Chapter 2 Review of the Accounting Process
Use the following to answer questions 125–127:
The adjusted trial balance for China Tea Company at December 31, 2016, is presented below:
Debit
Credit
Cash
10,500
Accounts receivable
150,000
Prepaid rent
5,000
Inventory
25,000
Equipment
300,000
Accumulated depreciation – equipment
125,000
Accounts payable
30,000
Notes payable – due in three months
30,000
Salaries payable
4,000
Interest payable
1,000
Capital stock
200,000
Retained earnings
50,000
Sales revenue
400,000
Costs of goods sold
180,000
Salaries expense
120,000
Rent expense
15,000
Depreciation expense
30,000
Interest expense
2,000
Advertising expense
2,500
_______
Totals
840,000
840,000
125. Prepare the closing entries for China Tea Company for the year ended December 31, 2016.
Sales revenue
400,000
400,000
Income summary
349,500
180,000
120,000
15,000
30,000
2,000
2,500
Income summary
50,500
50,500
Chapter 2 Review of the Accounting Process
126. Prepare an income statement for China Tea Company for the year ended December 31, 2016.
Chapter 2 Review of the Accounting Process
127. Prepare a classified balance sheet for China Tea Company as of December 31, 2016.
Chapter 2 Review of the Accounting Process
Use the following to answer questions 128–129:
The following information, based on the 12/31/16 Annual Report to Shareholders of Krafty Foods ($
in millions):
Accounts payable
1,897
Accounts receivable (net)
3,131
Accrued liabilities and taxes
4,105
Cash and cash equivalents
162
Cost of sales
17,531
Current payables to parent and affiliates
1,652
Current portion of long-term debt
540
Deferred income taxes and other liabilities
10,311
Earnings retained in the business as of 12/31/16
2,391
Goodwill and other intangible assets (net)
35,957
Income tax expense
1,565
Interest and other debt expense, net
1,437
Inventories
3,026
Long-term debt
8,134
Long-term notes payable to parent and affiliates
5,000
Marketing, general and administration expenses
11,460
Operating revenues
33,875
Other current assets
687
Other noncurrent assets
3,726
Other stockholders’ equity
(2,568
)
Paid-in capital for common and preferred stock
23,655
Property, plant and equipment (net)
9,109
Short-term borrowings
681
128. Based on the information presented above, prepare the 2016 Income Statement for Krafty
Foods.
17,531
16,344
11,460
4,884
3,447
Chapter 2 Review of the Accounting Process
129. Based on the information presented above, prepare the 12/31/16 Balance Sheet for Krafty
Foods.
Chapter 2 Review of the Accounting Process
Chapter 2 Review of the Accounting Process
Use the following to answer questions 130–133:
The December 31, 2016 (pre-closing) adjusted trial balance for Kline Enterprises was as follows:
Account Title
Debits
Credits
Accounts payable ……………………………………………………………
90,000
Accounts receivable ………………………………………………………… .
170,000
Accumulated depreciation – equipment ……………………………..
260,000
Capital stock ………………………………………………………………….. .
490,000
Cash ………………………………………………………………………………
26,000
Cost of goods sold ………………………………………………………….
480,000
Depreciation expense ………………………………………………………
60,000
Equipment ……………………………………………………………………..
700,000
Interest expense ……………………………………………………………..
4,000
Inventory ……………………………………………………………………….
150,000
Note payable (due in six months) ……………………………………..
60,000
Rent expense ………………………………………………………………….
30,000
Retained earnings ……………………………………………………………
62,000
Salaries and wages payable ……………………………………………..
8,000
Sales revenue …………………………………………………………………
770,000
Salaries expense ……………………………………………………………..
120,000
TOTALS ………………………………………………………………………..
1,740,000
1,740,000
Required: Assuming no income taxes, compute the following, and place your answer in the space
provided:
130. Kline’s 2016 net income (or loss):
131. Kline’s 12/31/16 total current assets:
Chapter 2 Review of the Accounting Process
132. Kline’s 12/31/16 total current liabilities:
133. Kline’s 12/31/16 total shareholders’ equity:
134. Presented below is income statement information of the Nebraska Corporation for the year
ended December 31, 2016.
Sales revenue $620,000 Cost of goods sold $355,000
Salaries expense 90,000 Insurance expense 20,000
Dividend revenue 3,000 Depreciation expense 18,000
Miscellaneous expense 12,000 Income tax expense 35,000
Loss on sale of investments 8,000 Rent expense 10,000
Required:
Prepare the necessary closing entries at December 31, 2016.
Chapter 2 Review of the Accounting Process
135. Raintree Corporation maintains its records on a cash basis. At the end of each year the
company’s accountant obtains the necessary information to prepare accrual basis financial
statements. The following cash flows occurred during the year ended December 31, 2016:
Cash receipts:
From customers $450,000
Interest on note 3,000
Issue of common stock 50,000
Total cash receipts $503,000
Cash disbursements:
Purchase of merchandise $220,000
Annual insurance payment 9,000
Payment of salaries 180,000
Dividends paid to shareholders 6,000
Annual rent payment 12,000
Total cash disbursements $427,000
Selected balance sheet information:
12/31/15 12/31/16
Cash $25,000 $101,000
Accounts receivable 42,000 70,000
Inventory 60,000 82,000
Prepaid insurance 2,000 ?
Prepaid rent 7,000 ?
Interest receivable 1,500 ?
Note receivable 50,000 50,000
Equipment 150,000 150,000
Accumulated depreciation–equipment (40,000) (55,000)
Accounts payable (for merchandise) 50,000 62,000
Salaries payable 20,000 28,000
Common stock 200,000 250,000
Additional information:
1. On June 30, 2015, Raintree lent a customer $50,000. Interest at 6% is payable annually on
each June 30. Principal is due in 2019.
2. The annual insurance payment is made in advance on March 31.
3. Annual rent on the company’s facilities is paid in advance on September 30.
Required:
1. Prepare an accrual basis income statement for 2016 (ignore income taxes).
2. Determine the following balance sheet amounts on December 31, 2016:
a. Interest receivable
b. Prepaid insurance
c. Prepaid rent
Chapter 2 Review of the Accounting Process
Answers:
Chapter 2 Review of the Accounting Process
Chapter 2 Review of the Accounting Process
136. Silicon Chip Company’s fiscal year–end is December 31. At the end of 2016, it owed
employees $22,000 in salaries and wages that will be paid on January 7, 2017.
Required:
1. Prepare an adjusting entry to record accrued salaries and wages, a reversing entry on
January 1, 2017, and an entry to record the payment of salaries and wages on January 7,
2017.
2. Prepare journal entries to record the accrued salaries and wages on December 31 and the
payment of salaries and wages on January 7, assuming a reversing entry is not recorded.
Answers:
Chapter 2 Review of the Accounting Process
Essay
The following answers point out the key phrases that should appear in students’ answers. They are not
intended to be examples of complete student responses. It might be helpful to provide detailed
instructions to students on how brief or in-depth you want their answers to be.
137. Describe the difference between external events and internal events, and provide two
examples of each.
138. Describe what is meant by deferred revenues and provide two examples.
139. Describe what is meant by prepaid expenses and provide two examples.
Chapter 2 Review of the Accounting Process
140. What is an accrued liability?
141. What is the difference between permanent accounts and temporary accounts, and why does an
accounting system have both types of accounts?
142. What is the purpose of the statement of cash flows? List the three major categories of cash
flows and give an example of a cash transaction for each category.
143. What is the purpose of the closing process?
144. Claymore Corporation maintains its book on a cash basis. During 2016, the company
collected $825,000 in fees from its clients and paid $512,000 in expenses. You are able to
determine the following information about accounts receivable, supplies, prepaid rent, salaries
payable, and interest payable:
January 1, 2016 December 31, 2016
Accounts receivable $110,000 $120,000
Supplies 15,000 18,000
Prepaid rent 12,000 11,000
Salaries and wages payable 16,500 14,200
Interest payable 4,000 5,500
In addition, 2016 depreciation expense on office equipment and furniture is $55,000.
Required:
Determine accrual basis income for 2016.
145. The accounting system of Carlton and Sons consists of a general journal (GJ), a cash
receipts journal (CR), a cash disbursements journal (CD), a sales journal (SJ), and a
purchases journal (PJ). For each of the following, indicate which journal should be
used to record the transaction.
Transaction
Journal
1. Received interest on a loan.
2. Recorded amortization expense.
3. Purchased equipment for cash.
4. Purchased merchandise on account.
5. Sold merchandise on credit (the sale only, not the cost of the
merchandise).
6. Sold merchandise for cash (the sale only, not the cost of the merchandise).
7. Paid advertising bill.
8. Recorded accrued salaries and wages payable.
9. Paid utility bill.
10. Recorded depreciation expense.
11. Sold equipment for cash.
12. Collected cash from customers on account.
13. Paid employee salaries and wages.
14. Paid interest on a loan.
Answer:
Chapter 2 Review of the Accounting Process