Professor Authored Problems Intermediate Accounting I Acct 341/541. Accounting Cycle

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1 Professor Authored Problems Intermediate Accounting I Acct 341/541 Accounting Cycle Problem 17 Accounting cycle definitions. Please provide (1) complete, clear, accurate definitions, and (2) a good example. Each of the following terms has appeared on an Albrecht test. real account nominal account accrued revenues accrued costs or expenses general journal general ledger prepaid cost/expense unearned revenue accounting cycle closing process trial balance adjusting entry closing entry 138

2 Problem 18 Normal account balances. Indicate whether the following accounts normally carry a debit or credit balance by circling the correct response. The accounts are for a company that makes and sells smoothies. Account Normal balance Prepaid insurance Debit Credit Depreciation expense Debit Credit Equipment Debit Credit Certificate of deposit (bank savings instrument) Debit Credit Interest receivable Debit Credit Sales revenue Debit Credit Unearned sales revenue Debit Credit Dividends Debit Credit Accounts receivable Debit Credit Selling expense Debit Credit Gain on sale Debit Credit Cost of goods sold expense Debit Credit Interest payable Debit Credit Notes payable Debit Credit Wages payable Debit Credit Common stock capital Debit Credit Supplies Debit Credit 139

3 Problem 19 Basic journal entries. Prepare the necessary journal entry for each of the following situations. Do not abbreviate account titles, and remember to clearly indent for credit entries. Account titles: Cash, Accounts Receivable, Inventory, Accounts Payable, Sales Revenue, Sales Salaries Expense, Office Salaries Expense May 1: Made credit sales of $9,000. May 5: Purchased $2,000 of merchandise on account. Use an account called Inventory. May 13: Paid May sales salaries of $900 and office salaries of $600 (no previous adjusting entry has been made with respect to these salaries. May 14: Paid for the May 5 purchases. May 15: Collected cash for the credit sale on May 1. Problem 20 Basic journal entries. Prepare the necessary journal entry for each of the following situations. Do not abbreviate account titles, and remember to clearly indent for credit entries. Account titles: Cash, Accounts Receivable, Prepaid Rent, Truck, Accumulated Depreciation, Accounts Payable, Interest Payable, Notes Payable, Common Stock, Dividends, Service Revenue, Depreciation Expense, Interest Expense, Rent Expense 1. Borrowed $20,000 with a 6 percent annual interest rate and a one-year term. 2. Received $50,000 cash from issuing common stock 3. Received payment of $10,000 on account. 4. Paid a dividend of $5, Paid $3,000 in advance for a nine month lease for office space. 6. Purchased a truck that cost $30,000 and had a $5,000 salvage value and a five year useful life. 7. Made a cash payment on accounts payable of $19, Earned $30,000 of service revenue from cash sales during the year 9. Earned $85,000 of service revenue from credit sales during the year. 140

4 Problem 21 T-account activity. The account titled Accounts Payable for the Bertke Company shows the following at the end of the period: Required: 1. What is the most likely reason for the debit of $80? 2. Please solve for the unknown amount? Problem 22 T-account activity. For the account at the left, compute the ending balance and write it in the proper location. For the unnamed account on the left, compute the missing value (designated by?) and write it next to the? 141

5 Problem 23 One complete accounting cycle. (Short) Murphy Company had the following balances in its accounting records as of December 31, 2013: Assets Claims Cash $35,000 Accounts Payable $11,000 Accounts Receivable 10,000 Common Stock 25,000 Land 20,000 Retained Earnings 29,000 The following accounting events apply to Murphy s Company s 2014 fiscal year: Jan 1 Purchased a truck that cost $20,000 and had a $2,000 salvage value and a six year useful life. Feb 1 Made a cash payment on accounts payable of $11,000. Apr 1 Borrowed $12,000 with a 6 percent annual interest rate and a one-year term. Aug 1 Received $9,600 cash from issuing common stock Sep 1 Paid a dividend of $8,000. Nov 1 Paid $4,800 in advance for a nine month lease for office space. Dec 31 Earned $70,000 of service revenue from cash sales during the year, and 35,000 from credit sales during the year. Dec 31 Received payment of $20,000 on account. Adjustments Dec 31 Recognized the current amount of rent expense from the prepaid rent on Nov 1. Dec 31 Accrued utilities are $15,000 Dec 31 Recognized one full year of depreciation expense. Dec 31 Recognized interest expense on the note from Apr 1. Required: (1) The chart of accounts includes: Cash, Accounts Receivable, Prepaid Rent, Land, Truck, Accumulated Depreciation, Accounts Payable, Interest Payable, Note Payable, Common Stock, Retained Earnings, Dividends, Service Revenue, Utilities Expense, Rent Expense, Interest Expense, Depreciation Expense. Create a general ledger containing of the above accounts in T- account form. Post the beginning balances to the appropriate accounts. (2) For the eight transactions, prepare journal entries, post the entries to accounts, and then prepare a trial balance (the unadjusted trial balance). (3) For the four adjustments, prepare adjusting journal entries, post to accounts and prepare an adjusted trial balance (4) Prepare journal entries for closing, post to accounts, and prepare a post-closing trial balance. You may use an Income Summary account or close directly to Retained Earnings. (5) Prepare a full set of financial statements. 142

6 Problem 24 One complete accounting cycle. Medium. Koebel Company had the following balances in its accounting records as of December 31, 2013: Assets Liabilities & Stockholders Equity Cash $33,000 Accounts Payable $5,000 Accounts Receivable 7,000 Common Stock 24,000 Land 32,000 Retained Earnings 43,000 The following accounting events apply to Koebel Company s 2014 fiscal year: Jan 1 Acquired $40,000 cash from the issue of common stock. Jan 1 Purchased a truck that cost $22,000 and had a $2,000 salvage value and a four year useful life. Feb 1 Paid $3,600 in advance for a one-year lease for office space. Apr 1 Purchased land that cost $23,000 cash. May 1 Made a cash payment on accounts payable of $2,000. June 1 Borrowed $10,000 by issuing a note that had a 9 percent annual interest rate and a one-year term. July 1 Received $5,400 cash in advance as a retainer for services to be performed monthly over the coming year. Sept 1 Sold land for $60,000 cash that had originally cost $32,000. Oct 1 Purchased $3,000 of supplies on account. Nov 1 Paid a $1,000 cash dividend to the stockholders. Dec 31 Earned $35,000 of service revenue from cash sales during the year. Dec 31 Earned $14,000 of service revenue on account during the year. Dec 31 Received cash collections from accounts receivable amounting to $11,000. Dec 31 Incurred other operating expenses on account during the year that amounted to $6,000. Adjustments Dec 31 Incurred accrued salaries expense of $4,800. Dec 31 Had $50 of supplies on hand at the end of the period. Dec 31 Recognized the portion of unearned service revenue that has been earned from the transaction on July 1. Dec 31 Recognized that eleven months has been used from the prepaid rent on Feb. 1. Dec 31 Recognized one full year of depreciation expense. Dec 31 Recognized interest expense on the note from June 1. Required: (1) The chart of accounts includes: Cash, Accounts Receivable, Prepaid Rent, Supplies, Land, Truck, Accumulated Depreciation, Accounts Payable, Unearned Service Revenue, Salaries Payable, Interest Payable, Note Payable, Common Stock, Retained Earnings, Dividends, Sales Revenue, Supplies Expense, Salaries Expense, Rent Expense, Interest Expense, Depreciation Expense, Operating Expenses, Gain, Loss. Create a general ledger containing of the above accounts in T- account form. Post the beginning balances to the appropriate accounts. (2) For the fourteen transactions, prepare journal entries, post the entries to accounts, and then prepare a trial balance (the unadjusted trial balance). (3) For the six adjustments, prepare adjusting journal entries, post to accounts and prepare an adjusted trial balance (4) Prepare journal entries for closing, post to accounts, and prepare a post-closing trial balance. You 143

7 may use an Income Summary account or close directly to Retained Earnings (preferred). (5) Prepare a full set of financial statements. Problem 25 One complete accounting cycle. Long. Davidson Company had the following balances in its accounting records as of December 31, 2013: Assets Claims Cash $33,000 Accounts Payable $5,000 Accounts Receivable 7,000 Common Stock 24,000 Product Inventory 12,000 Land 42,000 Retained Earnings 65,000 You will need these additional accounts, all of which start with a zero balance. Balance sheet: Prepaid rent, Supplies, Accumulated depreciation, Certificate of deposit, Interest receivable, Interest payable, Wages payable, Unearned revenue, Notes Payable, Dividends Income statement: Sales revenue, Service Revenue, Interest revenue, Cost of sales expense, Rent expense, Operating expense, Wage expense, Supplies Expense, Interest expense, Depreciation expense, Gain, Loss The following accounting events apply to Davidson Company s 2014 fiscal year: Jan 1 Acquired $12,000 cash from the issue of common stock. Jan 1 Purchased a truck that cost $22,000 and had a $2,000 salvage value and a four year useful life. Feb 1 Paid $3,600 in advance for a one-year lease for office space. Feb 1 Purchased $50,000 of product inventory on credit Apr 1 Purchased land that cost $23,000 cash. May 1 Made a cash payment on accounts payable of $52,000. June 1 Borrowed $10,000 by issuing a note that had a 9 percent annual interest rate and a one-year term. July 1 Received $5,400 cash in advance as a retainer for services to be performed monthly over the coming ten months. Sept 1 Invest $5,000 in a Certificate of deposit, 5 percent annual interest rate and a one-year term. Sept 1 Sold land for $65,000 cash that had originally cost $42,000. Oct 1 Purchased $3,000 of supplies on account. Nov 1 Paid a $1,000 cash dividend to the stockholders. Dec 31 Earned $95,000 of sales revenue from cash sales during the year. Dec 31 Earned $64,000 of sales revenue on account during the year. Dec 31 Received cash collections from accounts receivable amounting to $11,

8 Adjustments Dec 31 Incurred other operating expenses on account during the year that amounted to $6,000. Dec 31 Product inventory remaining is $7,000 Dec 31 Incurred accrued salaries expense of $4,800. Dec 31 Had $50 of supplies on hand at the end of the period. Dec 31 Recognized the portion of unearned service revenue that has been earned from the transaction on July 1. Dec 31 Recognized that eleven months has been used from the prepaid rent on Feb. 1. Dec 31 Recognized one full year of depreciation expense. Dec 31 Recognized interest expense on the note from June 1. Dec 31 Recognized interest revenue on the CD from September 1. Required: (1) Create a general ledger containing of the above accounts in T-account form. Post the beginning balances to the appropriate accounts. (2) For each transaction, prepare a journal entry, post the entry to accounts, and then prepare a trial balance (the unadjusted trial balance) after journalizing and posting for all transactions. (3) For the four adjustments, prepare adjusting journal entries, post to accounts and prepare an adjusted trial balance (4) Prepare journal entries for closing, post to accounts, and prepare a post-closing trial balance. You may use an Income Summary account or close directly to Retained Earnings (preferred). (5) Prepare a full set of financial statements. 145

9 Problem 26 Short answer adjusting entries Why are adjusting entries necessary? Problem 27 Adjusting entries for prepayment/deferral. The following transactions and other data refer to the operating activities of the Kowalski Company. Kowalski s fiscal year extends from January 1 to December is the first year of operations. Kowalski purchases $5,300 of supplies during The Supplies account is debited for the purchases. At the end of the year, $680 of supplies remain. Kowalski receives $30,000 on September 1, 2013 from a customer for an advance payment for services to rendered for six months (same amount each month). The Unearned Service Revenue account is credited for the receipt. Kowalski purchases a twelve month insurance policy on March 1, The Prepaid Insurance account is debited for $10,200. Required: Prepare adjusting journal entries needed on December 31, Problem 28 Adjusting entries for prepayment/deferral. The following transactions and other data refer to the operating activities of the Kowalski Company. Kowalski s fiscal year extends from January 1 to December is the first year of operations. Kowalski purchases $5,300 of supplies during The Supplies Expense account is debited for the purchases. At the end of the year, $680 of supplies remain. Kowalski receives $30,000 on September 1, 2013 from a customer for an advance payment for services to rendered for six months (same amount each month). The Service Revenue account is credited for the receipt. Kowalski purchases a twelve month insurance policy on March 1, The Insurance Expense account is debited for $10,200. Required: Prepare adjusting journal entries needed on December 31,

10 Problem 29 Adjusting entries. Prepare the necessary adjusting journal entry for each of the following situations. Do not abbreviate account titles, and remember to clearly indent for credit entries. 1. Nelson Landlord Co. received $12,000 on May 1, 2013 for 1 year of rent paid by a customer in advance. In the entry to record the receipt, Nelson debited Cash and credited Rent Revenue. Nelson is a calendar-year company. What is the proper adjusting entry to be made at December 31, 2013? 2. Schlapman Co. issued a $12,000, 10% note on account on June 1, Cash was debited and Notes Payable credited for $12,000. The note with interest expense is due on May 31, Schlapman Co. is a calendar-year company. What is the proper adjusting entry to be made at December 31, 2013? What is the proper entry to be made at May 31, 2014? 3. The Bauer Company used $27,000 of utilities during December, 2013, but at year-end has yet to record or pay this amount. What is the year-end adjusting entry at December 31, 2013? 4. Boose Landlord Co. received $12,000 on May 1, 2013 for 1 year of rent paid by a customer in advance. In the entry to record the receipt, Boose credited Unearned Rent Revenue. Boose is a calendar-year company. What is the proper adjusting entry to be made at December 31, 2013? 5. Bryant Co. received a $12,000, 10% note on account on September 1, Notes Receivable was debited and sales credited for $12,000. The note with interest is due on August 31, Bryant Co. is a calendar-year company. What is the proper adjusting entry to be made at December 31, 2013? 6. This is a continuation of part 5. What is the proper entry to record the payment of principle and interest on August 31, 2014? 7. Severt Company paid for a 2-year insurance policy on July 1, 2013, for $3,000 and Insurance Expense was debited. Assuming a December 31 year-end, what is the proper adjusting entry to be made at December 31, 2013? 8. $45,000 of inventory are included on the December 31, 2012, balance sheet. Purchases during 2013 were $750,000. A count reveals that inventory on December 31, 2013 totals $35,000. Prepare the adjusting entry (or entries) for cost of goods sold that should be entered during the adjustment phase of the 2013 accounting cycle. 147

11 Problem 30 Adjusting entries. The Schlotterer Company has prepared the following posttransaction, unadjusted trial balance for the year ended December 31, Debit Credit Cash $1,700 Accounts receivable 3,200 Inventory 11,800 Supplies 1,790 Prepaid insurance 0 Equipment 5,400 Accumulated Depreciation $1,700 Accounts Payable 2,300 Salaries Payable 0 Income Taxes Payable 0 Unearned revenue 0 Capital Stock 3,200 Retained Earnings 2,500 Dividends Distributed 1,200 Sales Revenue 22,900 Cost of Goods Sold Expense 0 Supplies Expense 0 Salaries Expense 2,560 Depreciation Expense 0 Selling Expense 1,800 Insurance expense 1,830 Administrative Expense 960 Income Tax Expense 360 $32,600 $32,600 Required: Prepare adjusting entries for the following situations. (1) Accrued sales revenue is 3,290. (2) Unearned prepayments by customers total $780. (3) Unsold product inventory totals 2,100. (4) Accrued salaries total $635. (5) Accrued income taxes total $250. (6) Depreciation expense totals $2,110. (7) Supplies on hand total $420. (8) Insurance coverage remaining for next year totals $

12 Problem 31 Adjusting journal entries. Prepare the necessary adjusting journal entry for each of the following situations. Do not abbreviate account titles, and remember to clearly indent for credit entries. 1. The Conrad Company used $27,000 of utilities during December At year-end it has yet to record or pay this amount to the utility company. What is the year-end adjusting entry at December 31, 2013? 2. Dean Landlord Co. received $12,000 on May 1, 2013 for 1 year of rent paid by a customer in advance. In the entry to record the receipt, Dean debited Cash and credited Rent Revenue. Dean is a calendar-year company. What is the proper adjusting entry to be made at December 31, 2013? 3. Fortney Company began the 2013 fiscal year with a balance of $20,000 in the Supplies account. During 2013, supplies were purchased at a cost of $40,000, and this amount was debited to Supplies Expense. At the end of 2013, an inventory valuation shows $22,000 of supplies on hand. What is the proper adjusting entry to be made at December 31, 2013? 4. Reynolds Co. invested in a $12,000, 10% note (12 months) on June 1, Notes Receivable was debited and Cash credited for $12,000. Reynolds Co. is a calendar-year company. What is the proper adjusting entry for interest to be made at December 31, 2013? 5. Tablack Company paid for a 12-month insurance policy on September 1, 2013, for $2,400 and Insurance Expense was debited. Assuming a December 31 year-end, what is the proper adjusting entry to be made at December 31, 2013? 6. In its first year of operations, the Wagner Company purchased $2,000 of supplies, debiting Supplies (an asset account). At the end of the year, $450 of supplies remained on hand. What is the proper adjusting entry to be made at December 31? 7. The Phillips Company purchased some equipment for $20,000 on January 1, It has an expected useful life of six years and an estimated salvage value of $5,000. What is the proper adjusting entry to be made at December 31, The Quillet Company has delivered $1,000 of services to customers which are not yet recorded and for which it has not yet received payment as of December 31, What is the proper adjusting entry to be made at December 31, 2013? 9. Brandt Co. is a magazine publisher. It sells subscriptions for 1- to 3-year periods. At December 31, 2001, the balance of Subscriptions Collected In Advance (a liability account) was $80,000. During 2013, Brandt collected cash from subscribers of $760,000, debiting Cash and crediting Subscriptions Collected in Advance. During, 2013, Brandt also sent out magazines, and now owes customers $40,000 of magazines to be delivered in What is the proper adjusting entry to be made at December 31,

13 Problem 32 Closing journal entries. The Schlotterer Company has prepared the following adjusted trial balance for the year ended December 31, Debit Credit Cash $1,700 Accounts receivable 2,100 Inventory 1,800 Equipment 5,400 Accumulated Depreciation $1,700 Accounts Payable 2,300 Salaries Payable 300 Income Taxes Payable 360 Capital Stock 3,200 Retained Earnings 2,500 Dividends Distributed 200 Sales Revenue 7,900 Cost of Goods Sold Expense 4,300 Selling Expense 1,800 Administrative Expense 600 Income Tax Expense 360 $18,260 $18,260 Required: Prepare closing entries. 150

14 Problem 33 Two complete accounting cycle. Murphy Company had the following balances in its accounting records as of December 31, 2013: Assets Claims Cash $42,000 Accounts Payable $12,000 Accounts Receivable 16,000 Common Stock 32,000 Land 49,000 Retained Earnings 63,000 The following accounting events apply to Murphy s Company s 2014 fiscal year. Jan 1 Purchased a truck that cost $30,000 and had a $2,000 salvage value and a seven year useful life. Feb 1 Made a cash payment on accounts payable of $7,000. Apr 1 Borrowed $12,000 with a 6 percent annual interest rate and a one-year term. Aug 1 Received $16,000 cash from issuing common stock Nov 1 Paid $4,800 in advance for a nine month lease for office space. Dec 31 Earned $50,000 of service revenue from cash sales during the year, and 60,000 from credit sales during the year. Dec 31 Received payment of $55,000 on account. Dec 31 Paid wages of 69,000. Adjustments Dec 31 Recognized the current amount of rent expense from the prepaid rent on Nov 1. Dec 31 Accrued utilities are $15,000 Dec 31 Recognized one full year of depreciation expense. Dec 31 Recognized interest expense on the note from Apr 1. Required for 2014: (1) The chart of accounts includes: Cash, Accounts Receivable, Prepaid Rent, Land, Truck, Accumulated Depreciation, Accounts Payable, Interest Payable, Note Payable, Common Stock, Retained Earnings, Dividends, Service Revenue, Utilities Expense, Rent Expense, Interest Expense, Depreciation Expense, Wages Expense. Create a general ledger containing of the above accounts in T-account form. Post the beginning balances to the appropriate accounts. (2) For the eight transactions, prepare journal entries, post the entries to accounts, and then prepare a trial balance (the unadjusted trial balance). (3) For the four adjustments, prepare adjusting journal entries, post to accounts and prepare an adjusted trial balance (4) Prepare journal entries for closing, post to accounts, and prepare a post-closing trial balance. You may use an Income Summary account or close directly to Retained Earnings. (5) Prepare a full set of financial statements. 151

15 The following accounting events apply to Murphy s Company s 2015 fiscal year: Jan 1 Made a cash payment on accounts payable of $11,000. Feb 1 Paid utility bill of $18,000. Apr 1 Paid all interest and principal due on loan from April 1, Aug 1 Received $16,000 cash from issuing common stock Aug 1 Paid $4,800 in advance for a ten month lease for office space. Dec 31 Earned $70,000 of service revenue from cash sales during the year, and 50,000 from credit sales during the year. Dec 31 Received payment of $55,000 on account. Dec 31 Paid wages of 69,000. Adjustments Dec 31 Recognized the current amount of rent expense from the prepaid rent on Aug. 1. Dec 31 Accrued utilities are $17,000 Dec 31 Recognized one full year of depreciation expense. Required for 2015: (1) The chart of accounts includes: Cash, Accounts Receivable, Prepaid Rent, Land, Truck, Accumulated Depreciation, Accounts Payable, Interest Payable, Note Payable, Common Stock, Retained Earnings, Dividends, Service Revenue, Utilities Expense, Rent Expense, Interest Expense, Depreciation Expense, Wages Expense. Create a general ledger containing of the above accounts in T-account form. Post the beginning balances to the appropriate accounts. (2) Prepare reversing entries if appropriate, and post the entries to accounts. (3) For the eight transactions, prepare journal entries, post the entries to accounts, and then prepare a trial balance (the unadjusted trial balance). (4) For the three adjustments, prepare adjusting journal entries, post to accounts and prepare an adjusted trial balance (5) Prepare journal entries for closing, post to accounts, and prepare a post-closing trial balance. You may use an Income Summary account or close directly to Retained Earnings. (6) Prepare a full set of financial statements. 152

16 Problem 34 Reversing. Examine the following adjusting entries, and determine which should get reversed at the start of the next accounting period. Dec 31 Wages expense 9,000 Wages payable 9,000 Dec 31 Prepaid rent 25,000 Rent expense 25,000 Dec 31 Rent revenue 41,000 Unearned rent revenue 41,000 Dec 31 Insurance expense 19,000 Prepaid insurance 19,000 Dec 31 Interest receivable 6,000 Interest revenue 6,000 Dec 31 Utilities expense 17,000 Accounts payable 17,000 Dec 31 Depreciation expense 23,000 Accumulated depreciation 23,000 Dec 31 Cost of goods sold expense 154,000 Inventory 154,000 Dec 31 Supplies expense 13,000 Supplies 13,000 Dec 31 Supplies 16,000 Supplies expense 16,000 Problem 35 Reversing. Prepare a sequence of journal entries with supporting T-accounts for the following sequences. (1) On September 1, the XYZ Company pays $6,000 for a six month insurance policy. The company initially records the insurance policy as a debit to prepaid insurance. Make the appropriate journal entries on: * September 1 for the transaction * December 31 for the adjustment * February 28 for the completion of the insurance period. (2) On September 1, the XYZ company pays $6,000 for a six month insurance policy. The company initially records the insurance policy as a debit to insurance expense. Make the appropriate journal entries on: * September 1 for the transaction * December 31 for the adjustment * January 1 for the reversal 153