Ch. 3 Course Packet & Practice Set Sp 15

Class Notes – Chapter 3

1. What is the time period concept? Who might use a fiscal year different from the calendar year?

2. When are revenues and expenses recognized under the cash basis of accounting? Is this OK per GAAP?

3. When are revenues and expenses recognized under the accrual basis of accounting?

4. Why are adjusting journal entries necessary when using the accrual system?

5. Define depreciation. What is the journal entry to record depreciation?

6. What is accumulated depreciation? What type of account is it?

7. How is depreciation calculated using the straight-line method?

8. What is interest expense? How is it calculated?

9. A classified balance sheet arranges assets as follows. Define each and provide examples:

Current Assets-

Long-Term Investments-

Property, Plant, and Equipment (Plant Assets) –

Intangible Assets-

Current Liabilities-

Long-Term Liabilities-

10. Which accounts are temporary or nominal? Which accounts are permanent or real?

11. What are closing entries and why are they necessary?

12. What are the steps in the accounting cycle?

13. What does the current ratio measure? How is it calculated?

14. What does the profit margin measure? How it calculated?

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Class Problems – Chapter 3

1. On 8/1 you purchased $3,200 of supplies on account. When you go to the supply closet on 8/31 there is

only $500 of office supplies left. What entry is required 8/1 and what adjusting entry is required 8/31?

2. You signed a 1 year rental contract on 10/1/04 and prepaid 3 months’ rent (a total of $6,000). What journal

entry is required 10/1 and what adjusting entry is required 10/31?

3. On 5/1/04 your company, Premium Pizza Delivery, purchased a Lamborghini Murcielago for $270,000

cash. The car has an expected life of 10 years and a residual value of $60,000. What journal entries are

recorded 5/1 & 12/31?

4. On April 1st you received $10,000 advance payment from Kroger Co. for accounting services to be

provided May 1 – August 31st. What entry is required 4/1 and adjusting entry 5/31?

5. On 6/1/04 you borrowed $250,000 and signed an 8-year 10% promissory note with annual interest

payments due June 1st

and principal due at maturity. What journal entries are required 6/1/04, 12/31/04,

and 6/1/05 (assume no adjusting journal entries were made in 2005)?

6. Record the monthly adjusting entries for Good Company, Inc. as of 1/31/0Y assuming that all necessary

adjusting entries were recorded at the end of last year (12/31/0X).

a. Last year a delivery truck was purchased for $35,000. The truck has a residual value of $3,000 and

an estimated life of 15 years.

b. There are supplies of $650 left in storage, but the supplies account has a balance of $2,535.

c. A $250,000 15-year 9% promissory note was signed last year. According to the terms of the note,

the interest payments are due semiannually (June 30 and December 31).

d. Employee wages total $10,000 each week and employees are paid every Friday for that week’s

work (Mon-Fri). 1/31 falls on a Tuesday.

e. On 1/31/0Y Good Company hadn’t yet received a few bills which it pays each month. It hadn’t

received the telephone bill which costs $49.99 each month, the power bill which costs $100 each

month, and the Internet bill which costs $30 each month.

f. Last year on 10/1/0X a year’s rent ($24,000) was paid in advance. What entry is required at the end

of January assuming previous adjusting entries were recorded?

7. Given the following excerpts from Practice Corp’s 12/31/08 adjusted trial balance, prepare an income

statement, statement of retained earnings, and classified balance sheet. Then journalize the closing entries.

Land (used to operate business) 100 Note Payable 8/1/12 100 Note Receivable 2/1/18 40 Patent 60 Prepaid Rent 50 Rent Expense 40 Retained Earnings 150 Salary Expense 50 Salary Payable 10 Supplies 15 Supplies Expense 30 Unearned Revenue 60

A/P 15 A/R 20 Accum. Deprec.-Equip. 40 Cash 50 Common Stock 75 Copyright 70 Drafting Revenue 200 Depreciation Exp. 10 Dividends 10 Equipment 50 Inventory 25 Land (held for speculation) 30

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HW Problem 3.1 – A) Record the journal entries for the following transactions. B) Make adjusting entries

as of 6/30/1X assuming no adjustments were made in May and $200 of supplies remain. (You'll need to

make adjustments for EACH of the following transactions.)

5/1/1X $2,100 of supplies were purchased on account at Office Mart (invoice #553).

5/8/1X Received $3,000 from a customer that prepaid for six months of service (June 1 – Nov. 30).

5/15/1X Paid $6,000 of advertising in advance (ck #235). The ads run for 3 months (June 1- Aug 31).

5/20/1X Paid a 6-month insurance premium of $1,200 (check #236) for June 1 – November 30.

5/31/1X Borrowed $50,000 and signed a 4-month 8% promissory note with interest due at maturity.

6/1/1X Purchased a new computer for $3,900 on account from Office Depot (invoice #2352). The

computer has an expected life of three years and an expected salvage value of $300.

HW Problem 3.2 - Given the following information from Yo Co’s 12/31/11 adjusted trial balance A)

Prepare financial statements (including classified BS). B) Record the closing entries.

Accounts Payable (A/P) 15 Land used to operate business 150 Accounts Receivable (A/R) 20 Note Payable 8/1/12 150 Accounting Revenue 400 Note Receivable 2/1/18 80 Accum. Deprec.-Equip. 40 Patent 50 Cash 40 Prepaid Advertising 40 Common Stock 200 Rent Expense 100 Common Stock held in IBM 120 Retained Earnings 1/1/11 180 (not planning to sell next year)

Salary Expense 200

Depreciation Exp. 20 Supplies 15 Dividends 25 Supplies Expense 50 Equipment 70 Taxes Payable 70 Inventory 25 Trademark 80 Land held for speculation 70 Unearned Revenue 100

HW Problem 3.3 – Record the adjusting entries in the general journal as of 12/31/11. Assume the original

transactions were journalized correctly and no adjusting entries have been made in 2011.

4/1/11 Purchased equipment for $6,500. It has an expected life of 10 years and a salvage value of $500.

8/1/11 Borrowed $20,000 and signed a 6-month 7.5% note with interest and principal due at maturity.

9/30/11 Paid $9,000 or 6 months’ rent in advance (October – March).

10/9/11 Purchased $4,200 of supplies. As of 12/31/11, $500 of supplies remained.

11/1/11 Received $15,000 in advance from Customer Co. for 3 months of service (November – January).

HW Problem 3.4 – A) Calculate the current ratio for each year. B) Which company is more capable of

paying its short-term obligations (more liquid)? C) Calculate the profit margin for each year. D) Which

company earns more for each dollar of sales?

Walmart (in millions $) Target (in millions $)

Year Ending

1/31/10

Year Ending

1/31/09

Year Ending

1/31/08

Year Ending

1/31/10

Year Ending

1/31/09

Year Ending

1/31/08

Net Sales Revenue 408,214 404,374 377,023 65,357 64,948 63,367 Net Income 14,335 13,400 12,731 2,488 2,214 2,849 Current Assets 48,331 48,949 48,020 18,424 17,488 18,906 Current Liabilities 55,561 55,390 58,478 11,327 10,512 11,782

3

Practice 3.1 - Record the following in the general journal.

1-Apr Purchased new machine for $200,000 cash. Its salvage value is $20,000 and life 6 years.

7-May Purchased $5,000 of supplies on account from office max (inv#153)

1-Aug Received $24,000 from Client Co. for work to be performed over the next year.

1-Sep Borrowed $100,000 and signed a 6%, 5 year note with interest payments due annually 9/1.

1-Oct Paid $2,400 for one year's insurance (ck #152).

Practice 3.2 - Record adjusting entries as of 12/31 for each of the transactions from 3.1. Assume no

previous adjustments have been made and that there are $500 of supplies in the supply closet.

Practice 3.3 - Prepare the financial statements (including a classified balance sheet) for Your Company as

of 12/31/11 given the following account balances.

Advert Exp. 15

Land (held speculation) 20

A/P 20

Land (used business) 100

A/R 35

Service Revenue 300

Cash 755

Supplies 15

Common Stock 180

Supplies Expense 25

Depreciation Exp. 20

Retained Earnings 250

Dividends 35

Patent 50

Copyright 15

Note Receiv (5/1/25) 30

Insurance Expense 15

Note Payable (5/1/15) 200

Equipment 20

Wages Payable 200

Accum. Deprec.-Equip. 5

Wages Expense 15

Inventory 15

Unearned Revenue 25

4

5

Student Name: _______________________

Sam’s Singles Service - Practice Set

Spring 2015

Table of Contents

February Instructions & Transactions 7 - 9

General Journal 10 - 13

General Ledger 14 - 20

Plagiarism & Academic Dishonesty: Students who copy others’ work are subject to an F on the

assignment, an F in the class, and possible suspension from Butte College. It is OK to discuss

transactions with your classmates, but you are expected to do your own work.

NO COPY JOBS!!! (We can tell).

6

Sam’s Singles Service, Inc. - Practice Set

Samantha has a knack for setting up friends and helping them with relationships. Last month she opened

Sam’s Singles Service to provide dating consultations and to host events where like-minded singles could

meet. You’ve taken over as Sam’s new bookkeeper and are presented with the following chart of accounts

and post-closing trial balance for January 31, 201X.

Number Account

110 Cash

115 Accounts recievable

116 Allowance for Doubtful Accounts

120 Prepaid Insurance

123 Prepaid Advertising

125 Office Supplies

127 Merchandise Inventory

140 Surveillance Equipment

145 Accumulated Depreciation-Surveillance

210 Accounts Payable

215 Unearned Revenue

220 Sales Tax Payable

240 Federal Income Tax Payable

241 State Tax Payable

242 FICA Payable

243 Federal Unemployment Tax Payable

244 State Unemployment Tax Payable

245 Wages & Salaries Payable

247 Interest Payable

250 Note Payable

310 Common Stock

315 Retained Earnings

320 Income Summary

325 Dividends

410 Event Revenue

411 Consulting Revenue

413 Book Sales

414 Sales Returns & Allowances

415 Interest Revenue

510 Advertising Expense

511 Bad Debt Expense

512 Catering Expense

513 Cost of Goods Sold

520 Depreciation Expense-Surveillance

525 Insurance Expense

530 Interest Expense

535 Legal Expense

540 Miscellaneous Expense

545 Office Supplies Expense

547 Payroll Tax Expense

550 Postage Expense

555 Printing Expense

560 Rent Expense

565 Service Charge Expense

575 Telephone Expense

585 Utilities Expense

590 Wage & Salary Expense

Chart of Accounts

Sam's Singles Service, Inc.

Post-Closing Trial Balance

1/31/201X

Account Name Dr. Cr.

Cash 25,000.00

Accounts Receivable 8,500.00

Office Supplies 50.00

Accounts Payable 2,000.00

Common Stock 25,100.00

Retained Earnings 6,450.00

Totals 33,550.00 33,550.00

A/R - Subsidiary Ledger

Dudley, Jim 3,500.00

Gooseman, Paul 2,000.00

Pardon, Peggy 2,000.00

Talkmuch, Tammy 1,000.00

Total $ 8,500.00

A/P - Subsidiary Ledger

Sun Company 350.00

Moon Company 500.00

Stars Company 1,150.00

Total $ 2,000.00

7

Instructions

1. Enter February transactions in the general journal.

2. Post the transactions to the general ledger.

3. Prepare a trial balance.

4. Journalize and post adjusting entries.

5. Prepare an adjusted trial balance.

6. Prepare an A/P & A/R schedule to verify ending account balances. (The A/R schedule lists customers’

names and balances at the end of February. The total of the A/R schedule should equal the A/R balance

on the trial balance. Similarly, the A/P schedule lists creditors and the amount owed to each at the end

of February. The total of the A/P schedule should equal the balance of A/P on the trial balance.)

7. Prepare the financial statements.

8. Prepare the closing entries and post to the general ledger.

Transactions

2/1/1X Issued check #100 for $300 to MailHouse for postage and handling on a mass marketing letter

Sam sent out that afternoon.

2/2/1X Signed a 1 year lease for office space and paid February’s rent of $1,500 by issuing check #101

to Kwant Co.

2/2/1X Issued check # 102 to Spy Co. for $8,900 to purchase electronic surveillance equipment to

observe clients’ dates and better understand their dating problems.

2/3/1X Performed a dating consultation for Dinah Toluvia and billed Dinah $5,000.

2/3/1X Purchased 6 month’s liability insurance issuing check #103 to Travelers Insurance for $1,200.

2/4/1X Sam’s Singles Service received $25,000 and issued shares of common stock to Amanda Friend.

2/5/1X Received $3,500 total for services performed the previous month. ($500 from Jim Dudley,

$2,000 from Paul Gooseman, and $1,000 from Tammy Talkmuch.)

2/7/1X Hosted Ivy League Speed Dating Night where Ivy League graduates paid $60 each to go on a

number of 5 minute “dates.” 50 people attended the event and cash was collected from all but

five of the participants, who agreed to mail in a check later that week. (The names of the five

unpaid participants were: John Good, Brandon Broke, Wendy Jones, Ima Welch, and Skip

Townsend.)

2/8/1X Received an invoice for $500 from SF News & Review for an advertisement that ran in last

week’s newspapers (invoice # 52A7J).

2/8/1X Samantha was approached by Cy Burnette, a successful young internet entrepreneur that can’t

seem to get a second date. Samantha agreed to observe one of Cy’s dates and explain what he’s

doing wrong.

2/9/1X Paid outstanding invoices to Sun Company $350; Moon Company $500; and Stars Company

$1,150 issuing checks #104-106. (The expenses for these invoices were accrued last month.)

2/10/1X Received $120 ($60 from John Good and $60 from Wendy Jones) for the Ivy League Speed

Dating night held 2/7.

8

2/11/1X Purchased $800 of office supplies on account from Office Depot (invoice #62309).

2/14/1X Sam’s received invoice #97389 for $800 from Dewey, Cheatem & Howe Law Offices for legal

advice provided Sam’s Singles.

2/15/1X Sam’s hosted Goth Date Night where participants paid $60 to attend a dinner party and meet

other Gothic singles. 40 people attended and all paid at the door. (Sam’s changed its credit

policy to require cash at the door of special events.)

2/16/1X Sam’s issued check # 107 for $1,630 to Sam & Ella’s Catering Co. to pay for refreshments at the

Ivy League Speed Dating Night and dinner at Gothic Night.

2/17/1X Sam’s received a $15,000 advance from Percy Pratt for dating consultation services to be

provided in February and March.

2/18/1X Samantha observed one of Cy Burnette’s dates and met with him to discuss her observations. Cy

wrote Sam’s a check for $6,000 for the services.

2/23/1X Samantha performed a dating consultation for Phil O. Pfangst and billed him $4,000.

2/24/1X Sam’s issued check #108 to pay Office Depot $800 (invoice #62309 from 2/11) and check #109

to pay Dewey, Cheatem & Howe Law Offices $800 (Invoice #97389 from 2/14).

2/25/1X Sam’s issued dividends totaling $1,000 with checks #110-112.

2/27/1X Received invoice #8783AC15 for $95 from AT&T for February’s cell phone service.

2/28/1X Received invoice #25351 from PG&E for February’s power of $102.00.

Information for February’s Adjusting Entries:

Surveillance equipment purchased 2/2 has a 4-year life and a $500 expected salvage value. Sam’s uses

the straight line method of depreciation.

On 2/28/1X, Sam’s has supplies on hand of $150.

As bookkeeper you earn $2,500, and Samantha earns $4,000 a month. Checks will be issued March 5th

for February’s work. (For simplicity, assume there are no withholdings.)

By the end of February, Samantha had performed 30% of her dating consultations for Percy Pratt

(Sam’s received an advance from Percy on 2/17).

By the end of February, one month’s insurance had expired (see 2/3 transaction).

9

General Journal Page: 1

Date Account Post Ref Debit Credit 1/5/1X Cash 110 25,100.00

Common Stock 310 25,100.00 (Issued 1,500 shares of nonpar stock)

1/10/1X Office Supplies 125 100.00 Cash 110 100.00 (Office Max - Check #99)

1/10/1X A/R 115 2,000.00 Consulting Revenue 411 2,000.00 (Peggy Pardon inv# 1007)

1/11/1X Advertising Expense 510 350.00 A/P 210 350.00 (Sun Company-Inv. #5235 - January issue)

1/12/1X Printing Expense 555 1,150.00 A/P 210 1,150.00 Stars Company-Inv#925552-mktg brochure)

1/13/1X A/R 115 3,500.00 Consulting Revenue 411 3,500.00 (Bill Mr. Dudley -Inv. #1008)

1/20/1X Postage Expense 550 500.00 A/P 210 500.00 (Moon Co-Inv #2235-mail brochures)

1/25/1X A/R 115 2,000.00 Consulting Revenue 411 2,000.00 (Paul Gooseman - Consultation - Inv. #1009

1/28/1X A/R 115 1,000.00 Consulting Revenue 411 1,000.00 (Tammy Talkmuch-Consult-Inv#1010)

1/31/1X Office Supplies Expense 545 50.00 Office Supplies 125 50.00 (Adjusting entry-supplies used up)

Closing Entries 1/31/1X Consulting Revenue 8,500.00

Income Summary 8,500.00 Income Summary 2,050.00 Advertising Expense 350.00 Office Supply Expense 50.00 Postage Expense 500.00 Printing Expense 1,150.00 Income Summary 6,450.00 Retained Earnings 6,450.00 (Update retained earnings & close temporary accounts)

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Date Account Post Ref Debit Credit

11



12



13

General Ledger

Account Cash Account No. 110

Post Date Explanation Ref Debit Credit Debit Credit

1/5/1X GJ1 25,100.00 25,100.00 1/10/1X GJ1 100.00 25,000.00

Account Accounts Receivable Account No. 115


1/10/1X GJ1 2,000.00 2,000.00 1/13/1X GJ1 3,500.00 5,500.00 1/25/1X GJ1 2,000.00 7,500.00 1/28/1X GJ1 1,000.00 8,500.00

Balance

Balance

Gooseman, Paul

Dudley, Jim

Pardon, Peggy

Talkmuch, Tammy

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Account Allowance for Doubtful Accounts Account No. 116


Account Prepaid Insurance Account No. 120


Account Prepaid Advertising Account No. 123


Account Office Supplies Account No. 125


1/10/1X GJ1 100.00 100.00 1/31/1X GJ1 50.00 50.00

Account Merchandise Inventory Account No. 127


Balance

Balance

Balance

Balance

Balance

15

Account Surveillance Equip. Account No. 140


Account Accumulated Depreciation - Surv. Equip. Account No. 145


Account Accounts Payable Account No. 210


1/11/1X GJ1 350.00 350.00 1/12/1X GJ1 1,150.00 1,500.00 1/20/1X GJ1 500.00 2,000.00

Balance

Balance

Balance

Moon Co Stars Co

Sun Co

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Account Unearned Revenue Account No. 215


Account Wages & Salaries Payable Account No. 245


Account Interest Payable Account No. 247


Account Common Stock Account No. 310


1/5/1X GJ1 25,100.00 25,100.00

Account Retained Earnings Account No. 315


1/31/1X Closing Entries GJ1 6,450.00 6,450.00

Account Income Summary Account No. 320


1/31/1X Closing GJ1 8,500.00 8,500.00 1/31/1X Closing GJ1 2,050.00 6,450.00 1/31/1X Closing GJ1 6,450.00 0.00

Account Dividends Account No. 325


Balance

Balance

Balance

Balance

Balance

Balance

Balance

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Account Event Revenue Account No. 410


Account Consulting Revenue Account No. 411


1/10/1X GJ1 2,000.00 2,000.00 1/13/1X GJ1 3,500.00 5,500.00 1/25/1X GJ1 2,000.00 7,500.00 1/28/1X GJ1 1,000.00 8,500.00 1/31/1X Closing GJ1 8,500.00 0.00

Account Interest Revenue Account No. 415


Account Advertising Expense Account No. 510


1/11/1X GJ1 650.00 650.00 1/31/1X Closing GJ1 650.00 0.00

Account Catering Expense Account No. 512


Balance

Balance

Balance

Balance

Balance

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Account Depreciation Expense - Surv. Equip. Account No. 520


Account Insurance Expense Account No. 525


Account Interest Expense Account No. 530


Account Legal Expense Account No. 535


Account Medical Insurance Expense Account No. 537


Account Miscellaneous Expense Account No. 540


Account Office Supplies Expense Account No. 545


1/31/1X GJ1 50.00 50.00 1/31/1X Closing GJ1 50.00 0.00

Balance

Balance

Balance

Balance

Balance

Balance

Balance

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Documents

Ch. 3 Course Packet & Practice Set Sp 15