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 account.• 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from the company’s bank account for his personal use.• Nov 9: McBryan found that he did not need all of the cash he had withdrawn on Nov 8, so he redeposited $2,000 in Overnight’s (business) bank account. • 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 account 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 accounts receivable from the sale of the tools and equipment.• Nov 26: Paid $9,800 in partial payment of an account 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 = $240,000Useful life of Aircraft = 20 years(ii) Cost of Building = $64,800Useful life of building = 18 years(iii) Cost of Tools and Equipment = $21,000Useful life of Tools and Equipment =7 years(iv) Beginning Shop supplies = $2,500Ending 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 accounts 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 account.

Jan 13

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

Jan 13

Paid the accounts 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 account.

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 accounts shown below are derived from the journal entries of Company A.

Asset Accounts

Cash   Accounts Receivable

$100,000

$36,000   $21,200 $15,300

28,500 60,000      

32,900 17,600      

15,300 19,100      

4,000 19,100      

  5,000      

  3,470      

$20,430     $5,900  

Office Supplies   Prepaid Rent

$17,600     $36,000  

5,200        

$22,800     $36,000  

Equipment

$80,000  

$80,000  

Liability Accounts

Accounts Payable   Notes Payable

$17,600 $17,600     $20,000

  5,200      

  $5,200     $20,000

Utilities Payable   Unearned Revenue

  $2,470     $4,000

  1,494      

  $3,964     $4,000

Equity Accounts

Common Stock

  $100,000

  $100,000

Revenue, Dividend and Expense Accounts

Service Revenue   Dividend

  $28,500   $5,000  

  54,100      

  $82,600   $5,000  

Wages Expense   Miscellaneous Expense

$19,100     $3,470  

19,100        

$38,200     $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 Account Debit Credit

Jan 1 Cash 100,000  

  Common Stock   100,000

Jan 2 Prepaid Rent 36,000  

  Cash   36,000

Jan 3 Equipment 80,000  

  Cash   60,000

  Notes Payable   20,000

Jan 4 Office Supplies 17,600  

  Accounts Payable   17,600

Jan 13

Cash 28,500  

  Service Revenue   28,500

Jan 13

Accounts Payable 17,600  

  Cash   17,600

Jan 14

Wages Expense 19,100  

  Cash   19,100

Jan 18

Cash 32,900  

  Accounts Receivable 21,200  

  Service Revenue   54,100

Jan 23

Cash 15,300  

  Accounts Receivable   15,300

Jan 25

Cash 4,000  

  Unearned Revenue   4,000

Jan 26

Office Supplies 5,200  

  Accounts Payable   5,200

Jan 28

Wages Expense 19,100  

  Cash   19,100

Jan 31

Dividends 5,000  

  Cash   5,000

Jan 31

Electricity Expense 2,470  

  Utilities Payable   2,470

Jan 31

Telephone Expense 1,494  

  Utilities Payable   1,494

Jan 31

Miscellaneous Expense 3,470  

  Cash   3,470

Company A

Unadjusted Trial Balance

January 31, 2010

 

  Debit Credit

Cash $20,430  

Accounts Receivable 5,900  

Office Supplies 22,800  

Prepaid Rent 36,000  

Equipment 80,000  

Accounts 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 Account Debit Credit

Jan 31 Supplies Expense 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 −

Company A

Adjusted Trial Balance

January 31, 2010

Accounts Receivable 5,900 −

Office Supplies 4,320 −

Prepaid Rent 24,000 −

Equipment 80,000 −

Accumulated Depreciation − $1,100

Accounts 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 account 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 account 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 accounts.

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 account balances as of December 31, 2005 are as follows (some noted balances are Jan. 1, 2005):

Sales . . . . . . . . . . . . . . . . . . . . . . . .1,200,000 Purchases . . . . . . . . . . . . . . . . . . . . . . 810,000 Marketable securities . . . . . . . . . . . . . . . . 15,000 Purchase discounts . . . . . . . . . . . . . . . . . 20,000 Purchase returns and allowances . . . . . . . . . . . 2,000 Extraordinary loss due to earthquake, net of applicable taxes of $15,000. . . . . . . . . . . . 35,000 Selling expenses . . . . . . . . . . . . . . . . . . 114,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . 90,000 Accounts receivable . . . . . . . . . . . . . . . . . 60,000 Common stock . . . . . . . . . . . . . . . . . . . . 150,000 Accumulated depreciation . . . . . . . . . . . . . . 42,000 Paid-in-capital in excess of par . . . . . . . . . . 30,000 Inventory, January 1, 2005 . . . . . . . . . . . . . 149,000 Inventory, December 31, 2005 . . . . . . . . . . . . 120,000 Accounts payable . . . . . . . . . . . . . . . . . . 71,000 Salaries payable . . . . . . . . . . . . . . . . . . 5,000 Cash surrender value of life insurance . . . . . . . 22,000 Patents . . . . . . . . . . . . . . . . . . . . . . . 18,000 Retained earnings, January 1, 2005 . . . . . . . . . 60,600 Interest expense . . . . . . . . . . . . . . . . . . 13,000 General and administrative expenses . . . . . . . . . 160,000 Dividend revenue. . . . . . . . . . . . . . . . . . . 6,000 Allowance for doubtful accounts . . . . . . . . . . . 3,000 Notes payable (maturity 7/1/07) . . . . . . . . . . . 105,000 Machinery and equipment . . . . . . . . . . . . . . . 150,000 Income tax expense . . . . . . . . . . . . . . . . . 30,600 Treasury stock . . . . . . . . . . . . . . . . . . . 10,000 Dividends declared and paid . . . . . . . . . . . . . 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 $149,000 Purchases $810,000 Purchase discounts ( 20,000) Purchase returns and

allowances ( 2,000) ------- Net purchases 788,000 ------- Goods available for sale 937,000 Ending inventory 120,000 ------- Cost of goods sold 817,000 --------- Gross profit 383,000

Operating expenses: Selling expenses 114,000 General and administrative expenses 160,000 ------- Total operating expenses 274,000 --------- Operating income 109,000

Other income (expense): Dividend revenue 6,000 Interest expense ( 13,000) ------- Total other income (expense) ( 7,000) ---------

Income before income taxes 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)

-------- Net income $36,400 ========

Prepare a classified Balance Sheet:

Samson Company Balance Sheet December 31, 2005

Assets Current Assets: Cash $ 90,000 Marketable securities 15,000 Accounts receivable $ 60,000 Less allowance for doubtful accounts ( 3,000) ------- 57,000 Inventories 120,000 -------- Total Current Assets 282,000

Property, Plant, and Equipment Machinery and Equipment $150,000 Less accumulated depreciation ( 42,000) --------

Total Property, Plant, and Equipment 108,000

Other Assets: Cash surrender value of life insurance $ 22,000 Patents 18,000 ------- Total Other Assets 40,000 ------- Total Assets $430,000 ========

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 5,000 102,900

Net Income $   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 $   100,000

Add: Additional Contributions   10,000

  Net Income   57,100

Total $   167,100

Less: Strauss, Drawings   20,000

Strauss, Capital – Dec. 31, 2014 $   147,100

Balance Sheet/ Statement of Financial Position

Strauss Printing Services

Statement of Financial Position

As of December 31, 2014

       

ASSETS

Current Assets:

  Cash $  21,000  

  Accounts 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:

  Accounts Payable $   8,400  

  Rent Payable 8,000$   

16,400

Non-current Liability:

  Loans Payable   23,000

Strauss, Capital 147,100

Total Liabilities and Owner's Equity$  

186,500