6e Accounting Cycle Page 253 Chapter 7
ACTIVITY 94 COMPREHENSIVE REVIEW OF THE ACCOUNTING CYCLE – YEAR ONE
Purpose: • Comprehensive review the 10-step accounting cycle – Year One
Nancy Nanny opened a child-care facility on January 1, Year 1. Use the Chart of Accounts below to
complete the requirements on the following pages for Nancy Nanny Child Care.
NANCY NANNY CHILD CARE
CHART OF ACCOUNTS
110 Cash
120 Accounts receivable
130 Note receivable
210 Accounts payable
220 Notes payable
230 Interest payable
240 Unearned revenue
310 Common stock
320 Retained earnings
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NANCY NANNY CHILD CARE – Year 1
Q1 The following transactions occurred during Year 1, the first year of business, for Nancy Nanny Child
Care. Record each transaction in proper journal entry format below using debits and credits.
Nancy Nanny Child Care
GENERAL JOURNAL – Year 1
Date
Accounts
Debit
Credit
TJE #1 On January 2, Nancy Nanny received $100,000 in cash from investors in exchange for shares
of Nancy Nanny common stock.
Jan 2
Cash
100,000
Common stock
100,000
TJE #2 On January 2, Nancy Nanny paid $30,000 for a two-year lease of the building. The prepaid
rent account was used to record this entry.
TJE #3 On February 1, Nancy Nanny purchased tables, chairs, cots, and other furniture for
$18,000. $5,000 was paid in cash with the balance on a note payable due in one year bearing 12%
annual interest. This furniture has an estimated useful life of 5 years and is depreciated monthly
using the straight-line method with no expected residual value.
Feb 1
TJE #4 On February 1, Nancy Nanny purchased supplies at a cost of $40,000. Paid cash.
TJE #5 During Year 1, Nancy Nanny provided child-care services on account totaling $150,000.
Year 1
TJE #6 During Year 1, collections from receivable customers totaled $146,000.
Year 1
Year 1
Jan 2
NANCY NANNY CHILD CARE – Year 1
Q2 At the end of Year1, Nancy Nanny made the following adjusting journal entries. Record each
adjusting entry in proper journal entry format below using debits and credits.
Nancy Nanny Child Care
GENERAL JOURNAL – Year 1
Date
Accounts
Debit
Credit
AJE #1 Record rent expense for the year. (Refer to TJE #2.)
AJE #2 Record depreciation expense for the year. (Refer to TJE #3.)
AJE #3 Record interest expense for the year. (Refer to TJE #3.)
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NANCY NANNY CHILD CARE – Year 1
Q3 Post the Transaction Journal Entries from Q1 and the Adjusting Journal Entries from Q2 to the
General Ledger below.
Q4 Compute the ending balance for each account.
Nancy Nanny Child Care
GENERAL LEDGER – Year 1
110 Cash
220 Notes Payable
310 Common
Stock
520
Depreciation
Expense
120 Accounts
Receivable
230 Interest Payable
320 Retained
Earnings
530 Rent
Expense
140 Supply Inventory
330 Dividends
540 Supply
Expense
150 Prepaid Rent
550 Wage
Expense
170 PPE
171 Accumulated
Depreciation — PPE
410 Revenue
560 Interest
Expense
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NANCY NANNY CHILD CARE – Year 1
Q5 Use the ending balances computed in the General Ledger to prepare the Adjusted Trial Balance
below.
Nancy Nanny Child Care
ADJUSTED TRIAL BALANCE – Year 1
No.
Account
Debit
Credit
110
Cash
$ 101,000
140
Supply inventory
150
Prepaid rent
170
Property, plant, and equipment
171
Accumulated depreciation — PPE
220
Notes payable
310
Common stock
410
Revenue
520
Depreciation expense
530
Rent expense
540
Supply expense
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NANCY NANNY CHILD CARE — Year 1
Q6 Use amounts from the Adjusted Trial Balance to prepare the Income Statement and the Statement
of Stockholders’ Equity. Use the forms provided below.
Nancy Nanny Child Care
INCOME STATEMENT – Year 1
Nancy Nanny Child Care
STATEMENT OF STOCKHOLDERS’ EQUITY – Year 1
Common Stock
Retained
Earnings
Total
SEquity
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NANCY NANNY CHILD CARE — Year 1
Q7 Use amounts from the General Ledger, Adjusted Trial Balance, and the Statement of Stockholders’
Equity to prepare the Balance Sheet and the Statement of Cash Flows. Use the forms provided
below.
Nancy Nanny Child Care
BALANCE SHEET – Year 1
ASSETS
Cash
$ 101,000
LIABILITIES
Nancy Nanny Child Care
STATEMENT OF CASH FLOWS – Year 1
CASH FROM OPERATING ACTIVITIES
Cash from customers
$ 146,000
Rent paid
Wages paid
CASH FROM INVESTING ACTIVITIES
CASH FROM FINANCING ACTIVITIES
Cash from issuing common stock
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NANCY NANNY CHILD CARE — Year 1
Q8 Use amounts from the Adjusted Trial Balance to prepare Closing Journal Entries and the Post–
Closing Trial Balance. Use the forms provided below.
Nancy Nanny Child Care – GENERAL JOURNAL – Year 1
Date
Accounts
Debit
Credit
CJE #1 Close all revenue and gain accounts to income summary.
CJE #2 Close all expense and loss accounts to income summary.
Dec 31
Income summary
123,730
Depreciation expense
Rent expense
Supply expense
Wage expense
Interest expense
CJE #3 Close the income summary account to retained earnings.
Dec 31
Income summary
Retained earnings
CJE #4 Close the dividends account to retained earnings.
Nancy Nanny Child Care – Post-Closing TRIAL BALANCE – Year 1
No.
Account
Debit
Credit
110
Cash
$ 101,000
120
Accounts receivable
4,000
140
Supply inventory
6,000
150
Prepaid rent
170
Property, plant, and equipment
Accumulated depreciation — PPE
220
Note payable
230
Interest payable
310
Common stock
320
Retained earnings
Dec 31
Revenue
Income summary
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ACTIVITY 95 COMPREHENSIVE REVIEW OF THE ACCOUNTING CYCLE – YEAR TWO
Purpose: • Comprehensive review of the 10-step accounting cycle – Year Two
NANCY NANNY CHILD CARE — Year 2
Nancy Nanny opened a child-care facility on January 1, Year 1. The previous Activity covered the
accounting cycle for Year One. This activity covers the accounting cycle for Year Two. Continue to use the
chart of accounts for Nancy Nanny Child Care provided in the previous Activity.
Q1 The following transactions occurred during Year 2, the second year of business for Nancy Nanny
Child Care. Record each transaction in proper journal entry format below using debits and credits.
Nancy Nanny Child Care
GENERAL JOURNAL – Year 2
Date
Accounts
Debit
Credit
TJE #1 On January 2, Nancy Nanny purchased a computer, printer, server, and related accessories for
$10,000 cash. Due to fast changing computer technologies, Nancy Nanny decided to use the double-
declining method of depreciation over a five-year life with no expected residual value.
Jan 2
Property, plant, and equipment
10,000
Cash
10,000
TJE #2 On February 1, Nancy Nanny repaid the note payable from Year 1 plus interest.
TJE #3 On February 1, Nancy Nanny purchased supplies at a cost of $45,000. Paid cash.
TJE #4 On December 8, Grandpa Meyer prepaid $6,000 toward next year’s child care costs for
TJE #5 On December 14, Nancy Nanny declares and distributes $20,000 of dividends to her
investors.
Year 2
TJE #8 During Year 2, paid employees $80,000.
Interest expense
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NANCY NANNY CHILD CARE – Year 2
Q2 At the end of Year2, Nancy Nanny made the following adjusting journal entries. Record each
adjusting entry in proper journal entry format below using debits and credits.
Nancy Nanny Child Care
GENERAL JOURNAL – Year 2
Date
Accounts
Debit
Credit
AJE #1 Record rent expense for the year. (Refer to Year 1 TJE #2.)
AJE #2 Record depreciation expense for the year. (Refer to Year 1 TJE #3 and Year 2 TJE #1.)
AJE #3 At the end of the second year, Nancy Nanny had $5,000 of supplies on hand that had not
been used. (What amount of supplies did Nancy Nanny use during Year 2?)
AJE #1 Year 1 TJE #2 prepaid $30,000 of rent on a two-year lease.
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NANCY NANNY CHILD CARE — Year 2
Q3 Use the Post-Closing Trial Balance amounts of Year 1 (from the previous Activity) as the beginning
balances of Year 2. Record below.
Q4 Post the Transaction Journal Entries from Question 1 Year 2 and the Adjusting Journal Entries from
Question 2 Year 2 to the General Ledger below.
Q5 Compute the ending balance for each account.
Nancy Nanny Child Care
GENERAL LEDGER – Year 2
110 Cash
220 Notes Payable
310 Common Stock
520 Depreciation
Expense
Beg 101,000
10,000(T1)
13,000 Beg
100,000 Beg
Beg -0-
120 Accounts Receivable
230 Interest Payable
320 Retained Earnings
530 Rent Expense
140 Supply Inventory
240 Unearned Revenue
330 Dividends
540 Supply Expense
150 Prepaid Rent
550 Wage Expense
170 PPE
171 Accumulated
Depreciation — PPE
410 Revenue
560 Interest Expense
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NANCY NANNY CHILD CARE — Year 2
Q6 Use the ending balances from the General Ledger to prepare the Adjusted Trial Balance below.
Nancy Nanny Child Care
ADJUSTED TRIAL BALANCE – Year 2
No.
Account
Debit
Credit
110
Cash
$ 119,440
Accounts receivable
Supply inventory
Property, plant, and equipment
Accumulated depreciation — PPE
Unearned revenue
310
Common stock
Retained earnings (Beginning)
Dividends
Revenue
Depreciation expense
Rent expense
540
Supply expense
Wage expense
Interest expense
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NANCY NANNY CHILD CARE — Year 2
Q7 Use amounts from the Adjusted Trial Balance to prepare the Income Statement and the Statement
of Stockholders’ Equity. Use the forms provided below.
Nancy Nanny Child Care
INCOME STATEMENT – Year 2
Nancy Nanny Child Care
STATEMENT OF STOCKHOLDERS’ EQUITY – Year 2
Common Stock
Retained
Earnings
Total
SEquity
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NANCY NANNY CHILD CARE — Year 2
Q8 Use amounts from the General Ledger, Adjusted Trial Balance, and the Statement of Stockholders’
Equity to prepare the Balance Sheet and the Statement of Cash Flows. Use the forms provided
below.
Nancy Nanny Child Care
BALANCE SHEET – Year 2
ASSETS
Nancy Nanny Child Care
STATEMENT OF CASH FLOWS – Year 2
CASH FROM OPERATING ACTIVITIES
Cash from customers
Cash paid for supplies
Wages paid
Interest paid
CASH FROM INVESTING ACTIVITIES
CASH FROM FINANCING ACTIVITIES
Paid note payable
Net change in cash
Beginning cash balance
LIABILITIES
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NANCY NANNY CHILD CARE – Year 2
Q9 Use amounts from the Adjusted Trial Balance to prepare the Closing Journal Entries and the Post–
Closing Trial Balance. Use the forms provided below.
Nancy Nanny Child Care – GENERAL JOURNAL – Year 2
Date
Accounts
Debit
Credit
CJE #1 Close all revenue and gain accounts to income summary.
CJE #3 Close the income summary account to retained earnings.
Dec 31
Income Summary
CJE #4 Close the dividends account to retained earnings.
Nancy Nanny Child Care – POST-CLOSING TRIAL BALANCE – Year 2
No.
Account
Debit
Credit
Cash
Accounts receivable
Supply inventory
Property, plant, and equipment
Unearned revenue
Common stock
Retained earnings
Dec 31
CJE #2 Close all expense and loss accounts to income summary.
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ACTIVITY 96 TEST YOUR UNDERSTANDING
Purpose: • Post journal entries directly into T-accounts
• Prepare financial statements
• Prepare the Statement of Cash Flows using the direct method
• Prepare the Statement of Cash Flows using the indirect method.
Brian was ready to start business on September 1 after issuing common stock for $30,000 and purchasing
a delivery van for $24,000.
Brian Nelson’s Delivery Service Corporation
GENERAL LEDGER – September
100 Cash
200 Salaries Payable
300 Common
Stock
400 Revenue
Beg. 6,000
Beg.
-0-
Beg.
30,000
Beg.
-0-
110 Accounts
Receivable
350 Retained
Earnings
500 Depreciation
Expense
Beg.
-0-
Beg.
Q1 Record the following transaction journal entries for September directly into the T-accounts above.
TJE #1 Bill customers for deliveries that total $2,000 during September.
Q2 Record the adjusting journal entry for September directly into the T-accounts above,
AJE #1 Record September depreciation expense for the Delivery Van, which has a 4-year (48
month) life, using straight-line depreciation.
Q3 Compute the ending balance for each account, recording it as a debit or credit balance in the
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Q4 Using amounts from the General Ledger on the previous page, (A) prepare the Income Statement
and (B) prepare the Operating Activity section of the Statement of Cash Flows below.
INCOME STATEMENT
ADJUSTMENTS
STATEMENT OF CASH FLOWS
Q5 What adjustments are needed to get from accrual-based net income to cash–based Net Cash from
Operating Activities?
amount in the Adjustments Column.
e. Complete the Adjustments Column for Depreciation in the chart above.
Q6 The indirect method of preparing the Statement of Cash Flows reconciles accrual-based Net Income
with cash-based Net Cash from Operating Activities (NCOA). Use amounts from the Adjustments
Column above to prepare the Operating Activities section of the Statement of Cash Flows below.
Statement of Cash Flows (Indirect Method)
Amounts
Net income
Add depreciation expense
(Increase) decrease in accounts receivable
Increase (decrease) in salaries payable
Q7 Amounts from the Adjustments Column are used to reconcile accrual-based Net Income with cash–