Introduction to Accounting
|[pic] | |
| |MANIPAL UNIVERSITY |
| | |
| |Dubai Campus |
| |Department of Management Studies |
Subject: 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, $ 5000
b. Purchased supplies on account $ 1350
c. Paid rent on office and equipment $ 2500
d. Received cash from fees earned $ 6500
e. Paid creditors on account $ 700
f. Billed customers through rental property $ 1250
g. Automobile expenses $ 550 , miscellaneous $ 675 and Paid office salary $ 1800
h. Supplies on hand $ 380
i. 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 |Remarks |
|Cash |+ |Accounts |+ |Supplies |= |
| | |Receivables | | | |
|Cash |+ |Acco|+ |Supp|= |Accounts |
| | |unts| |lies| |Payables |
| | | | | | | |
| | |Rece| | | | |
| | |ivab| | | | |
| | |les | | | | |
|Cash |+ |Accounts |+ |Supplies |
| | |Receivables | | |
|Cash |+ |Acco|+ |Suppli|= |Accounts |
| | |unts| |es & | |Payables |
| | | | |land | | |
| | |Rece| | | | |
| | |ivab| | | | |
| | |les | | | | |
|Cash |+ |Accounts Receivables |
|(a)Supplies for resale were purchased on credit | | |
|(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 | | |
SOLUTIONS
|Transaction(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 EXP |CASH |
|(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 $ |
SOLUTIONS
|Date |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 the
business:
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 to
the business.
REQUIRED :(a) Show the opening journal entry to record these transactions. A narrative is not required.
SOLUTIONS
|Date |Particulars |Ref No. |Debit $ |Credit $ |
| |Inventory a/c Dr | |12000 | |
| |Office Furniture a/c Dr | |1500 | |
| |Cash a/c Dr | |2300 | |
| |Petty Cash a/c Dr | |200 | |
| |To Hassan Loan a/c | | |3000 |
| |To Capital a/c | | |13000 |
| |(Being assets and liability brought into the business) | | | |
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:
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.Outz
|Date |Particulars |Ref No. |Debit $ |Credit $ |
|April 1 |Office Rent a/c Dr | |800 | |
| |To Cash | | |800 |
| 3 |Equipment a/c Dr | |200 | |
| |To Payables | | |200 |
| 5 |Cash a/c Dr | |3150 | |
| |To Receivables | | |3150 |
| 9 |Payables a/c Dr | |325 | |
| |To Equipment | | |325 |
| 12 |Payables a/c Dr | |1250 | |
| |To Cash | | |1250 |
| 17 |Insurance Expenses a/c Dr | |370 | |
| |To Cash | | |370 |
| 20 |Payables a/c Dr | |200 | |
| |To Cash | | |200 |
| 24 |Cash Expenses a/c Dr | |545 | |
| |To Cash | | |545 |
| 27 |Drawings a/c Dr | |1250 | |
| |To Cash | | |1250 |
| 30 |Cash a/c Dr | |1720 | |
| |To Personal Fees | | |1720 |
| 30 |Salary a/c Dr | |1725 | |
| |To Cash | | |1725 |
| 30 |Utility a/c Dr | |360 | |
| |To Cash | | |360 |
| 30 |Receivables a/c Dr | |5145 | |
| |To Professional Fees | | |5145 |
| 30 |Miscellaneous Expense a/s Dr | |132 | |
| |To Cash a/c | | |132 |
LEDGER ACCOUNTS
Cash a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To receivables |3150 | |By Office Rent a/c |800 |
| |To Personal Fees |1720 | |By Payables a/c |1250 |
| |To Balance c/d |1762 | |By Insurance Exp a/c |370 |
| | | | |By Payables a/c |200 |
| | | | |By Cash Exp a/c |545 |
| | | | |By Drawings a/c |1250 |
| | | | |By Salary a/c |1725 |
| | | | |By Utilities Exp a/c |360 |
| | | | |By Miscellaneous Exp |132 |
| | |6632 | | |6632 |
| | | | |By Balance b/d |1762 |
ACCOUNTS RECIEVABLE
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Professional Fees |5145 | |By Cash |3150 |
| | | | |By Balance c/d |1995 |
| | |5145 | | | |
| |To Balance b/d |1995 | | | |
Office Rent a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash a/c |800 | |By Balance c/d |800 |
| | |800 | | |800 |
| |To Balance b/d |800 | | | |
Dr Equipment a/c Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Payables |200 | |By Payables |325 |
| |To Balance c/d |125 | | | |
| | |325 | | |325 |
| | | | |By Balance b/d |125 |
Payables a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Equipment |325 | |By Equipment |200 |
| |To Cash |1250 | |By Balance c/d |1575 |
| |To Cash |200 | | | |
| | |1775 | | |1775 |
| |To Balance b/d |1575 | | | |
Insurance Expenses a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |370 | |By Balance c/d |370 |
| | |370 | | |370 |
| |By Balance b/d |370 | | | |
Cash Expenses a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |545 | |By Balance c/d |545 |
| | |545 | | |545 |
| |To Balance b/d |545 | | | |
Drawings a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |1250 | |By Balance c/d |1250 |
| | |1250 | | |1250 |
| |To Balance b/d |1250 | | | |
Personal Fees a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Balance c/d |6865 | |By Cash |1720 |
| | | | |By Receivables a/c |5145 |
| | |6865 | | |6865 |
| | | | |By Balance b/d |6865 |
Salary Expenses a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |1725 | |By Balance c/d |1725 |
| | |1725 | | |1725 |
| |To Balance b/d |1725 | | | |
Utility Expense a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |360 | |By Balance c/d |360 |
| | |360 | | |360 |
| |To Balance b/d |360 | | | |
Miscellaneous Expenses a/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |132 | |By Balance c/d |132 |
| | |132 | | |132 |
| |To Balance b/d |132 | | | |
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 | |
|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.
SOLUTIONS
Journal Entries in the books of Ahmed Net Solutions LLC.
|Date |Particulars |Ref No. |Debit $ |Credit $ |
| |Cash a/c Dr | |25000 | |
| |To Common Stock | | |25000 |
| |Land a/c Dr | |20000 | |
| |To Cash | | |20000 |
| |Supplies a/c Dr | |1350 | |
| |To Accounts Payable | | |1350 |
| |Cash a/c Dr | |7500 | |
| |To Fees Revenue a/c | | |7500 |
| |Wages Expenses a/c Dr | |2125 | |
| |Rent Expenses a/c Dr | |800 | |
| |Utilities Expenses a/c Dr | |450 | |
| |Miscellaneous Expenses a/c Dr | |275 | |
| |To Cash | | |3650 |
| |Accounts Payable a/c Dr | |950 | |
| |To Cash | | |950 |
| |Supplies Expenses (1350 – 550) Dr | |800 | |
| | | | |800 |
| |To Supplies | | | |
| |Drawings a/c Dr | |2000 | |
| |To Cash | | |2000 |
8 [a] Abdul Chris clerk - Ahmed Net Solutions LLC.
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 | |2400 | |
| |To Cash | | |2400 |
| |Rent Expenses a/c Dr | |800 | |
| |To Cash | | |800 |
| |Cash a/c Dr | |360 | |
| |To Unearned Fees | | |360 |
| |Equipment a/c Dr | |1800 | |
| |To Accounts Payable | | |1800 |
| |Advertisement Expenses a/c Dr | |180 | |
| |To Cash | | |180 |
| |Accounts Payable a/c Dr | |400 | |
| |To Cash | | |400 |
| |Wages Expenses a/c Dr | |950 | |
| |To Cash | | |950 |
| |Cash a/c Dr | |3100 | |
| |To Fees Revenue | | |3100 |
| |Accounts Receivable a/c Dr | |1750 | |
| |To Fees Earned | | |1750 |
| |Accounts Payable a/c Dr | |900 | |
| |To Cash | | |900 |
| |Cash a/c Dr | |650 | |
| |To Receivable | | |650 |
| |Supplies a/c Dr | |1450 | |
| |To Cash | | |1450 |
| |Wages Expenses a/c Dr | |1200 | |
| |To Cash | | |1200 |
| |Telephone Utilities a/c Dr | |310 | |
| |To Cash | | |310 |
| |Cash a/c Dr | |2870 | |
| |To Fees Earned | | |2870 |
| |Electricity Bill a/c Dr | |225 | |
| |To Cash | | |225 |
| |Receivable a/c Dr | |1120 | |
| |To Fees Earned | | |1120 |
| |Drawings a/c Dr | |2000 | |
| |To Cash | | |2000 |
LEDGER ACCOUNTS
Cash a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Common Stock |25000 | |By Land a/c |20000 |
| |To Fees Earned |7500 | |By Wages Expenses |2125 |
| |To Unearned Rent |360 | |By Rent Expenses |800 |
| |To Fees Revenue |3100 | |By Utilities Expenses |450 |
| |To Receivables |650 | |By Miscellaneous Exp |275 |
| |To Fees Earned |2870 | |By Accounts Payable |950 |
| | | | |By Drawings |2000 |
| | | | |By Prepaid Insurance |2400 |
| | | | |By Rent Expenses |800 |
| | | | |By Advertisement Exp |180 |
| | | | |By Accounts Payables |400 |
| | | | |By Wages Expenses |950 |
| | | | |By Accounts Payables |900 |
| | | | |By Supplies |1450 |
| | | | |By Wages Expenses |1200 |
| | | | |By Telephone Utilities |310 |
| | | | |By Electricity Bill |225 |
| | | | |By Drawings |2000 |
| | | | |By Balance c/d |2065 |
| | |39480 | | |39480 |
| |To Balance b/d |2065 | | | |
Common Stock a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Balance c/d |25000 | |By Cash |25000 |
| | |25000 | | |25000 |
| | | | |By Balnce b/d |25000 |
Land a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |20000 | |By Balance c/d |20000 |
| | |20000 | | |2000 |
| |To Balance b/d |20000 | | | |
Supplies a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Accounts Payable |1350 | |By Supplies Expense |800 |
| |To Cash |1480 | |By Balance c/d |2000 |
| | |2800 | | |2800 |
| |By Balance b/d |2000 | | | |
Accounts Payable
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |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/c
Dr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |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
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |2125 | |By Balance c/d |4275 |
| |To Cash |950 | | | |
| |T o Cash |1200 | | | |
| | |4275 | | |4275 |
| |To Balance b/d |4275 | | | |
Rent Expense a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |800 | |By Balance c/d |1600 |
| |To Cash |800 | | | |
| | |1600 | | |1600 |
| |To Balance |1600 | | | |
Utilities Expenses a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |450 | |By Balance c/d |675 |
| |To Cash |225 | | | |
| | |675 | | |675 |
| |To Balance c/d |675 | | | |
Miscellaneous Expense a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |275 | |By Balance c/d |275 |
| | |275 | | |275 |
| |To Balance c/d |275 | | | |
Supplies Expenses a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Supplies |800 | |By Balance c/d |800 |
| | |800 | | |800 |
| |To Balance b/d |800 | | | |
Drawings Accounts
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |2000 | |By Balance c/d |4000 |
| |To Cash |2000 | | | |
| | |4000 | | |4000 |
| |To Balance b/d |4000 | | | |
Prepaid Insurance
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |2400 | |By Balance c/d |2400 |
| | |2400 | | |2400 |
| |To Balance c/d |2400 | | | |
Unearned Rent
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |360 | |By Balance c/d |360 |
| | |360 | | |360 |
| |To Balance c/d |360 | | | |
Equipment a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Accounts Payable |1800 | |By Balance c/d |1800 |
| | |1800 | | |1800 |
| |To Balance b/d |1800 | | | |
Advertisement Expenses a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |180 | |By Balance c/d |180 |
| | |180 | | |180 |
| |To Balance b/d |180 | | | |
Accounts Receivable a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Fees Earned |1750 | |By Balance c/d |2870 |
| |To Fees Earned |1120 | | | |
| | |2870 | | |2870 |
| |To Balance b/d |2870 | | | |
Telephone Utilities a/c
Dr Cr
|Date |Particulars |Amt |Date |Particulars |Amt |
| |To Cash |310 | |By Balance c/d |310 |
| | |310 | | |310 |
| |To Balance b/d |310 | | | |
Ahmed Net Solutions LLC
Trial Balance as on 3rd August 2009
|S. No |Particulars |Debit $ |Credit $ |
|1. |Cash |2065 | |
|2. |Receivables |2220 | |
|3. |Supplies |2000 | |
|4. |Prepaid Insurance |2400 | |
|5. |Land |20000 | |
|6. |Equipment |1800 | |
|7. |Payables | |900 |
|8. |Unearned rent | |360 |
|9. |Common Stock | |25000 |
|10. |Fee revenue | |16340 |
|11. |Drawings a/c |4000 | |
|12. |Wages Expenses |4275 | |
|13. |Rent Expenses |1600 | |
|14. |Utilities Expenses |450 | |
|15. |Telephone Expenses |310 | |
|16. |Supplies Expenses |800 | |
|17. |Miscellaneous Expenses |275 | |
|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 $ 760
Insurance premiums expired during the year, $100
Rent expired on August 31 $120
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 hour
Wages accrued but not paid at August 31, 2006, $250
Depreciation 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].
SOLUTIONS
Adjusted Journal Entries in the books of Ahmed Net Solutions LLC
|Date |Particulars |Ref No. |Debit $ |Credit $ |
|a) |Supplies Expenses a/c Dr | |1240 | |
| |To Supplies a/c (2000 – 760) | | |1240 |
|b) |Insurance Expenses a/c Dr | |100 | |
| |To Prepaid Insurance | | |100 |
|c) |Unearned Rent a/c Dr | |120 | |
| |To Rent Revenue | | |120 |
|d) |Wages Expenses a/c Dr | |250 | |
| |To Wages Prepaid | | |250 |
|e) |Receivable a/c (25x20) Dr | |500 | |
| |To Fee Revenue | | |500 |
|f) |Depreciation a/c Dr | |50 | |
| |To Accumulated Dep | | |50 |
Ahmed Net Solutions LLC
Trial Balance as on 3rd August 2009
|S. No |Particulars |Debit $ |Credit $ |
|1. |Cash |2065 | |
|2. |Receivables |2720 | |
|3. |Supplies |760 | |
|4. |Prepaid Insurance |2300 | |
|5. |Land |20000 | |
|6. |Equipment |1800 | |
|7. |Payables | |900 |
|8. |Unearned rent | |240 |
|9. |Common Stock | |25000 |
|10. |Fees Earned | |16840 |
|11. |Drawings a/c |4000 | |
|12. |Wages Expenses |4275 | |
|13. |Rent Expenses |1600 | |
|14. |Utilities Expenses |675 | |
|15. |Telephone Expenses |310 | |
|16. |Supplies Expenses |300 | |
|17. |Miscellaneous Expenses |275 | |
|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 $3,600
Equipment $28,000
Notes Payable $20,000
Unearned Service Revenue $4,200
Service 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.
Instructions
A] 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:
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.
Instructions
a. 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 Realty
|Adjusting entries |
|Supplies expense a/c. dr. |890 | |
|To supplies | |890 |
|Insurance expense a/c dr. |315 | |
|To prepaid insurance | |315 |
|Depreciation a/c dr. |4950 | |
|To accumulated depreciation | |4950 |
|Wages expense a/c dr. |440 | |
|To wages payable | |440 |
|A/c receivable a/c dr. |1000 | |
|to fees earned | |1000 |
|Unearned fees a/c dr. |500 | |
|To fees earned | |500 |
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 | |
|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, $5000
b. Depreciation on furniture and fixtures, e. Accrued service revenue, $12000
$20000. f. $32000 of the unearned service revenue
c. 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 SERVICES |
|TRIAL BALANCE |
|December 31, 2009 |
|Cash |198,000 | |
|Accounts receivable |370,000 | |
|Supplies |6,000 | |
|Furniture and fixtures |100,000 | |
|Accumulated depreciation-furniture and fixtures | |40,000 |
|Building |250,000 | |
|Accumulated depreciation-building | |130,000 |
|Accounts payable | |380,000 |
|Salary payable | | |
|Unearned service revenue | |45,000 |
|Jay Clay, capital | |293,000 |
|Jay Clay, withdrawals |65,000 | |
|Service revenue | |286,000 |
|Salary expense |172,000 | |
|Supplies expense | | |
|Depreciation expense-furniture and fixtures | | |
|Depreciation expense-building | | |
|Miscellaneous expense |13,000 | |
|Total |$1,174,000 |$1,174,000 |
SOLUTIONS
CLAY EMPLOYMENT SERVICES
|Adjusting entries |
|Supplies expense a/c dr. |4000 | |
|To supplies | |4000 |
|Depreciation on furniture a/c dr. |20000 | |
|To accumulated depreciation | |20000 |
|Depreciation on building a/c dr. |10000 | |
|To accumulated depreciation | |10000 |
|Salary expense a/c dr. |5000 | |
|To salary payable | |5000 |
|A/c receivable a/c dr. |12000 | |
|To service revenue | |12000 |
|Unearned revenue a/c dr. |32000 | |
|To service revenue | |32000 |
|CLAY EMPLOYMENT SERVICES |
|ADJUSTED TRIAL BALANCE |
|December 31, 2009 |
|Cash |198,000 | |
|Accounts receivable |382,000 | |
|Supplies |2,000 | |
|Furniture and fixtures |100,000 | |
|Accumulated depreciation-furniture and fixtures | |60,000 |
|Building |250,000 | |
|Accumulated depreciation-building | |140,000 |
|Accounts payable | |380,000 |
|Salary payable | | 5,000 |
|Unearned service revenue | |13,000 |
|Jay Clay, capital | |293,000 |
|Jay Clay, withdrawals |65,000 | |
|Service revenue | |330,000 |
|Salary expense |177,000 | |
|Supplies expense | 4,000 | |
|Depreciation expense-furniture and fixtures | 20,000 | |
|Depreciation expense-building | 10,000 | |
|Miscellaneous expense |13,000 | |
|Total |$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 equity
|Beginning 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 09
|CURRENT ASSET | | |
|cash |198000 | |
|a/c receivable |382000 | |
|supplies |2000 | |
|TOTAL CURRENT ASSET | |582000 |
|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.
Instructions
a) Record the foregoing transactions directly in the following T accounts, without journalizing: Cash; Account receivable; Supplies; Prepaid Insurance; Automobiles; Equipment; Notes payable; Accounts 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.
• Paid creditors a portion of amount owed for equipment purchased on November 6, $2,125.
• Withdrew cash for personal use, $1,400.
Instructions
a) 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 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 CORPORATION |
|Unadjusted Trial Balance |
|At April 30,2003 |
| |Debit |Credit |
|Cash |5032 | |
|Account receivable |1700 | |
|Notes receivable |0 | |
|Land |3750 | |
|Equipment |4600 | |
|Prepaid Expenses |300 | |
|Accumulated depreciation | |0 |
|Accounts payable | |220 |
|Accrued expenses payable | |0 |
|Notes payable | |3700 |
|Income taxes payable | |0 |
|Unearned revenues | |1600 |
|Contributional capital | |9000 |
|Retained earnings | |0 |
|Mowing revenue | |5200 |
|Interest revenue | |12 |
|Wages revenue | |3900 |
|Fuel expense |410 | |
|Insurance expense |0 | |
|Utilities expense |0 | |
|Depreciation expense |0 | |
|Interest expense |40 | |
|Income 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).
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 Accounts
d. 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 Company |
|Trial Balance |
|April 30, 2006 |
|Cash |3,200 | |
|Accounts Receivable |10,500 | |
|Prepaid Insurance |1,800 | |
|Supplies |1,350 | |
|Land |50,000 | |
|Building |136,500 | |
|Accumulated Depreciation-Building | |60,700 |
|Equipment |92,700 | |
|Accumulated Depreciation-Equipment | |36,300 |
|Accounts Payable | |6,500 |
|Unearned Rent | |3,000 |
|Shelby Powers, Capital | |212,500 |
|Shelby Powers, Drawing |10,000 | |
|Fees Revenue | |191,000 |
|Salaries and Wages Expense |96,200 | |
|Advertising Expense |63,200 | |
|Utilities Expense |18,000 | |
|Repairs Expense |12,500 | |
|Miscellaneous Expense |14,050 | |
|Total |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.
Instructions
a) 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.
SOLUTIONS
8. 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 Company |
|Trial Balance |
|July 31, 2006 |
|Cash |14,500 | |
|Accounts Receivable |3,500 | |
|Prepaid Insurance |3,000 | |
|Supplies |1,950 | |
|Land |70,000 | |
|Building |100,500 | |
|Accumulated Depreciation-Building | |71,700 |
|Equipment |71,400 | |
|Accumulated Depreciation-Equipment | |60,800 |
|Accounts Payable | |4,100 |
|Unearned Rent | |1,500 |
|Mac Oscar, Capital | |55,700 |
|Mac Oscar, Drawing |4,000 | |
|Fees Revenue | |181,200 |
|Salaries and Wages Expense |73,200 | |
|Advertising Expense |15,500 | |
|Utilities Expense |8,100 | |
|Repairs Expense |6,300 | |
|Miscellaneous 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.
Instructions
a) 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.
SOLUTIONS
Oscar Company
|Adjusting entries |
|A/c receivable a/c dr. |5000 | |
|To fees earned | |5000 |
|Insurance expense a/c dr. |2500 | |
|To prepaid insurance | |2500 |
|Supplies expense a/c dr. |1600 | |
|To supplies | |1600 |
|Depreciation on building a/c dr. |1520 | |
|To accumulated depreciation | |1520 |
|Depreciation on equipment a/c dr. |2160 | |
|To accumulated depreciation | |2160 |
|Salaries expense a/c dr. |2800 | |
|To salary payable | |2800 |
|Unearned rent a/c dr. |1000 | |
|To rent revenue | |1000 |
|Oscar Company |
|Trial Balance |
|July 31, 2006 |
|Cash |14,500 | |
|Accounts Receivable |8,500 | |
|Prepaid Insurance |500 | |
|Supplies |350 | |
|Land |70,000 | |
|Building |100,500 | |
|Accumulated Depreciation-Building | |73220 |
|Equipment |71,400 | |
|Accumulated Depreciation-Equipment | |62960 |
|Accounts Payable | |6,900 |
|Unearned Rent | |500 |
|Mac Oscar, Capital | |55,700 |
|Mac Oscar, Drawing |4,000 | |
|Fees Revenue | |186,200 |
|Salaries and Wages Expense |76000 | |
|Advertising Expense |15,500 | |
|Utilities Expense |8,100 | |
|Repairs Expense |6,300 | |
|Miscellaneous Expense |3,050 | |
|Insurance expense |2500 | |
|Supplies expense |1600 | |
|Depreciation -building |1520 | |
|Depreciation -equipment |2160 | |
|Rent revenue | |500 |
| |386,480 |386,480 |
CHAPTER 3
MERCHANDISE 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 |11,625 | |
|Net purchases | |$510,355 | |
|Add transportation in | |17,400 | |
|Cost of merchandise purchased | | |527,755 |
|Merchandise available for sales | | |587455 |
|Less merchandise inventory, December 31, 2007 | | |62150 |
|Cost of merchandise sold | | |525305 |
Q2. 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 |6,140 | |
|Accounts Receivable |91,080 | |Sales Discounts |5,790 | |
|Merchandise Inventory |63,950 | |Cost of Merchandise Sold |523505 | |
|Office Supplies | 1090 | |Sales Salaries Expense |55450 | |
|Prepaid Insurance |4560 | |Advertising Expense |10,860 | |
|Land |20,000 | |Depreciation Exp —Store Equipment |0 | |
|Store Equipment |27,100 | |Selling Expense |630 | |
|Accumulated Depreciation Exp—Store Equipment | |2600 |Office Salaries Expense |20660 | |
|Office Equipment |15,570 | |Rent Expense |8,100 | |
|Accumulated Depreciation Exp—Equipment | |2230 |Depreciation Exp —Equipment |0 | |
|Accounts Payable | |22,420 |insurance Expense |0 | |
|Salaries Payable | |0 |Office Supplies Expense |0 | |
|Unearned Rent | |2400 |Mis. Administrative expense |760 | |
|Notes Payable(final payment due 2017) | |25,000 |rent Revenue | |0 |
|Chris Clark, Capital | |153,800 |Interest Expense |2440 | |
|Chris Clark, Drawing |18,000 | |Total |928,635 |928,635 |
|Sales | |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 |
| | | | | | |
| |31 |Insurance expense |533 |1910 | |
| | | 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 Solutions
For the Year Ended December 31, 2007
Adjusted Trial Balance Statement
|Cash |52,950 | |
|Accounts Receivable |91,080 | |
|Merchandise Inventory |62,150 | |
|Office Supplies |480 | |
|Prepaid Insurance |2,650 | |
|Land |20,000 | |
|Store Equipment |27,100 | |
|Accum. Depr.—Store Equipment | |5700 |
|Office Equipment |15,570 | |
|Accum. Depr.—Office Equipment | |4,720 |
|Accounts Payable | |22,420 |
|Salaries Payable | |1,140 |
|Unearned Rent | |1,800 |
|Notes Payable (final payment due 2017) | |25,000 |
|Chris Clark, Capital | |153,800 |
|Chris Clark, Drawing |18,000 | |
|Sales | |720,185 |
|-Sales Returns and Allowances |6,140 | |
|Sales Discounts |5,790 | |
|Cost of Merchandise Sold |525305 | |
|Sales Salaries Expense |56230 | |
|Advertising Expense |10,860 | |
|: Depr. Exp.—Store Equipment |3,100 | |
|Miscellaneous Selling Expense |630 | |
|Office Salaries Expense |21,020 | |
|Rent Expense |8,100 | |
| Depr. Exp.—Off ice Equipment |2490 | |
|insurance Expense |1,910 | |
|Office Supplies Expense |610 | |
|Misc. Administrative Expense |760 | |
|rent Revenue | |600 |
|interest Expense |2440 | |
|Total |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 | |720185 | |
|Less: 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 |
| | | | |
|Operating expenses: _____________ | | | |
|Selling expenses: _________ | | | |
|Sales salaries expense |56230 | | |
|Advertising expense |10860 | | |
|______ Depr._expense—store equipment |3100 | | |
|Miscellaneous selling expense |630 | | |
|Total selling expenses | |70820 | |
| | | | |
|Administrative expenses: | | | |
|Office salaries expense |21020 | | |
|Rent expense |8100 | | |
|Depr.expe |2490 | | |
|Insurance ex |1910 | | |
|Office supplies expense |610 | | |
|Misc. Administrative expense |760 | | |
|Total administrative expenses | |34890 | |
|Total 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
|Sales | |708255 |
|Rent revenue | | $708 8 5 |
|Expenses: | | |
|Cost Of merchandise sold |$525305 | |
|Selling expenses |70820 | |
|Administrative expenses — Interest expense |34890 | |
|Interest expense |2440 | |
|Total expenses | |633 4 5 5 |
|Net income | |$ 75400 |
Statement of owners equity of merchandising business
|Net solutions |
|Statements of owners equity |
|For the year ended December 31,2007 |
| |Chris Clark, capital, January 1, 2007 | |$153800 |
| |Net income for year |$75400 | |
| |Less withdrawals |18000 | |
| |Increase in owners’ equity | |57400 |
| |Chris Clark, capital, December 31,2007 | |$211200 |
| | | | |
Report Form of Balance Sheet
| NetSolutions |
|Balance Sheet |
|December 31,2007 |
|Assets | | | |
|Current assets: | | | |
|cash | |$52950 | |
|Accounts receivable | |91080 | |
|Merchandise inventory | |62150 | |
|Office supplies | |480 | |
|Prepaid insurance | |2650 | |
|Total current assets | | |$209310 |
|Property, plant, equipment: | | | |
|land | |$20000 | |
|Store equipment |$27100 | | |
|Less: accumulated depreciation |5700 |21400 | |
|Office equipment |$15570 | | |
|Less: accumulated depreciation |4720 |10850 | |
|Total property, plant and equipment | | |52250 |
|Total assets | | |$261560 |
|liabilities | | | |
|Current liabilities: | | | |
|Accounts payable | |$22420 | |
|Note payable (current portion) | |5000 | |
|Salaries payable | |1140 | |
|Unearned rent | |1800 | |
|Total current liabilities | | |$30360 |
|Long term liabilities | | | |
|Note payable (final payment due 2017) | | |20000 |
|Total liabilities | | |$50360 |
|Owner’s equity | | | |
|Chris clark, capital | | |211200 |
|Total 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 |3,220 |
|Building |512,500 |Office supplies |10,600 |
|Merchandise Inventory |130,000 |Notes payable |25,000 |
|Cash |100,000 |Mac Grover, Capital |628,580 |
|Cost of merchandise sold |560,000 |Mac Grover, Drawing |25,000 |
|Store Supplies |7,700 |Sales |925,000 |
|Interest |7,500 |Sales discount |20,000 |
|Sales 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.
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 | |2015 |
|Trucks |45000 | |J. Johnson’s Capital | |32885 |
|Accumulated Depreciation-Trucks | |27100 |J. Johnson’s Drawings |5000 | |
|Supplies |5820 | |Service Revenue | |75950 |
|Prepaid Insurance |2500 | |Wages Expense |28010 | |
|Office Equipment |44200 | |Rent Expense |8100 | |
|Accumulated Depreciation-Equipment | |12050 |Truck Expense |6350 | |
|Miscellaneous Expense |2195 | |Total |150000 |150000 |
Q5.
[pic]
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.
| |Debit $ |Credit $ |Leroy’s Capital | |58000 |
|Cash |6850 | |Leroy’s Drawing |10400 | |
|Accounts Receivable |14000 | |Fees Earned | |118250 |
|Supplies |2540 | |Wages Expense |44830 | |
|Prepaid Insurance |1240 | |Rent Expense |8400 | |
|Office Equipment |103300 | |Utilities Expense |5430 | |
|Accumulated Depreciation | |19400 |Miscellaneous Expense |3010 | |
|Accounts Payable | |1850 |Unearned Fees | |2500 |
CHAPTER 4
Specimen of Bank Reconciliation:
| |$ |$ | |$ |$ |
|Cash balance according to bank | |xx |Cash balance according to depositor’s record | |xx |
|statement | | | | | |
|Add: | | |Add: | | |
|Deposit in transit/ deposits not on |X | |additions by bank not recorded by depositor |X | |
|bank statement | | |Payment overcastting | | |
|Bank Errors |X | |Note collection +interest – charges |X | |
|Any amounts credited in error by bank | | |Interest on deposits / Bank giro credit (Direct remittance |X | |
| | | |by customers) / Interest, dividend etc collected and |X | |
| |X |Xx |credited / Credit transfers | | |
| | | | | | |
| | | | | |Xx |
| | |Xxx | | |xxx |
|Deduct: | | |Deduct: | | |
|deductions by depositor not on bank |Xx | |deductions by bank not recorded by depositor |Xx | |
|statement / due checks | | |bank errors / payment under casting | | |
|bank errors / Bank lodgements, amounts|xx |-xx |Bank service charges / Standing orders / Direct debit |xx |-xx |
|not yet credited | | | | | |
|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).
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. Withdrawals
b. Cheques paid in b. Cheques issued.
c. Direct remittance by customers (bank giro credit) c. Execution of standing orders
d. 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 $32.
Instructions: Prepare bank reconciliation at March 31.
KIDSTOCK COMPANY
|particulars |$ |particulars |$ |
|Cash balance according to bank statement |8914.5 |Cash balance according to depositors record |15342.90 |
| | | | |
|Add: | |Add: | |
|Deposit in transit | |Wrongly entered | |
| |11560.80 | |612.00 |
| |20475.3 | |15954.9 |
|Less: outstanding checks | |Less: bank charges |32 |
| |4552.40 | | |
|Adjusted balance |15922.9 |Adjusted balance |15922.9 |
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, $1,500
Bank 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, $772.
Instructions: Prepare bank reconciliation at July 31.
RAINBOW COMPANY
|particulars |$ |particulars |$ |
|Cash balance per bank b/s |7263 |Cash balance per cash statement |7190 |
| | | | |
|Add: | |Add: | |
|Deposit in transit |1500 |Note |816 |
|Less: | |Less: | |
|o/s checks |(772) |Bank service charges |(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 $816.20
Checks outstanding:
No. 812, $1,061.00; No. 878, $435.39; No. 883, $48.60..................1,544.99
Note plus interest of $8 collected by bank (credit memorandum), not recorded in the journal………………………………….................................408.00
Check from customer (Thomas Ivey) returned by bank because of insufficient funds (NSF)…………………………………………………………………………….300.00
Bank service charges (debit memorandum), not recorded in the journal.............. 18.00
Check No. 879 for $732.26 to Taylor Co. on account, recorded in the journal as $723.26…..9.00
The bank reconciliation based on the bank statement and the reconciling items.
POWER NETWORKING
|particulars | $ |particulars | $ |
|Cash balance as per bank statement |3359.78 |Cash balance as per ledger |2549.99 |
| | |(cash balance) | |
|Add: deposit in transit | | | |
| |816.20 |Add: bank charges |408.0 |
| | | | |
|Less: checks: | | | |
|a)check no:812 -$1061.0 | |Less: | |
|b)check no:878-$435.39 | |Returned by bank-$300 | |
|c)check no:883-$48.60 | |Bank services-$18 |(327) |
| |(1544.99) |Check no:879-$9 | |
| |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 $28.75.
Instructions
i. Prepare bank reconciliation.
ii. Journalize the necessary entries. The accounts have been closed.
iii. SHOWTIME SYSTEMS
|particulars |$ |particulars |$ |
|Cash balance as per bank statement |31391.40 |Cash balance as per depositors record |19144.15 |
| | |Add: notes | |
|Add: deposit in transit |6215.50 | |6300 |
| | |Wrongly recorded [1275-2175] | |
|Wrongly recorded check |(270) | |900 |
|Less: o/s checks | |Less: bank service charges | |
| |(11021.50) | |(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 $45.00.
Instructions
i. Prepare bank reconciliation.
ii. Journalize the necessary entries. The accounts have not been closed.
PICKRON CO.
|particulars |$ |particulars |$ |
|Cash balance as per bank statement |18016.30 |Cash balance as per depositors record |13290.95 |
| |5189.40 |Add: notes | |
|Add: deposit in transit |180 |Less: bank service charges |3240 |
| |(7169.75) |Wrongly recorded check |(45) |
|Wrongly recorded checks | | |(270) |
| | | | |
|Less: o/s checks | | | |
| |16215.95 | |16215.95 |
6. Trill’s bank statement for May 2009 shows these data:
Balance May 1 $ 12650
Debit memorandum NSF check $175
Credit memorandum: collection of note $505
Balance 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.
Instructions
i. Prepare bank reconciliation.
ii. Journalize the necessary entries. The accounts have not been closed.
TRILL BANK STATEMENT
|particulars |$ |particulars |$ |
|Bank balance |$14280 |Cash balance |$13319 |
| | | | |
|Add: deposit in transit- |$1752 |Add: notes- |$505 |
| | | | |
| | | | |
|Less: o/s checks- |($2410) |Less: wrongly recorded Check |($202) |
| | |Nsf memorandum -$175+27 | |
| |13622 | |13622 |
1] Cash ac dr 505
Mis ac dr 10
To NR 500
To Interest revenue 15
2] AR dr 175
To cash 175
3]AP ac dr 27
To Cash 27
CHAPTER 5
Receivables: 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% |
Instructions
a. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.
b. Incubate Co
| |Date |Face amount |term |Due date |Interest rate |Maturity amount |
|1 |May 23 |18000 |45days |7july |8% |18180 |
|2 |July 10 |20000 |60days |8sept |9% |20300 |
|3 |Aug 8 |36000 |90days |6nov |6% |36540 |
|4 |Sept 16 |20000 |90days |15dec |7% |20350 |
|5 |Nov 23 |18000 |60days |23nov |9% |18270 |
|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% |
Instructions
a. 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 amount |
|1 |May 24 |18000 |45days |8july |8% |180 |
|2 |July 10 |20000 |60days |8sept |9% |300 |
|3 |Aug 8 |36000 |90days |6nov |6% |540 |
|4 |Sept 16 |20000 |90days |15dec |7% |350 |
|5 |Nov 23 |18000 |60days |22jan |9% |270 |
|6 |Dec 18 |48000 |60days |16feb |12% |960 |
JOURNAL ENTRIES
|date |PARTICULARS |DR. |CR. |
|b) |Notes receivable a/c dr. |36000 | |
| |To a/c receivable | |36000 |
| | | | |
| |A/c receivable a/c dr. |36540 | |
| |To interest revenue | |540 |
| |To notes receivable | |36000 |
|c) | | | |
|2009 |Note 5: |171 | |
|Dec 31 |Interest receivable a/c dr. | |171 |
| |To interest revenue | | |
| | | | |
| |Note 6: | | |
| |Interest receivable a/c dr. |208 | |
| |To interest revenue | |208 |
| | | | |
|d) |Note 5: | | |
| |Cash a/c dr. |18270 | |
| |To interest revenue | |270 |
| |To notes receivable | |18000 |
| | | | |
| |Note6: | | |
| |Cash a/c dr. |48960 | |
| |To interest revenue | |960 |
| |To notes receivable | |4800 |
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 Visa
Apr. 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.
|date |particulars |Dr. |Cr. |
|Mar1 |A/c receivable a/c dr. |20000 | |
| |To sales | |20000 |
| | | | |
| | | | |
| |Cash a/c dr. |19600 | |
|11 |Sales discount a/c dr. |400 | |
| |To a/c receivable | |20000 |
| | | | |
|12 |Notes receivable a/c dr. |20000 | |
| |To a/c receivable | |20000 |
| | | | |
| | | | |
|13 |A/c receivable a/c dr. |13200 | |
| |To sales | |13200 |
| | | | |
| | | | |
|15 |Cash a/c dr. |6365 | |
| |Service charges a/c dr.[5%] |335 | |
| |To sales | |6700 |
| | | | |
|April 1 |Cash a/c dr. |7840 | |
| |Service charges a/c dr. |160 | |
| |To A/c receivable a/c | |8000 |
| | | | |
|13 |Cash a/c dr. |8200 | |
| |To A/c receivable a/c | |8200 |
| | | | |
|May 10 |Allowance for doubtful amount a/c dr. |16000 | |
| |To A/c receivable a/c | |16000 |
|June 10 | | | |
| |Bad debts a/c dr. |16500 | |
| |To allowance for doubtful amount | |16500 |
|July 16 | | | |
| |A/c receivable a/c dr. |4000 | |
|16 |To allowance for doubtful debt | |4000 |
| | | | |
| |Cash a/c dr. |4000 | |
| |To A/c receivable | |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.
a. 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- |Bad debts expenses a/c dr. |11250 | |
| |To allowance for doubtful amount | |11250 |
| | | | |
|2- |Allowance for doubtful amount a/c dr. |750 | |
| |To A/c receivable | |750 |
| | | | |
|3- |A/c receivable a/c dr. |750 | |
| |To allowance for doubtful amount | |750 |
| | | | |
| |Cash a/c dr. |750 | |
| |To A/c receivable | |750 |
|b) | | | |
|1- |Notes receivable a/c dr. |22500 | |
| |To A/c receivable | |22500 |
| | | | |
|2- |A/c receivable a/c dr. |23175 | |
| |To notes receivable | |22500 |
| |To interest revenue | |675 |
| | | | |
| |Allowance for doubtful allowance a/c dr. |23175 | |
| |To A/c receivable | |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.
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. |750 | |
| |To A/c receivable | |750 |
|July 30 |Notes receivable a/c dr. |1000 | |
| |To sales | |1000 |
|July 30 |Cost of goods sold a/c dr. |600 | |
| |To merchandise inventory | |600 |
|Aug 15 |Cash a/c dr. |2000 | |
| |Notes receivable a/c dr. |10000 | |
| |To sales | |12000 |
| |Cost of goods sold a/c dr. |8000 | |
| |To merchandise inventory | |8000 |
|Nov1 |Cash a/c dr. |192 | |
| |Credit card expense a/c dr. |8 | |
| |To sales | |200 |
| |Cost of goods sold a/c dr. |150 | |
| |To merchandise inventory | |150 |
|Nov3 |A/c receivable –S & CO a/c dr. |1025 | |
| |To interest revenue | |25 |
| |To notes receivable | |1000 |
|Nov5 |A/c receivable a/c dr. |475 | |
| |Credit card expense a/c dr. |25 | |
| |To sales | |500 |
| |Cost of goods sold a/c dr. |300 | |
| |To merchandise inventory | |300 |
|Nov9 |Cash a/c dr. |475 | |
| |To A/c receivable | |475 |
|15 |A/c receivable a/c dr. |750 | |
| |To allowance for doubtful allowance | |750 |
|15 |Cash a/c dr. |750 | |
| |To A/c receivable | |750 |
|Dec 13 |Cash a/c dr. |10400 | |
| |To interest revenue | |400 |
| |To note receivable | |10000 |
|Dec 31 |Bad debts expense a/c dr. |21400 | |
| |To allowance for doubtful debt | |21400 |
| |B* percent of sales method: |20000 | |
| |Bad debts expense a/c dr. | |20000 |
| |To allowance for doubtful debt | | |
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
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 Accounts
313 Income Summary
718 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.
Instructions
Journalize the transactions. Round to the nearest dollar.
CHAPTER 6
Inventories: Practice Problems:
Q1. We assume the following data:
| |Item 127b |Units |Cost $ |
|Jan 1 |Inventory |10 |20 |
|4 |Sale |7 | |
|10 |Purchase |8 |21 |
|22 |Sale |4 | |
|28 |Sale |2 | |
|30 |Purchase |10 |22 |
Prepare statement showing the Value of ending inventory Using the
a. FIFO method, under Perpetual inventory System
b. LIFO method
Ans1. a) fifo method
|date |purchases |Cost of M.S |Ending inventory |
| |Unit |rate |Total cost |
| |Unit |rate |Total cost |
| |Unit |rate |Total cost |
| |Unit |rate |Total cost |Unit |
|January 1 |Inventory |1,000 |$50.00 |$50,000 |
|March 10 |Purchase |1,200 |52.50 |63,000 |
|June 25 |Sold 800 units | | | |
|August 30 |Purchase |800 |55.00 |44,000 |
|October 5 |Sold 1,500 units | | | |
|November 26 |Purchase |2,000 |56.00 |112,000 |
|December 31 |Sold 1,000 units | | | |
|Total | |5,000 | |$269,000 |
Instructions
Determine 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-out
b. last-in, first-out
c. 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-out
e. last-in, first-out
f. 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.
Ans3.
Average cost method
|date |purchases |Cost of M.S |Ending inventory |
| |Unit |rate |Total cost |
|Oct. 1 |2 |$3,000 |$6,000 |
|Nov. 17 |3 |3,200 |9,600 |
|Dec. 1 |4 |3,250 |13,000 |
|Available for sale |9 | |$28,600 |
|during the year | | | |
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.
Instructions
Assume 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 7
Depreciation: 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.
Instructions
a. 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.
Depreciation
Ans1.
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
|year |Depreciation expense |Accumulated depreciation |Book value(cost-acc. dep) |
|1 |60000 |60000 |90000 |
|2 |36000 |96000 |54000 |
|3 |21600 |117600 |32400 |
|4 |12960 |130560 |19440 |
|5 |7440 |138000 |12000 |
Rate of depreciation=40%
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.
Instructions
Prepare a depreciation schedule using the straight-line method.
Straight line method
Cost=18000
Salvage =2000/16000
Amount of dep=cost-s.v/life=4000
Rate of dep=amount of dep/cost-s.v*100
=25%
|year |Depreciation expense |Accumulated depreciation |Book value(cost-acc. dep) |
|1 |4000 |4000 |14000 |
|2 |4000 |8000 |10000 |
|3 |4000 |12000 |6000 |
|4 |4000 |16000 |2000 |
[pic]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.
Instructions
Prepare 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=$28000
s.v=4000
life=4years
Under 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
|date |Journal entries |Dr. |Cr. |
|1.1.05 |Acc.dep expense a/c dr. |24000 | |
| |Loss on Disposed asset a/c dr. |4000 | |
| |To limousine | |28000 |
|B] |Depreciation expense a/c dr. |3000 | |
| |To acc. depreciation | |3000 |
| | Cash a/c dr. |5000 | |
| |Acc. depreciation expense dr. |21000 | |
| |Loss on sale a/c dr. |2000 | |
| |To limousine | |28000 |
|Journal entries |Dr. |Cr. |
|Acc. Depreciation a/c dr. |130560 | |
|New equipment a/c dr. |175000 | |
|Loss on trade a/c dr. |9440 | |
|To old equipment | |150000 |
|To cash sales | |165000 |
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.
Instructions
Compute 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.
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 method
cost=$45000
salvage=$5000
life=10years
life produce=1000000 units
in year 1999=90000 units
in year 2000=125000units
amount of depreciation=cost-s.v/life
=$4000
Rate of depreciation=amount of dep/cost-s.v*100
=10%
b)
units of production method
asset= current cost/life*cost-5000
in 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 |
|1 |10 |
|2 |9 |
|3 |8 |
|4 |7 |
|5 |6 |
|6 |5 |
|7 |4 |
|8 |3 |
|9 |2 |
|10 |1 |
|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 method
rate=10% as per straight line method
declining balance rate=2*rate
=2*10%
=20%
In the year 1999
=(cost-acc.dep)*rate of dep
45000*20/100
=$9000
In the year 2000
(cost –acc.dep)*20%
=45000-9000*20/100
=$7200
e)
in the year 1999
balance=3000units
|Method year |Straight line |UOP |SYDM |DDBM |
| |method | | | |
|1999 |4000 |3600 |7272 |9000 |
|2000 |4000 |5000 |6545 |7200 |
|IQ |¼*4000= |12000 |¼*7272= |¼*9000= |
| |$1000 | |1818 |2250 |
UNITS OF PRODUCTION
(cost-salvage)*CP/LP
=30000/1000000*40000=
$1200
CHAPTER 8
Liabilities: 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 |$63,400 | |
|Officers |36,600 | |
|Office |10,000 |$110,000 |
|Deductions: | | |
|Social security tax |$5,050 | |
|Medicare tax |1,650 | |
|Federal income tax withheld |17,600 | |
|State income tax withheld |4,950 | |
|Savings bond deductions |850 | |
|Medical insurance deductions |1,120 |31,220 |
|Net 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.
Instructions
Journalize the preceding transactions
Ans1.
|DATE |PARTICULARS |DR. |CR. |
|Jan1 |Cash a/c dr. |3200000 | |
| |To common stock | |2000000 |
| |To paid up capital | |1200000 |
|Sept 1 |Treasury stock a/c dr. |90000 | |
| |To cash | |90000 |
|24 dec |Dividend expense a/c dr. |39000 | |
| |To dividend payable | |39000 |
|DATE |PARTICULARS |amount |
| | Common stock a/c |20,00,000 |
| |Additional paid in capital |12,00,000 |
| |(excess of par value @ $3) | |
| |Retained earnings |150600 |
| | |3350600 |
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 $30.
Dec. 1. Paid the cash dividends and issued the certificates for the common stock dividend.
Instructions
Journalize the entries to record the transactions for Altenburg Inc.
SPECIMEN 1
…………………………………………………… (Name)
Multiple-Step Income Statement
For the Year Ended …………………………
|Revenue from sales: |$ |$ |$ |
|Sales | | |XXX |
|Less: Sales returns and allowances | |XX | |
|Sales discounts | |XX |- [XX] |
|Net sales | | |XXX |
|Less: Cost of merchandise sold | | |- [XX] |
|Gross Profit / Margin | | |XXX |
| | | | |
|Less: Operating expenses: | | | |
|Selling expenses: | |X | |
|Sales salaries expense | |X | |
|Advertising expense | |X | |
|Depreciation expense—store equipment | |X | |
|Miscellaneous selling expense | |X | |
|Total selling expenses | |XX | |
| | | | |
|Administrative expenses: | |X | |
|Office salaries expense | |X | |
|Rent expense | |X | |
|Depreciation expense | |X | |
|Insurance ex | |X | |
|Office supplies expense | |X | |
|Misc. administrative expense | |X | |
|Total administrative expenses | |X | |
|Total operating expenses | | |-[XXX] |
|Income from operations | | |XXX |
|Add: Non Operating / other incomes: | | | |
|Rent Revenue | | |XX |
|Total | | |XXX |
|Less: Non Operating / other expenses | | | |
|Interest Expense | | |-[XX] |
|Net income before tax | | |XXX |
|Less : Income Tax paid | | |-[XX] |
|NET INCOME | | |XXX |
Statement of Owner’s equity:
| |$ |$ |
|Capital (Beginning) |XXX | |
|Add Net Income |XX | |
|Total |XXX | |
|Less : Drawings / Net loss |(XX) | |
|Ending capital | |XXX |
Statement of Retained Earnings:
| |$ |$ |
|Retained Earnings (opening) |XXX | |
|Add Net Income |XX | |
|Total |XXX | |
|Less: Dividends |(XX) | |
|Closing Retained Earnings | |XXX |
SPECIMEN 2
………………………………………………… (NAME)
Balance Sheet as at …………………….
|ASSETS |$ |$ |
|Current Assets | XX | |
|Inventory | XX | |
|Receivables | XX | |
|Cash | XX | |
|Supplies | XX | |
|Prepaid expenses | XX | |
| Total | |XXX |
|Non - Current Assets: (less : Accumulated depreciation) | | |
|Premises | |XXX |
|Machinery | |XXX |
|Fixtures, Furniture and Fittings | |XXX |
| Total Assets | |XXX |
|LIABILITIES: | | |
|Current liabilities: | | |
|Dividends / Wages / Accounts Payables |Xx | |
|Unearned Revenue |Xx |XX |
|Long term Liabilities: | | |
|Mortgage Note payable / loans |Xx | |
|Bonds Payable |Xx |XX |
|Total Liabilities | |xxxx |
|Owner’s Equity: | | |
|Capital | |XX |
|Retained Earnings | | |
|Total Owner’s Equity | |XX |
|Total Liabilities and Owner’s Equity | |XXX |
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