91. Monmath Corp. started operations in March of Year 3. The following transactions occur during March.
a.
On March 1, Year 3, Monty contributes $20,000 for 10,000 shares of $1 par value stock.
b.
On March 1, Year 3, Monmath borrows $10,000 from the bank at a 12% interest rate. The
loan plus interest is due in twelve months.
c.
Monmath buys $15,000 of inventory on account (this is the gross price before any possible
discounts).
d.
Monmath sells $10,000 of the inventory for $12,000. Monmath allows the customer to buy
on account.
e.
Monmath collects all of its accounts receivable and the customers take advantage of a 2%
discount for prompt payment.
f.
Monmath pays for one half of the inventory purchased in (c) above, and earns a 2%
discount for early payment.
g.
Repairs of $300 were made to the building. The invoice was paid upon receipt.
h.
Utilities for March are $400 and are payable April 15, Year 3.
Required:
a.
Prepare journal entries as of March 31, Year 3, assuming Monmath uses the accrual basis
of accounting.
b.
Prepare an adjusted trial balance as of March 31. Assume that Monmath records sales and
inventory purchases at their gross amounts and records any discounts given or taken as an
adjustment to sales revenue or cost of goods sold on the income statement.
c.
Prepare the balance sheet as of March 31 and income statement for the month ended
March 31.
a. Cash 20,000
b.
Monmath Company
Adjusted Trial Balance
March 31, Year 3
Debit
Credit
Cash
$34,110
Accounts Receivable
0
Inventory
5,000
Accounts Payable
$7,900
Interest Payable
100
Notes Payable
10,000
Common Stock, par value
10,000
Additional Paid-in Capital
10,000
Retained Earnings
Sales Revenue
12,000
Sales Discounts
240
Cost of Goods Sold
10,000
Discounts Taken
150
Interest Expense
100
Repairs Expense
300
Utilities Expense
400
Total
$50,150
$50,150
c.
Monmath Company
Balance Sheet
As of March 31, Year 3
Assets
Cash
$34,110
Accounts Receivable
0
Inventory
5,000
Total Assets
$39,110
Liabilities and Shareholders’ Equity
Accounts Payable
7,900
Interest Payable
100
Notes Payable
10,000
Common Stock
10,000
Additional Paid-in Capital
10,000
Retained Earnings
1,110
Total Liabilities & Shareholders’ Equity
$39,110
Monmath Company
Income Statement
For the Period Ending March 31, Year 3
Sales
$12,000
Sales Discounts
(240)
Total Sales
$11,760
Less: Expenses
Cost of Goods Sold
10,000
Discounts Taken
(150)
Interest Expense
100
Repairs Expense
300
Utilities Expense
400
Total Expenses
10,650
Net Income
$ 1,110
92. The following cash-basis income statement has been prepared for the first year of business.
Smart Mail, Inc.
Statement of Cash Receipts
and Expenditures
For the Year Ending December
31, Year 1
Cash Receipts from Sales of
Merchandise
$25,000
Less:
Cash Expenditures for
Merchandise and Services
Merchandise
$10,000
Salaries
5,000
Rent
7,000
Total Cash Expenditures
22,000
Excess of Cash Receipts over
Cash Expenditures
$ 3,000
At year-end, the firm had inventory with a cost of $2,000 remaining. Also, customers owed $1,000 for goods
that had already been delivered. The utilities for December were $500 and were billed to but not yet paid by the
company. The rent of $3,500 for January, Year 2, was paid in December, Year 1.
Required:
Prepare an accrual-basis income statement for the year.
Smart Mail, Inc.
Income Statement
For the Year Ending December 31, Year 1
Sales Revenue
$26,000
Less:
Expenses
Cost of Goods Sold
$8,000
Salaries Expense
5,000
Rent Expense
3,500
Utilities Expense
500
Total Expenses
17,000
Net Income
$ 9,000
Sales = $25,000 + $1,000 AR
Cost of Goods Sold = $10,000 – $2,000 Inventory
Rent = $7,000 – $3,500 Prepaid
Utilities = $0 + 500 Accrued
93. Assume that a firm uses the accrual basis of accounting. Indicate the amount of expense the firm recognizes
during the month of November for each independent transaction.
a.Rent of $3,600 is paid on November 1 for the months November through January.
b.Inventory costing $2,500 is ordered on account. The invoice is received on November 25 and the goods are
received on December 5.
c.Insurance premium of $900 is paid for a full year of coverage starting November 1.
d.On December 3, an invoice for November utilities of $325 is received.
e.On November 1, supplies costing $2,200 are purchased. At November 30, $500 of supplies remained on
hand.
94. The post-closing trial balance of the Kazak Import Company at March 31 is as follows.
Debit
Credit
Cash
$ 321,000
Accounts Receivable
201,000
Inventory
504,000
Building and Equipment
1,560,000
Accumulated Depreciation
$ 240,000
Accounts Payable
246,000
Salaries Payable
45,000
Common Stock
1,410,000
Retained Earnings
_______
645,000
$2,586,000
$2,586,000
Transactions during April and additional information follow.
1.
Sales on account
$300,000
2.
Cash sales
195,000
3.
Cash collected on accounts receivable
240,000
4.
Salaries paid in cash
150,000
5.
Salaries earned on April 29 and 30, but not yet paid
15,000
6.
Miscellaneous expenses paid in cash
30,000
7.
Merchandise purchased on account
330,000
8.
Accounts payable paid in cash
270,000
9.
Merchandise inventory, April 30
540,000
10.
Depreciation expense in April
9,000
Required:
Prepare an income statement for the month of April and a post-closing trial balance at April 30.
Kazak Import Company
Income Statement
For the Month of April
Sales
$495,000
Less Expenses
Cost of Goods Sold
$294,000
Salary Expense
120,000
Depreciation Expense
9,000
Miscellaneous Expense
30,000
Total Expenses
453,000
Net Income
$ 42,000
Kazak Import Company
Post-Closing Trial Balance
April 30
Cash
$ 306,000
Accounts Receivable
261,000
Inventory
540,000
Building and Equipment
1,560,000
Accumulated Depreciation
$ 249,000
Accounts Payable
306,000
Salaries Payable
15,000
Common Stock
1,410,000
Retained Earnings
_________
687,000
Totals
$2,667,000
$2,667,000
95. Spiller Services Corporation was organized on January 1, Year 8. The unadjusted trial balance on December
31, Year 8 after recording transactions that occurred during Year 8 is as follows.
Spiller Services Corporation
Unadjusted Trial Balance
December 31, Year 8
Debit
Credit
Cash
$125,000
Fees Receivable
112,000
Notes Receivable
115,000
Office Supplies Inventory
11,800
Prepaid Insurance
12,200
Furniture and Equipment
155,000
Accumulated Depreciation
0
Accounts Payable
$113,000
Common Stock
365,000
Fee Revenues
195,000
Rent Expense
19,500
Office Salaries Expense
122,500
$673,000
$673,000
Below is the income statement for Year 8 that was prepared after making appropriate adjusting entries for Year
8.
Spiller Services Corporation
Income Statement
For the Year Ended December 31,
Year 8
1.
Fee Revenues
$199,400
2.
Interest Revenue on Notes Receivable
11,500
Total Revenues
$210,900
3.
Depreciation Expense
(15,500)
4.
Rent Expense
(18,700)
5.
Insurance Expense
(11,800)
6.
Office Supplies Expense
(11,500)
7.
Office Salaries Expense
(124,000)
Net Income
$ 29,400
Required:
Give the adjusting entries that Spiller Services Corporation must have made at the end of Year 8 for each of the
seven income statement accounts. You may express the adjusting entries either in the form of journal entries or
T accounts.
Note that Cash is seldom involved in an adjusting entry. As cash flowed in or out of the firm from actual
transactions during the period, the cash account was debited or credited.
1.
Fees Receivable
4,400
Fee Revenues ($199,400 – $195,000)
4,400
2.
Interest or Notes Receivable
11,500
Interest Revenue
11,500
3.
Depreciation Expense
15,500
Accumulated Depreciation
15,500
4.
Prepaid Rent
800
Rent Expense
800
Note that the firm must have debited rent expense for all rent paid during Year 8. Some of the expenditure
during Year 8 must relate to rental services after Year 8. Thus, the firm must reverse part of the amount
expensed and set it up as prepaid rent.
5.
Insurance Expense
11,800
Prepaid Insurance
11,800
6.
Office Supplies Expense
11,500
Office Supplies Inventory
11,500
7.
Office Salaries Expense ($124,000 – $122,500)
1,500
Office Salaries Payable
1,500
96. Forgetful Corporation neglected to make various adjusting entries on December 31, Year 8. Indicate the
effects on assets, liabilities, and shareholders’ equity on December 31, Year 8 of failing to adjust for the
following independent items as appropriate, using the notation O/S (overstated), U/S (understated), and No (no
effect). Also, give the amount of the effect. Ignore income tax implications. Use the following format:
Effect of Errors
or Omissions on
December 31,
Year 8 Balance
Sheet
Assets
Liabilities
Shareholders’
Equity
Item
Direction
Amount
Direction
Amount
Direction
Amount
a.
On December 15, Year 8, Forgetful Corporation received a $1,400 advance from a customer for
products to be manufactured and delivered in January, Year 9. The firm recorded the advance by
debiting Cash and crediting Sales Revenue and has made no adjusting entry as of December 31, Year
8.
b.
On July 1, Year 8, Forgetful Corporation acquired a machine for $5,000 and recorded the acquisition
by debiting Cost of Goods Sold and crediting Cash. The machine has a five-year useful life and zero
estimated salvage value.
c.
On November 1, Year 8, Forgetful Corporation received a $2,000 note receivable from a customer in
settlement of an accounts receivable. It debited Notes Receivable and credited Accounts Receivable
upon receipt of the note. The note is a six-month note due April 30, Year 9 and bears interest at an
annual rate of 12 percent. Forgetful Corporation made no other entries related to this note during Year
8.
d.
Forgetful Corporation paid its annual insurance premium of $1,200 on October 1, Year 8, the first day
of the year of coverage. It debited Prepaid Insurance $900, debited Insurance Expense $300, and
credited Cash for $1,200. It made no other entries related to this insurance during Year 8.
e.
The Board of Directors of Forgetful Corporation declared a dividend of $1,500 on December 31, Year
8. The dividend will be paid on January 15, Year 9. Forgetful Corporation neglected to record the
dividend declaration.
f.
On December 1, Year 8, Forgetful Corporation purchased a machine on account for $50,000, debiting
Machinery and crediting Accounts Payable for $50,000. Ten days later, the account was paid and the
company took the allowed 2 percent discount. Cash was credited $49,000, Miscellaneous Revenue
was credited $1,000, and Accounts Payable was debited $50,000. It is the policy of Forgetful
Corporation to record cash discounts taken as a reduction in the cost of assets. On December 28, Year
8, the machine was installed for $4,000 in cash; Maintenance Expense was debited and Cash was
credited for $4,000. The machine started operation on January 1, Year 9. As the machine was not
placed into operation until January 1, Year 9, as appropriate, no depreciation expense was recorded
for Year 8.
Effect of Errors or Omissions on December 31, Year 8 Balance Sheet
Assets
Liabilities
Shareholders’
Equity
Item
Direction
Amount
Direction
Amount
Direction
Amount
a.
U
$1,400
O
$1,400
b.
U
$4,500
U
$4,500
c.
U
$ 40
U
$ 40
d.
e.
U
$1,500
O
$1,500
f.
U
$3,000
U
$3,000
97. Entries for the following items were either omitted or recorded incorrectly in preparing the financial
statements for Year 4. Indicate the amount and nature [understatement (U), overstatement (O), no effect (N)] of
the effect of the omission on total assets, total liabilities, and net income for Year 4. Ignore income tax effects.
Use the following format:
Total Assets
Total Liabilities
Net Income
a.
The company received a payment of $4,600 from a customer for an order that the company has not yet
produced. It credited the $4,600 to sales revenue.
b.
The company failed to record a dividend of $5,000 that was declared but not yet paid.
c.
The company repaid a loan of $5,000 to the bank. It recorded the transaction in the appropriate accounts
but in the amount of $50,000. The company has accounted for all interest on the loan correctly.
d.
The ending balance of finished goods inventory was incorrectly recorded at $4,000 more than its proper
balance due to a mistake in taking a physical inventory.
e.
The company correctly entered a stock issue of $22,000 on December 31, Year 4, in the cash account
but mistakenly credited it to Bonds Payable.
f.
On the basis of an incorrect report from the company’s credit collection agency, specific accounts
receivable of $2,700 were written off, but are actually expected to be collectible accounts. The company
correctly made a provision for estimated uncollectible accounts for year 4.
98. Entries for the following items were either omitted or recorded incorrectly in preparing the financial
statements for Year 3. Indicate the amount and nature [understatement (U), overstatement (O), no effect (N)] of
the effect of the omission on total assets, total liabilities, and net income for Year 3. Ignore income tax effects.
Use the following format:
Total Assets
Total Liabilities
Net Income
a.
On December 1, Year 3, a firm debits Prepaid Rent (Advances to Car Rental Agency) for $600 for 6
months’ rent on an automobile. The firm has neglected to make the adjusting entry on December 31.
b.
A firm debits Administrative Expenses for $6,000 for a microcomputer acquired on July 1, Year 3.
The microcomputer has an expected useful life of 3 years and zero estimated salvage value.
c.
A firm rents out excess office space for the 6-month period beginning January 1, Year 3. It received
the rental check for this period of $600 on December 26, Year 2, and correctly credited Advances
from Tenants. It made no further journal entries during Year 3.
d.
Interest on Notes Receivable of $500 had accrued by December 31, Year 3, but the firm overlooked
making an entry to record this interest.
e.
A firm receives a check for $250 from a customer on December 31, Year 3, in settlement of an
account receivable. The firm recorded this entry with a credit to Sales.
f.
A firm records as $470 an expenditure of $740 for travel during December, Year 3.
Total Assets Total Liabilities Net Income
99. Assets are usually classified in one of following ways:
CA
-current assets
PPE
-property, plant, and equipment
IA
-intangible asset
Using the abbreviations above, indicate the appropriate classification of each of the following items.
a.
__________ merchandise inventory
b.
__________ goodwill
c.
__________ land
d.
__________ patent
e.
__________ work-in-process inventory
f.
__________ marketable equity securities
g.
__________ patents
h.
__________ furniture and fixtures
i.
__________ cash
j.
__________ prepaid insurance
100. On the next page is the unadjusted trial balance of Danos Department Store on December 31, Year 6. The
company closes its books annually. You are asked to indicate the adjusting entries required on December 31,
Year 6 to conform the books to accrual accounting principles.
1.
Danos neglected to record unpaid charges for telephone services for December in the amount of
$13,700.
2.
The balance in the Advances from Customers account represents the amount received from a lessee on
November 1, Year 6 for the rental of excess warehouse space owned by Danos. The rental period is for
the six months ended April 30, Year 7.
3.
Danos acquired a warehouse on July 1, Year 6 and correctly recorded the acquisition cost of $600,000
in its accounts. The warehouse has a 30-year estimated life and zero salvage value. Danos neglected to
record depreciation on the warehouse, although it has correctly recorded depreciation on all other
depreciable assets for Year 6.
4.
Danos debited Selling and Administrative Expenses for salaries paid during Year 6. Salaries remaining
unpaid as of December 31, Year 6 total $3,700.
5.
Sales made on account during the last two days of December, Year 6 totaled $12,000. Danos incorrectly
recorded these sales by debiting accounts payable. These accounts had not been collected by year end.
6.
Danos sold a piece of equipment during Year 6 for $1,800 that had originally cost $6,000 and had
accumulated depreciation of $4,200. Danos recorded this sale by debiting Cash for $1,800 and crediting
Equipment for $1,800.
7.
The balance in the Prepaid Insurance account represents the balance as of January 1, Year 6. Danos
renewed its only insurance policy on March 1, Year 6 and charged the one-year premium of $5,100 to
Selling and Administrative Expenses.
8.
A physical inventory of store supplies on December 31, Year 6 revealed that supplies costing $1,850
were on hand.
9.
The note receivable was received from a corporate officer on December 1, Year 6. The note bears
interest at 6 percent. The interest is payable with the principal amount borrowed at maturity on June 1,
Year 7.
Danos
Departme
nt Store
Unadjust
ed Trial
Balance
December
31, Year
6
Letter
Account
Debit
Credit
A.
Accounts Payable
—
$ 390,000
B.
Accounts Receivable
$ 490,000
—
C.
Accumulated Depreciation
—
980,000
D.
Advances from Customers
—
3,600
E.
Building
1,500,000
—
F.
Bonds Payable
—
1,200,000
G.
Cash
12,700
—
H.
Common Stock
—
400,000
I.
Cost of Goods Sold
2,290,000
—
J.
Depreciation Expense
150,000
—
K.
Equipment
620,000
—
L.
Interest Expense
96,000
—
M.
Interest Receivable
—
—
N.
Interest Revenue
—
—
O.
Merchandise Inventory
570,000
—
P.
Note Receivable
30,000
—
Q.
Other Current Liabilities
—
130,000
R.
Prepaid Insurance
800
—
S.
Rent Revenue
—
—
T.
Retained Earnings
—
89,040
U.
Salaries Payable
—
4,500
V.
Sales Revenue
—
3,000,000
W.
Selling and Administrative Expenses
430,000
—
X.
Supplies Inventory
7,640
—
Totals
$6,197,140
$6,197,140
Required:
Indicate the letters in the unadjusted trial balance corresponding to the accounts debited and credited and the
amount in each debit and credit entry. Use only the accounts listed in the unadjusted trial balance. More than
one account may be debited or credited in a particular adjusting entry. If no adjusting entry is needed, indicate
“No Entry” by the number of the entry. Remember that asset increases and liability and shareholders’ equity
decreases are recorded with debits and asset decreases and liability and shareholders’ equity increases are
recorded with credits.
Letter of Account(s)
Amount(s)
Letter of Account(s)
Amount(s)
Item
Debited
Debited
Credited
Credited
1.
W
13,700
Q
13,700
2.
D
1,200
S
1,200
3.
J
10,000
C
10,000
4.
U
800
W
800
5.
B
12,000
A
12,000
6.
C
4,200
K
4,200
7.
R
50
W
50
8.
W
5,790
X
5,790
9.
M
150
N
150
101. The transactions listed below relate to Mountain Corporation. Indicate whether or not each transaction
immediately gives rise to an asset or liability of Mountain Corporation under generally accepted accounting
principles. If accounting recognizes an asset or a liability, give the account title and amount.
a.
Mountain Corporation signs a 3-year employment contract with Robert Lindsey, the chief financial
officer, for $375,000.
b.
Mountain Corporation sends a check for $2,400 for two years’ property insurance coverage beginning
next month that would normally cost $2,000 for a one-year policy.
c.
The firm paid $250 for one-year subscriptions to ski magazines. None of the magazines have been
received to date. In addition, it will cost the publisher $100 to fulfill the subscription commitment.
d.
The firm acquires inventory with a list price of $2,000, at a 3% discount for cash payment. The firm
treats cash discounts as a reduction of acquisition cost.
e.
The firm agrees to purchase 25,000 units of inventory from a supplier over the next 3 years at an agreed
cost of $4/unit.