Accounting 40S Exam Study Guide Sole Proprietorship Partnership Corporation Bank Reconciliation Periodicity Concept Business Entity Concept Going Concern Monetary Unit Concept Debit Credit Permanent Accounts Temporary Accounts Multiple Choice/Mixed Quiz for Chapters 1, 2, 3, 7, 8, 10 o http://highered.mheducation.com/sites/0078136601/information center view(vindex.html Bank Reconciliation Recording under Perpetual Inventory System and Net Amount Bad Debt Expense Relationship between Financial Statements Income Statement, Cash Flows, Balance Sheet, Statement of Shareholder's Equity Ratios calculations and what they show Adjusting Entries Accrued Revenue, Accrued Expenses, Prepaid Expenses, Depreciation Statement of Retained Earnings Inventory Valuations Lifo, Fifo, Average Cost Income Statement Balance Sheet Closing Entries Cash Flow Statement Sections Explain what the 3 sections are and what goes under each section.
2 Financial Statements Practice After its first year in business, Aaron Distributing, Inc. needs to prepare its financial statements. Given the following trial balance, prepare the income statement, and statement of retained earnings for the year ended December 31, 2003 and the balance sheet and closing entries as of December 31, 2003. Dividends of $1,000 were paid during the year and are reflected in the trial balance. There were no additional capital stock transactions during the month. Cash Accounts receivable Prepaid insurance Vehicle AARON DISTRIBUTING, INC. Adjusted Trial Balance December 31, 2003 Debits $6,140 2,350 3,180 12,500 Credits Accumulated depreciation vehicle $1,000 Office equipment 25,400 Accumulated depreciation office equipment 3,630 Accounts payable 1,930 Notes payable 7,500 Wages payable 2,170 Capital stock 25,000 Retained earnings 1,000 Fees earned 45,500 Advertising expense 6,000 Depreciation expense 4,630 Insurance expense 1,200 Interest expense 750 Maintenance expense 2,450 Utilities expense 5,780 Wages expense 15,350 Total $86,730 $86,730
B. C. D. E. E7.5 A. April 30 Accounts receivable 9,000 Fees earned 9,000 Net income is increased by $9,000. B. April 30 Accounts receivable 3,000 Decorating fees earned 3,000 Net income is increased by $3,000. C. April 30 Accounts receivable 200 Rental income 200 Net income is increased by $200. E7.6 A. August 31 Utilities expense 135 Utilities payable 135 Net income is decreased by $135. B. August 31 Payroll service expense 500 Payroll service payable 500 Net income is decreased by $500. C. August 31 Interest expense 15 Interest payable 15 Net income is decreased by $15. E7.7 AARON DISTRIBUTING, NC. Income Statement For the year ended December 31, 2003 Revenue Fees earned Expenses Advertising expense $6,000 $45,500
Depreciation expense 4,630 Insurance expense 1,200 Interest expense 750 Maintenance expense 2,450 Utilities expense 5,780 Wages expense 15,350 Total expenses 36,160 Net Income $_9 3±-0, AARON DISTRIBUTING, NC. Statement of Retained Earnings For the year ended December 31, 2003 Beginning balance Add net income Less dividends Ending balance $ 0 9,340 (1,000) 1, 340 E7.8 AARON DISTRIBUTING, INC. Balance Sheet December 31, 2003 Assets Cash $6,140 Accounts receivable 2,350 Prepaid insurance 3,180 Vehicle 12,500 Accumulated depreciation vehicle (1,000) Office equipment 25,400 Accumulated depreciation office equipment (3,630) Total assets $44,940 Liabilities Accounts payable $1,930 Notes payable 7,500 Wages payable 2,170 Total liabilities $11,600 Owners' equity Capital stock $25,000 Retained earnings 8,340 Total owners' equity 33,340 Total liabilities and owners' equity $44,940
3 Adjusting Entries Practice Circle Theater began operations on January 1 of the current year. The company's accounting policy is to adjust and close the accounts each month. Before adjustments at March 31, the account balances were as follows: Cash $5,125 Prepaid insurance 850 Prepaid film rental 4,130 Projection equipment 4,200 Accumulated depreciation: projection equipment $100 Notes payable 6,000 Unearned concessions revenue 1,600 Jerry Bowen, capital 4,095 Jerry Bowen, drawing 750 Admissions revenue 6,320 Salaries expense 2,460 Building rent expense 600 S18.115 $18,115 Other data 1. A three-year fire insurance policy was purchased on January 2 of the current year for $900. 2. Film rental expense for the month of March amounted to $2,220. 3. Projection equipment with an estimated useful life of 7 years was purchased on January 1 of the current year. 4. Interest expense on notes payable amounted to $30 for the month of March. 5. Paul Weston, concessionaire, reported that net income from concessions for March amounted to $3,500. Circle Theater's share was 10%, as per agreement. This agreement also provided for semiannual advance payments by Weston based on estimated of future sales. These advance payments were ed to Unearned Concessions Revenue when received. 6. Salaries earned by employees but not yet paid amounted to $175. Instructions From the information given, prepared the following: a) Adjusting entries required at March 31.
1 4 c Debit Credit 31-Mar Insurance Expense 75 Prepaid insurance 75 to record March insurance Film rental Expense Prepaid film rental to record march rental 2220 2220 Expense: Equipment Acc. A : Equipment 4200/7/12 'fiffortization for March 150 /50 Interest expense Interest payable interest on note 30 30 Unearned concessions revenue Concessions revenue 10% of conession revenues 350 350 Salaries Expense Salaries payable salaries owed 175 175
4 Bad Debts Practice The balance sheet of Harvey Company at December 31 of last year showed $210,000 in accounts receivable and a balance of $11,000 in the allowance for uncollectible accounts. The following summary shows the totals of certain types of transactions occurring during January of the current year. a) Sales on account $150,000 b) Sales returns & allowances (on account) 3,000 c) Cash payments by customers (on account) 148,000 d) Account receivable from Rex Wiley written off as worthless following the failure of his business 3,200 At January 31, after a careful aging and analysis of all customers' accounts, the company decided that the allowance for uncollectible accounts should be adjusted to the amount of $12,200 in order to reflect accounts receivable at net realizable value in the January 31 balance sheet. Instructions a) Give the appropriate entry in general journal form for each of the four numbered items above and the adjusting entry at January 31 to provide for uncollectible accounts. b) Show the amounts of accounts receivable and the allowance for uncollectible accounts as they would appear in a partial balance sheet at January 31. c) Assume that six months after the receivable from Rex Wiley had been written off as worthless, he won $100,000 in a lottery and immediately paid the $3,200 owed to Harvey Company. Give the journal entry or entries to reflect this collection in Harvey Company's accounts. % of sales method (income % of sales for accounting Do not consider existing balance statement method) period in allowance for uncollectible account Aging method (balance sheet Based on how long accounts Subtract the existing balance in method) have been outstanding allowance for uncollectible account to bring it up to calculated amount FRC Company had the following information relating to sales in 2014: Accounts receivable December 31, 2014 $15,500 Allowance for uncollectible accounts December 31, 2014 1,000 (before adjustment) Credit sales during 2014 64,000 Cash sales during 2014 20,000 Collections from customers on account during 2010 54,000
A/R 150000 Sales sales 150000 Sales R & A 3000 A/R returns by customers 3000 Cash 148000 A/11 received on account 148000 AFBD 3200 A/R to write off R. Wiley's account 3200 Bad Debt Expense 4400 AFBD 4400 to adjust for bad debts calculation: 11000-3200 to find balance in AFBD account 7800 Take 12,200-7800 to determine how much needs to be added to AVE 4400 Partial Balance Sheet A/R 205800 To calculate: $210,000+150,000-3,000-148,000-3200 Less: AFBD 12200 193600
5 Uncollectible account expense based on % of sales $64,000 *.02 = $1280 method-2% of sales Adjusted balance in Uncollectible account $1000 + $1280 = $2280 If Uncollectible account is determined by aging of $1550 -$1000 = $550 accounts receivable to be $1,550, the uncollectible account expense would be Using aging of accounts receivable the balance of $1550 the Allowance account after the adjusting entry would be Using aging of accounts receivable the net $15500 - $1550 = $13950 realizable value of accounts receivable on the December 31, 2014 balance sheet would be.. / Inventory Valuation Practice The Shore Line Corporation Ltd. deals in a single product. The volume of sales in 2012 was $480,000 at a unit price of $6. The inventory at January 1, 2012, amounted to 14,500 units valued at cost of $43,500; purchases for the year were as follows: 20,500 units @ $3.10; 33,000 units @ $3.25; 23,000 units @ $3.40; and 9,000 units @ $3.50 Instructions Calculate the number of units remaining at December 31, 2012. Compute the December 31, 2012 inventory using a) The average cost method (compute average unit cost of the nearest cent) b) The First-in, first-out method c) The Last-in, first-out method Units Unit Cost Total Cost Beginning inventory 40 $8 $320 Purchase on May 23 55 9 495 Purchase on Nov. 5 25 10 250 Sales 75 Inventory System (Cost of goods sold /Ending inventory) FIFO A I ";) : - 1 1-20----75-7-45-u nits,- 35 @ $9 = $315 25 @ $10 = 250 S635 20@9=180 S430 LIFO 25 @ $10 = 250 50@$9= 450 S700 Cost of Goods Sold Revenue
6 Sales x Cost of Goods Sold Beginning Inventory +Purchases -Purchases R & A, Purchases Discounts +Freight-in -Ending Inventory Cost of Goods Sold Gross Profit X x Depreciation On August 1, 2015, Minor Notes Inc. purchased a new piano that cost $50,000. The estimated useful life is five years, and estimated residual value is $7,500. If this company uses the straight-line method for depreciation, what is the depreciation for the year ended December 31, 2015? $50,000 - $7,500 = $42,500 /60 = $708 $708 * 5 months = $3540 What is the piano's net value at the end of 2015? $50,000 - $3540 = $46,450 Asset's Net Amount
Shore Line Corporation Ltd. Units Unit Cost al Cost Jan. 1-4500 3 43500 Purchase 20500 3.10 63550 Purchase 33000 3.25 107250 Purchase 23000 3.40 78200 Purchase 9000 3.50 31500 Total 100000 324000 Sales 6 $480,000 Ending Inventory FIFO 20500 33000 12000 Ending Inv Value 3 43500 0 3.50 31500 3.10 63550 11000 3.40 37400 3.25 107250 3.40 40800 255100 68900 LIFO 9000 23000 33000 15000 3.50 31500 14500 3 43500 3.40 78200 5500 3.10 17050 3.25 107250 3.10 46500 263450 60550 Avg. Cost 3.24 80000 3.24 259200 20000 64800