Last revised: September 2021.
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
17th Canadian Edition
by Larson/Dieckmann/Harris
Revised for the 17th Edition by:
John Harris, Seneca College
Technical checks by: Rhonda Heninger, SAIT
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd. 4-1
,Last revised: September 2021.
Chapter 4 Completing the Accounting
Cycle and Classifying Accounts
Chapter Opening Critical Thinking Challenge Questions*
Pela’s external users include Kensington Capital, all investors that have provided funds to Pela
through its venture capitalist group, as well as their bank if they have any outstanding loans. The
Canadian Government is also a user, as Pela will pay taxes annually as a corporation based on their
earnings. The company also likely has external financial statement auditors, as the venture capitalist
group likely requires an independent review of their financial statements.
*The Chapter 4 Critical Thinking Challenge questions are asked at the beginning of this chapter.
Students are reminded at the conclusion of the chapter to refer to the Critical Thinking Challenge
questions at the beginning of the chapter. The solutions to the Critical Thinking Challenge questions
are available here in the Solutions Manual and accessible to students in the print and ebooks.
Knowledge Check-Up Questions
1. d)
2. b) 3. a) 4. c) 5. d) 6. c)
7. a) 8. a) 9. c) 10. d) 11. b)
Concept Review Questions
1. The four-step closing entry process is: (i) close the revenue (and gain) accounts to the
Income Summary account, (ii) close the expense (and loss) accounts to the Income Summary
account, (iii) close the Income Summary account to the owner’s capital account, and (iv) close the
withdrawals account to the owner’s capital account.
2. Closing entries prepare the revenue, expense, and withdrawal accounts for the upcoming year
by giving them zero balances. Closing entries also update the owner’s capital account for the
transactions of the year just finished.
3. Closing entries include: (1) closing the revenue accounts, (2) closing the expense accounts, (3)
closing the Income Summary account, and (4) closing the withdrawals account.
4. Temporary accounts accumulate data related to one account period. They include all income
statement accounts, withdrawals accounts and the Income Summary. The accounts are opened
at the beginning of a period, used to record transactions that period, and then closed at the end
of the period by transferring their balances to the owner’s capital account. Temporary accounts
are closed at the end of the period. Permanent accounts report on transactions related to one or
more future accounting periods. They carry their ending balances into the next period and
include all balance sheet accounts. Permanent accounts are not closed at the end of the period.
The accounts are classified as follows:
Temporary Accounts Permanent Accounts
Withdrawals Prepaid insurance
Interest income Owner’s capital
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd. 4-2
,Last revised: September 2021.
5. I disagree with Alexis. The information in temporary accounts are not deleted but are closed and
transferred to the owner’s capital account. Closing entries zero out the temporary accounts
(revenues, expenses, Income Summary, and withdrawals) and transfer these balances to a
permanent account (capital).
6. Both adjusting and closing entries are recorded at the end of the accounting period. Adjusting
entries update the accounts for economic transactions that have taken place but not in the form
of external transactions. Closing entries update the owner’s capital account and prepare the
temporary accounts for use in the next accounting period.
7. The purpose of the Income Summary account is to help in the closing process at the end of an
accounting period.
The Income Summary is a temporary account that contains a credit for the sum of all revenues
and a debit for the sum of all expenses. Before the account is closed, the account balance
equals the profit or loss reported on the Income Statement. The Income Summary account will
be closed to the owner’s capital account and the ending balance will be equal to zero. An income
statement is not an account but one of the financial statements used to communicate to financial
statement users. The Income Statement summarizes each category of revenues and expenses
for the period and is not closed at the end of the period.
8. Yes, an error has occurred because Depreciation Expense is a temporary account that should be
closed. If the item appears on the post-closing trial balance, the amounts of profit next period and
equity this period are overstated.
9. This closing entry would have been recorded on December 31, 2020 to close the revenue
balance to the Income Summary.
Revenue ..................................................1,570,600,000
Income Summary ............................ 1,570,600,000
10. A company’s operating cycle is the average time between paying cash for salaries or
merchandise and receiving cash from customers in exchange for services or goods.
11. A classified balance sheet is more useful because it groups common accounts together. This
grouping allows financial statement users to determine how much of a certain type of an account
a company has and compare it to other groupings. For example, comparing the current assets to
current liabilities shows whether a company has enough current assets to meet their current
liabilities. The groupings also help users make decisions based on time. For example, current
liabilities need to be paid within the longer of one year or the company’s operating cycle.
12. Assets on a typical balance sheet include current assets; non-current investments; property,
plant and equipment; and intangible assets. Liabilities are classified as current and non-current.
13. Property, plant and equipment are tangible long-lived assets used to produce or sell goods and
services.
14. The very end of Note 18 shows that there is no debt retirement in 2021. In 2022, there is
$120,325,000 in long-term debt to be repaid.
*15. A work sheet is used to collect and organize the data for preparing adjusting entries, closing
entries, and financial statements.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd. 4-3
, Last revised: September 2021.
QUICK STUDY
Quick Study 4-1
1. “b”; Permanent accounts generally consist of all balance sheet accounts, and these
accounts are not closed.
2. “c”; Permanent accounts report on activities related to one or more future accounting
periods, and they carry their ending balances into the next period.
3. “d”; Temporary accounts accumulate data related to one accounting period.
4. “a”; Temporary accounts include all income statement accounts, the withdrawals account,
and the Income Summary account.
Quick Study 4-2
Account (1) Temporary? (1) Permanent? (2) Financial Statement?
a. Accounts Payable Balance Sheet
b. Insurance Expense Income Statement
c. Delivery Vehicle Balance Sheet
d. Interest Income Income Statement
e. Unearned Revenue Balance Sheet
f. Accumulated Balance Sheet
Depreciation
g. Stephos Petridis, Balance Sheet and
Capital Statement of Changes in
Equity
h. Depreciation Income Statement
Expense
i. Stephos Petridis, Statement of Changes in
Withdrawals Equity
j. Wages Payable Balance Sheet
k. Prepaid Insurance Balance Sheet
l. Utility Expense Income Statement
m. Building Balance Sheet
n. Supplies Expense Income Statement
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd. 4-4
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
17th Canadian Edition
by Larson/Dieckmann/Harris
Revised for the 17th Edition by:
John Harris, Seneca College
Technical checks by: Rhonda Heninger, SAIT
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd. 4-1
,Last revised: September 2021.
Chapter 4 Completing the Accounting
Cycle and Classifying Accounts
Chapter Opening Critical Thinking Challenge Questions*
Pela’s external users include Kensington Capital, all investors that have provided funds to Pela
through its venture capitalist group, as well as their bank if they have any outstanding loans. The
Canadian Government is also a user, as Pela will pay taxes annually as a corporation based on their
earnings. The company also likely has external financial statement auditors, as the venture capitalist
group likely requires an independent review of their financial statements.
*The Chapter 4 Critical Thinking Challenge questions are asked at the beginning of this chapter.
Students are reminded at the conclusion of the chapter to refer to the Critical Thinking Challenge
questions at the beginning of the chapter. The solutions to the Critical Thinking Challenge questions
are available here in the Solutions Manual and accessible to students in the print and ebooks.
Knowledge Check-Up Questions
1. d)
2. b) 3. a) 4. c) 5. d) 6. c)
7. a) 8. a) 9. c) 10. d) 11. b)
Concept Review Questions
1. The four-step closing entry process is: (i) close the revenue (and gain) accounts to the
Income Summary account, (ii) close the expense (and loss) accounts to the Income Summary
account, (iii) close the Income Summary account to the owner’s capital account, and (iv) close the
withdrawals account to the owner’s capital account.
2. Closing entries prepare the revenue, expense, and withdrawal accounts for the upcoming year
by giving them zero balances. Closing entries also update the owner’s capital account for the
transactions of the year just finished.
3. Closing entries include: (1) closing the revenue accounts, (2) closing the expense accounts, (3)
closing the Income Summary account, and (4) closing the withdrawals account.
4. Temporary accounts accumulate data related to one account period. They include all income
statement accounts, withdrawals accounts and the Income Summary. The accounts are opened
at the beginning of a period, used to record transactions that period, and then closed at the end
of the period by transferring their balances to the owner’s capital account. Temporary accounts
are closed at the end of the period. Permanent accounts report on transactions related to one or
more future accounting periods. They carry their ending balances into the next period and
include all balance sheet accounts. Permanent accounts are not closed at the end of the period.
The accounts are classified as follows:
Temporary Accounts Permanent Accounts
Withdrawals Prepaid insurance
Interest income Owner’s capital
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd. 4-2
,Last revised: September 2021.
5. I disagree with Alexis. The information in temporary accounts are not deleted but are closed and
transferred to the owner’s capital account. Closing entries zero out the temporary accounts
(revenues, expenses, Income Summary, and withdrawals) and transfer these balances to a
permanent account (capital).
6. Both adjusting and closing entries are recorded at the end of the accounting period. Adjusting
entries update the accounts for economic transactions that have taken place but not in the form
of external transactions. Closing entries update the owner’s capital account and prepare the
temporary accounts for use in the next accounting period.
7. The purpose of the Income Summary account is to help in the closing process at the end of an
accounting period.
The Income Summary is a temporary account that contains a credit for the sum of all revenues
and a debit for the sum of all expenses. Before the account is closed, the account balance
equals the profit or loss reported on the Income Statement. The Income Summary account will
be closed to the owner’s capital account and the ending balance will be equal to zero. An income
statement is not an account but one of the financial statements used to communicate to financial
statement users. The Income Statement summarizes each category of revenues and expenses
for the period and is not closed at the end of the period.
8. Yes, an error has occurred because Depreciation Expense is a temporary account that should be
closed. If the item appears on the post-closing trial balance, the amounts of profit next period and
equity this period are overstated.
9. This closing entry would have been recorded on December 31, 2020 to close the revenue
balance to the Income Summary.
Revenue ..................................................1,570,600,000
Income Summary ............................ 1,570,600,000
10. A company’s operating cycle is the average time between paying cash for salaries or
merchandise and receiving cash from customers in exchange for services or goods.
11. A classified balance sheet is more useful because it groups common accounts together. This
grouping allows financial statement users to determine how much of a certain type of an account
a company has and compare it to other groupings. For example, comparing the current assets to
current liabilities shows whether a company has enough current assets to meet their current
liabilities. The groupings also help users make decisions based on time. For example, current
liabilities need to be paid within the longer of one year or the company’s operating cycle.
12. Assets on a typical balance sheet include current assets; non-current investments; property,
plant and equipment; and intangible assets. Liabilities are classified as current and non-current.
13. Property, plant and equipment are tangible long-lived assets used to produce or sell goods and
services.
14. The very end of Note 18 shows that there is no debt retirement in 2021. In 2022, there is
$120,325,000 in long-term debt to be repaid.
*15. A work sheet is used to collect and organize the data for preparing adjusting entries, closing
entries, and financial statements.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd. 4-3
, Last revised: September 2021.
QUICK STUDY
Quick Study 4-1
1. “b”; Permanent accounts generally consist of all balance sheet accounts, and these
accounts are not closed.
2. “c”; Permanent accounts report on activities related to one or more future accounting
periods, and they carry their ending balances into the next period.
3. “d”; Temporary accounts accumulate data related to one accounting period.
4. “a”; Temporary accounts include all income statement accounts, the withdrawals account,
and the Income Summary account.
Quick Study 4-2
Account (1) Temporary? (1) Permanent? (2) Financial Statement?
a. Accounts Payable Balance Sheet
b. Insurance Expense Income Statement
c. Delivery Vehicle Balance Sheet
d. Interest Income Income Statement
e. Unearned Revenue Balance Sheet
f. Accumulated Balance Sheet
Depreciation
g. Stephos Petridis, Balance Sheet and
Capital Statement of Changes in
Equity
h. Depreciation Income Statement
Expense
i. Stephos Petridis, Statement of Changes in
Withdrawals Equity
j. Wages Payable Balance Sheet
k. Prepaid Insurance Balance Sheet
l. Utility Expense Income Statement
m. Building Balance Sheet
n. Supplies Expense Income Statement
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw-Hill Education Ltd. 4-4
