Financial ing Practice Problems 1bw3n

F/Acc Practice Questions Q1. The following are the transactions of Overnight Auto Service for the month of November 2006: • Nov 1: McBryan started business by depositing $200,000 in a company bank . • Nov 1: Received $2,400 cash in advance for 4 months (rent revenue). • Nov 1: Paid $3,000 cash in advance for 3 months (salaries expense). • Nov 2: Purchased an aircraft for $240,000. Made a $60,000 cash down payment and issued a note payable for remaining $180,000. • Nov 3: Purchased land for $45,000 by paying cash. • Nov 4: Paid Daily Tribune $500 cash for newspaper advertising to be run during November. • Nov 5: Purchased radio advertising from KRAM to be aired in November. The cost was $750, payable within 30 days. • Nov 5: Purchased a building for $64,800 - paying $10,800 in cash and issuing a note payable for the remaining $54,000. • Nov 6: Purchased various shop supplies cost $2,500, due in 30 days. These supplies are expected to meet Overnight’s needs for three or four months. • Nov 7: Collected $7,950 cash for repairs made to vehicles. • Nov 8: McBryan, the owner, withdrew $5,200 cash from the company’s bank for his personal use. • Nov 9: McBryan found that he did not need all of the cash he had withdrawn on Nov 8, so he redeposited $2,000 in Overnight’s (business) bank . • Nov 10: Paid all employees wages expense of $3,500. • Nov 11: Paid rent of amount $5,500. • Nov 12: Purchased tools and equipment on for $23,800. • Nov 15: Billed customers $6,320 for services rendered during the 1st half of November. • Nov 16: Paid $2,400 for maintenance and repair services. • Nov 17: Collected $6,320 of the amounts billed to customers on November 15. • Nov 19: Received a fuel bill for $1,500 purchased during November. This amount is due by December 10. • Nov 20: Sold some of the tools and equipment at the price equal to its cost $2,800. Collectable within 45 days. • Nov 25: Received $1,200 in partial collection of the s receivable from the sale of the tools and equipment. • Nov 26: Paid $9,800 in partial payment of an payable for the purchase of tools and equipment. • Nov 30: Billed Harbor Cab Co. $8,500 for maintenance and repair services rendered during November. The agreement with Harbor Cab calls for payment to be received by December 10. Data for Adjusting Entries: (i) Cost of Air Craft = $240,000 Useful life of Aircraft = 20 years (ii) Cost of Building = $64,800 Useful life of building = 18 years (iii) Cost of Tools and Equipment = $21,000 Useful life of Tools and Equipment =7 years

(iv) Beginning Shop supplies = $2,500 Ending Shop Supplies = $1,300 (v) Prepaid salaries for 3 months is $3000. (vi) Unearned rent revenue is $2,400 for 4 months. (vii) Wages accrued but not recorded at the end of November is $1,200. (viii) Repair services revenue accrued but not recorded at the end of the month is $2,500. Required: I. Analyze these transactions (note down which s they will effect). II. Record these transactions in the journals. III. Post it into the ledger. IV. Draw up a trial balance. Q2. Company A was incorporated on January 1, 2010 with an initial capital of 5,000 shares of common stock having $20 par value. During the first month of its operations, the company engaged in following transactions: Date

Transaction

Jan 2

An amount of $36,000 was paid as advance rent for three months.

Jan 3

Paid $60,000 cash on the purchase of equipment costing $80,000. The remaining amount was recognized as a one year note payable with interest rate of 9%.

Jan 4

Purchased office supplies costing $17,600 on .

Jan 13

Provided services to its customers and received $28,500 in cash.

Jan 13

Paid the s payable on the office supplies purchased on January 4.

Jan 14

Paid wages to its employees for first two weeks of January, aggregating $19,100.

Jan 18

Provided $54,100 worth of services to its customers. They paid $32,900 and promised to pay the remaining amount.

Jan 23

Received $15,300 from customers for the services provided on January 18.

Jan 25

Received $4,000 as an advance payment from customers.

Jan 26

Purchased office supplies costing $5,200 on .

Jan 28

Paid wages to its employees for the third and fourth week of January: $19,100.

Jan 31

Paid $5,000 as dividends.

Jan 31

Received electricity bill of $2,470.

Jan 31

Received telephone bill of $1,494.

Jan 31

Miscellaneous expenses paid during the month totaled $3,470

The ledger s shown below are derived from the journal entries of Company A. Asset s Cash $100,00 0

$36,00 0

28,500

60,000

32,900

17,600

15,300

19,100

4,000

19,100

s Receivable $21,20 0

$15,300

5,000 3,470 $20,430

$5,900

Office Supplies

Prepaid Rent $36,00 0

$17,600 5,200

$36,00 0

$22,800 Equipment $80,000 $80,000 Liability s s Payable $17,60 0

$17,60 0

Notes Payable $20,000

5,200 $5,200 Utilities Payable $2,470

$20,000 Unearned Revenue $4,000

1,494 $3,964 Equity s Common Stock $100,00 0

$4,000

$100,00 0 Revenue, Dividend and Expense s Service Revenue

Dividend

$28,50 0

$5,000

54,100 $82,60 0

$5,000

Wages Expense

Miscellaneous Expense

$19,10 0

$3,470

19,100 $38,20 0

$3,470

Electricity Expense

Telephone Expense

$2,470

$1,494

$2,470

$1,494

Relevant information for the preparation of adjusting entries of Company A Office supplies having original cost $4,320 were unused till the end of the period. Office supplies having original cost of $22,800 are shown on unadjusted trial balance. Prepaid rent of $36,000 was paid for the months January, February and March. The equipment costing $80,000 has useful life of 5 years and its estimated salvage value is $14,000. Depreciation is provided using the straight line depreciation method. The interest rate on $20,000 note payable is 9%. Accrue the interest for one month. $3,000 worth of service has been provided to the customer who paid advance amount of $4,000.

Solution Q2. The following table shows the journal entries for the above events. Date



Jan 1

Cash

Debit 100,000

Common Stock Jan 2

Prepaid Rent

100,000 36,000

Cash Jan 3

Credit

Equipment Cash

36,000 80,000 60,000

Notes Payable Jan 4

20,000

Office Supplies

17,600

s Payable Jan 13

17,600

Cash

28,500 Service Revenue

Jan 13

28,500

s Payable

17,600

Cash Jan 14

17,600

Wages Expense

19,100

Cash Jan 18

19,100

Cash

32,900

s Receivable

21,200

Service Revenue Jan 23

54,100

Cash

15,300 s Receivable

Jan 25

15,300

Cash

4,000 Unearned Revenue

Jan 26

4,000

Office Supplies

5,200

s Payable Jan 28

5,200

Wages Expense

19,100

Cash Jan 31

19,100

Dividends

5,000

Cash Jan 31

5,000

Electricity Expense

2,470

Utilities Payable Jan 31

2,470

Telephone Expense

1,494

Utilities Payable Jan 31

1,494

Miscellaneous Expense

3,470

Cash

3,470

Company A Unadjusted Trial Balance January 31, 2010 Debit Cash s Receivable

Credit

$20,430 5,900

Office Supplies

22,800

Prepaid Rent

36,000

Equipment

80,000

s Payable

$5,200

Notes Payable

20,000

Utilities Payable

3,964

Unearned Revenue

4,000

Common Stock

100,000

Service Revenue

82,600

Wages Expense

38,200

Miscellaneous Expense

3,470

Electricity Expense

2,470

Telephone Expense

1,494

Dividend

5,000

Total

$215,764

$215,764

The adjusting entries of Company A are: Date Jan 31



Debit

Supplies Expense

Credit

18,480

Office Supplies

18,480

Supplies Expense = $22,800 − $4,320 = $18,480 Jan 31

Rent Expense

12,000

Prepaid Rent

12,000

Rent Expense = $36,000 ÷ 3 = $12,000 Jan 31

Depreciation Expense

1,100

Accumulated Depreciation

1,100

Depreciation Expense = ($80,000 − $14,000) ÷ (5 × 12) = $1,100 Jan 31

Interest Expense

150

Interest Payable

150

Interest Expense = $20,000 × (9% ÷ 12) = $150 Jan 31

Unearned Revenue

3,000

Service Revenue

3,000

Company A Adjusted Trial Balance January 31, 2010 Debit

Credit

Cash

$20,430

−

s Receivable

5,900

−

Office Supplies

4,320

−

Company A Adjusted Trial Balance January 31, 2010 Prepaid Rent

24,000

−

Equipment

80,000

−

Accumulated Depreciation

−

$1,100

s Payable

−

5,200

Utilities Payable

−

3,964

Unearned Revenue

−

1,000

Interest Payable

−

150

Notes Payable

−

20,000

Common Stock

−

100,000

Service Revenue

−

85,600

Wages Expense

38,200

−

Supplies Expense

18,480

−

Rent Expense

12,000

−

Miscellaneous Expense

3,470

−

Electricity Expense

2,470

−

Telephone Expense

1,494

−

Depreciation Expense

1,100

−

Interest Expense

150

−

Dividend

5,000

−

Total

$217,014

$217,014

Q3. We are following Paul around for the first year as he starts his guitar store called Paul's Guitar Shop, Inc. Here are the events that take place. Journal Entry 1 -- Paul forms the corporation by purchasing 10,000 shares of $1 par stock. Journal Entry 2 -- Paul finds a nice retail storefront in the local mall and signs a lease for $500 a month. Journal Entry 3 -- PGS takes out a bank loan to renovate the new store location for $100,000 and agrees to pay $1,000 a month. He spends all of the money on improving and updating the store's fixtures and looks. Journal Entry 4 -- PGS purchases $50,000 worth of inventory to sell to customers on with its vendors. He agrees to pay $1,000 a month. Journal Entry 5 -- PGS's first rent payment is due. Journal Entry 6 -- PGS has a grand opening and makes it first sale. It sells a guitar for $500 that cost $100. Journal Entry 7 -- PGS sells another guitar to a customer on for $300. The cost of this guitar was $100 Journal Entry 8 -- PGS pays electric bill for $200. Journal Entry 9 -- PGS purchases supplies to use around the store.

Journal Entry 10 -- Paul is getting so busy that he decides to hire an employee for $500 a week. Pay makes his first payroll payment. Journal Entry 11 -- PGS's first vendor inventory payment is due of $1,000. Journal Entry 12 -- Paul starts giving guitar lessons and receives $2,000 in lesson income. Journal Entry 13 -- PGS's first bank loan payment is due. Journal Entry 14 -- PGS has more cash sales of $25,000 with cost of goods of $10,000. Journal Entry 15 -- In lieu of paying himself, Paul decides to declare a $1,000 dividend for the year. Let's post the journal entries that Paul's Guitar Shop, Inc. made during the first year in business to the ledger s.

Following our year-end example of Paul's Guitar Shop, Inc., we can see that his unadjusted trial balance needs to be adjusted for the following events. -- Paul pays his $1,000 January rent in December. -- Paul's December electric bill was $200 and is due January 15th. -- Paul's leasehold improvement depreciation is $2,000 for the year. -- On December 31, a customer prepays Paul for guitar lessons for the next 6 months. -- Paul's employee works half a pay period, so Paul accrues $500 of wages. Solution Q3

Q4.Samson Company adjusted balances as of December 31, 2005 are as follows (some noted balances are Jan. 1, 2005): Sales . . . . . . . . . . . . . . . . . . . . . . . Purchases . . . . . . . . . . . . . . . . . . . . . Marketable securities . . . . . . . . . . . . . . . Purchase discounts . . . . . . . . . . . . . . . . Purchase returns and allowances . . . . . . . . . . Extraordinary loss due to earthquake, net of applicable taxes of $15,000. . . . . . . . . . . . Selling expenses . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . s receivable . . . . . . . . . . . . . . . . Common stock . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . Paid-in-capital in excess of par . . . . . . . . . Inventory, January 1, 2005 . . . . . . . . . . . . Inventory, December 31, 2005 . . . . . . . . . . . s payable . . . . . . . . . . . . . . . . . Salaries payable . . . . . . . . . . . . . . . . . Cash surrender value of life insurance . . . . . . Patents . . . . . . . . . . . . . . . . . . . . . . Retained earnings, January 1, 2005 . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . General and istrative expenses . . . . . . . . Dividend revenue. . . . . . . . . . . . . . . . . . Allowance for doubtful s . . . . . . . . . . Notes payable (maturity 7/1/07) . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . Treasury stock . . . . . . . . . . . . . . . . . . Dividends declared and paid . . . . . . . . . . . .

.1,200,000 . 810,000 . 15,000 . 20,000 . 2,000 35,000 114,000 90,000 60,000 150,000 42,000 30,000 149,000 120,000 71,000 5,000 22,000 18,000 60,600 13,000 160,000 6,000 3,000 105,000 150,000 30,600 10,000 18,000

. . . . . . . . . . . . . . . . . . . . . .

Prepare multi-step income statement: Samson Company Income Statement For the Year Ended December 31, 2005 Sales

$1,200,000

Cost of Goods Sold: Beginning inventory Purchases Purchase discounts Purchase returns and

$810,000 ( 20,000)

$149,000

allowances

(

2,000) -------

Net purchases

788,000 ------937,000 120,000 -------

Goods available for sale Ending inventory Cost of goods sold Gross profit

817,000 --------383,000

Operating expenses: Selling expenses General and istrative expenses

114,000 160,000 -------

Total operating expenses Operating income

274,000 --------109,000

Other income (expense): Dividend revenue Interest expense Total other income (expense)

6,000 ( 13,000) -------

Income before income taxes

( 7,000) --------102,000

Income taxes

30,600 ---------

Income before extraordinary item

71,400

Extraordinary loss due to earthquake, net of applicable taxes of $15,000

( 35,000) -------$36,400 ========

Net income Prepare a classified Balance Sheet: Samson Company Balance Sheet December 31, 2005 Assets Current Assets: Cash Marketable securities s receivable Less allowance for doubtful s

$ 60,000 ( 3,000) -------

57,000 120,000 -------282,000

Inventories Total Current Assets Property, Plant, and Equipment Machinery and Equipment Less accumulated depreciation

$ 90,000 15,000

$150,000 ( 42,000) --------

Total Property, Plant, and Equipment Other Assets: Cash surrender value of life insurance Patents

108,000 $ 22,000 18,000 -------

Total Other Assets

40,000 ------$430,000 ========

Total Assets

Income Statement/ Profit Loss Statemant Example Here is a sample income statement of a service type sole proprietorship business. Let us name the company Strauss Printing Services. All amounts are assumed and simplified for illustration purposes. Strauss Printing Services Income Statement For the Year Ended December 31, 2014 Service Revenue

$ 160,000

Less: Expenses Salaries Expense

$ 40,000

Supplies Expense

26,100

Rent Expense

20,500

Utilities Expense

11,300

Depreciation Expense

5,000

Net Income

102,900 $ 57,100

Assume that the company started the year 2014 with $100,000 capital. During the year, the owner made $10,000 additional contributions and $20,000 total withdrawals. The Statement of Owner's Equity would look like this: Strauss Printing Services Statement of Owner's Equity For the Year Ended December 31, 2014 Strauss, Capital Add:

$ 100,000

Additional Contributions

10,000

Net Income

57,100

Total Less: Strauss, Drawings Strauss, Capital – Dec. 31, 2014

Balance Sheet/ Statement of Financial Position Strauss Printing Services

$ 167,100 20,000 $ 147,100

Statement of Financial Position As of December 31, 2014 ASSETS Current Assets: Cash

$ 21,000

s Receivable

16,000

Prepaid Expenses

4,500

$

41,500

Non-current Assets: Property, Plant and Equipment

145,000

Total Assets

$ 186,500 LIABILITIES AND OWNER'S EQUITY

Current Liabilities: s Payable Rent Payable

$ 8,400 8,000

$

16,400

Non-current Liability: Loans Payable Strauss, Capital Total Liabilities and Owner's Equity

23,000 147,100 $ 186,500