Optional Self Study Questions Solutions

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Optional Self Study Questions Solutions This material is provided as an additional resource in addition to workshop and tutorial questions. These are optional.

1 Optional Self Study Questions Solutions This material is provided as an additional resource in addition to workshop and tutorial questions. These are optional. Problem 1 Recording transactions in general journal and analysis The following accounts appear in the ledger of the Henrietta s Huge Hair Hairdressers: Cash at Bank; Accounts Receivable; Hairdressing Equipment; Accounts Payable; Henrietta Bouffant, Drawings; Hairdressing Revenue; Salaries Expense; and Advertising Expense. Required A. Prepare the general journal entries to record the transactions that occurred during December (ignore GST). B. Explain why you have made each of the journal entries to account for the transactions. Dec Purchased hair drying equipment for $ Paid $5000 deposit and agreed to pay the balance in 60 days. Henrietta withdrew $1200 from the business to buy herself a new dress for a friend s wedding. Paid salaries of $6800. Paid $800 for advertisements in the local newspaper. Received $540 from customers to reduce the balance in their accounts. Paid $3700 to creditors for supplies that had been purchased on credit. Earned $ in hairdressing revenue during the month. Of these, 80% of the fees were collected in cash and 20% will be paid within a month. Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 1 of 19

2 Dec. 1 HENRIETTA S HUGE HAIR HAIRDRESSERS (ignore GST) B. December Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 2 of 19

3 Problem 2 Identifying type of account, debit/credit analysis and normal Balance Tsz Yeung Printers ledger accounts are listed below: 1. Accounts Payable 2. Accounts Receivable 3. Buildings 4. Cash at Bank 5. Electricity Account Payable 6. GST Payable 7. GST Receivable 8. Insurance Expense 9. Interest Expense 10. Interest Receivable 11. Interest Revenue 12. Land 13. Loan Payable 14. Mortgage Payable 15. Prepaid Insurance 16. Printing Equipment 17. Rent Revenue 18. Service Fee Revenue 19. Sundry Revenue 20. Supplies on Hand 21. Supplies Used 22. Tsz Yeung, Capital 23. Tsz Yeung, Drawings 24. Unearned Revenue 25. Wages Expense 26. Wages Payable Required A. For each account listed below, complete a solution form as shown below by placing a tick in the proper columns to indicate the type of account, the side of a T account on which increases are recorded, and the side on which normal balances are recorded. B. Prepare an appropriate chart of accounts for the business. Use the following digits for account classes: assets, 1; liabilities, 2; equity, 3; income, 4; expenses, 5. Within each category, assign a 3-digit code for each account. Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 3 of 19

4 A. Type of Account Increases Normal balance Account Asset Liability Equity (includes income and expenses) 1. Accounts Payable 2. Accounts Receivable 3. Buildings 4. Cash at Bank 5. Electricity Acc Payable. 6. GST Payable 7 GST Receivable 8. Insurance Expense 9. Interest Expense 10. Interest Receivable 11. Interest Revenue 12. Land 13. Loan Payable 14. Mortgage Payable 15. Prepaid Insurance 16. Printing Equipment 17. Rent Revenue 18. Service Fee Revenue 19. Sundry Revenue 20. Supplies on Hand 21. Supplies Used 22. Tsz Yeung, Capital 23. Tsz Yeung, Drawings 24. Unearned Revenue 25. Wage Expense 26. Wages Payable Debit Credit Debit Credit Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 4 of 19

5 B. TSZ YEUNG PRINTERS CHART OF ACCOUNTS Assets ( ) Cash at Bank Accounts Receivable GST Receivable Prepaid Insurance Interest Receivable Supplies on Hand Printing Equipment Land Buildings Liabilities ( ) Accounts Payable GST Payable Wages Payable Electricity Account Payable Loan Payable Unearned Revenue Mortgage Payable Equity ( ) Tsz Yeung, Capital Tsz Yeung, Drawings Income ( ) Service Fee Revenue Rent Revenue Interest Revenue Sundry Revenue Expenses ( ) Wages Expense Supplies Used Insurance Expense Interest Expense Profit or Loss Summary Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 5 of 19

6 Problem 3 Journal entries, posting to ledger and trial balance On 1 July Nicole Andreou opened a beauty parlour. The following transactions occurred during the first month of operations (ignore GST): July Andreou invested $ in the business by depositing cash into a business cheque account with the Eastpac Bank. Paid $1800 for the first month s rent. Purchased equipment by an online bank transfer for $ and signing a commercial loan agreement for $ Purchased supplies for $8400. Paid advertising expense of $890. Recorded beauty services revenue for the first half of the month of $3250 in cash and $620 on credit. Paid insurance expense for July of $480 using an online bank transfer. Received a $140 payment from customers who paid on credit in the first half of the month. Andreou withdrew $560 cash for personal living expenses. Recorded revenue for the second half of the month of $3680 in cash and $580 on credit. Paid telephone account of $330 by electronic transfer. Use the following account titles and numbers: Cash at Bank, 100; Accounts Receivable, 101; Supplies, 102; Equipment, 103; Loan Payable, 200; Nicole Andreou, Capital, 300; Nicole Andreou, Drawings, 301; Revenue, 400; Rent Expense, 500; Advertising Expense, 501; Insurance Expense, 502; Telephone Expense, 503. Required A. Prepare the general journal entries to record the transactions. B. Post the entries from the general journal to the general ledger accounts (running balance format) and enter the posting references in the general journal. C. Prepare a trial balance as at 31 July. Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 6 of 19

7 A. General Journal July B. ACCOUNT: Cash at Bank Account No. 100 Date Explanation Post Debit Credit Balance Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 7 of 19

8 2 7 Nicole Andreou, Capital 2 7 Rent Expense 3 7 Equipment 4 7 Supplies 6 7 Advertising Expense 16 7 Revenue 20 7 Insurance Expense 23 7 Accounts Receivable 28 7 Nicole Andreou, Drawings 31 7 Revenue 31 7 Telephone Expense ACCOUNT: Accounts Receivable Account No Revenue 23 7 Cash at Bank 31 7 Revenue ACCOUNT: Supplies Account No Cash at Bank ACCOUNT: Equipment Account No Cash and Loan Payable ACCOUNT: Loan Payable Account No Equipment ACCOUNT: Nicole Andreou, Capital Account No Cash at Bank Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 8 of 19

9 ACCOUNT: Nicole Andreou, Drawings Account No Cash at Bank ACCOUNT: Revenue Account No Cash and Accounts Receivable 31 7 Cash and Accounts Receivable ACCOUNT: Rent Expense Account No Cash at Bank ACCOUNT: Advertising Expense Account No Cash at Bank ACCOUNT: Insurance Expense Account No Cash at Bank ACCOUNT: Telephone Expense Account No Cash at Bank Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 9 of 19

10 C. Account NICOLE ANDREOU BEAUTY SALON Trial Balance as at 31 July Account No. Cash at Bank 100 Accounts Receivable 101 Supplies 102 Equipment 103 Loan Payable 200 Nicole Andreou, Capital 300 Nicole Andreou, Drawings 301 Revenue 400 Rent Expense 500 Advertising Expense 501 Insurance Expense 502 Telephone Expense 503 Debit Credit Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 10 of 19

11 Problem 4 Adjusting entries and impact on financial statements The financial year for Bankstown Rental Services ends on 30 June. Required A. Using the following information, make the necessary adjusting entries. 1. The $765 telephone expense is unpaid and unrecorded at 30 June. 2. The balance in Accumulated Depreciation at the beginning of the financial year was $ Annual depreciation on equipment is estimated to be $ Rent of office premises of $3165 for the 3-month period ending 31 July is due to be paid in July. 4. Bankstown Rental Services borrowed $ from BANK Bank on 15 March. The principal, plus 8% interest, is payable on 15 September. Accrued interest on 30 June has not been recorded. 5. Bankstown Rental Services purchased a 12-month insurance policy for $2940 on 1 November. A 24-month policy was purchased on 1 April for $6600. Both purchases were recorded by debiting Prepaid Insurance. 6. The Supplies account had a $1500 debit balance on 1 July of the preceding year. Supplies costing $7100 were purchased during the year, and $1310 of supplies are on hand as at 30 June. 7. On 1 June, Bankstown Rental Services received 2 months rent in advance, totalling $4660. This was recorded by a credit to Unearned Rental Revenue. 8. The office assistant earns $280 a day. He will be paid in July for the 5-day period ending 2 July. B. As you know, all adjusting entries affect one balance sheet account and one income statement account. Based on your adjusting entries prepared in requirement A: 1. calculate the increase or decrease in profit 2. calculate the increase or decrease in total assets, total liabilities and total equity. BANKSTOWN RENTAL SERVICES General Journal Date Particulars Debit Credit Adjusting entries June 30 A Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 11 of 19

12 8.. B. 1. Increase/Decrease in profit, 2. (a) Increase/Decrease in total assets (b) (c) Increase/Decrease in total liabilities Increase/Decrease in equity Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 12 of 19

13 Problem 5 Adjusting entries, financial statements, closing entries, reversing entries The trial balance shown below summarises the year s activities for Nova Caine s dental surgery. NOVA CAINE, DENTIST Unadjusted Trial Balance as at 30 June 2016 Account Debit Credit Cash at bank Fees revenue Accounts receivable Equipment Accumulated depreciation equipment Dental supplies Office supplies Nova Caine, Capital Nova Caine, Drawings Accounts payable Wages expense dental assistants Rent expense Office expenses General expenses $ $ $ $ The following additional information should be considered: 1. Inventory of dental supplies on hand at 30 June is $16 400; $2400 office supplies are on hand. 2. Depreciate equipment at the rate of 15% p.a. on cost ($ ). 3. Rent of $5000 has been paid in advance and has been debited to rent expense. 4. Wages earned by the dental assistants but unpaid, $1620. Required A. Journalise the adjusting entries. B. Journalise the closing entries. C. Prepare an income statement, a statement of changes in equity and a balance sheet. D. Journalise the reversing entries (if any). A. Adjusting entries June Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 13 of 19

14 4.. B. Closing entries C. NOVA CAINE, DENTIST Income Statement for the year ended 30 June 2016 PROFIT Nova Caine, Capital 1 July Add: Profit for the year NOVA CAINE, DENTIST Statement of Changes in Equity for the year ended 30 June 2016 Less: Drawings during the year Nova Caine, Capital 30 June 2016 Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 14 of 19

15 CURRENT ASSETS NOVA CAINE, DENTIST Balance Sheet as at 30 June 2016 NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY TOTAL EQUITY D. Reversing Entries Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 15 of 19

16 Problem 6 Journal entries for both buyer and seller periodic inventory system A. Prepare general journal entries to record the following transactions (a) for Elwood Ltd and (b) for Balaclava Ltd. Both companies use a periodic inventory system. (Assume neither is registered for GST.) April 3 Elwood Ltd sold merchandise to Balaclava Ltd for $3250 with terms 2/10, n/30, EXW supplier s warehouse Balaclava Ltd paid the freight cost of $120. Balaclava Ltd returned merchandise worth $420. Balaclava Ltd paid Elwood Ltd the amount due. B. Indicate how each relevant account balance should be reported in the financial statements of Elwood Ltd and Balaclava Ltd. A. Part 1 (a) April 3 ELWOOD LTD April 7 April 8 Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 16 of 19

17 (b) April 3 BALACLAVA LTD April 5 April 7 April 8 B. ELWOOD LTD BALACLAVA LTD Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 17 of 19

18 Problem 7 Journal entries perpetual and periodic inventory systems Assume that Merryland s Markets had an inventory balance of $ at the close of the last accounting period. The following sales and purchase transactions are for the current period: 1. Purchased goods on account for $ Returned part of the above purchase that had an original purchase price of $ Paid for the balance of the purchase in time to receive a discount of 2% of the purchase price. 4. Sold goods costing $ for $ Cash of $ was received, with the balance due on account. 5. Goods sold on credit for $2020 (cost $1010) were returned. Required A. In two columns, prepare general journal entries (ignoring GST) assuming: 1. a periodic inventory system is used 2. a perpetual inventory system is used. B. Same as for requirement A, except that GST is to be added to the figures where appropriate. C. Suppose that a physical count of the inventory at the end of the current period shows inventory of $ to be on hand. Present the entries (if any) required under each inventory system to adjust for any discrepancy. D. Comment on which system would best disclose any discrepancy. A. (without GST) Periodic MERRYLAND S MARKETS 1. Purchases Inventory Accounts Payable Accounts Payable Perpetual 2. Accounts Payable Accounts Payable Purchases Returns & Allows. Inventory 3. Accounts Payable Accounts Payable Discount Received Discount Received Cash at Bank Cash at Bank 4. Cash Cash Accounts Receivable Accounts Receivable Sales Sales Cost of Sales Inventory 5. Sales Returns & Allows Sales Returns & Allows Accounts Receivable Accounts Receivable Inventory Cost of Sales Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 18 of 19

19 B. (with GST) MERRYLAND S MARKETS Periodic 1. Purchases Inventory GST Receivable GST Receivable Accounts Payable Accounts Payable Perpetual 2. Accounts Payable Accounts Payable Purchases Rtns & Allows. Inventory GST Receivable GST Receivable 3. Accounts Payable Accounts Payable Discount Received Discount Received GST Receivable GST Receivable Cash at Bank Cash at Bank 4. Cash Cash Accounts Receivable Accounts Receivable Sales Sales GST Payable GST Payable Cost of Sales Inventory 5. Sales Returns & Allowances Sales Rtns & Allows GST Payable GST Payable Accounts Receivable Accounts Receivable C. Inventory Cost of Sales D. Study Group Australia Pty Limited trading as Martin College, Martin Higher Education Page 19 of 19

CHAPTER 3 RECORDING TRANSACTIONS DISCUSSION QUESTIONS SOLUTIONS

CHAPTER 3 RECORDING TRANSACTIONS DISCUSSION QUESTIONS SOLUTIONS Instant download and all chapters Solutions Manual to accompany Accounting 9 Edition John Hoggett https://testbankdata.com/download/solutions-manual-accompanyaccounting-9-edition-john-hoggett/ CHAPTER