Required:
Prepare appropriate accrual basis journal entries.
100. Assume that a firm uses the accrual basis of accounting. For each of the following independent cases,
indicate the amount of revenue the firm recognizes for the month of August.
a.
Collects $2,000 in July for merchandise to be delivered in August.
b.
Collects $1,200 in May for subscriptions that will be delivered during the next twelve months
(beginning in May).
c.
Collects $800 in August for merchandise sold and delivered in July.
d.
Collects $2,400 interest on a 6-month certificate of deposit, which matures on August 15th.
e.
Sells $3,000 of merchandise on account in August. The firm allows a 2% discount for payment prior to
30 days and customers take the discount.
101. 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.
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
Sales Discounts
Total Sales
$11,760
Less: Expenses
Cost of Goods Sold
Discounts Taken
Interest Expense
Repairs Expense
Utilities Expense
Total Expenses
10,650
Net Income
$ 1,110
102. 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
Less:
Expenses
Cost of Goods Sold
Salaries Expense
Rent Expense
Utilities Expense
Total Expenses
Net Income
Sales = $25,000 + $1,000 AR
103. 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.
104. Certain merchandise that a firm may acquire may be inventory or supplies. Accounting treats them
differently as to the matching criteria used.
Required:
a.
Describe the situation where merchandise would be considered inventory. How would the firm
account for the costs of the merchandise?
b.
Describe the situation where merchandise would be considered supplies. How would the firm account
for the costs of the merchandise?
a.A firm that is an office supply store may purchase merchandise for resale to its customers. When the
merchandise is purchased, it may be accounted for by debiting Inventory and crediting Cash (or Accounts
105. 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
106. The accounting records for Campbell’s Western Wear contained the following data for the current year:
Sales
$547,500
Cost of goods sold
223,800
Interest revenue
6,500
Rent revenue
3,600
Administrative expense
141,300
Selling expense
133,600
Interest expense
15,400
Income tax expense
8,100
Loss on sale of warehouse
6,500
Required:
Prepare both a single-step and a multi-step income statement for Campbell’s for the current year.
Single-step income statement:
Campbell’s Western Wear
Income Statement
For the Year Ending December 31, Year X
Sales revenue
$547,500
Interest revenue
6,500
Rent revenue
3,600
Total revenues and gains
$557,600
Cost of goods sold
223,800
Administrative expense
141,300
Selling expense
133,600
Interest expense
15,400
Loss on sale of warehouse
6,500
Income taxes
8,100
Total expenses and losses
528,700
Net Income
$ 28,900
Multi-step income statement:
Campbell’s Western Wear
Income Statement
For the Year Ending December 31, Year X
Sales revenue
$547,500
Less: Expenses
Cost of Goods Sold
Administrative expense
Selling expense
498,700
Operating income
48,800
Other income and gain and losses
Interest revenue
Rent revenue
Interest expense
Loss on sale of warehouse
(11,800)
Income before income taxes
37,000
Income taxes
(8,100)
Net income after income taxes
$ 28,900
107. As a new employee in the accounting department of The Rockies Company, you noticed that the
company’s financial software generates common-size financial statements. However, your supervisor stated that
the common-size statements are not of importance. The statements are in fact trashed and never reviewed by
upper management. Write a memo to your supervisor describing common-size financial statements (balance
sheet and income statement) and explain how these statements might be utilized.
To: Supervisor
From: Employee
RE: Common-Size Financial Statements
Common-size financial statements permit analysis for the financial position and results of operations for the
periods covered by the statements. This information is useful not only for financial analysts and investors but
108. (CMA adapted, Dec 95 #5) The conceptual framework of accounting theory governs the recognition of
revenue and expenses. Revenue is generally recognized at the point of sale; however, under special
circumstances, bases other than the point of sale are used for the recognition of revenue. Costs are generally
recognized as expenses at the time of product sale; however, there are guidelines for recognizing expenses by
other criteria. Accountants must be familiar with these concepts when determining the earnings of a company.
Required:
a. Explain why the point of sale is generally used as the basis for revenue recognition.
b. Two other acceptable bases for the recognition of revenue are: (a) recognizing revenue when
cash is received; and (b) recognizing revenue periodically during production. For each of these
two alternatives,
1. Discuss the accounting methods used and the rationale for their use.
Give an example of the circumstances when each method should be used.
For each of the following circumstances, explain the rationale for expense recognition.
1. Recognizing costs as expenses at the time of sale.
2. Treating costs as expenses of a period rather than assigning the costs to an asset.
3. Assigning expenses to specific accounting periods on the basis of the systematic and rational
allocation of asset costs.
economic reality. This method allocates revenues of each contract to each period based on an estimate of the
percentage completed during the period.
2.(a)An example of revenue recognition based on receipt of cash is the installment method used in land
development transactions, e.g., sales of farm equipment, home furnishings, heavy equipment, franchises, and
109. 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