Introduction to Accounting - Webnodefiles.bbab.webnode.com/200001165-824cb8346b/F Ac Q bank.doc · Web viewThe trial balance of Clay Employment Services pertains to December 31, 2009,

MANIPAL UNIVERSITYDubai Campus

Department of Management StudiesSubject: FINANCIAL ACCOUNTING (ACC 101)

Chapter: 1 - Accounting Equation:1. On 1st March, Baqarah established a business to manage rental property. Business transactions during March are summarized as follows:

a. Received cash from owner as an investment, $ 5000b. Purchased supplies on account $ 1350c. Paid rent on office and equipment $ 2500d. Received cash from fees earned $ 6500e. Paid creditors on account $ 700f. Billed customers through rental property $ 1250g. Automobile expenses $ 550 , miscellaneous $ 675 and Paid office salary $ 1800h. Supplies on hand $ 380i. Withdrew cash for personal use $ 500

Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:

Assets = Liabilities + Owner’s Equity RemarksCash + Accounts

Receivables + Supplies = Accounts

Payables+ Capital

SOLUTIONS

Assets = Liabilities + Owner’s Equity

Remarks

Cash + Accounts Receivables

+ Supplies = AccountsPayables

+ Capital

NIL+5000

NIL NIL NIL NIL NIL+5000

BEGINNING BALANCEa) RECEIVED CASH

5000+1350 +1350

5000 BALANCEb) PURCHASE SUPPLIES

5000- 2500

1350 1350 5000-2500

BALANCEc) PAID RENT

2500+6500

1350 1350 2500+6500

BALANCEd) RECEIVED CASH

9000-700

1350 1350-700

9000 BALANCEe) PAID CREDITORS

8300+1250

1350 650 9000+1250

BALANCEf) BILLED CUSTOMERS

8300-3025

1250 1350 650 10250-3025

BALANCEg) AUTOMOBILE EXP

5275 1250 1350-970

650 7225- 970

BALANCEh) SUPPLIES ON HAND

Page 1 of 66

(1350 – 380)5275-500

1250 380 650 6255- 500

BALANCEi) WITHDREW CASH

4775 1250 380 650 5775 BALANCE

2 .Nisa cleaners is owned and operated by Green Good. A building and equipment are currently being rented, pending expansion to new facilities. The actual work of dry cleaning is done by another company at wholesale rates. The assets and the liabilities of the business on March 1 , 2009 are as follows: cash $ 7150; Accounts receivable $ 12880; supplies $ 3400; land $ 20000 ; accounts payable $ 6360, Business transactions during March are summarised as follows:a. Received cash from cash customers for duty cleaning sales $ 22000b. Paid rent for the month $ 3500c. Purchased supplies on account $ 2100d. Paid creditors $ 800e. Charged customers for dry cleaning sales on account $ 11700f. Received monthly invoice for dry cleaning expense for March [to be paid on April 10] $ 8400.g. Paid the following:

Wages: $ 3400 Truck expense $ 1580Utilities $ 960 Miscellaneous expense $ 630

h. Received cash from customers on account $ 10100i. Determined that the cost of supplies on hand was $ 600, therefore, the cost of supplies used during the month was $ 4900j. Withdrew $ 6000 cash for personal use.Instructions: Determine the amount of capital as of March 1 of the current year and State the Assets, liabilities and owner’s Equity as of March 2009 in Accounting Equation form.

SOLUTIONSAssets = Liabilities + Owner’s

EquityRemarks


+ Supplies Land = AccountsPayables

+ Capital

7150

+22000

12880 3400 20000 6360 37070

+22000

BEGINNING BALANCEa)RECEIVED CASH

29150-3500

12880 3400 20000 6360 59070-3500

BALANCEb)PAID RENT

25650 12880 3400+2100

20000 6360+2100

55570 BALANCEc)PURCHASE SUPPLIES

25650-800

12880 5500 20000 8460-800

55570 BALANCEd)PAID CREDITORS

24850 12880+11700

5500 20000 7660 55570+11700

BALANCEe)CHARGED CUSTOMERS

24850 24580 5500 20000 7660+8400

67270-8400

BALANCEf) RECEIVED INV

24850-3400-1580-960

24580 5500 20000 16060 58870-3400-1580-960

BALANCEg)WAGESTRUCK EXPUTILITIES

Page 2 of 66

-630 -630 MISCELLANEOUS EXP

1828010100

24580-10100

5500 20000 16060 52300 BALANCEh)RECEIVED CASH

28380 14480 5500-4900

20000 16060 52300-4900

BALANCEi)SUPPLIES ON HAND

28380-6000

14480 600 20000 16060 47400-6000

BALANCEj)WITHDREW CASH

22380 14480 600 20000 16060 41400 BALANCE

3. Abdul Rahman Attorney –at - law is a proprietorship owned and operated by Rahman. On 1 July 2005, have the following assets, liabilities: Cash $ 1000; Accounts receivable $ 3200; supplies$ 850; land$ 10000; Accounts payable $ 1530. Office space and office equipment are currently being rented, pending the construction of an office complex on land purchased last year. Financial transactions during April are summarized as follows:

a. Received cash from clients services $ 3928b. Paid creditors on account $ 1055c. Received cash from Abdul Rahman as additional investment $ 3700d. Paid office rent for the month $1200e. Charged clients for legal services on account $ 2025f. Purchased office supplies on account $ 245g. Received cash from clients on account $ 3000h. Received invoice for paralegal services from Fatwa Legal Aid INC. for July [to be paid on August 10], $ 1635i. Paid the following : Wages expense, $850 ; answering service expenses $ 250;

utilities expense $ 325; and miscellaneous expense $ 75j. Determined that the cost of office supplies on hand $980;therefore , the cost of

supplies used during the month was $ 115k. Abdul Rahman withdrew $ 1000 in cash from the business for personal use.

Instructions: Determine the amount of capital as of July 1 of the current year and State the Assets, liabilities and owner’s Equity as of July 2009 in Accounting Equation form.

Assets = Liabilities+

Owner’s Equity Remarks

Cash

+ Accounts Receivables

+ Supplies & land = AccountsPayables

+ Capital

SOLUTIONSAssets = Liabilities + Owner’s

EquityRemarks


+ Supplies land = Accounts Payables

+ Capital

10003928

3200 850 10000 1530 135203928

BEGINNING BALANCE a)RECEIVED CASH

4928(1055)

3200 850 10000 1530(1055)

17448 BALANCEb)PAYED CREDITORS

Page 3 of 66

38733700

3200 850 10000 475 174483700

BALANCEc)RECEIVED CASH

7573(1200)

3200 850 10000 475 21148(1200)

BALANCEd)PAID RENT

6373 32002025

850 10000 475 199482025

BALANCEe)CHARGED CLIENTS

6373 5225 850245

10000 475245

21973 BALANCEf)PURCHASE SUPPLIES

63733000

5225(3000)

1095 10000 720 219733000

BALANCEg)RECEIVED CASH

9373 2225 1095 10000 7201635

21973(1635)

BALANCEh)RECEIVED INV

9373(850)(250)(325)(75)

2225 1095 10000 2355 20338(850)(250)(325)(75)

BALANCEi)WAGESANSWERING SERVUTILITIESMISCELLANEOUS

7873 2225 1095(115)

10000 2355 18838(115)

BALANCEj)SUPPLIES EXP

7873(1000)

2225 980 10000 2355 18723(1000)

BALANCEk)DRAWINGS

6873 2225 980 10000 2355 17723 BALANCE

4. Abdul Rahman made the following transactions.State which account would be debited & credited in each case.

Transaction(s) A/c To be debited A/c To be credited(a)Supplies for resale were purchased on credit

Page 4 of 66

(b)cost of delivering these goods was paid in cash(c)equipment was purchased on credit (d) Abdul Rahman took cash for his own purpose(e) Repairs to Equipment were paid by cheque(f) unsatisfactory goods were returned to creditor(h) Cheque was received from the sale of surplus equipment

SOLUTIONSTransaction(s) A/c To be

debited A/c To be

credited(a)Supplies for resale were purchased on credit SUPPLIES PAYABLES(b)cost of delivering these goods was paid in cash DELIVERY COS

EXPCASH

(c)equipment was purchased on credit EQUIPMENT PAYABLES(d) Abdul Rahman took cash for his own purpose DRAWINGS CASH(e) Repairs to Equipment were paid by cheque REPAIRS BANK(f) unsatisfactory goods were returned to creditor PAYABLES SUPPLIES(h) Cheque was received from the sale of surplus equipment BANK EQUIPMENT

5. On 1August 2005 Bhuhari decided to set up a business, which would trade under the name Bhuhari traders. On 1 Feb. 2007, he provided the following information:

Assets: Machinery $ 12000, motor vehicle $ 3200, inventories $ 1900, bank $ 2660, Receivables $ 490

Liabilities: Payables $ 750

Prepare an opening journal entry for Bhuhari on 1 Feb. 2007. Journal Entries in the books of Bhuhari traders

Date Particulars Ref No. Debit $

Credit $

SOLUTIONSDate Particulars Ref No. Debit

$Credit $

2007FEB Machinery a/c Dr 12000

Motor Vehicles a/c Dr 3200

Inventories a/c Dr 1900

Bank a/c Dr 2660

Receivables a/c Dr 490

To Accounts Payables 750

To Common Stock 19500

6.. Loretti started a business on 1 April 2006. On that day he introduced the following into thebusiness:

Page 5 of 66

Inventories $12 000, office furniture $1500, and cash $2500, of which $200 was kept on hand for petty cash and the balance, $2300, was paid into a business bank account.On the same day his cousin Hassan paid $3000 into the business bank account as a loan tothe business.REQUIRED :(a) Show the opening journal entry to record these transactions. A narrative is not required.

SOLUTIONSDate Particulars Ref No. Debit

$Credit $

Inventory a/c Dr

Office Furniture a/c Dr

Cash a/c Dr

Petty Cash a/c Dr

To Hassan Loan a/c

To Capital a/c

(Being assets and liability brought into the business)

12000

1500

2300

200

3000

13000

7. J.F. Outz, M.D., has been practicing as a cardiologist for three years. During April, 2005, Outz completed the following transactions in her practice of cardiology.April 1. Paid office rent for April, $800. 3. Purchased equipment on account, $2,100. 5. Received cash on account from patients, $3,150. 8. Purchased X-ray film and other supplies on account, $245. 9. One of the items of equipment purchased on April 3 was defective. It was returned with the permission of the supplier, who agreed to reduce the account for the amount charged for the item, $325. 12. Paid cash to creditors on account, $1,250. 17. Paid cash for renewal of a six-month property insurance policy, $370. 20. Discovered that the balances of the cash account and the accounts payable account as of April 1 were overstated by $200. A payment of that amount to a creditor in March had not been recorded. Journalize the $200 payment as of April 20. 24. Paid cash for laboratory analysis, $545. 27. Paid cash from business bank account for personal and family expenses, $1.250. 30. Recorded the cash received in payment of services (on a cash basis) to patients during April, $1,720. 30. Paid salaries of receptionist and nurses, $1,725. 30. Paid various utility expenses, $360. 30. Recorded fees charged to patients on account for services performed in April, $5,145. 30. Paid miscellaneous expenses, $132.

Outz’s account titles, numbers, and balances as of April 1 (all normal balances) are listed as follows:

Page 6 of 66

Cash, 11, $4,123; Accounts Receivable, 12, $6,725; Supplies, 13, $290; Prepaid Insurance, 14, $465; Equipment, 18, $19,745; Accounts Payable, 22, $765; J.F. Outz, Capital, 31, $30,583; J.F. Outz, Drawing, 32; Professional Fees, 41; Salary Expense, 51; Rent Expense, 53; Laboratory Expense, 55; Utilities Expense, 56; Miscellaneous Expense,59.

Instructions: a., Open a ledger of standard four-column accounts for Dr. Outz as of April 1. enter the balances in the appropriate balance columns and place a check mark (√) in the posting reference column. (Hint: Verify the equality if the debit and credit balances in the ledger before proceeding with the next instruction.)b.. Journalize each transaction in a two-column journal.c.. Post the journal to the ledger, extending the month-end balances to the appropriate balance columns after each posting.d.. Prepare a trial balance as of April 30.

SOLUTIONS

Journal Entries in the books of J.F.OutzDate Particulars Ref No. Debit $ Credit $

April 1 Office Rent a/c Dr

To Cash

800

800

3 Equipment a/c Dr

To Payables

200

200

5 Cash a/c Dr

To Receivables

3150

3150

9 Payables a/c Dr

To Equipment

325

325

12 Payables a/c Dr

To Cash

1250

1250

17 Insurance Expenses a/c Dr

To Cash

370

370

20 Payables a/c Dr

To Cash

200

200

24 Cash Expenses a/c Dr

To Cash

545

545

27 Drawings a/c Dr

To Cash

1250

1250

30 Cash a/c Dr

To Personal Fees

1720

1720

30 Salary a/c Dr

To Cash

1725

1725

Page 7 of 66

30 Utility a/c Dr

To Cash

360

360

30 Receivables a/c Dr

To Professional Fees

5145

5145

30 Miscellaneous Expense a/s Dr

To Cash a/c

132

132

LEDGER ACCOUNTSCash a/c

Dr Date Particulars Amt Date Particulars Amt

To receivablesTo Personal FeesTo Balance c/d

315017201762

By Office Rent a/cBy Payables a/cBy Insurance Exp a/cBy Payables a/cBy Cash Exp a/cBy Drawings a/cBy Salary a/cBy Utilities Exp a/cBy Miscellaneous Exp

800125037020054512501725360132

6632 6632

By Balance b/d 1762

ACCOUNTS RECIEVABLE Dr

Date Particulars Amt Date Particulars AmtTo Professional Fees 5145 By Cash

By Balance c/d31501995

5145To Balance b/d 1995

Office Rent a/cDr

Date Particulars Amt Date Particulars AmtTo Cash a/c 800 By Balance c/d 800

800 800To Balance b/d 800

Dr Equipment a/c Cr

Date Particulars Amt Date Particulars Amt

Page 8 of 66

To PayablesTo Balance c/d

200125

By Payables 325

325 325By Balance b/d 125

Payables a/cDr

Date Particulars Amt Date Particulars AmtTo EquipmentTo CashTo Cash

3251250200

By EquipmentBy Balance c/d

2001575

1775 1775To Balance b/d 1575

Insurance Expenses a/cDr

Date Particulars Amt Date Particulars AmtTo Cash 370 By Balance c/d 370

370 370By Balance b/d 370

Cash Expenses a/cDr



Drawings a/cDr


1250 1250To Balance b/d 1250

Personal Fees a/cDr

Date Particulars Amt Date Particulars AmtTo Balance c/d 6865 By Cash

By Receivables a/c17205145

6865 6865By Balance b/d 6865

Page 9 of 66

Salary Expenses a/cDr


1725 1725To Balance b/d 1725

Utility Expense a/cDr



Miscellaneous Expenses a/cDr



Trial Balance as on

S. No Particulars Debit $ Credit $1. Cash 2361

2. Receivables 8720

3. Supplies 535

4. Prepaid Insurance 835

5. Equipment 21520

6. Payables 1335

7. Capital 30583

8. Fees Earned 6865

9. Drawings a/c 1250

10. Salary Expenses 1725

11. Rent Expenses 800

12. Lab Expenses 545

Page 10 of 66

13. Utilities 360

14. Miscellaneous Expenses 132

15. Total 38783 38783

8. Abdul Chris clerk deposits $ 25000 in a bank Account in name of Ahmed Solutions LLC. Purchase land for cash $ 20000 Bought supplies on credit $ 1350 Earned fees and received in cash $ 7500 Paid expenses: wages $ 2125, Rent $ 800, utilities $ 450, miscellaneous $ 275 $ 950 Paid to creditors Supplies on hand at the end of month are $550 He withdrew $ 2000 in cash for personal use. State the Assets, liabilities and owner’s Equity as of July 2009 in Accounting

Equation form.PASS journal entries to the above entries.

SOLUTIONSJournal Entries in the books of Ahmed Net Solutions LLC.

Date Particulars Ref No. Debit $ Credit $Cash a/c Dr

To Common Stock

25000

25000

Land a/c Dr

To Cash

20000

20000

Supplies a/c Dr

To Accounts Payable

1350

1350

Cash a/c Dr

To Fees Revenue a/c

7500

7500

Wages Expenses a/c Dr

Rent Expenses a/c Dr

Utilities Expenses a/c Dr

Miscellaneous Expenses a/c Dr

To Cash

2125

800

450

275

3650

Accounts Payable a/c Dr

To Cash

950

950

Supplies Expenses (1350 – 550) Dr

To Supplies

800

800

Drawings a/c Dr

To Cash

2000

2000

8 [a] Abdul Chris clerk - Ahmed Net Solutions LLC.

Page 11 of 66

This is an addition to question 1 on page 1. Only the uncommon transactions are listed below:

Paid for two years insurance on 1st August $2400 Paid rent for August $800 on 1 August Received cash as advance rental amount $360 Purchased on 4th August, equipment on account $1800 Paid for advertisement $180 on 6th August Paid creditors $400 on August 11 Paid wages to workers on August 13 $ 950 Received fees from customers $3100 on August 16 Fee to be received , recorded on 16th August $1750 Paid cash to creditors on account owed on August 20th $900 Received cash from customers on account $650 Paid for supplies in cash on August 23 $1450 Paid wages in cash on August 27th $1200 Paid telephone and utilities on August 31st $310 Received fees from customers on 31august $2870 Paid electricity bills on 31august $225 Received fees earned on account on 31st August $1120 He withdrew $ 2000 in cash for personal use.

Journalize each transaction in a two-column journal... Post the journal to the ledger, extending the month-end balances to the appropriate balance columns after each posting. Prepare a trial balance as of August 31 by using question 8 and 8[a]

SOLUTIONS Journal Entries in the books of Ahmed Net Solutions LLC.

Date Particulars Ref No. Debit $ Credit $Prepaid Insurance a/c Dr

To Cash

2400

2400

Rent Expenses a/c Dr

To Cash

Cash a/c Dr

To Unearned Fees

800

360

800

360

Equipment a/c Dr

To Accounts Payable

1800

1800

Advertisement Expenses a/c Dr

To Cash

180

180


To Cash

400

400


To Cash

950

950

Cash a/c Dr

To Fees Revenue

3100

3100

Page 12 of 66

Accounts Receivable a/c Dr

To Fees Earned

1750

1750


To Cash

900

900

Cash a/c Dr

To Receivable

650

650

Supplies a/c Dr

To Cash

1450

1450


To Cash

1200

1200

Telephone Utilities a/c Dr

To Cash

310

310

Cash a/c Dr

To Fees Earned

2870

2870

Electricity Bill a/c Dr

To Cash

225

225

Receivable a/c Dr

To Fees Earned

1120

1120

Drawings a/c Dr

To Cash

2000

2000

LEDGER ACCOUNTS

Cash a/cDr Cr

Page 13 of 66


To Common StockTo Fees EarnedTo Unearned RentTo Fees RevenueTo ReceivablesTo Fees Earned

25000750036031006502870

By Land a/cBy Wages ExpensesBy Rent ExpensesBy Utilities ExpensesBy Miscellaneous ExpBy Accounts PayableBy DrawingsBy Prepaid InsuranceBy Rent ExpensesBy Advertisement ExpBy Accounts PayablesBy Wages ExpensesBy Accounts PayablesBy SuppliesBy Wages ExpensesBy Telephone UtilitiesBy Electricity BillBy DrawingsBy Balance c/d

200002125800450275950200024008001804009509001450120031022520002065

39480 39480

To Balance b/d 2065

Common Stock a/cDr CrDate Particulars Amt Date Particulars Amt

To Balance c/d 25000 By Cash 25000

25000 25000

By Balnce b/d 25000

Land a/cDr Cr


To Cash 20000 By Balance c/d 20000

20000 2000

To Balance b/d 20000

Supplies a/c

Page 14 of 66

Dr Cr


To Accounts Payable 1350 By Supplies Expense 800


2800 2800

By Balance b/d 2000

Accounts PayableDr


To Cash 950 By Supplies 1350

To Cash 400 By Equipment 1800

To Cash 900

To Balance c/d 900

3150 3150

By Balance c/d 900

Fees Revenue a/cDr


To Balance c/d 16340 By Cash 7500

By Cash 3100

By Receivables 1120

By Accounts Receivables

1750

By Cash 2870

16340 16340

By Balance b/d 16340

Wages Expense a/c Cr


Page 15 of 66


To Cash 950

T o Cash 1200

4275 4275

To Balance b/d 4275

Rent Expense a/cDr Cr



To Cash 800

1600 1600

To Balance 1600

Utilities Expenses a/cDr Cr



To Cash 225

675 675

To Balance c/d 675

Miscellaneous Expense a/cDr Cr



275 275

To Balance c/d 275

Supplies Expenses a/cDr Cr

Page 16 of 66


To Supplies 800 By Balance c/d 800

800 800

To Balance b/d 800

Drawings AccountsDr Cr



To Cash 2000

4000 4000

To Balance b/d 4000

Prepaid InsuranceDr Cr



2400 2400

To Balance c/d 2400

Unearned RentDr Cr



360 360

To Balance c/d 360

Equipment a/c

Page 17 of 66

Dr Cr


To Accounts Payable 1800 By Balance c/d 1800

1800 1800

To Balance b/d 1800

Advertisement Expenses a/cDr Cr



180 180

To Balance b/d 180

Accounts Receivable a/cDr Cr


To Fees EarnedTo Fees Earned

17501120

By Balance c/d 2870

2870 2870

To Balance b/d 2870

Telephone Utilities a/cDr Cr



310 310

To Balance b/d 310

Page 18 of 66

Ahmed Net Solutions LLCTrial Balance as on 3 rd August 2009


2. Receivables 2220

3. Supplies 2000


5. Land 20000

6. Equipment 1800

7. Payables 900

8. Unearned rent 360

9. Common Stock 25000

10. Fee revenue 16340


12. Wages Expenses 4275


14. Utilities Expenses 450

15. Telephone Expenses 310

16. Supplies Expenses 800


18. Advertising 180

19. Power expenses 225

Total 42600 42600

8[b] Analysis reveals the following additional data pertaining to these accounts The balance on supplies account on August 31 is $ 760Insurance premiums expired during the year, $100Rent expired on August 31 $120

Page 19 of 66

Ahmed net solutions signed an agreement with dank llc on August 15. The services provided will be billed to dank llc on fifteenth of every month, Ahmed net solutions had provided 25 hours of assistance $ 20 per hourWages accrued but not paid at August 31, 2006, $250Depreciation on the equipment is $ 50

Pass adjusting entries and Prepare a adjusted trial balance as of August 31 by using question 8, 8[a] 8[b].

SOLUTIONSAdjusted Journal Entries in the books of Ahmed Net Solutions LLC

Date Particulars Ref No. Debit $ Credit $a) Supplies Expenses a/c Dr

To Supplies a/c (2000 – 760)

1240

1240

b) Insurance Expenses a/c Dr

To Prepaid Insurance

100

100

c) Unearned Rent a/c Dr

To Rent Revenue

120

120

d) Wages Expenses a/c Dr

To Wages Prepaid

250

250

e) Receivable a/c (25x20) Dr

To Fee Revenue

500

500

f) Depreciation a/c Dr

To Accumulated Dep

50

50

Ahmed Net Solutions LLCTrial Balance as on 3 rd August 2009


2. Receivables 2720

3. Supplies 760


5. Land 20000

6. Equipment 1800

7. Payables 900

8. Unearned rent 240

9. Common Stock 25000

10. Fees Earned 16840


Page 20 of 66

12. Wages Expenses 4275


14. Utilities Expenses 675

15. Telephone Expenses 310

16. Supplies Expenses 300


18. Advertising 180

19. Acc .Dep 50

20. Dep expense 50

21 Rent Revenue 120

22. Wages payable 250

23. Insurance expense 100

Total 43400 43400

Chapter : 2 - Adjusting Entries

1. Terry Thomas and a group of investors incorporate the Green Thumb Lawn Care Corporation on April 1. At April 30 the trial balance shows the following balances for selected accounts.

Prepaid Insurance $3,600Equipment $28,000Notes Payable $20,000

Unearned Service Revenue $4,200Service Revenue $1,800

Analysis reveals the following additional data pertaining to these accounts.a. Prepaid insurance is the cost of a 2-year insurance policy, effective April 1.b. Depreciation on the equipment is $500 per month.c. The note payable is dated April 1. It is a 6-month, 12% note.d. Seven customers paid for the company’s 6 months lawn service package of $600

beginning in April. These customers were serviced in April. e. Lawn services performed for other countries but not billed at April 30 totaled $1,500.

InstructionsA] Prepare the adjusting entries for the month of April. Show computations

SOLUTIONS

2. Three years ago, T. Roderick organized Harbor Realty. At July 31, 2006, the end of the current year, the unadjusted trial balance of Harbor Realty appears as shown at the top of the following page. The data needed to determine year-end adjustments are as follows:

Page 21 of 66

a. Supplies on hand at July 31, 2006, 380.b. Insurance premiums expired during the year, $315.c. Depreciation of equipment during the year, $4,950.d. Wages accrued but not paid at July 31, 2006, $440.e. Accrued fees earned but not recorded at July 31, 2006, $1,000.f. Unearned fees on July 31, 2006, $750.

Instructionsa. Prepare the necessary adjusting journal entries. Determine the balance of the accounts

affected by the adjusting entries and prepare an adjusted trial balance.

Harbor Realty - Trial Balance - July 31, 2006

Cash 3425

Accounts Receivable 7000

Supplies 1270

Prepaid Insurance 620

Office Equipment 51650

Accumulated Depreciation 9700

Accounts Payable 925

Wages Payable 000

Unearned Fees 1250

T. Roderick, Capital 29000

T. Roderick, Drawing 5200

Fees Earned 59125

Wages Expense 22415

Depreciation expense 000

Rent Expense 4200

Utilities Expense 2715

Supplies Expense 000

Insurance Expense 000

Miscellaneous Expense 1505

Total 100000 100000

T. Roderick Harbor RealtyAdjusting entries

Page 22 of 66

Supplies expense a/c. dr. To supplies

890890

Insurance expense a/c dr. To prepaid insurance

315315

Depreciation a/c dr. To accumulated depreciation

49504950

Wages expense a/c dr. To wages payable

440440

A/c receivable a/c dr. to fees earned

10001000

Unearned fees a/c dr. To fees earned

500500

Adjusted trial balance

Harbor Realty - Trial Balance - July 31, 2006

Cash 3425

Accounts Receivable 8000

Supplies 380

Prepaid Insurance 305

Office Equipment 51650

Accumulated Depreciation 14650

Accounts Payable 925

Wages Payable 440

Unearned Fees 750

T. Roderick, Capital 29000

T. Roderick, Drawing 5200

Fees Earned 60625

Wages Expense 22855

Depreciation expense 4950

Page 23 of 66

Rent Expense 4200

Utilities Expense 2715

Supplies Expense 890

Insurance Expense 315

Miscellaneous Expense 1505

Total 106390 106390

3. The trial balance of Clay Employment Services pertains to December 31, 2009, which is the end of Clay’s annual accounting period. Data needed for the adjusting entries include

a. Supplies on hand at year-end, $2000. d. Salaries owned but not yet paid, $5000b. Depreciation on furniture and fixtures, e. Accrued service revenue, $12000 $20000. f. $32000 of the unearned service revenuec. Depreciation on building, $10000. has been earned. REQUIRED

a) Open the ledger accounts with their unadjusted balances. Show dollar amounts in thousands, as for Accounts Receivable:

b) Journalize Clay’s adjusting entries at December 31, 2009. c) Post the adjusting entries.d) Write the trial balance on a work sheet, enter the adjusting entries, and prepare an

adjusted trial balance.e) Prepare the income statement, the statement of owner’s equity, and the balance sheet.

Draw arrows linking the three financial statements:

CLAY EMPLOYMENT SERVICESTRIAL BALANCEDecember 31, 2009

Cash 198,000Accounts receivable 370,000Supplies 6,000Furniture and fixtures 100,000Accumulated depreciation-furniture and fixtures 40,000Building 250,000Accumulated depreciation-building 130,000Accounts payable 380,000Salary payableUnearned service revenue 45,000Jay Clay, capital 293,000Jay Clay, withdrawals 65,000Service revenue 286,000Salary expense 172,000Supplies expenseDepreciation expense-furniture and fixturesDepreciation expense-buildingMiscellaneous expense 13,000

Page 24 of 66

Total $1,174,000 $1,174,000

SOLUTIONSCLAY EMPLOYMENT SERVICES

Adjusting entries

Supplies expense a/c dr. To supplies

40004000

Depreciation on furniture a/c dr. To accumulated depreciation

2000020000

Depreciation on building a/c dr. To accumulated depreciation

1000010000

Salary expense a/c dr. To salary payable

50005000

A/c receivable a/c dr. To service revenue

1200012000

Unearned revenue a/c dr. To service revenue

3200032000

CLAY EMPLOYMENT SERVICESADJUSTED TRIAL BALANCE

December 31, 2009Cash 198,000Accounts receivable 382,000Supplies 2,000Furniture and fixtures 100,000Accumulated depreciation-furniture and fixtures 60,000Building 250,000Accumulated depreciation-building 140,000Accounts payable 380,000Salary payable 5,000Unearned service revenue 13,000Jay Clay, capital 293,000Jay Clay, withdrawals 65,000Service revenue 330,000

Page 25 of 66

Salary expense 177,000Supplies expense 4,000Depreciation expense-furniture and fixtures 20,000Depreciation expense-building 10,000Miscellaneous expense 13,000Total $1,221,000 $1,221,000

Simple income statement

revenue 3,30,000

Less: expenses

Miscellaneous expense 13000

Salary expense 177000

Supplies expense 4000

Depreciation on furniture & fixtures 20000

Depreciation on building 10000 224000

Net income 106000

Statement of owners equityBeginning capital 293000

Add: net income 106000 106000

total 399000

Less: drawings 65000 (65000)

Ending capital 334000

Clay employment services

Balance sheet as on 31st dec 09CURRENT ASSET

cash 198000

a/c receivable 382000

supplies 2000

TOTAL CURRENT ASSET 582000

Page 26 of 66

FIXED ASSET

furniture 100000

Less: accumulated depreciation (60000)

building 250000

Less: accumulated depreciation (140000)

TOTAL FIXED ASSET 150000

TOTAL ASSET 732000

LIABILITY & OWNERS EQUITY

Unearned revenue 13000

Salary payable 5000

A/c payable 380000

Owners equity 334000

TOTAL LIABILITY & OWNERS EQUITY

732000

4. Carla white, an architect, opened an office on July 1, 2006. During the month, she completed the following transaction connected with her professional practice:

a. Transferred cash from personal bank account to an account to be used for the business, $30,000.

b. Paid July rent for office and workroom, $450.c. Purchased used automobile for $16,500, paying $1,500 cash and

giving a note payable for the remainder.d. Purchased office and computer equipment on account, $6,500.e. Paid cash for supplies, $1,050.f. Received cash from client for plans delivered, $2,750.g. Paid cash for miscellaneous expenses, $140.h. Paid cash to creditors on account, $3,000.i. Paid installment due on note payable, $450.j. Received invoice for blue print service, due in August, $525.k. Recorded fees earned on plans delivered, payment to be received in

August $4,150.l. Paid salary of assistant, $1,000.m. Paid gas, oil and repairs on automobiles for July, $130.

Instructionsa) Record the foregoing transactions directly in the following T

accounts, without journalizing: Cash; Account receivable; Supplies; Prepaid Insurance; Automobiles; Equipment; Notes payable; Accounts

Page 27 of 66

payable; Carla white, Capital; Professional fees; Rent expense; Salary expense; Automobile expense; Blue print expense; Miscellaneous expense. To the left of the amount entered in the accounts, place the appropriate letter to identify the transaction.b) Determine the balances of the T accounts having two or more debits or

credits. A memorandum balance should be inserted in accounts having both debits and credits, in the manner illustrated in the chapter. For accounts with entries on one side only (such as professional fees), there is no need to insert the memorandum balance in the item column. For accounts, containing only a single debit and a single credit (such as notes payable), the memorandum balance should be inserted in the appropriate item column. Accounts containing a single entry only (such as prepaid insurance) do not need a memorandum balance.

c) Prepare a trial balance for Carla white, Architect, as of July 31, 2006.SOLUTIONS

5. On November 2, 2006, Nicky good established an interior decorating business, Darling designs. During the remainder of the month, Nicky completed the following transactions related to the business:Nov

2. Nicky transferred cash from a personal bank account to an account to be used in business, $15,000.

5 Paid rent for a period of November 5 to end of month, $1,750.6 Purchased office equipment on account, $8,500.8 Purchased a used truck for $18,000, paying $5,000 cash and giving

a note payable for the remainder.10 Purchased supplies for cash, $1,115.12 Received cash for job completed, $7,500.15 Paid annual premium on property and casualty insurance, $1,400.23 Recorded jobs completed on account and sent invoice to customers,

$3,950.24 Received an invoice for truck expenses, to be paid in December,

$600.29 Paid utilities expenses, $750.29 Paid miscellaneous expenses, $310.30 Received cash from customers on account, $2,200.30 Paid wages of employees, $2,700.30 Paid creditors a portion of amount owed for equipment purchased

on November 6, $2,125.30 Withdrew cash for personal use, $1,400.

Instructionsa) Journalize each transaction in two-column journal, referring to the

following chart of accounts in selection the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.) Explanation may be omitted.

a) Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the

Page 28 of 66

balances to the appropriate balance column after each transaction posted.

b) Prepare a trial balance for Darling designs as of November 30, 2006.SOLUTIONS

6. Terrific Lawn Maintenance Corporation

No adjustment had been made to the accounts to reflect all revenues earned and expenses incurred in April. The trial balance for Terrific on April 30,2003, based on the unadjusted balances is as follows:

TERRIFIC LAWN MAINTENANCE CORPORATIONUnadjusted Trial Balance

At April 30,2003Debit Credit

Cash 5032Account receivable 1700Notes receivable 0Land 3750Equipment 4600Prepaid Expenses 300Accumulated depreciation 0Accounts payable 220Accrued expenses payable 0Notes payable 3700Income taxes payable 0Unearned revenues 1600Contributional capital 9000Retained earnings 0Mowing revenue 5200Interest revenue 12Wages revenue 3900Fuel expense 410Insurance expense 0Utilities expense 0Depreciation expense 0Interest expense 40Income tax expense 0

In reviewing the trial balance, three deferred accounts (Prepaid Expenses, Equipment, and Unearned Revenues) may need to be adjusted and additional accruals may be necessary related to the interest on Notes Payable and Notes Receivable, Wages Expense, Income Tax Expense, and others. The following information is determined at the end of the accounting cycle:Deferred Accounts

a. One-fourth of the $1,600 cash received from the city at the beginning of the April for future mowing service has been earned in April. The $1,600 in Unearned Revenues represents four months of service (April through July).

Page 29 of 66

b. Insurance costing $300 providing coverage for six months (April through September) paid by Terrific Lawn at the beginning of the April has been partially used in April.

c. Mowers, edgers, rakes, and hand tools (equipment) have been used in April to generate revenues. The company estimates $300 in depreciation each year.

Accrued Accountsd. Wages have been paid through April 28.Employees worked the last two days of

April and will be paid in May. Wages accrue at $200 per day.e. An extra telephone line was installed in April. The telephone bill for $52

including hookup and usage charges was received on April 30 and will be paid in May.

f. Internet accrues on the outstanding notes payable at an annual rate of 12 percent. The $3700 in principal has been outstanding all month.

g. The estimated income tax rate for Terrific Lawn is 35 percent.

Required:

a) Using the process outlined in this chapter, analyze and record adjusting journal entries for April.

b) Prepare an adjusted trial balance.c) Prepare an income statement, statement of stockholders’ equity, and balance sheet

from the amounts in the adjusted trial balance. Include earnings per share on the income statement. (The company issued 1500 shares.)Also, prepare a schedule of supplemental disclosure for the statement of cash flows. If none is necessary, so indicate.

d) Prepare the closing entry for April 30, 2003.e) Compute the company’s net profit margin for the month.

SOLUTIONS

7. Possibility Company offers legal consulting advice to death-row inmates. Possibility Company prepared the following trial balance at April 30, 2006, the end of the current fiscal year.

Possibility CompanyTrial BalanceApril 30, 2006

Cash 3,200Accounts Receivable 10,500Prepaid Insurance 1,800Supplies 1,350Land 50,000Building 136,500Accumulated Depreciation-Building 60,700Equipment 92,700Accumulated Depreciation-Equipment 36,300Accounts Payable 6,500Unearned Rent 3,000Shelby Powers, Capital 212,500Shelby Powers, Drawing 10,000

Page 30 of 66

Fees Revenue 191,000Salaries and Wages Expense 96,200Advertising Expense 63,200Utilities Expense 18,000Repairs Expense 12,500Miscellaneous Expense 14,050Total 510,000 510,000

The data needed to determine year-end adjustments are as follows:a. Accrued fees revenue at April 30 is $10,000.b. Insurance expired during the year is $450.c. Supplies on hand at April are $650.d. Depreciation of building for the year is $1,620.e. Depreciation of equipment for the year is $3,500.f. Accrued salaries and wages at April 30 are $1,800.g. Unearned rent at April 30 is $1,000.

Instructionsa) Optional: Enter the trial balance on a ten-column work sheet and complete the work

sheet. Add accounts as needed.b) Journalize the adjusting entries, adding accounts as needed.c) Prepare an adjusted trial balance of April 30, 2006.d) Prepare and income statement for the year ended April 30.e) Prepare a statement of owner’s equity for the year ended April 30. No additional

investments were made during the year.f) Prepare a balance sheet as of April 30.g) Compute the percent of total revenue to total assets for the year.

SOLUTIONS8. Oscar Company maintains and repairs warning lights, such as those found on radio towers and lighthouses. Oscar Company prepared the following trial balance at July 31, 2006, the end of the current fiscal year:

Oscar CompanyTrial BalanceJuly 31, 2006

Cash 14,500Accounts Receivable 3,500Prepaid Insurance 3,000Supplies 1,950Land 70,000Building 100,500Accumulated Depreciation-Building 71,700Equipment 71,400Accumulated Depreciation-Equipment 60,800Accounts Payable 4,100Unearned Rent 1,500Mac Oscar, Capital 55,700Mac Oscar, Drawing 4,000Fees Revenue 181,200Salaries and Wages Expense 73,200

Page 31 of 66

Advertising Expense 15,500Utilities Expense 8,100Repairs Expense 6,300Miscellaneous Expense 3,050

375,000 375,000

The data needed to determine year-end adjustments are as follows:a. Fees revenue accrued at July 31 is $5,000.b. Insurance expired during the year is $2,500.c. Supplies on hand at July 31 are $350.d. Depreciation of building for the year is $1,520.e. Depreciation of equipment for the year is $2,160.f. Accrued salaries and wages at July 31 are $2,800.g. Unearned rent at July 31 is $500.

Instructionsa) Optional: Enter the trial balance on a ten-column work sheet and complete the work

sheet. Add accounts as needed.b) Journalize the adjusting entries, adding accounts as needed.c) Prepare and adjusted trial balance as of July 31, 2006.d) Prepare an income statement for the year ended July 31.e) Prepare a statement of owner’s equity for the year ended July 31. No additional

investments were made during the year.f) Prepare a balance sheet as of July 31.

SOLUTIONSOscar CompanyAdjusting entries

A/c receivable a/c dr. To fees earned

50005000

Insurance expense a/c dr. To prepaid insurance

25002500

Supplies expense a/c dr. To supplies

16001600

Depreciation on building a/c dr. To accumulated depreciation

15201520

Depreciation on equipment a/c dr. To accumulated depreciation

21602160

Salaries expense a/c dr. To salary payable

28002800

Unearned rent a/c dr. To rent revenue

10001000

Page 32 of 66

Oscar CompanyTrial BalanceJuly 31, 2006

Cash 14,500Accounts Receivable 8,500Prepaid Insurance 500Supplies 350Land 70,000Building 100,500Accumulated Depreciation-Building 73220Equipment 71,400Accumulated Depreciation-Equipment 62960Accounts Payable 6,900Unearned Rent 500Mac Oscar, Capital 55,700Mac Oscar, Drawing 4,000Fees Revenue 186,200Salaries and Wages Expense 76000Advertising Expense 15,500Utilities Expense 8,100Repairs Expense 6,300Miscellaneous Expense 3,050Insurance expense 2500Supplies expense 1600Depreciation -building 1520Depreciation -equipment 2160Rent revenue 500

386,480 386,480

CHAPTER 3MERCHANDISE BUSINESS

Q1. Merchandise inventory, January 1, 2007 $ 59,700 Purchases $521,980 Purchases returns and allowances $9,100 Purchases discounts 2,525 transportation in 17,400 merchandise inventory, December 31, 2007 $ 62,150 find Cost of merchandise sold?

Merchandise inventory, January 1, 2007 $59,700 Purchases $521,980 Less: Purchases returns and allowances $9,100 Purchases discounts 2,525 11,625Net purchases $510,355 Add transportation in 17,400Cost of merchandise purchased 527,755Merchandise available for sales 587455Less merchandise inventory, December 31, 2007 62150

Page 33 of 66

Cost of merchandise sold 525305Q2. Prepare Adjusted Trial Balance, Financial Statements for Net Solutions for the Year

Ended December 31, 2007 from the following:Cash 52,950 -Sales Returns Allowances 6,140Accounts Receivable 91,080 Sales Discounts 5,790Merchandise Inventory 63,950 Cost of Merchandise Sold 523505Office Supplies 1090 Sales Salaries Expense 55450Prepaid Insurance 4560 Advertising Expense 10,860

Land 20,000Depreciation Exp —Store Equipment 0

Store Equipment 27,100 Selling Expense 630Accumulated Depreciation Exp—Store Equipment 2600 Office Salaries Expense 20660Office Equipment 15,570 Rent Expense 8,100Accumulated Depreciation Exp—Equipment 2230

Depreciation Exp —Equipment 0

Accounts Payable 22,420 insurance Expense 0Salaries Payable 0 Office Supplies Expense 0Unearned Rent 2400 Mis. Administrative expense 760Notes Payable(final payment due 2017) 25,000 rent Revenue 0Chris Clark, Capital 153,800 Interest Expense 2440Chris Clark, Drawing 18,000 Total 928,635 928,635Sales 720,185

a)Merchandise inventory shrinkage for period $1 800 [i.e. $63950— $62 150)(b)Office supplies used, $610 ($1,090 — $480).(c) Insurance expired, $1,910.(d) Deprecation on store equipment, $3,100.(e) Depreciation of office equipment, $2,490.(f) Salaries accrued but not paid: (Sales salaries, $780; office salaries, $360), $1,140(g) Rent earned from amount received in advance, $600

Date Particulars Post

Ref.

Debit $

Credit $

2007

Dec. 31

Cost of merchandise sold 510 1800

Merchandise inventory 115 1800

31

Office supplies expense 534 610

Office supplies 116 610

3 Insurance expense 533 1910

Page 34 of 66

1

Prepaid insurance 117 1910

31

Depreciation expense

Store equipment 522 3100

Accumulated depreciation 3100

Store equipment 124

31

Depreciation expense

Office equipment 532 2490

Accumulated depreciation

Office equipment 126 2490

31

Sales salaries expense 520 780

Office salaries expense 530 360

Salaries payable 211 1140

31

Unearned rent 212 600

Rent revenue 610 600

Q3. Merchandising Business

Net SolutionsFor the Year Ended December 31, 2007

Adjusted Trial Balance Statement

Cash 52,950Accounts Receivable 91,080Merchandise Inventory 62,150Office Supplies 480Prepaid Insurance 2,650Land 20,000

Page 35 of 66

Store Equipment 27,100Accum. Depr.—Store Equipment 5700Office Equipment 15,570Accum. Depr.—Office Equipment 4,720Accounts Payable 22,420Salaries Payable 1,140Unearned Rent 1,800Notes Payable (final payment due 2017) 25,000Chris Clark, Capital 153,800Chris Clark, Drawing 18,000Sales 720,185-Sales Returns and Allowances 6,140Sales Discounts 5,790Cost of Merchandise Sold 525305Sales Salaries Expense 56230Advertising Expense 10,860: Depr. Exp.—Store Equipment 3,100Miscellaneous Selling Expense 630Office Salaries Expense 21,020Rent Expense 8,100 Depr. Exp.—Off ice Equipment 2490insurance Expense 1,910Office Supplies Expense 610Misc. Administrative Expense 760rent Revenue 600interest Expense 2440Total 935365 935365

Multiple-Step Income Statement

Accounting for Merchandising Businesses:

Net Solutions Income Statement

For the Year Ended December 31, 2007

Revenue from sales:Sales 720185Less: Sales returns and allowances 6140

Sales discounts 5790 [11930]Net sales $708 2 55 Cost of merchandise sold 525 3 0 5 Gross profit $182 950

Page 36 of 66

Operating expenses: _____________Selling expenses: _________Sales salaries expense 56230Advertising expense 10860______ Depr._expense—store equipment 3100Miscellaneous selling expense 630Total selling expenses 70820

Administrative expenses:Office salaries expense 21020Rent expense 8100Depr.expe 2490Insurance ex 1910Office supplies expense 610Misc. Administrative expense 760Total administrative expenses 34890Total operating expenses [105710]Income from operations 77240

Other incomes:Rent Revenue 600

Other expenses:

Interest Expense [2440]Net income 75400

Single-Step Income Statement An alternate form of income statement is the single-step income statement. P° shown in Exhibit 3, the income statement for Net Solutions deducts the total of all expenses in one step from the total of all revenues. The single-step form emphasizes total revenues and total expenses as the factors that determine net income. A criticism of the single-step form is that such amounts as gross profit and income from operations are not readily available for analysis.

Single-Step Income Statement

Net Solutions Income Statement

For the Year Ended December 31 2007

Page 37 of 66

Sales 708255

Rent revenue $708 8 5

Expenses:

Cost Of merchandise sold $525305

Selling expenses 70820Administrative expenses — Interest expense 34890

Interest expense 2440

Total expenses 633 4 5 5

Net income $ 75400

Statement of owners equity of merchandising business

Net solutionsStatements of owners equity

For the year ended December 31,2007Chris Clark, capital, January 1, 2007 $153800

Net income for year $75400Less withdrawals 18000Increase in owners’ equity 57400Chris Clark, capital, December 31,2007 $211200

Report Form of Balance Sheet

NetSolutions Balance Sheet December 31,2007

Assets

Current assets:cash $52950Accounts receivable 91080

Merchandise inventory 62150Office supplies 480Prepaid insurance 2650Total current assets $209310

Property, plant, equipment:

land $20000

Store equipment $27100

Page 38 of 66

Less: accumulated depreciation 5700 21400

Office equipment $15570Less: accumulated depreciation 4720 10850Total property, plant and equipment 52250

Total assets $261560liabilities

Current liabilities:

Accounts payable $22420

Note payable (current portion) 5000Salaries payable 1140

Unearned rent 1800Total current liabilities $30360

Long term liabilitiesNote payable (final payment due 2017) 20000Total liabilities $50360

Owner’s equityChris clark, capital 211200Total liabilities and owner’s equity $261560

Q3. The following selected accounts and their current balances appear in the ledger of Tetra Co. for the fiscal year ended July 31 2006. Prepare a multi-step income statement.

Administrative expenses 80,000 Salaries payable 3,220Building 512,500 Office supplies 10,600Merchandise Inventory 130,000 Notes payable 25,000Cash 100,000 Mac Grover, Capital 628,580Cost of merchandise sold 560,000 Mac Grover, Drawing 25,000Store Supplies 7,700 Sales 925,000Interest 7,500 Sales discount 20,000Sales return and allowance 60,000 Selling expenses 125,000

Q4. The following unadjusted trial balance contains the accounts and the balances of Johnson’s Repairs Company as of December 31, 2006.The data needed to determine year-end adjustments are as follows:

a. Supplies on hand at December 31, 2006 are $1250.b. The Insurance Premium expired during the year are $1000.c. Depreciation of Equipment during the year is $5080.d. Wages accrued but not paid at December 31, 2006 are $900.e. Accrued fees earned but not recorded at December 31, 2006 are $2000.f. Depreciation of trucks during the year is $3500.

Page 39 of 66

Instructions: a. Journalize the above transactions, prepare, and adjusted Trial balance.b. Prepare an Income statement, statement of owner’s Equity and a balance sheet.

Cash 2825 Accounts payable 2015Trucks 45000 J. Johnson’s Capital 32885Accumulated Depreciation-Trucks 27100 J. Johnson’s

Drawings5000

Supplies 5820 Service Revenue 75950Prepaid Insurance 2500 Wages Expense 28010Office Equipment 44200 Rent Expense 8100Accumulated Depreciation-Equipment

12050 Truck Expense 6350

Miscellaneous Expense 2195 Total 150000 150000

Q5.

Q6. . The following unadjusted trial balance contains the accounts and balances of Leroy’s company as of July 31, 2006. The data needed to determine year-end adjustments are as follows:* Supplies on hand at July 31, 2006 are $ 760.* The Insurance Premium expired during the year are $ 630.* Depreciation of equipment during the year is $ 9900. * Wages accrued but not paid at July 31, 2006 are $ 880. * Accrued fees earned but not recorded at July 31, 2006 are $ 2000. *Unearned fees on July 31, 2006 are $1500. Instructions : Journalize the above transactions and prepare an Financial statements.

Page 40 of 66

Debit $ Credit $

Leroy’s Capital 58000

Cash 6850 Leroy’s Drawing 10400Accounts Receivable 14000 Fees Earned 118250Supplies 2540 Wages Expense 44830Prepaid Insurance 1240 Rent Expense 8400Office Equipment 103300 Utilities Expense 5430Accumulated Depreciation

19400 Miscellaneous Expense

3010

Accounts Payable 1850 Unearned Fees 2500

CHAPTER 4Specimen of Bank Reconciliation:

$ $ $ $Cash balance according to bank statement

xx Cash balance according to depositor’s record

xx

Add: 1. Deposit in

transit/ deposits not on bank statement

2. Bank Errors3. Any amounts

credited in error by bank

X

X

X Xx

Add: 1. additions by bank not recorded

by depositor 2. Payment overcastting3. Note collection +interest –

charges 4. Interest on deposits / Bank giro

credit (Direct remittance by customers) / Interest, dividend etc collected and credited / Credit transfers

X

XXX

Xx

Xxx xxxDeduct:

1. deductions by depositor not on bank statement / due checks

2. bank errors / Bank lodgements, amounts not yet credited

Xx

xx-xx

Deduct:1. deductions by bank not

recorded by depositor2. bank errors / payment under

casting3. Bank service charges /

Standing orders / Direct debit

Xx

xx-xx

Adjusted balance XXX

Adjusted balance XXX

Bank statement - Prepared by the bank and forwarded to the account holder.Cash book - prepared by the business man (account holder).

Page 41 of 66

Bank Reconciliation Statement: Prepared by the account holder to make bank balance as per Cash book and Bank Statement, the same.A bank reconciliation statement is prepared by the current account holder of a bank (business man).It is prepared when the bank balance as per cash book and bank statement is different. Reasons for difference.1. Un presented Cheques 2. Cheques not collected and credited 3. Cheques returned dishonored. 4. Standing orders executed. 5. Bank charges 6. Interest, dividend etc collected and credited. 7. Bank giro credit 8. Credit transfers.

Increasing items of bank balance (debit in cash book) Decreasing items of bank balance (credit)a. Deposits a. Withdrawalsb. Cheques paid in b. Cheques issued.c. Direct remittance by customers (bank giro credit) c. Execution of standing ordersd. Interest on deposits not intimated d. Cheques returned dishonoured.e .Dividend etc collected and credited f. Bank charges.g. Credit transfers from other accounts

There are three steps in its preparation.1. Locating the reasons for difference.2. Preparation of B.R.

BRS - Practice Problems:

1. The following information pertains to Kidstock Company:

Cash balance according to the depositor’s records at March 31, $15,342.90.Cash balance according to the bank statement at March 31, $8,914.5.Outstanding checks, March 31, $4,552.40.Deposits in transit not recorded by bank March 31, $11,560.80.A check for $290 in payment of an account was erroneously recorded in the check register as $902. March bank service charge $32.

Instructions: Prepare bank reconciliation at March 31.

KIDSTOCK COMPANYparticulars $ particulars $

Cash balance according to bank statement

Add:Deposit in transit

8914.5

11560.80

Cash balance according to depositors record

Add:Wrongly entered

15342.90

612.0020475.3 15954.9

Less: outstanding checks4552.40

Less: bank charges 32

Adjusted balance 15922.9 Adjusted balance 15922.9

Page 42 of 66

2. a) The following information pertains to Rainbow Company:Cash balance per bank, July 31, $7,263.July bank service charge not recorded by the depositor $15.Cash balance per books, July 31, $7,190.Deposits in transits, July 31, $1,500Bank collected $800 note for Cody in July, plus interest $36, less fee $20. The collection has not been recorded by Cody, and no interest has been accrued.Outstanding checks, July 31, $772.Instructions: Prepare bank reconciliation at July 31.

RAINBOW COMPANYparticulars $ particulars $Cash balance per bank b/s

Add:Deposit in transitLess:o/s checks

7263

1500

(772)

Cash balance per cash statement

Add:NoteLess:Bank service charges

7190

816

(15)Adjusted balance 7991 Adjusted balance 7991

3. This bank statement shows a balance of $3,359.78 as of July 31. The cash balance in Power Networking’s ledger as of the same date is $2,549.99. The following reconciling items are revealed by using the steps outlined above.

Deposit of July 31, not recorded on bank statement $816.20Checks outstanding: No. 812, $1,061.00; No. 878, $435.39; No. 883, $48.60..................1,544.99Note plus interest of $8 collected by bank (credit memorandum), not recorded in the journal………………………………….................................408.00Check from customer (Thomas Ivey) returned by bank because of insufficient funds (NSF)…………………………………………………………………………….300.00Bank service charges (debit memorandum), not recorded in the journal.............. 18.00Check No. 879 for $732.26 to Taylor Co. on account, recorded in the journal as $723.26…..9.00The bank reconciliation based on the bank statement and the reconciling items.

POWER NETWORKINGparticulars $ particulars $Cash balance as per bank statement

Add: deposit in transit

Less: checks: a)check no:812 -$1061.0 b)check no:878-$435.39 c)check no:883-$48.60

3359.78

816.20

(1544.99)

Cash balance as per ledger(cash balance)

Add: bank charges

Less:Returned by bank-$300Bank services-$18Check no:879-$9

2549.99

408.0

(327)

Page 43 of 66

2630.99 2630.99

4. The cash account for Showtime Systems at February 28, 2006, indicated a balance of $19,144.15. The bank statement indicated a balance of $31,391.40 on February 28, 2006. Comparing the bank statement and the accompanying canceled checks and memorandums with the records reveals the following reconciling items:a. Checks outstanding totaled $11,021.50.b. A deposit of $6,215.50, representing receipts of February 28, had been made too

late on the bank statement.c. The bank had collected $6,300 on a note left for collection. The face of the note

was $6,000.d. A check for $1,275 returned with the statement had been incorrectly recorded by

Showtime Systems as $2,175. The check was for the payment of an obligation to Wilson Co. for the purchase of office supplies on account.

e. A check drawn for $855 had been incorrectly charged by the bank as $585.f. Bank service charges for February amounted to $28.75.

Instructionsi. Prepare bank reconciliation.ii. Journalize the necessary entries. The accounts have been closed.

iii. SHOWTIME SYSTEMSparticulars $ particulars $Cash balance as per bank statement


Wrongly recorded checkLess: o/s checks

31391.40

6215.50

(270)

(11021.50)

Cash balance as per depositors recordAdd: notes

Wrongly recorded [1275-2175]

Less: bank service charges

19144.15

6300

900

(28.75)

26315.40 26315.40

5. The cash account for Pickron Co. at April 30, 2006, indicated a balance of $13,290.95. The bank statement indicated a balance of $18,016.30 on April 30, 2006. Comparing the bank statement and the accompanying canceled checks and memorandums with the records revealed the following reconciling items:a. Checks outstanding totaled $7,169.75.b. A deposit of $5,189.40, representing receipts of April 30, had been made too late

to appear on the bank statement. c. The bank had collected $3,240 on a note left for collection. The face of the note

was $3,000.d. A check for $1,960 returned with the statement had been incorrectly recorded by

Pickron Co. as $1,690. The check was for the payment of an obligation to Jones Co. for the purchase of office equipment on account.

e. A check drawn for $1,680 had been erroneously charged by the bank as $1,860.f. Bank service charges for April amounted to $45.00.

Instructions

Page 44 of 66

i. Prepare bank reconciliation.ii. Journalize the necessary entries. The accounts have not been closed.

PICKRON CO.particulars $ particulars $

Cash balance as per bank statement


Wrongly recorded checks

Less: o/s checks

18016.30

5189.40

180

(7169.75)

Cash balance as per depositors record

Add: notes

Less: bank service charges

Wrongly recorded check

13290.95

3240

(45)

(270)

16215.95 16215.95

6. Trill’s bank statement for May 2009 shows these data:Balance May 1 $ 12650Debit memorandum NSF check $175Credit memorandum: collection of note $505Balance May 3 1 $ 14280

The cash balance as per books at May 31 is $ 13319. The NSF check was from Hup co a customer The note collected by the bank was a $500 , 3- month , 12% note. The bank

charged a $10 collection fee. No interest has been accrued. Outstanding checks at May 31 total $ 2410 Deposits in transit at May 31 total $ 1752 Trill companies check for $ 352 dated May 10 cleared the bank on May25. This

check, which was a payment on account, was journalized for $ 325.

Instructionsi. Prepare bank reconciliation.ii. Journalize the necessary entries. The accounts have not been closed.

TRILL BANK STATEMENTparticulars $ particulars $

Page 45 of 66

Bank balance

Add: deposit in transit-

Less: o/s checks-

$14280

$1752

($2410)

Cash balance

Add: notes-

Less: wrongly recorded CheckNsf memorandum -$175+27

$13319

$505

($202)

13622 13622

1] Cash ac dr 505Mis ac dr 10To NR 500To Interest revenue 152] AR dr 175To cash 1753]AP ac dr 27To Cash 27

CHAPTER 5Receivables: Practice Problems

Q1. Incubate Co. produces advertising videos. During the last six months of the current fiscal year, Incubate Co. received the following notes.

Date Face Amount

Term Interest Rate

1. May 23 $18,000 45 days 8%2. July 10 20,000 60 days 9%3. Aug. 8 36,000 90 days 6%4. Sept. 16 20,000 90 days 7%5. Nov. 23 18,000 60 days 9%6. Dec. 18 48,000 60 days 12%

Instructionsa. Determine for each note (a) the due date and (b) the amount of interest due at

maturity, identifying each note by number.

b. Incubate CoDate Face amount term Due date Interest rate Maturity amount

1 May 23 18000 45days 7july 8% 1818023

July 10Aug 8

2000036000

60days90days

8sept

6nov

9%6%

2030036540

4 Sept 16 20000 90days 15dec 7% 203505 Nov 23 18000 60days 23nov 9% 18270

Page 46 of 66

6 Dec 18 48000 60days 16feb 12% 48960

Q2. Incubate Co. produces advertising videos. During the last six months of the current fiscal year, Incubate Co. received the following notes.

Date Face Amount

Term Interest Rate

1. May 24 $18,000 45 days 8%2. July 10 20,000 60 days 9%3. Aug. 8 36,000 90 days 6%4. Sept. 16 20,000 90 days 7%5. Nov. 23 18,000 60 days 9%6. Dec. 18 48,000 60 days 12%

Instructionsa. Determine for each note (a) the due date and (b) the amount of interest due at

maturity, identifying each note by number.b. Journalize the entry to record the dishonor of Note (3) on its due date.c. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on

December31.d. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in

January and February.

Incubate Co

Date Face amount term Due date Interest rate Maturity amount1 May 24 18000 45days 8july 8% 1802 July 10 20000 60days 8sept 9% 3003 Aug 8 36000 90days 6nov 6% 5404 Sept 16 20000 90days 15dec 7% 3505 Nov 23 18000 60days 22jan 9% 2706 Dec 18 48000 60days 16feb 12% 960

JOURNAL ENTRIES

date PARTICULARS DR. CR.b) Notes receivable a/c dr.

To a/c receivable

A/c receivable a/c dr. To interest revenue To notes receivable

36000

36540

36000

54036000

c)2009Dec 31

Note 5: Interest receivable a/c dr.

171171

Page 47 of 66

To interest revenue

Note 6:Interest receivable a/c dr. To interest revenue

208208

d) Note 5:Cash a/c dr. To interest revenue To notes receivable

Note6:Cash a/c dr. To interest revenue To notes receivable

18270

48960

27018000

9604800

Q3. Presented here are selected transactions related to B. Dylan Corp.Mar. 1: Sold $20,000 of merchandise to Potter company, terms 2/10, n/30. 11: Received payment in full from Potter Company for balance due. 12: Accepted Juno Company’s $20,000, 6-month, 12% note for balance due. 13: Made B. Dylan Corp. credit card sales for $13,200. 15: Made Visa credit sales totaling $6,700. A 5% service fee is charged by VisaApr. 11: Sold accounts receivable of $8,000 to Harcot Factor. Harcot Factor assesses a service charge of 2% of the amount of receivables sold. 13: Received collections of $8,200 on B. Dylan Corp. credit card sales.

May 10: Wrote off as uncollectible $16,000 of accounts receivable. B. Dylan Corp. uses the percentage of receivables basis to estimate bad debts.

June 30: The balance in accounts receivable at the end of the first six months is $200,000 and the bad debts percentage is 10%. At June 30, the credit balance in allowance account prior to adjustment is $3,500.

July 16: One of the accounts receivables written off in May pays the amount due, $4,000 in full.

Instructions:Prepare the journal entries for the transactions. B. DYLAN CORP.

Page 48 of 66

date particulars Dr. Cr.

Mar1

11

12

13

15

April 1

13

May 10

June 10

July 16

16

A/c receivable a/c dr. To sales

Cash a/c dr.Sales discount a/c dr. To a/c receivable

Notes receivable a/c dr. To a/c receivable

A/c receivable a/c dr. To sales

Cash a/c dr.Service charges a/c dr.[5%] To sales

Cash a/c dr. Service charges a/c dr. To A/c receivable a/c

Cash a/c dr. To A/c receivable a/c

Allowance for doubtful amount a/c dr. To A/c receivable a/c

Bad debts a/c dr. To allowance for doubtful amount

A/c receivable a/c dr. To allowance for doubtful debt

Cash a/c dr. To A/c receivable

20000

19600400

20000

13200

6365335

7840160

8200

16000

16500

4000

4000

20000

20000

20000

13200

6700

8000

8200

16000

16500

4000

4000

Q4. a. Prepare the journal entries for the following transactions:1. As of the end of 1999, Post Company estimates its uncollectible accounts

expense to be 1% of sales. Sales in 1999 were $1,125,000.2. On January 15, 2000, the company decided that the account for John Nunn in

the amount of $750 was uncollectible.3. On February 12, 2000, John Nunn’s check for $750 arrived.

Page 49 of 66

b. Prepare the journal entries in the record of Lyle Company for the following:1. On June 15, 1999, Lyle Company received a $22,500, 90-day, 12% note dated

June 15, 1999, from Stone Company in payment of its account.2. Assume that Stone Company did not pay the note at maturity. Lyle Company

decided that the note was uncollectible.date particulars Dr. Cr.a)1-

2-

3-

Bad debts expenses a/c dr. To allowance for doubtful amount

Allowance for doubtful amount a/c dr. To A/c receivable

A/c receivable a/c dr. To allowance for doubtful amount

Cash a/c dr. To A/c receivable

11250

750

750

750

11250

750

750

750

b)1-

2-

Notes receivable a/c dr. To A/c receivable

A/c receivable a/c dr. To notes receivable To interest revenue

Allowance for doubtful allowance a/c dr. To A/c receivable

22500

23175

23175

22500

22500675

23175

Q5. Clayco Company completes the following selected transactions during year 2005:

July 14: Writes off a $750 account receivable arising from a sale to Briggs Company that dates to 10 months ago. (Clayco Company uses the allowance method.) 30: Clayco Company receives a $1,000, 90-day, 10% note in exchange for merchandise sold to Sumrell Company (the merchandise cost $600.)

Aug 15: Receives $2,000 cash plus a $10,000 note from JT Co. in exchange for merchandise that sells for $12,000 (its cost is $8,000). The note is dated August 15, bears 12% interest and matures in 120 days.

Nov 1: Completed a $200 credit card sale with a 4% fee (the cost sales is $150). The cash is received immediately from the credit card company.

Page 50 of 66

3: Sumrell Company refuses to pay the note that was due to Clayco Company on October 28. Prepare journal entry to charge the dishonored note plus accrued interest to Sumrell Company’s account receivable. 5: Completed a $500 credit card sale with a 5% fee (the cost of sale is $300). The payment from the credit card company is received on November 9.

15: Received the full amount of $750 from Briggs Company that was previously written off on July 14. Record the bad debts recovery.

Dec 13: Received payment of principle plus interest from JT for the August 15 note.

Required:1. Prepare journal entries to record these transactions on Clayco Company’s

books.2. Prepare an adjusting journal entry as of December 31, 2005, assuming the

following: a: Bad debts expense is estimated to be $20,400 by aging accounts receivable. The unadjusted balance of the Allowance for Doubtful Accounts is $1,000 debit. b: Alternatively, assume that bad debts expense is estimated using the percent of sales method. The Allowance for Doubtful Accounts had a $1,000 debit balance before adjustment, and the company estimates bad debts to be 1% of its credit sales of $2,000,000.

CLAYCO COMPANY

date particulars Dr. Cr.

July 14 Allowance for doubtful allowance a/c dr. To A/c receivable

750750

July 30 Notes receivable a/c dr. To sales

10001000

July 30 Cost of goods sold a/c dr. To merchandise inventory

600600

Aug 15 Cash a/c dr.Notes receivable a/c dr. To sales

200010000

12000Cost of goods sold a/c dr. To merchandise inventory

80008000

Nov1 Cash a/c dr.Credit card expense a/c dr. To sales

1928

200

Page 51 of 66

Cost of goods sold a/c dr. To merchandise inventory

150150

Nov3 A/c receivable –S & CO a/c dr. To interest revenue To notes receivable

1025251000

Nov5 A/c receivable a/c dr.Credit card expense a/c dr. To sales

47525

500Cost of goods sold a/c dr. To merchandise inventory

300300

Nov9 Cash a/c dr. To A/c receivable

475475

15 A/c receivable a/c dr. To allowance for doubtful allowance

750750

15 Cash a/c dr. To A/c receivable

750750

Dec 13 Cash a/c dr. To interest revenue To note receivable

1040040010000

Dec 31 Bad debts expense a/c dr. To allowance for doubtful debtB* percent of sales method:Bad debts expense a/c dr. To allowance for doubtful debt

21400

2000021400

20000

Q6. [Q8.1B page 347]The following transactions, adjusting entries, and closing entries were completed by The Eagle Rock Gallery during the year ended December 31, 2006:Feb. 24. Reinstalled the account of Dina Ibis, which had been written off in the preceding year as uncollectible. Journalized the receipt of $1,025 cash in full payment of Ibis’s account.Mar. 29. Wrote off the $7,500 balance owed by Hoxsey Co., which is bankrupt.July 10. Received 40% of the $12,000 balance owed by Foust Co., a bankrupt business, and wrote off the remainder as uncollectible.Sept. 8. Reinstalled the account of Louis Sabo, which had been written off two years earlier as uncollectible. Recorded the receipt of $1,200 cash in full payment.Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Emery Co., $8,050; Darigold Co., $6,260; Zheng Furniture, $3,775; Carey Wenzel, $2,820.Dec. 31. Based on an analysis of the $887,550 of accounts receivable, it was estimated that $30,500 will be uncollectible. Journalized the adjusting entry.Dec. 31. Journalized the entry to close the appropriate account to Income Summary.Instructions

Page 52 of 66

a. Post the January 1 credit balance of $28,500 to Allowance for Doubtful Accounts.b. Journalize the transactions and the adjusting and closing entries. Post each entry that

affects the following three selected accounts and determine the new balances:115 Allowance for Doubtful Accounts313 Income Summary718 Uncollectible Accounts Expense

c. Determine the expected net realizable value of the accounts receivable as of December 31.

d. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ¼ of 1% of the net sales of $12,750,000 for the year, determine the following:a. Uncollectible accounts expense for the year.b. Balance in the allowance account after the adjustment of December 31.c. Expected net realizable value of the accounts receivable as of December 31.

Q7. [Q8.6B page # 350]The following were selected from among the transactions completed during the current year by Westphal Co., an appliance wholesale company:Jan. 6. Sold merchandise on account to Alta Co., $10,500. The cost of merchandise sold was $6,300.Mar. 9. Accepted a 60-day, 8% note for $10,500 from Alta Co. on account.May 8. Received from Alta Co. the amount due on the note of March 9.June 1. Sold merchandise on account to Witmer’s for $8,000. The cost of merchandise sold was $4,800.June 5. Loaned $11,000 cash to Dru York, receiving a 30-day, 6% note.June 11. Received from Witmer’s the amount due on the invoice of June 1, less 2% discount.July 5. Received the interest due from Dru York and a new 60-day, 9% note as a renewal of the loan of June 5. (Recorded both the debit and the credit to the notes receivable account).Sept. 3. Received from Dru York the amount due on her note of July 5.Sept. 8. Sold merchandise on account to Rochin Co., $10,000. The cost of merchandise sold was $6,000.Oct. 8. Accepted a 60-day, 6% note for $10,000 from Rochin Co. on account.Dec. 7. Rochin Co. dishonored the note dated October 8.Dec. 28. Received from Rochin Co. the amount owed on the dishonored note, plus interest for 21 days at 9% computed on the maturity value of the note.InstructionsJournalize the transactions. Round to the nearest dollar.

Page 53 of 66

CHAPTER 6Inventories: Practice Problems:

Q1. We assume the following data:

Item 127b Units Cost $ Jan 1 Inventory 10 20

4 Sale 710 Purchase 8 2122 Sale 428 Sale 230 Purchase 10 22

Prepare statement showing the Value of ending inventory Using the a. FIFO method, under Perpetual inventory Systemb. LIFO method

Ans1. a) fifo method

date purchases Cost of M.S Ending inventoryUnit rate Total cost Unit rate Total cost Unit rate Total cost

Jan1 10 20 200Jan 4 7 20 140 3 20 60Jan 10 8 21 168 3 20 60

8 21 168Jan 22 3 20 60

1 21 21 7 21 147Jan 28 2 21 42 5 21 105Jan 30 10 22 220 5 21 105

10 22 220

Ending inventory:5units @ 21=10510units @ $22=220Total=$325b) lifo method


Jan1 10 20 200Jan 4 7 20 140 3 20 60Jan 10 8 21 168 3 20 60

8 21 168Jan 22 4 21 84 3 20 60

4 21 84Jan 28 2 21 42 3 20 60

2 21 42Jan 30 10 22 220 3 20 60

Page 54 of 66

2 21 220

10 22 220

Ending inventory:3units @ 20=602units@21=4210units@22=220Total=$322

Q2. We assume the following data:

Jan. 1 Inventory: 200 units at $9 $1,800Mar. 10 Purchase: 300 units at 10 3,000Sept. 21 Purchase: 400 units at 11 4,400 Nov. 18 Purchase: 100 units at 12 1,200Available for sale during year 1,000 $10,400

The physical count on December 31 shows that 300 units have not been sold. Compute the cost of merchandise sold and value of ending inventory Using the

a. FIFO method, b. LIFO methodc. Ans.2)

a) fifo methoddate purchases Cost of M.S Ending inventory

Unit rate Total cost Unit rate Total cost Unit rate Total cost

Jan1 200 9 1800

Mar.10 300 10 3000 200 9 1800300 10 3000

Sept.21 400 11 4400 200 9 1800300 10 3000400 11 4400

Nov 18 100 12 1200 200 9 1800300 10 3000400 11 4400100 12 1200

Dec31 200 9 1800300 10 3000 200 11 2200200 11 2200 100 12 1200

Ending inventory=2200+1200=3400Cost of goods sold=1800+3000+2200=7000

b) lifo methoddate purchases Cost of M.S Ending inventory

Page 55 of 66

Unit rate Total cost Unit rate Total cost Unit rate Total cost

Jan1 200 9 1800

Mar.10 300 10 3000 200 9 1800300 10 3000

Sept.21 400 11 4400 200 9 1800300 10 3000400 11 4400

Nov 18 100 12 1200 200 9 1800300 10 3000400 11 4400100 12 1200

Dec31 100 12 1200400 11 4400 200 9 1800200 10 2000 100 10 1000

Ending inventory:100 units @ $10=1000200 units@ $9=1800

Q3. Stewart Co.’s beginning inventory and purchases during the year ended December 31, 2007, were as follows:

Units Unit Cost Total CostJanuary 1 Inventory 1,000 $50.00 $50,000March 10 Purchase 1,200 52.50 63,000June 25 Sold 800 unitsAugust 30 Purchase 800 55.00 44,000October 5 Sold 1,500 unitsNovember 26 Purchase 2,000 56.00 112,000December 31 Sold 1,000 unitsTotal 5,000 $269,000

InstructionsDetermine the cost of inventory on December 31, 2007, using the perpetual inventory system and each of the following inventory costing methods:

a. first-in, first-outb. last-in, first-outc. average cost

Determine the cost of inventory on December 31, 2007 using the periodic inventory system and each of the following inventory costing methods:

d. first-in, first-oute. last-in, first-outf. average cost

Assume that during the fiscal year ended December 31, 2007, sales were $290,000 and the estimated gross profit rate was 40%. Estimate the ending inventory at December 31, 2007, using the gross profit method.

Page 56 of 66

Ans3.Average cost method


Jan1 1000 50 50000Mar 10 1200 52.50 63000 2200 51.36 113000June25 800 51.36 41088 1400 51.36 71912Aug30 800 55 44000 2200 52.68 115913Oct5 1500 52.68 79110 700 52.68 36892Nov26 2000 56 112000 2700 55.14 148876Dec31 1000 55.139 1700 55.139 937363

Q4. The Audiophile sells high-performance stereo equipment. Massachusetts Acoustic recently introduced the Carnegie-440, a state-of-the-art speaker system. During the current year, The Audiophile purchased nine of these speaker systems at the following dates and acquisition costs:

Date Units Purchased Unit Cost Total CostOct. 1 2 $3,000 $6,000Nov. 17 3 3,200 9,600Dec. 1 4 3,250 13,000Available for sale during the year

9 $28,600

On November 21, The Audiophile sold four of these speaker systems to the Boston Symphony. The other five Carnegie-440s remained in inventory at December 31.InstructionsAssume that The Audiophile uses a perpetual inventory system. Compute (1) the cost of goods sold relating to the sale of Carnegie-440 speakers to the Boston Symphony and (2) the ending inventory of these speakers at December 31, using each of the following flow assumptions:

a. Average cost

b. First-in, first-out (FIFO)

c. Last-in, first-out (LIFO)

Show the number of units and the unit costs of the cost layers comprising the cost of goods sold and the ending inventory.

CHAPTER 7Depreciation: Practice Problems:

Q1. McCollum Company, a furniture wholesaler, acquired new equipment at a cost of $150,000 at the beginning of the fiscal year. The equipment has an estimated life of 5 years and an estimated residual value of $12,000. Ellen McCollum, the president, has requested information regarding alternative depreciation methods.

Page 57 of 66

Instructionsa. Determine the annual depreciation for each of the five years of estimated useful life of

the equipment, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of the each year by (a) the straight-line method and (b) the declining-balance method (at twice the straight-line rate).

b. Assume that the equipment was depreciated under the declining-balance method. In the first week of the fifth year, the equipment was traded in for similar equipment priced at $175,000. The trade-in allowance on the old equipment was $10,000, and cash was paid for the balance. Journalize the entry to record the exchange.

DepreciationAns1.a)Straight line method

year Depreciation expense Accumulated depreciation Book value(cost-acc. dep)

1 27600 27600 123400

2 27600 55200 94800

3 27600 82800 67200

4 27600 110400 39600

5 27600 138000 12000

Amount of depreciation = cost-residual value/life of asset=150000-12000/5=27600

Rate of depreciation=depreciation expense/cost-salvage value*100=27600/150000-12000*100=20%b)Declining balance method


1 60000 60000 90000

2 36000 96000 54000

3 21600 117600 32400

4 12960 130560 19440

5 7440 138000 12000

Rate of depreciation=40%

Page 58 of 66

Q2. DuPage Company purchased a factory machine at a cost of $18,000 on January 1, 2004. The machine was expected to have a salvage value of $2,000 at the end of its 4-year useful life.InstructionsPrepare a depreciation schedule using the straight-line method.

Straight line method

Cost=18000Salvage =2000/16000Amount of dep=cost-s.v/life=4000Rate of dep=amount of dep/cost-s.v*100=25%


1 4000 4000 14000

2 4000 8000 10000

3 4000 12000 6000

4 4000 16000 2000

Q3. On January 1, 2001, Skyline Limousine Co. purchased a limousine at an acquisition cost of $28,000. The vehicle has been depreciated by the straight-line method using a 4-year service life and a $4,000 salvage value. The company’s fiscal year ends on December 31.InstructionsPrepare the journal entry or entries to record the disposal of the limousine assuming that it was:

(a) Retired and scrapped with no salvage value on January 1, 2005.

(b) Sold for $5,000 on July 1, 2004.

Cost=$28000s.v=4000life=4yearsUnder straight line method

Amount of dep=cost of dep-s.v/life=6000p.a

Rate of dep=amount of dep/cost-s.v=25%

A) Retired & scrapped with no salvage value on jan1,05

Page 59 of 66

date Journal entries Dr. Cr.1.1.05 Acc.dep expense a/c dr.

Loss on Disposed asset a/c dr. To limousine

240004000

28000

B] Depreciation expense a/c dr. To acc. depreciation

30003000

Cash a/c dr.Acc. depreciation expense dr. Loss on sale a/c dr. To limousine

5000210002000

28000

Journal entries Dr. Cr.Acc. Depreciation a/c dr.New equipment a/c dr.Loss on trade a/c dr. To old equipment To cash sales

1305601750009440

150000165000

Q4. On April 1, 2001, Argo Industries purchased new equipment at a cost of $325,000. The useful life of this equipment was estimated at 5 years, with a residual value of $25,000.InstructionsCompute the annual depreciation expense for each year until this equipment becomes fully depreciated under each depreciation method listed below. Because you will record depreciation for only a fraction of a year in 2001, depreciation will extend through 2006 for both methods. Show supporting computations.

a. Straight-line, with depreciation for fractional years rounded to the nearest whole month.

b. 200%-declining-balance, with the half-year convention. Limit depreciation in 2006 to an amount that reduces the undepreciated cost to the estimated residual value.

c. Assume that the equipment is sold at the end of December 2003, for $175,000 cash. Record the necessary gain or loss resulting from the sale under the straight-line method.

Q5. Calvin Company acquired and put into use a machine on January 1, 1999, at a total cost of $45,000. The machine was estimated to have a useful life of 10 years and a salvage value of $5,000. It was also estimated that the machine would produce one million units of product during its life. The machine produced 90,000 units in 1999 and 125,000 units in 2000.

Page 60 of 66

Compute the amount of depreciation to be recorded in 1999 and 2000 under each of the following:

a. Straight-line method.

b. Units-of production method.

c. Sum-of-the-years’-digits method.

d. Double-declining-balance method.

e. Assume 30,000 units were produced in the first quarter of 1999. Compute depreciation for this quarter under each of the four methods.

Ans5.a)straight line methodcost=$45000salvage=$5000life=10yearslife produce=1000000 unitsin year 1999=90000 unitsin year 2000=125000units

amount of depreciation=cost-s.v/life=$4000Rate of depreciation=amount of dep/cost-s.v*100=10%

b)units of production methodasset= current cost/life*cost-5000in the year 1999=90000/1000000*(45000-5000)=3600

In the year 2000=125000/1000000*40000=5000

c)sum of the digits method

year Life in digits

1234567

10987654

Page 61 of 66

8910

321

total 55

In the year 1999=(cost-salvage)*life in digits/sum of life in digits

4000*10/55 = $7272

In the year 2000= 40000*9/55=$6545

d)double declining balance methodrate=10% as per straight line methoddeclining balance rate=2*rate=2*10%=20%

In the year 1999=(cost-acc.dep)*rate of dep45000*20/100=$9000

In the year 2000(cost –acc.dep)*20%=45000-9000*20/100=$7200e)in the year 1999balance=3000units

Method year

Straight line method

UOP SYDM DDBM

19992000IQ

40004000¼*4000=$1000

3600500012000

72726545¼*7272=1818

90007200¼*9000=2250

UNITS OF PRODUCTION(cost-salvage)*CP/LP

Page 62 of 66

=30000/1000000*40000=$1200

CHAPTER 8Liabilities: Accounting Problems

Q1. Selected transactions of Taylor Company, completed during the fiscal year ended December 31, are as follows:Mar. 1. Purchased merchandise on account from Kelvin Co., $20,000.Apr. 10. Issued a 60-day, 12% note for $20,000 to Kelvin Co. on account.June 9. Paid Kelvin Co. the amount owed on the note of April 10. Aug. 1. Issued a $50,000, 90-day note to Harold Co. in exchange for a building. Harold Co. discounted the note at 15%. Oct. 30. Paid Harold Co. the amount due on the note of August 1. Dec. 27. Journalized the entry to record the biweekly payroll. A summary of the payroll follows:

Salary distribution:Sales $63,400Officers 36,600Office 10,000 $110,000Deductions:Social security tax $5,050Medicare tax 1,650Federal income tax withheld 17,600State income tax withheld 4,950Savings bond deductions 850Medical insurance deductions 1,120 31,220Net amount $78,780

Dec. 30. Issued a check in payment of liabilities for employees’ federal income tax of $17,600, social security tax of $10,100, and Medicare tax of $3,300.Dec. 31. Issued a check for $9,500 to the pension fund trustee to fully fund the pension cost for December.Dec. 31. Journalized an entry to record the employees’ accrued vacation pay, $36,100.Dec. 31. Journalized an entry to record the estimated accrued product warranty liability, 37,240.InstructionsJournalize the preceding transactionsAns1.

DATE PARTICULARS DR. CR.Jan1

Sept 1

24 dec

Cash a/c dr. To common stock To paid up capitalTreasury stock a/c dr. To cashDividend expense a/c dr. To dividend payable

3200000

90000

39000

20000001200000

90000

39000

Page 63 of 66

DATE PARTICULARS amount Common stock a/cAdditional paid in capital(excess of par value @ $3)Retained earnings

20,00,00012,00,000

1506003350600

Q2. . Rolman Corporation is authorized to issue 1,000,000 shares of $5 per value common stock. In its first year, the company has the following stock transactions.Jan. 10 Issued 400,000 shares of stock at $8 per share.Sept. 1 Purchased 10,000 shares of common stock for the treasury at $9 per share.Dec. 24 declared a cash dividend of 10 cents per share.Instructions

(a) Journalize the transactions.

(b) Prepare the stockholder’s equity section of the balance sheet assuming the company had retained earnings of $150,600 at December 31.

Q3. Altenburg Inc. is a lighting fixture wholesaler located in Arizona. During its current fiscal year, ended December 31, 2006, Altenburg Inc. completed the following selected transactions:Feb. 3. Purchased 2,500 shares of its own common stock at $26, recording the stock at cost. (Prior to the purchase, there were 40,000 shares of $20 per common stock outstanding.)May 1. Declared a semiannual dividend of $1 on the 10,000 shares of preferred stock and a 30 dividend on the common stock to stockholders of record on May 31, payable on June 15.June 15. Paid the cash dividends.Sept. 23. Sold 1,000 shares of treasury stock at $28, receiving cash.Nov. 1. Declared semiannual dividends of $1 on the preferred stock and 30 on the common stock. In addition, a 5% common stock dividend was declared on the common stock outstanding, to be capitalized at the fair market value of the common stock, which is estimated at $30.Dec. 1. Paid the cash dividends and issued the certificates for the common stock dividend.InstructionsJournalize the entries to record the transactions for Altenburg Inc.

SPECIMEN 1…………………………………………………… (Name)

Multiple-Step Income Statement

For the Year Ended …………………………

Revenue from sales: $ $ $Sales XXXLess: Sales returns and allowances XX

Page 64 of 66

Sales discounts XX - [XX]Net sales XXXLess: Cost of merchandise sold - [XX]Gross Profit / Margin XXX

Less: Operating expenses: Selling expenses: XSales salaries expense XAdvertising expense XDepreciation expense—store equipment XMiscellaneous selling expense XTotal selling expenses XX

Administrative expenses: XOffice salaries expense XRent expense XDepreciation expense XInsurance ex XOffice supplies expense XMisc. administrative expense XTotal administrative expenses XTotal operating expenses -[XXX]Income from operations XXXAdd: Non Operating / other incomes:Rent Revenue XXTotal XXXLess: Non Operating / other expensesInterest Expense -[XX]Net income before tax XXXLess : Income Tax paid -[XX]NET INCOME XXX

Statement of Owner’s equity:

$ $Capital (Beginning) XXXAdd Net Income XXTotal XXXLess : Drawings / Net loss (XX)

Page 65 of 66

Ending capital XXXStatement of Retained Earnings:

$ $Retained Earnings (opening) XXXAdd Net Income XXTotal XXXLess: Dividends (XX)Closing Retained Earnings XXX

SPECIMEN 2………………………………………………… (NAME)

Balance Sheet as at …………………….ASSETS $ $

Current Assets XXInventory XXReceivables XXCash XXSupplies XXPrepaid expenses XX Total XXXNon - Current Assets: (less : Accumulated depreciation)Premises XXXMachinery XXXFixtures, Furniture and Fittings XXX Total Assets XXX

LIABILITIES:Current liabilities:Dividends / Wages / Accounts Payables XxUnearned Revenue Xx XXLong term Liabilities:Mortgage Note payable / loans XxBonds Payable Xx XXTotal Liabilities xxxxOwner’s Equity:Capital XXRetained EarningsTotal Owner’s Equity XXTotal Liabilities and Owner’s Equity XXX

Page 66 of 66

Documents

Introduction to Accounting - Webnodefiles.bbab.webnode.com/200001165-824cb8346b/F Ac Q bank.doc · Web viewThe trial balance of Clay Employment Services pertains to December 31, 2009,