Textbook Notes (280,000)
CA (160,000)
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ACC 110 (60)
Chapter 3

ACC 110 Chapter Notes - Chapter 3: Common Stock, European Route E313, Profit Margin


Department
Accounting
Course Code
ACC 110
Professor
Brad Mac Master
Chapter
3

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CHAPTER 3
The Accounting Cycle
EXERCISES
E3–1.
a. adjusting entry
b. transactional entry
c. no entry or adjusting (allowed by IFRS)
d. adjusting entry
e. no entry
f. transactional entry
g. adjusting entry
h. transactional entry
i. transactional entry
j. transactional entry
k. no entry
E3–3.
a.
Retained
Earnings
Revenue Expenses
Balance before closing entry on
December 31, 2014 17,500,000 3,750,000
(2,900,000
)
Closing entry 3,750,000
(3,750,000
)
Closing entry (2,900,000) 2,900,000
Balance after closing entry on
December 31, 2014 18,350,000 0 0
b.
Dr. Revenue 3,750,000
Cr. Expenses 2,900,000
Cr. Retained earnings 850,000
c. The primary purposes of closing entries are to reset the balances in the temporary (income
statement) accounts to zero and to transfer the amounts in those accounts to retained
earnings. The closing entry is prepared at the end of a reporting period when financial
statements must be prepared.
d. Net income for 2015 would be overstated by $850,000 because all revenues and expenses
from 2014 would be included in 2015 revenues and expenses.
E3–5.
a. No impact (cash increases, land decreases)
Copyright © 2010 McGraw-Hill Ryerson Ltd.
John Friedlan, Financial Accounting: A Critical Approach, 3e
1

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b. Increase assets, increase liabilities
c. Increase assets, increase retained earnings (increase in revenue)
d. Decrease assets, decrease liabilities
e. No impact (cash decreases, prepaid rent increases)
f. Increase assets, increase liabilities (unearned revenue)
g. Increase assets, increase common shares
h. No impact (cash increases, accounts receivable decreases)
i. Decrease assets, decrease retained earnings
E3–7.
a. Accrued expense/accrued liability – since the expense must be recognized before the cash is
paid.
b. Accrued revenue/accrued asset – since the revenues must be recognized before the cash is
received.
c. Deferred revenue – since cash was received before the revenue is recognized.
d. Accrued expense/accrued liability – since the expense must be recognized before the cash is
paid.
e. Deferred expense/prepaid expense – since the cash was paid before the expense will be
recognized. The adjusting entry would be needed to depreciate the computers over their
useful lives.
f. Accrued revenue/accrued asset – since the revenues must be recognized before the cash is
received.
g. Deferred expense/prepaid expense – since the cash was paid before the expense will be
recognized.
E3–9.
Trans DR CR
a Furniture and fixtures 100,000
Cash 100,000
b Furniture and fixtures 18,000
Cash 10,000
Accounts payable 8,000
c Supplies 900
Cash 900
d Bank loan 5,000
Cash 5,000
e Cash 55,000
Common shares 55,000
f Advertising expense 500
Cash 500
g Cash 32,000
Sales 32,000
Cost of Sales 15,000
Copyright © 2010 McGraw-Hill Ryerson Ltd.
John Friedlan, Financial Accounting: A Critical Approach, 3e
2

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Inventory 15,000
h Accounts receivable 8,000
Sales 8,000
Cost of sales 5,200
Inventory 5,200
i Cash 5,000
Accounts receivable 5,000
j Prepaid expenses 4,500
Cash 4,500
Cash Accounts receivable Supplies
a 100,000 h 8,000 c 900
b 10,000 i 5,000
c 900
d 5,000
e 55,000
f 500
g 32,000
h 8,000
i 5,000
j 4,500
Prepaid expenses Inventory Furniture and fixtures
j 4,500 g 15,000 a 100,000
h 5,200 b 18,000
Bank loan Accounts payable Common shares
d 5,000 b 8,000 e 55,000
Sales Cost of sales Advertising expense
g 32,000 g 15,000 f 500
h 8,000 h 5,200
Copyright © 2010 McGraw-Hill Ryerson Ltd.
John Friedlan, Financial Accounting: A Critical Approach, 3e
3
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