Capital ($32,000 x ¼) 8,000
($380,000 + $55,000 = $435,000 x 0.2 = $87,000
$55,000 – $87,000 = -$32,000)

16. Hollis, Evans, and Bowen have been partners share profits and losses in a 3:2:5 ratio.
On October 31, 2021, the date Bowen retires from the partnership, the equities of the
partners are Hollis $130,000; Evans, $200,000; and Bowen $50,000.
Required:
A. Bowen is paid $50,000.

Oct 31 Bowen, Capital 50,000
Cash 50,000
B. Bowen is paid $60,000.

Hollis, Capital (-$10,000 x 3/5) 6,000
Evans, Capital (-$10,000 x 2/5) 4,000
Cash 60,000
($50,000 – $60,000 = -$10,000)
C. Bowen is given $35,000 in cash and a company automobile. The automobile had a cost
of $25,000 and had accumulated depreciation of $15,000.

Accumulated Depreciation - Automobile 15,000
Hollis, Capital ($5,000 x 3/5) 3,000
Evans, Capital ($5,000 x 2/5) 2,000
Cash 35,000
Automobile 25,000

17. Prince, Count, and Earl are partners who share profits and losses in a ratio in a 1:3:4.
After lengthy disagreements among the partners and several unprofitable periods, the
partners decided to liquidate the partnership. Before the liquidation, the partnership
balance sheet showed:
Assets: Liabilities:
Cash $62,000 Accounts Payable $50,000
Machinery 500,000 Notes Payable 150,000
Less: Accumulated Total Liabilities $200,000
Depreciation – Machinery 324,000 Owner’s Equity:
Prince, Capital $8,000
Count, Capital 10,000
Earl, Capital 20,000 38,000
Total Assets $238,000 Total Liabilities and
Owner’s Equity $238,000
Required:
Prepare all the necessary general journal entries to liquidate the partnership if the
machinery was sold for $180,000. The partnership was liquidated on December 31, 2019.

Dec 31 Cash 180,000
Accumulated Depreciation – Machinery 324,000
Gain on disposal 4,000
Machinery 500,000
Dec 31 Gain on disposal 4,000

Prince, Capital ($4,000 x 1/8) 500
Count, Capital ($4,000 x 3/8) 1,500
Earl, Capital ($4,000 x 4/8) 2,000
Dec 31 Accounts Payable 50,000

Notes Payable 150,000
Cash 200,000
Dec 31 Prince, Capital ($8,000 + $500) 8,500

Count, Capital ($10,000 + $1,500) 11,500
Earl, Capital ($20,000 + $2,000) 22,000
Cash 42,000

18. Prince, Count, and Earl are partners who share profits and losses in a ratio in a 1:3:4.
After lengthy disagreements among the partners and several unprofitable periods, the
partners decided to liquidate the partnership. Before the liquidation, the partnership
balance sheet showed:
Assets: Liabilities:
Cash $62,000 Accounts Payable $50,000
Machinery 500,000 Notes Payable 150,000
Less: Accumulated Total Liabilities $200,000
Depreciation – Machinery 324,000 Owner’s Equity:
Prince, Capital $8,000
Count, Capital 10,000
Earl, Capital 20,000 38,000
Total Assets $238,000 Total Liabilities and
Owner’s Equity $238,000
Required:
Prepare all the necessary general journal entries to liquidate the partnership if the
machinery was sold for $168,000. The partnership was liquidated on December 31, 2019.

Dec 31 Cash 168,000
Accumulated Depreciation – Machinery 324,000
Machinery 500,000
Dec 31 Prince, Capital ($8,000 x 1/8) 1,000

Count, Capital ($8,000 x 3/8) 3,000
Earl, Capital ($8,000 x 4/8) 4,000
Dec 31 Accounts Payable 50,000

Notes Payable 150,000
Cash 200,000
Dec 31 Prince, Capital ($8,000 – 1,000) 7,000

Count, Capital ($10,000 – 3,000) 7,000
Earl, Capital ($20,000 – 4,000) 16,000
Cash 30,000


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Supplemental Instruction Handouts

General Journal Page ____

June 20 Accounts Receivable – M. Peters 490

June 20 Cash 490

Dec 31 Bad Debts Expense 2,750

Academic Success Centre www.rrc.mb.ca/asc

General Journal Page ____

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

Prepare general journal entries for each transaction described above.

General Journal Page ____

Dec 31 Interest Receivable 52.50

April 1 Accounts Receivable – S. Smith 4,631.25

April 24 Cash 2,328.36

Dec 31 Allowance for Doubtful Accounts 4,631.25

December 31, 2019 Age of Expected Percentage

General Journal Page ____

B. The allowance account has a debit balance of $2,250.

General Journal Page ____

$16,938 + $2,250 = $19,188

Academic Success Centre www.rrc.mb.ca/asc

A. Prepare the journal entry to record the January 14 employee’s payroll.

General Journal Page ____

General Journal Page ____

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

Employees Weekly Earnings Income Health A. EI A. CPP A. Total B. Net

B. In the chart above calculate each employees net pay.

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

A. Prepare a calculation to show the cost of this machine.

$23,000 x (1 – 0.02) = $22,540 + $520 + $2,940 + $750 + $100 = $26,850

General Journal Page ____

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

184,125 + 9,800 = 193,925 Total Paid

Land $83,160/$198,000 = 0.42 x $193,925 = $81,448.50

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

Land Land Improvements Building

General Journal Page ____

Academic Success Centre www.rrc.mb.ca/asc

Year Units Produced

Using the space provided:

($84,600 – $14,600) / 700,000 = $0.10 depreciation rate per unit produced

2017 – 75,000 x $0.10 = $7,500

2÷5 = 0.40 (Yearly depreciation rate)

2017 – $84,600 x 0.40 = $33,840 x 10÷12 = $28,200

Academic Success Centre www.rrc.mb.ca/asc

A. Calculate the depreciation for the trencher for 2018.

($500,000 – $50,000) / 5 = $90,000 x 9/12 = $67,500

C. Calculate the depreciation for the trencher for 2020.

A. The machine is sold for $70,000 cash.

General Journal Page ____

Book Value = $185,500 - $119,250 = $66,250

Academic Success Centre www.rrc.mb.ca/asc

General Journal Page ____

Book Value = $185,500 - $119,250 = $66,250

General Journal Page ____

Book Value = $185,500 - $119,250 = $66,250

Academic Success Centre www.rrc.mb.ca/asc

Asset: Cost Total Accumulated Recoverable

A. Calculate the book value of each asset listed above.

General Journal Page ____