“Financial Accounting”
Capital Community College
Spring 2015
Exam #2
1) These are selected account balances on December 31, 2014.
Land (location of the corporation’s office building) $100,000
Land (investment, held for future use) 150,000
Corporate Office Building 700,000
Inventory 200,000
Equipment 450,000
Office Furniture 150,000
Accumulated Depreciation 425,000
What is the total amount of property, plant, and equipment that will appear on the balance sheet?
a. $975,000
b. $1,125,000 Answer a. $975,000
c. $1,175,000
d. $1,400,000
2) The following lettered items represent a classification scheme for a balance sheet, and the numbered
items represent accounts found on balance sheets. In the blank next to each account, write the letter
indicating to which category it belongs.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Property, plant, and equipment G. Owner’s equity
D. Intangible assets
__C__ 1. Accumulated Depreciation __A___ 6. Inventory
__G___ 2. Owner’s Capital __D___ 7. Patents
__E___ 3. Interest Expense Payable __A___ 8. Prepaid Rent
__E___ 4. Salaries and Wages Payable __F___ 9. Mortgage Payable
__C___ 5. Delivery Van __B___ 10. Land Held for Investment
3) The financial statement columns of the worksheet for Miracle Max at December 31, 2014, are as follows:
MIRACLE MAX
Worksheet
For the Year Ended December 31, 2014
Accounts Income Statement Balance Sheet
Debit Credit Debit Credit
Cash 13,000
Accounts Receivable 7,000
Supplies 4,000
Prepaid Insurance 6,000
Equipment 207,000
Accumulated Depreciation—Equipment 29,000
Accounts Payable 19,000
Notes Payable 70,000
Salaries and Wages Payable 3,000
Owner’s Capital 112,000
Owner’s Drawings 18,000
Service Revenue 123,000
Advertising Expense 21,000
Depreciation Expense 12,000
Insurance Expense 3,000
Rent Expense 17,000
Salaries and Wages Expense 42,000
Supplies Expense 6,000 _______ ______ _______
Totals 101,000 123,000 255,000 233,000
Net Income 22,000 ______ ______ 22,000
123,000 123,000 255,000 255,000
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a.) General Journal
Date Account Title and Explanation Dr Cr
Closing Entries
2014 1
31-Dec Service Revenue 123,000
Income Summary 123,000
(to close revenue account)
2
31 Income Summary 101,000
Supplies Expense 6,000
Depreciation expense 12,000
Insurance expense 3,000
Salaries and Wages expense 42,000
Rent expense 17,000
Advertising expense 21,000
(to close expense
accounts) 101000
3
31 Income Summary 22,000
Owners Capital 22,000
(to close net income to Capital)
4
31 Owners Capital 18,000
Owners Drawings 18,000
(to close drawings to capital)
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b.) Miracle Max
Income Statement
For Year end December 31,2014
Revenues
Service Revenue 123,000
Expenses
Salaries and Wages expense 42,000
Advertising expense 21,000
Rent expense 17,000
Depreciation expense 12,000
Supplies expense 6,000
Insurance expense 3,000
Total expenses 101,000
Net Income 22000
C.) Miracle Max
Owners Equity Statement
For Year end December 31,2014
Owner’s Capital, Jan 1 $-0-
Add: Investments 112,000
Net Income 22,000 134,000
134,000
Less: Drawings 18,000
Owners Capital, Dec 31 $116,000
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4) Identify which of the following accounts should be closed to Income Summary at the end of the fiscal
year. Record next to each account:
a (Y) for YES, it should be closed to Income Summary; OR
an (N) for NO, it would not be closed to Income Summary.
1. Utilities Payable -N
2. Utilities Expense -Y
3. Supplies -N
4. Supplies Expense -Y
5. Fees Revenue -Y
6. Unearned Fees -N
7. Accounts Receivable -N
8. Retained Earnings -N
9. Accumulated Depreciation – Equipment -N
10. Depreciation Expense – Equipment -Y
11. Equipment -N
12. Prepaid Insurance -N
13. Insurance Expense -Y
5) Prepare the necessary correcting journal entry for each of the following:
a. A collection on account of $350 from a customer was credited to Accounts Receivable $530 and debited
to Cash $530.
Dr Cr
Correcting entry- Accounts receivable 180
Cash 180
b. The purchase of supplies on account for $310 was recorded as a debit to Equipment $310 and a credit to
Accounts Payable $310.
Dr Cr
Correcting entry- Supplies 310
Equipment 310
6) If the Rivera Corporation purchases 100 washing machines from the Whirlpool Corporation FOB
Shipping Point, who pays for the cost of shipping the machines from Whirlpool to Rivera?
The Rivera Corporation (the buyer) pays the shipping costs.
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7) Froehlich Company reported the following balances at June 30, 2014:
Sales Revenue $16,200
Sales Returns and Allowances 600
Sales Discounts 300
Cost of Goods Sold – 7,500
What are the net sales for the month? $7,800
8) For the Gilmore Company, during the current year, merchandise is sold for $137,500 cash and $425,600
on account. The cost of the merchandise (goods) sold is $322,325. What is the amount of the gross profit?
(137,500 + 425,600) – 322,325 = $240,775 Gross profit
9) On September 1, Reid Supply had an inventory of 15 backpacks at a cost of $20 each. The company uses
a perpetual inventory system. During September, the following transactions and events occurred.
Sept. 4 Purchased 70 backpacks at $20 each from Hunter, terms 2/10, n/30.
Sept. 6 Received credit of $100 for the return of 5 backpacks purchased on Sept. 4 that were defective.
Sept. 14 Paid Hunter in full, less discount.
Instructions: Journalize the September transactions for Reid Supply.
Sept 4 Inventory 1,400
Accounts Payable 1,400
6 Accounts Payable 100
Inventory 100
14 Accounts Payable 1,300
Inventory 26
Cash 1,274
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10) The following information is available for Sheldon Leonard Company:
Operating expenses $ 85,000
Cost of goods sold 200,000
Sales 325,000
Sales returns and allowances 16,000
Instructions: Compute each of the following: (a) Net sales (b) Gross profit (c) Income from operations
(Sales) (sale returns & allowances) (net sales)
(a) Net sales 325,000 – 16,000 = $309,000
(net sales) (cost of goods sold) (gross profit)
(b) Gross profit 309,000 – 200,000 = $109,000
(gross profit) (operating expenses) (income from operations)
(c) Income from operations 109,000 – 85,000 = $ 24,000
11) If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is
a) $800 10units@ $30 + 20 units @ $25 =
b) $650
c) $750
d) $700
12) If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is
a) $800
b) $650 10 units @ $25 + 20 units @ $20 =
c) $750
d) $700
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13) For the Desai Corporation, units of an item available for sale during the year were as follows:
January 11 Inventory 60 units @ $145 = $ 8,700
February 27 Purchase 90 units @ $150 = $13,500
November 21 Purchase 75 units @ $154 = $11,550
Totals: 225 units $33,750
There are 48 units of the item in the physical inventory at December 31. The periodic inventory system is
used. Determine the dollar value of the 48 units of the ending inventory by (a) the first-in, first-out method,
(b) the last-in, first-out method, and (c) the average cost method. Please show your work.
a.) FIFO – Ending inventory (48 units @ $154 ) = $7,392
b.) LIFO – Ending inventory (48 units @ $ 145) = $6,960
c.) Average Cost – Total cost 33,750 / 225 units = Avg cost per unit $150
Ending inventory (48 units @ $ 150) = $7,200