1) Drawings ________________ owner’s equity but are not expenses.
2) The end of the period account balances after adjustments of Hernandez Shoe Repair
are as follows:
Account Balances
(After Adjustments)
Cash$ 36,000
Supplies2,700
Prepaid Rent9,600
Equipment94,000
Accumulated DepreciationEquipment22,000
Accounts Payable14,500
Owners Capital54,600
Owners Drawing7,500
Service Revenues41,000
Supplies Expense2,000
Depreciation Expense3,000
Rent Expense900
Salaries and Wages Expense1,200
Utilities Expense1,800
Instructions: Prepare the end of the period closing entries for Hernandez Shoe Repair.
You may omit journal entry explanations.
3) Match the codes assigned to the following payroll functions to the procedures listed
below:
HHiring Employees
TTimekeeping
PREPreparing the Payroll
PAYPaying the Payroll
1>Distribution of checks by the treasurer
2>Supervisor approves hours worked
3>Documentation of employee hiring
4>Maintenance of payroll records
5>Verification of payroll calculations
6>Screening and interviewing of job applicants
7>Use of a time clock
8>Signing prenumbered payroll checks
4) Instructions: Match the account titles given below with the appropriate balance sheet
classification. An individual classification may be used more than once, or not at all. An
account may also not appear in the balance sheet.
Classifications
CACurrent AssetsCLCurrent Liabilities
PPEProperty, Plant and EquipmentLTLLong-term Liabilities
LTILong-term InvestmentsOEOwner’s Equity
IAIntangible AssetsNPNot separately presented on the balance sheet
Account Titles
1>Service Revenue10>Owners Drawing
2>Unearned Rent Revenue11>Supplies
3>Accumulated DepreciationEquipment12>Taxes Payable
4>Accounts Payable13>Rent Expense
5>Trademarks14>Salaries and Wages Payable
6>Short-term Investments15>Mortgage Note Payable
7>Owners Capital16>Copyrights
8>Prepaid Insurance17> Equipment
9>Accounts Receivable
5) The overhead ______________ variance is the difference between normal capacity
hours and standard hours allowed times the fixed overhead rate.
6) The following information for Mountaintop Company is available on June 30, 2014,
the end of a monthly accounting period. You are to prepare the necessary adjusting
journal entries for Mountaintop Company for the month of June for each situation
given. Appropriate adjusting entries had been recorded in previous months. You may
omit journal entry explanations.
1>Mountaintop Company purchased a 2-year insurance policy on March 1, 2014 and
debited Prepaid Insurance for $5,280.
2>On January 1, 2014, a tenant in an apartment building owned by Mountaintop
Company paid $4,140 which represents six months’ rent in advance. The amount
received was credited to the Unearned Rent account.
3>On June 1, 2014, the balance in the Supplies account was $600. During June,
supplies costing $1,200 were purchased. A physical count of supplies at June 30
revealed that there was $420 still on hand.
4>On March 31, 2014, Mountaintop Company purchased a delivery van for $36,000. It
is estimated that the annual depreciation will be $7,200.
5>Mountaintop Company has two employees who earn $65 and $70 per day,
respectively. They are paid each Friday for a five-day work week that begins each
Monday. Assume June 30 is a Thursday in 2014 .
7) When applicable, the articles of co-partnership state that salaries are to be paid first,
interest on partners’ capital second, with the remainder to be divided equally. The cases
below are independent.
1>Net income for the year was $500,000. The partnership agreement provides for
salaries of $110,000 for Drew and $90,000 for Eaton, with no interest paid on capital
balances.
Partner Drew’s share of net income is $____________
2>Net income for the year was $102,000. The partnership agreement provides for a
$30,000 salary for Eaton and 20% interest on January 1 capital balances. These
balances were $50,000 for each partner on January 1 .
Partner Eaton’s share of net income is $___________.
3>Net loss for the year was $51,000. Neither salaries nor interest on capital balances is
to be paid.
Partner Drew’s share of net loss is $____________
4>Net income for the year was $98,400. The partnership agreement makes no provision
for salaries but provides for 16% interest on January 1 capital balances. These balances
were $120,000 for Drew and $210,000 each for Eaton and Howard.
Partner Drew’s share of net income is $____________
5>Net income for the year was $137,000. The partnership agreement makes no
provision for salaries but provides for 10% interest on January 1 capital balances. These
balances were $140,000, $100,000, and $80,000 for Drew, Eaton, and Howard,
respectively.
Partner Drew’s share of net income is $____________
8) A merchandiser frequently has a need to use contra accounts related to the sale of
goods. Identify the contra accounts that have normal debit balances and explain why
they are not considered expenses.
9) King Cotton Dollar Mills is a textile manufacturing firm located in the southern
United States. The company carefully prepares all financial statements in accordance
with GAAP, and gives a copy of all financial statements to each department. In
addition, the company keeps records on quality control, safety, and environmental
pollution by the company. It then prepares ‘scorecards” for each department indicating
their performance. Recently, the financial impact of the second set of information was
added, and the information has been used in the evaluation of employees for merit pay
and promotions.
At the most recent employee meeting, Harley Remington, marketing manager,
expressed his discomfort with the system. He said there was no guarantee that the
second set of information was fair, since there were no generally accepted principles for
this kind of information. He also said that it was kind of like keeping two sets of
booksone following all legal requirements, and the other one actually used by the
company.
Required:
1>Is it ethical to evaluate managers in the way described? Explain briefly.
2>Name at least two safeguards the company could build into its system to ensure the
ethical treatment of employees.