87. Selected adjusting entries follow:
a.
Insurance Expense
2,000
Prepaid Insurance
2,000
b.
Rent Revenue
1,200
Unearned Rent
1,200
c.
Salaries Expense
1,900
Salaries Payable
1,900
d.
Interest Expense
300
Interest Payable
300
e.
Interest Receivable
800
Interest Revenue
800
f.
Depreciation Expense
3,600
Accumulated Depreciation-Equipment
3,600
g.
Bad Debts Expense
250
Allowance for Doubtful Accounts
250
Required:
Indicate by Yes or No which of the preceding adjusting entries could be reversed.
a.
________
b.
________
c.
________
d.
________
e.
________
f.
________
g.
________
a.
b.
Yes
c.
Yes
d.
Yes
e.
Yes
g.
88. Grover Company has provided you with the following information relating to four transactions during the
month of March:
a.
Grover acquired $18,000 of office supplies for cash. Office supplies on hand at the beginning of March totaled $3,400, while $2,000
remained at the end of March.
b.
Grover pays salaries monthly on the 2nd day of the month. Salaries earned by employees in March totaled $56,000. Salaries owed on
March 1 and paid on March 2 totaled $51,000.
c.
Advance deposits on hand at the beginning of March for work orders to be completed in March and April for customers totaled
$75,000. Work completed and delivered during March on those work orders was $35,000. No new advance deposits were received in
March.
d.
Grover had uncollected account receivables at March 1 totaling $38,000. Collections during March totaled $136,000, which included
the entire March 1 receivables balance. New, end-of March billings to customers who bought goods in March on account and will pay
in April totaled $40,000.
Grover records operating revenues and expenses on the cash basis during the month. Adjusting entries are recorded monthly, the books are closed at
the end of each month, and appropriate reversing entries are prepared as the first entries of each new month.
Required:
For each of the four transaction information sets (a-d), complete the t-accounts below showing
(1)
the appropriate March 1 balances
(2)
all changes to the accounts that would be posted during March, including adjusting and closing entries as are appropriate
(3)
all April 1 reversing entries
a.
Office Supplies
Office
Supplies
Expense
b.
Salaries Payable
Salaries
Expense
c.
Unearned Revenue
Project
Revenue
d.
Accounts Receivable
Sales
Revenue
Office Supplies
Office Supplies
3/1 Balance
3,400
3/1 Balance
0
3/1 Reversing
3,400
3/1 Reversing
3,400
Purchases
18,000
3/31 Adjust
2,000
3/31 Adjust
2,000
3/31 Balance
2,000
3/31 Balance
19,400
3/31 Closing
19,400
4/1 Balance
2,000
4/1 Balance
0
4/1 Reversing
2,000
4/1 Reversing
2,000
Salaries Payable
Salaries Expense
3/1 Balance
51,000
3/1 Balance
0
3/1 Reversing
51,000
3/1 Reversing
51,000
3/2 Payment
51,000
3/31 Adjusting
56,000
3/31 Adjusting
56,000
3/31 Balance
56,000
3/31 Balance
56,000
3/31 Closing
56,000
4/1 Balance
56,000
4/1 Balance
0
4/1 Reversing
56,000
4/1 Reversing
56,000
Unearned Revenue
Project Revenue
3/1 Balance
75,000
3/1 Balance
0
3/1 Reversing
75,000
3/1 Reversing
75,000
Deposits Rec’d
0
3/31 Adjusting
40,000
3/31 Adjusting
40,000
3/31 Balance
40,000
3/31 Balance
35,000
89. Information regarding the Ramirez Company follows:
·
On November 1, 2010, Ramirez accepted a $10,000, three-month note receivable from a major customer. Interest on the note, computed at
a 12% annual rate, will be collected with the principal.
·
On December 1, 2010, Ramirez borrowed $12,000 from its bank. The principal, plus interest computed at a 10% annual rate, is due on
June 1, 2011.
·
Ramirez uses the straight-line method to record depreciation on its equipment. The equipment, which cost $12,000, has an estimated life of
10 years and no expected residual value.
·
$3,725 of salaries had accrued as of December 31, 2010.
Required:
a.
Assuming that Ramirez does use reversing entries, prepare 2010 adjusting entries and 2011 reversing entries.
b.
Assuming that Ramirez does not use reversing entries, prepare journal entries to record the collection of the note receivable and the
payment of the note payable in 2011.
Accounts Receivable
Sales Revenue
3/1 Balance
38,000
3/1 Balance
0
Collections
136,000
3/31 Balance
40,000
3/31 Balance
138,000
3/31 Closing
138,000
4/1 Balance
0
4/1 Reversing
40,000
4/1 Reversing
40,000
90. Mantle Corporation has an accounting system that includes five journals: the sales, purchases, cash receipts,
cash payments, and general journals. The following transactions occurred during the month of May.
2010
May 2
Sold merchandise to Tom Jones on account, $80,000, terms 2/10, n/30.
7
Purchased merchandise from the Karen Sue Company for $11,000, paying cash.
9
Purchased merchandise from Rachelle Wholesalers on account for $5,500, terms 3/10, n/30.
11
Received payment from Tom Jones for the $80,000 invoice amount, less the 2% sales discount.
15
Purchased office equipment from Heather Supply Company for $50,000 on account.
16
Made a cash sale of $4,000 to Smithtown distributors.
17
Paid Rachelle Wholesalers for the $5,500 invoice, less the purchases discount.
19
Sold land for $9,000 cash. The original cost of the land was $9,900.
Adjusting Entries:
Interest Receivable
200
Interest Revenue
200
Interest Expense
100
Interest Payable
100
Accumulated Depreciation-Equipment
1,200
Salaries Expense
3,725
Salaries Payable
3,725
Reversing Entries:
Interest Revenue
200
Interest Receivable
200
Interest Payable
100
Interest Expense
100
Salaries Payable
3,725
Salaries Expense
3,725
b.
Cash
10,300
10,000
Interest Receivable
200
Interest Revenue
100
Interest Expense
500
Interest Payable
100
Note Payable
12,000
Cash
12,600
Required:
Prepare (in general journal form) the journal entries necessary to record the above transactions, and indicate in which (special) journal they would
have been recorded.
91. The Ball Corporation uses a general journal, a sales journal, a purchases journal, a cash receipts journal, and
a cash payments journal. Below are listed 12 of Ball Corporation’s transactions in 2010.
a.
Purchased $3,000 of merchandise on credit.
b.
Sold $500 merchandise on account.
c.
Sold $1,500 merchandise for cash.
d.
Credited $300 in sales returns to customer accounts.
e.
Prepared adjusting and closing entries.
f.
Paid $200 office salaries.
g.
Returned $250 of defective merchandise to supplier for credit on account.
h.
Purchased building site for $7,500 cash.
i.
Purchased $1,000 merchandise for cash.
j.
Collected $750 from customers on account.
k.
Purchased building by issuing $10,000 note payable.
l.
Received a $600 income tax refund.
May 2
Accounts Receivable
80,000
(sales)
Sales Revenue
80,000
7
Purchases
11,000
(cash payments)
Cash
11,000
9
Purchases
5,500
(purchases)
Accounts Payable
5,500
11
Cash
78,400
(cash receipts)
Sales Discounts Taken
1,600
Accounts Receivable
80,000
15
Office Equipment
50,000
(general)
Accounts Payable
50,000
16
Cash
4,000
Sales
4,000
(cash receipts)
17
Accounts Payable
5,500
(cash payments)
Purchases Discounts Taken
165
Cash
5,335
19
Cash
9,000
(cash receipts)
Loss on Sale of Land
900
Land
9,900
Required:
List letters (a) through (l) and indicate which journal would be used by Ball to record each transaction.
92. Several transactions of the Fleming Company are listed below:
·
Sept. 1
Sold $5,000 on account to Busy Co., terms 2/10, n/30.
·
Sept. 3
Made cash sales of $2,000 to Cable Co.
·
Sept. 7
Collected from Busy Co.
·
Sept. 9
Sold land for $3,400 to Dumpling Inc. Dumpling Inc. made a $900 down payment and signed a 60-day, 12% note for
the balance. The land had originally cost $2,700.
Two special journals are presented below.
Sales Journal
Date
Customer
Amount
________
________________________________________
_______
________
________________________________________
_______
________
________________________________________
_______
________
________________________________________
_______
________
________________________________________
_______
Cash Receipts
Journal
Account
Sales
Misc.
Accts.
Misc.
Date
Title
Cash
Disc.
Debit
Rec.
Sales
Credit
______
_________
_______
______
______
______
______
______
______
_________
_______
______
______
______
______
______
______
_________
_______
______
______
______
______
______
______
_________
_______
______
______
______
______
______
______
_________
_______
______
______
______
______
______
purchases journal
sales journal
cash receipts journal
general journal
general journal
cash payments journal
general journal
cash payments journal
cash payments journal
cash receipts journal
general journal
cash receipts journal
Required:
Indicate how each transaction would be recorded in the special journals by placing account titles and amount(s) in the correct columns.
93. The Maris Company uses cash-basis accounting for its records. During 2010, Maris collected $150,000
from its customers, made payments of $70,000 to its suppliers for merchandise inventory, and paid $40,000 for
operating costs. Maris wants to prepare its financial statements on an accrual basis. In gathering information for
the accrual-basis financial statements, Maris discovered the following:
·
At the beginning of 2010, customers owed Maris $20,000, and Maris owed suppliers $7,000.
·
At the end of 2010, customers owed Maris $30,000, and Maris owed suppliers $11,000.
·
Two years ago, Maris purchased equipment for $10,000. The equipment has a useful life of five years and no salvage value.
·
For the year 2010, Maris’s beginning inventory was $5,000, and its ending inventory was $6,500.
·
At the beginning of 2010, Maris had prepaid rent of $3,000. At the end of the year, Maris had prepaid rent of $500.
Required:
Using accrual accounting, prepare an income statement for 2010 for Maris Company.
Sales revenue
$160,000
Cost of goods sold
72,500
Gross profit on sales
$ 87,500
Operating expenses:
Depreciation expense-Equipment
$ 2,000
Other operating expenses
42,500
Total operating expenses
44,500
Net income
$ 43,000
Date
Customer
Amount
9-1
Busy Co.
5,000
Account
Sales
Misc.
Accts.
Misc.
Date
Cash
Disc.
Debit
Rec.
Sales
Credit
9-3
Cable Co.
2,000
2,000
9-7
Busy Co.
4,900
5,000
9-9
Note Rec.
900
2,500
Land
2,700
Gain
700
94. The McGuire Company uses cash-basis accounting for its records. During 2010, McGuire collected
$500,000 from its customers, made payments of $200,000 to its suppliers for inventory, and paid $140,000 for
operating costs. McGuire wants to prepare accrual-basis financial statements. In gathering information for the
accrual-basis financial statements, McGuire discovered the following:
·
Customers owed McGuire $35,000 at the beginning of 2010 and $50,000 at the end of 2010.
·
McGuire owed suppliers $20,000 at the beginning of 2010 and $27,000 at the end of 2010.
·
McGuire’s beginning inventory was $42,000, and its ending inventory was $44,000.
·
McGuire had prepaid expenses of $5,000 at the beginning of 2010 and $7,400 at the end of 2010.
·
McGuire had accrued expenses of $12,000 at the beginning of 2010 and $19,000 at the end of 2010.
·
Depreciation for 2010 was $51,000.
Required:
Prepare an accrual-basis income statement for 2010 for McGuire Company.
95. A number of steps are typically completed during each accounting period to record, store, and report the
accounting information contained in the recorded transactions. These steps are referred to as the accounting
cycle. List the steps of the accounting cycle in the sequence in which they are performed.
a.
Record daily transactions in a journal.
b.
Post the journal entries to the accounts in the ledger.
c.
Prepare and post adjusting entries.
d.
Prepare the financial statements.
e.
Prepare and post closing entries for the revenue, expense, and dividend accounts.
2010
Sales revenue
$515,000
Cost of goods sold
205,000
Gross profit on sales
$310,000
Operating expenses:
Total operating expenses
195,600
Net income
$114,400
96. Computer software has become an important element in every company’s accounting information system
today. Most companies are now using computers to process their accounting information.
Required:
List the common types of software packages used for the financial accounting functions and explain what each
is designed to provide.
97. Special journals, including the sales, purchases, cash receipts, cash payments, and general journals, were
discussed in the textbook. Indicate (a) the reasons why special journals may be used, and (b) which transactions
would appear in each of the five journals.
98. The accrual and the cash bases of accounting were discussed in the textbook. Please (a) define the
cash-basis accounting method and state how net income is determined using this method, (b) describe accrual
accounting, (c) indicate which of the two methods (i.e., cash or accrual) is recommended under GAAP, and (d)
explain the deficiencies in the method that is not recommended under GAAP.
99. The accrual basis of accounting is a system that attempts to measure changes in economic value in an entity
as they affect the accounting equation, regardless of the timing of actual cash flows.
Required: