Rent expense Depreciation expense

__________________________ __________________________

3/1 Bal. 0 3/1 Bal. 0

5. 5,000 9. 1,000

_______________ _______________

3/31 Bal. 5,000 3/31 Bal. 1,000

1. Cash.......................................................................... 500,000

Common stock............................................................. 500,000

2. Furniture and fixtures............................................... 100,000

Cash............................................................................. 40,000

Note payable ............................................................... 60,000

3. Inventory.................................................................. 200,000

Accounts payable......................................................... 200,000

4. Accounts receivable.................................................. 280,000

Sales revenue................................................................ 280,000

Cost of goods sold.................................................... 140,000

Inventory...................................................................... 140,000

5. Rent expense................................................................. 6,000

Cash............................................................................. 6,000

6. Prepaid insurance.......................................................... 3,000

Cash............................................................................. 3,000

7. Accounts payable...................................................... 120,000

Cash............................................................................. 120,000

8. Cash............................................................................ 55,000

Accounts receivable...................................................... 55,000

9. Retained earnings.......................................................... 5,000

Cash............................................................................. 5,000

10.Depreciation expense.................................................... 2,000

Accumulated depreciation............................................ 2,000

11.Insurance expense ($3,000 ÷ 12 months)......................... 250

Prepaid insurance......................................................... 250

List A List B

k 1. Source documents a. Record of the dual effect of a transaction in
debit/credit form.

e 2. Transaction analysis b. Internal events recorded at the end of a

reporting period.

a 3. Journal c. Primary means of disseminating information

to external decision makers.

j 4. Posting d. To zero out the owners’ equity temporary

accounts.

f 5. Unadjusted trial balance e. Determine the dual effect on the accounting

equation.

b 6. Adjusting entries f. List of accounts and their balances before

recording adjusting entries.

h 7. Adjusted trial balance g. List of accounts and their balances after

recording closing entries.

c 8. Financial statements h. List of accounts and their balances after

recording adjusting entries.

d 9. Closing entries i. A means of organizing information; not part

of the formal accounting system.

g 10. Post-closing trial balance j. Transferring balances from the journal to the

ledger.

i 11. Worksheet k. Used to identify and process external

transactions.

Increase (I) or

Decrease (D)Account

1. I Inventory

2. I Depreciation expense

3. D Accounts payable

4. I Prepaid rent

5. D Sales revenue

6. D Common stock

7. D Wages payable

8. I Cost of goods sold

9. I Utility expense

10. I Equipment

11. I Accounts receivable

12. D Allowance for uncollectible accounts

13. I Bad debt expense

14. I Interest expense

15. D Interest revenue

16. D Gain on sale of equipment

Exercise 2-7

Account(s) Account(s)

Debited Credited

Example: Purchased inventory for cash 3 5

1. Paid a cash dividend. 10 5

2. Paid rent for the next three months. 8 5

3. Sold goods to customers on account. 4,16 9,3

4. Purchased inventory on account. 3 1

5. Purchased supplies for cash. 6 5

6. Paid employees wages for September. 15 5

7. Issued common stock in exchange for cash. 5 12

8. Collected cash from customers for goods sold in 3. 5 4

9. Borrowed cash from a bank and signed a note. 5 11

10. At the end of October, recorded the amount of

supplies that had been used during the month. 7 6

11. Received cash for advance payment from customer. 5 13

12. Accrued employee wages for October. 17 15

1. Prepaid insurance ($12,000 x 30/36).......................... 10,000

Insurance expense............................................. 10,000

2. Depreciation expense........................................... 15,000

Accumulated depreciation ............................... 15,000

3. Bad debt expense ($6,500 - 2,000)............................ 4,500

Allowance for uncollectible accounts................ 4,500

4. Salaries expense................................................... 18,000

Salaries payable................................................ 18,000

5. Interest expense ($200,000 x 12% x 2/12).................... 4,000

Interest payable................................................ 4,000

6. Unearned rent revenue.......................................... 1,500

Rent revenue (1/2x $3,000).................................. 1,500

Exercise 2-9

1. Interest receivable ($90,000 x 8% x 3/12).................... 1,800

Interest revenue................................................ 1,800

2. Rent expense ($6,000 x 2/3)...................................... 4,000

Prepaid rent...................................................... 4,000

3. Rent revenue ($12,000 x 7/12)................................... 7,000

Unearned rent revenue ..................................... 7,000

4. Depreciation expense........................................... 4,500

Accumulated depreciation................................ 4,500

5. Salaries expense .................................................. 8,000

Salaries payable................................................ 8,000

6. Supplies expense ($2,000 + 6,500 - 3,250).................. 5,250

Supplies............................................................ 5,250

1. $7,200 represents nine months of interest on a $120,000 note, or 75% of annual interest.

$7,200 ÷ .75 = $9,600 in annual interest

$9,600 ÷ $120,000 = 8% interest rate

Or,

$7,200 ÷ $120,000 = .06 nine-month rate

To annualize the nine month rate: .06 x 12/9 = .08 or 8%

2. $60,000 ÷ 12 months = $5,000 per month in rent

$35,000 ÷ $5,000 = 7 months expired. The rent was paid on June 1, seven months ago.

3. $500 represents two months (November and December) in accrued interest, or $250 per month.

$250 x 12 months = $3,000 in annual interest

Principal x 6% = $3,000

Principal = $3,000 ÷ .06 = $50,000 note

Requirement 1

Exercise 2-11 (continued)

*Beginning balance of $100,000 plus net income of $101,000.

Exercise 2-11 (concluded)

Requirement 2

December 31, 2011

Sales revenue............................................................. 800,000

Income summary................................................... 800,000

Income summary....................................................... 699,000

Cost of goods sold................................................. 480,000

Salaries expense.................................................... 120,000

Rent expense......................................................... 30,000

Depreciation expense............................................ 60,000

Interest expense..................................................... 4,000

Bad debt expense.................................................. 5,000

Income summary ($800,000 - 699,000)........................... 101,000

Retained earnings.................................................. 101,000

December 31, 2011

Sales revenue............................................................. 750,000

Interest revenue......................................................... 3,000

Income summary................................................... 753,000

Income summary....................................................... 576,000

Cost of goods sold................................................. 420,000

Salaries expense.................................................... 100,000

Rent expense......................................................... 15,000

Depreciation expense............................................ 30,000

Interest expense..................................................... 5,000

Insurance expense................................................. 6,000

Income summary ($753,000 - 576,000)........................... 177,000

Retained earnings ................................................. 177,000

Exercise 2-13

December 31, 2011

Sales revenue............................................................. 492,000

Interest revenue......................................................... 6,000

Gain on sale of investments ..................................... 8,000

Income summary................................................... 506,000

Income summary....................................................... 440,000

Cost of goods sold................................................. 284,000

Salaries expense.................................................... 80,000

Insurance expense................................................. 12,000

Interest expense..................................................... 4,000

Advertising expense.............................................. 10,000

Income tax expense............................................... 30,000

Depreciation expense ........................................... 20,000

Income summary ($506,000 – 440,000)........................... 66,000

Retained earnings ................................................. 66,000

Requirement 1

Supplies

11/30 Balance 1,500

Expense 2,000

Purchased ?

12/31 Balance 3,000

Cost of supplies purchased = $3,000 + 2,000 - 1,500 = $3,500

Exercise 2-14 (continued)

Requirement 2

Prepaid insurance

11/30 Balance 6,000

Expense ?

12/31 Balance 4,500

Insurance expense for December = $6,000 - 4,500 = $1,500

December 31, 2011

Insurance expense..................................................... 1,500

Prepaid insurance.................................................. 1,500

Requirement 3

Wages payable

10,000 11/30 Balance

Wages paid 10,000 ?Accrued wages

15,000 12/31 Balance

Accrued wages for December = $15,000

December 31, 2011

Wages expense.......................................................... 15,000

Wages payable...................................................... 15,000

Exercise 2-14 (concluded)

Requirement 4

Unearned rent revenue

2,000 11/30 Balance

Earned for Dec. 1,000

1,000 12/31 Balance

Rent revenue recognized each month = $3,000 x 1/3 = $1,000

December 31, 2011

Unearned rent revenue.............................................. 1,000

Rent revenue.......................................................... 1,000

Exercise 2-15

Requirement 1

Requirement 2

Exercise 2-16

Unadjusted net income $30,000

Adjustments:

a. Only $2,000 in insurance should be expensed + 4,000

b. Sales revenue overstated - 1,000

c. Supplies expense overstated + 750

d. Interest expense understated ($20,000 x 12% x 3/12) - 600

Adjusted net income $33,150

(1) $320,000 cash collected less $5,000 decrease in accounts receivable.

Cash ............................................................................ 320,000

Accounts receivable (decrease in account)....................... 5,000

Sales revenue (to balance)............................................... 315,000

(2) $25,000 cash paid for the purchase of supplies less $500 increase in supplies.

Supplies expense (to balance) ........................................ 24,500

Supplies (increase in account)....................................... 500

Cash ............................................................................... 25,000

Exercise 2-17 (concluded)

(3) $6,000 cash paid for insurance less $2,000 ending balance in prepaid insurance.

Insurance expense (to balance) ........................................ 4,000

Prepaid insurance (increase in account)............................ 2,000

Cash ............................................................................... 6,000

(4) $20,000 cash paid for miscellaneous expenses plus increase in accrued liabilities.

Miscellaneous expense (to balance) ............................... 21,000

Accrued liabilities (increase in account).......................... 1,000

Cash ............................................................................... 20,000

(5) $100,000 x 6% x 3/12 = $1,500

Interest expense .............................................................. 1,500

Interest payable............................................................... 1,500

Exercise 2-18

Cash basis income ($545,000 – 412,000) $133,000

Add:

Increase in prepaid insurance ($6,000 – 4,500) 1,500

Deduct:

Depreciation expense (22,000)

Decrease in accounts receivable ($62,000 – 55,000) (7,000)

Decrease in prepaid rent ($9,200 – 8,200) (1,000)

Increase in unearned service fee revenue ($11,000 – 9,200) (1,800)

Increase in accrued liabilities ($15,600 – 12,200) (3,400)

Accrual basis income $ 99,300

Exercise 2-19 (continued)

Requirement 2

Exercise 2-19 (concluded)

*Beginning balance of $29,000 plus net income of $9,000.

Exercise 2-20

Requirement 1

Date: 2015-12-11; view: 1278