Download Homework Disk: Assignment 9

MODULE 3
FINANCIAL STATEMENTS
Demonstration Problem 1
Clean-Rite Service
Clean-Rite Service began operations in March 2000. Clean-Rite Service is a sole-proprietorship.
The transactions for March were recorded in the general journal and posted to the general ledger
in a previous assignment. This assignment requires you to prepare a trial balance and then
prepare financial statements for March 2000.
Clean-Rite Service
Trial Balance
March 31, 2000
Account name
Cash
Supplies
Equipment
Truck
Notes Payable
Lisa, Capital
Lisa, Drawings
Service Revenue
Supplies Expense
Debit
$1,085
35
400
1,000
Credit
$1,750
500
100
80
$2,700
450
$2,700
Clean-Rite Service
Income Statement
for the month ended March 31, 2000
Revenues
Service Revenue
Expenses
Supplies Expense
Total Expenses
Net Income
$450
$80
$80
$370
Clean-Rite Service
Statement of Owner’s Equity
for the month ended March 31, 2000
Lisa, Capital, March 1, 2000
0
Plus: Investments
Net Income
Less: Drawings
Lisa, Capital, March 31, 2000
500
370
100
$770
63
Clean-Rite Service
Balance Sheet
March 31, 2000
Assets
Cash
Supplies
Equipment
Truck
Total Assets
$1,085
35
400
1,000
$2,520
Liabilities
Notes Payable - Dad
Notes Payable - Fuller Trucks
Total Liabilities
$1,000
750
1,750
Lisa, Capital
Total Owner’s Equity
Total Liabilities and Owner’s Equity
___770
_ 770
$2,520
64
Demonstration Problem 2
Music Stop
Music Stop began operations in April 2000. Music Stop is a sole-proprietorship. The transactions
for April 2000 were recorded in the general journal and posted to the general ledger in a previous
assignment. This assignment requires you to prepare a trial balance and then prepare financial
statements for April 2000.
Music Stop
Trial Balance
April 30, 2000
Account Name
Cash
Inventory
Equipment
Accounts Payable
Note Payable
Capital Stock
Retained Earnings
Sales Revenue
Cost of Goods Sold
Salaries Expense
Utilities Expense
Debit
$36,400
17,000
12,000
Credit
$15,000
40,000
10,000
0
4,500
3,000
1,000
100
$69,500
_______
$69,500
Music Stop
Income Statement
for the month ended April 30, 2000
Revenues
Sales Revenue
$4,500
Expenses
Cost of Goods Sold
Salaries Expense
Utilities Expense
Total Expenses
Net Income
$3,000
1,000
100
4,100
$ 400
Music Stop
Statement of Retained Earnings
For the Month Ended April 30, 2000
Retained Earnings, July 1, 2000
Plus: Net Income
Less: Dividends
Retained Earnings, July 31, 2000
$0
400
$
65
400
Music Stop
Balance Sheet
April 30, 2000
Assets
Cash
Inventory
Equipment
Total Assets
$36,400
17,000
12,000
$65,400
Liabilities
Accounts Payable
Notes Payable
Total Liabilities
$15,000
40,000
55,000
Owners’ Equity
Capital Stock
Retained Earnings
Total Owners’ Equity
Total Liabilities and Owners’ Equity
$10,000
400
10,400
$65,400
66
Practice Problem 1
East West Travels
East West Travels began operations in April 2000. East West Travel is a sole-proprietorship.
The transactions for April 2000 were recorded in the general journal and posted to the general
ledger in a previous assignment. This assignment requires you to prepare a trial balance and then
prepare financial statements for April 2000.
East West Travels
Trial Balance
April 30, 2000
Account name
Cash
Accounts Receivable
Supplies
Notes Payable
Brian, Capital
Brian, Drawings
Service Revenue
Supplies Expense
Debit
$50,500
650
450
Credit
$10,000
40,000
500
2,450
_______
$52,450
____350
$52,450
East West Travels
Income Statement
For the Month Ended April 30, 2000
Revenues
Service Revenue
Expenses
Supplies Expense
Total Expenses
Net Income
$2,450
$350
350
$2,100
East West Travels
Statement of Owner’s Equity
For the Month Ended April 30, 2000
Brian, Capital, April 1, 2000
Plus: Investments
Net Income
Less: Drawings
Brian, Capital, April 30, 2000
$0
40,000
2,100
____500
$41,600
67
East West Travels
Balance Sheet
April 30, 2000
Assets
Cash
Accounts Receivable
Supplies
Total Assets
$50,500
650
450
51,600
Liabilities
Notes Payable
Total Liabilities
$10,000
10,000
Owner’s Equity
Brian, Capital
Total Owner’s Equity
Total Liabilities and Owner’s Equity
$41,600
41,600
51,600
68
Practice Problem 2
O’Grady Building Supplies
The transactions for O’Grady Building Supplies for July 2000 were recorded in the general
journal and posted to the general ledger in a previous assignment. O’Grady Building Supplies is
organized as a corporation. This assignment requires you to prepare a trial balance and then
prepare financial statements for July 2000.
O’Grady Building Supplies
Trial Balance
July 31, 2000
Account Name
Debit
Cash
Inventory
Supplies
Accounts Payable
Capital Stock
Retained Earnings
Sales Revenue
Cost of Goods Sold
Supplies Expense
Rent Expense
Credit
$59,700
9,000
400
$16,500
50,000
0
18,000
13,500
100
1,800
$84,500
_______
$84,500
O’Grady Building Supplies
Income Statement
for the month ended July 31, 2000
Revenues
Sales Revenue
Expenses
Cost of Goods Sold
Supplies Expense
Rent Expense
Total Expenses
Net Income
$18,000
$13,500
100
1,800
15,400
$2,600
O’Grady Building Supplies
Statement of Retained Earnings
For the Month Ended July 31,2000
Retained Earnings, July 1, 2000
Plus: Net Income
Less: Dividends
Retained Earnings, July 31, 2000
$0
2,600
_____0
$2,600
69
O’Grady Building Supplies
Balance Sheet
July 31, 2000
Assets
Cash
Inventory
Supplies
Total Assets
Liabilities
Accounts Payable
$16,500
Total Liabilities
Owners’ Equity
Capital Stock
50,000
Retained Earnings
2,600
Total Owners’ Equity
Total Liabilities and Owners’ Equity
70
$59,700
9,000
400
$69,100
16,500
52,600
$69,100
Homework Problem 1
Carlson Realty
On June 1, 2000, George Carlson started Carlson Realty. Carlson Realty is a sole-proprietorship.
The transactions for June were recorded in the general journal and posted to the general ledger in
a previous assignment . This assignment requires you to prepare a trial balance and then prepare
financial statements for June 2000.
Carlson Realty
Trial Balance
June 30, 2000
Account name
Cash
Supplies
Furniture
Accounts Payable
Notes Payable
George, Capital
George, Drawings
Service Revenue
Supplies Expense
Automobile Expense
Rent Expense
Utilities Expense
Salaries Expense
Debit
$9,960
385
5,500
Credit
$
270
3,000
8,000
1,000
11,000
135
1,350
1,400
140
2,400
$22,270
_______
$22,270
Carlson Realty
Income Statement
For the Month Ended June 30, 2000
Revenues
Service Revenue
Expenses
Salaries Expense
Rent Expense
Automobile Expense
Utilities Expense
Supplies Expense
Total Expenses
Net Income
$11,000
$2,400
1,400
1,350
140
135
5,425
$5,575
71
Carlson Realty
Statement of Owner’s Equity
For the Month Ended June 30, 2000
George, Capital, June 1, 2000
Plus: Investments
Net Income
Less: Drawings
George, Capital, June 30, 2000
$0
8,000
5,575
__1,000
$12,575
Carlson Realty
Balance Sheet
June 30, 2000
Assets
Cash
Supplies
Furniture
Total Assets
$9,960
385
_5,500
15,845
Liabilities
Accounts Payable
Notes Payable
Total Liabilities
$ 270
3,000
3,270
Owner's Equity
George, Capital
Total Owner’s Equity
Total Liabilities and Owner’s Equity
72
$12,575
12,575
$15,845
Homework Problem 2
Jackie’s Floral Designs
Jackie's Floral Designs sells plants, flowers, and silk and dried arrangements. Jackie's Floral
Designs is a sole-proprietorship. The transactions for January 2000 were recorded in the general
journal and posted to the general ledger in a previous assignment. This assignment requires you
to prepare a trial balance and then prepare financial statements for January 2000.
Jackie’s Floral Designs
Trial Balance
January 31, 2000
Account name
Cash
Accounts Receivable
Inventory
Supplies
Accounts Payable
Jackie, Capital
Jackie, Drawings
Sales Revenue
Cost of Goods Sold
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Debit
$13,300
2,500
700
175
Credit
$4,000
12,500
500
8,000
5,000
1,200
800
150
175
$24,500
______
$24,500
Jackie’s Floral Designs
Income Statement
For the Month Ended January 31, 2000
Revenues
Sales Revenue
Expenses
Cost of Goods Sold
Wages Expense
Utilities Expense
Supplies Expense
Rent Expense
Total Expenses
Net Income
$8,000
$5,000
1,200
150
175
800
7,325
$ 675
73
Jackie’s Floral Designs
Statement of Owner’s Equity
For the Month Ended January 31, 2000
Jackie, Capital, January 1, 2000
Plus: Investments
Net Income
Less: Drawings
Jackie, Capital, January 28, 2000
$0
12,500
675
____500
$12,675
Jackie’s Floral Designs
Balance Sheet
January 31, 2000
Assets
Cash
Accounts Receivable
Inventory
Supplies
Total Assets
Liabilities
Accounts Payable
Total Liabilities
Owner's Equity
Jackie, Capital
Total Owner’s Equity
Total Liabilities and Owner’s Equity
74
$13,300
2,500
700
175
$16,675
$ 4,000
4,000
$12,675
$12,675
$16,675
Homework Problem 3
The Audio Exchange
The Audio Exchange sells used audio equipment and provides repair services. The Audio
Exchange is organized as a corporation. The transactions for November 2000 were recorded in
the general journal and posted to the general ledger in a previous assignment. This assignment
requires you to prepare a trial balance and then prepare financial statements for November 2000.
The Audio Exchange
Trial Balance
November 30, 2000
Account name
Cash
Accounts Receivable
Inventory
Supplies
Accounts Payable
Capital Stock
Retained Earnings
Dividends
Sales Revenue
Service Revenue
Cost of Goods Sold
Advertising Expense
Repairs Expense
Supplies Expense
Debit
$10,980
2,500
12,500
300
Credit
$ 9,000
12,000
0
1,000
4,000
5,800
2,500
700
120
200
$30,800
_______
$30,800
The Audio Exchange
Income Statement
For the month ended November 30, 2000
Revenues
Sales Revenue
Service Revenue
Total Revenues
Expenses
Cost of Goods Sold
Advertising Expense
Repairs Expense
Supplies Expense
Total Expenses
Net Income
$4,000
5,800
$9,800
2,500
700
120
200
3,520
$6,280
75
The Audio Exchange
Statement of Retained Earnings
For the month ended November 30, 2000
Retained Earnings, November 1, 2000
Plus: Net Income
Less: Dividends
Retained Earnings, November 30, 2000
$0
6,280
_1,000
$5,280
The Audio Exchange
Balance Sheet
November 30, 2000
Assets
Cash
Accounts Receivable
Inventory
Supplies
Total Assets
$10,980
2,500
12,500
300
$26,280
Liabilities
Accounts Payable
Total Liabilities
$9,000
9,000
Owners’ Equity
Capital Stock
Retained Earnings
Total Owners’ Equity
Total Liabilities and Owners’ Equity
76
$12,000
5,280
17,280
$26,280
Homework Problem 4
Hoffman Consulting Incorporated
Hoffman Consulting Inc. started operations in October 2000. The transactions for October were
recorded in the general journal and posted to the general ledger in a previous assignment.
Hoffman Consulting Inc. is organized as a corporation. This assignment requires you to prepare
a trial balance and then prepare financial statements for October 2000.
Hoffman Consulting Inc.
Trial Balance
October 31, 2000
Account name
Cash
Accounts Receivable
Supplies
Computer
Accounts Payable
Capital Stock
Retained Earnings
Service Revenue
Supplies Expense
Advertising Expense
Rent Expense
Utilities Expense
Debit
$30,870
1,000
265
2,000
Credit
$1,000
25,000
0
10,500
135
275
1,800
155
$36,500
_______
$36,500
Hoffman Consulting Inc.
Income Statement
For the Month Ended October 31, 2000
Revenues
Service Revenue
Expenses
Advertising Expense
Utilities Expense
Supplies Expense
Rent Expense
Total Expenses
Net Income
$10,500
$
275
155
135
1,800
2,365
$8,135
77
Hoffman Consulting Inc.
Statement of Retained Earnings
for the month ended October 31, 2000
Retained Earnings, October 1, 2000
Plus: Net Income
Less: Dividends
Retained Earnings, October 31, 2000
$0
8,135
_____0
$8,135
Hoffman Consulting Inc.
Balance Sheet
October 31, 2000
Assets
Cash
Accounts Receivable
Supplies
Computer
Total Assets
$30,870
1,000
265
2,000
$34,135
Liabilities
Accounts Payable
Total Liabilities
Owner's Equity
Capital Stock
Retained Earnings
Total Owners' Equity
Total Liabilities and Owners' Equity
78
$1,000
1,000
$25,000
8,135
33,135
$34,135
Homework Quiz
Financial Statements
1.
The Statement of Changes in Owner's Equity includes which of the following account
titles?
a.
Cash
b.
Owner's additional investment made during the current period
c.
Accounts Payable
d.
Salaries expense
2.
The Statement of Retained Earnings includes which of the following account titles?
a.
Cash
b.
Owner's additional investment made during the current period
c.
Net Income
d.
Salaries expense
3.
When preparing the Statement of Changes in Owner's Equity, the beginning Owner's
Capital balance can be found:
a.
In the expense section of the Trial Balance.
b.
In the liabilities section of the Trial Balance.
c.
In the General Ledger
d.
In the General Journal
4.
A Trial Balance ensures that:
a. No transactions have been omitted from the General Journal.
b. All transactions have been properly posted to the General Ledger.
c. Journal entries have been recorded in the proper accounts.
d. The total of all debit entries equal the total of all credit entries.
5.
Which of the following account titles will NOT appear on a Balance Sheet of Problem
Solvers, a Sole Proprietorship?
a.
Cash
b.
Accounts Payable
c.
Owner, Capital
d.
Retained Earnings
6.
Which of the following account titles will NOT appear on the Balance Sheet of Pace
Manufacturing, Inc., a Corporation?
a.
Dividends
b.
Inventory
c.
Owner, Capital
d.
Capital Stock
7.
Which of the following account titles will NOT appear on the Income Statement of
Realty Links, Inc., a Corporation?
a.
Dividends
b.
Cost of Goods Sold
c.
Rental Revenue
d.
Commissions Expense
79
8.
Which of the following account titles will NOT appear on the Income Statement of
Jeffrey Lyons, CPA., a Sole Proprietorship?
a. Cost of Goods Sold
b. Drawings
c. Fees Earned
d. Rent Expense
9.
Which of the following account titles will ONLY appear on the Trial Balance of a Sole
Proprietorship?
a.
Dividends
b.
Drawings
c.
Capital Stock
d.
Retained Earnings
10.
Which of the following account titles are grouped properly with the financial statement
on which they appear?
a.
Statement of Owner's Equity: Dividends, Drawings; Statement of Retained
Earnings: Net Income, Dividends
b.
Statement of Owner's Equity: Drawings, Owner's Investment; Statement of
Retained Earnings: Net Loss, Dividends
c.
Statement of Owner's Equity: Dividends, Drawings; Statement of Retained
Earnings: Net Loss, Capital Stock <br>
d.
Statement of Owner's Equity: Drawings, Owner's Investment; Statement of
Retained Earnings: Net Loss, Capital Stock <br>
11.
Which of the following account titles are grouped properly with the financial statement
on which they appear?
a.
Statement of Owner's Equity: Owner's Capital, Drawings; Statement of
Retained Earnings: Dividends, Beg. Retained Earnings
b.
Statement of Owner's Equity: Drawings, Owner's Capital; Statement of Retained
Earnings: Net Income, Dividends Payable
c.
Statement of Owner's Equity: Dividends, Drawings; Statement of Retained
Earnings: Net Income, Capital Stock
d.
Statement of Owner's Equity: Drawings, Owner's Investment; Statement of
Retained Earnings: Net Income, Dividends Payable
12.
Bill Phelan, a sole proprietor, incurred the following transactions during the month of
November 2001:



Paid rent expense of $12,000.
Collected $15,000 of existing Accounts Receivable.
Billed customers $20,000 for services rendered.
The Cash balance at the beginning of November was $11,500. What amount is included
in the Cash account on Bill Phelan's Trial Balance dated November 30, 2001?
a.
$(500)
b.
$14,500
c.
$31,500
d.
$34,500
80
13.
Bill Phelan, a sole proprietor, incurred the following transactions during the month of
November 2001:
 Paid rent expense of $12,000.
 Collected $15,000 of existing Accounts Receivable.
 Billed customers $20,000 for services rendered.
The November 1st Accounts Receivable balance was $25,000. What amount is included
in the Accounts Receivable account on Bill Phelan's Trial Balance dated November 30,
2001?
a.
$10,000
b.
$15,000
c.
$30,000
d.
$45,000
14.
Compute the amount to be reported for Capital Stock based upon the December 31, 2001
Trial Balance of Colvern Services, Inc., a corporation, which is summarized below.
Accounts Payable
Notes Payable
Accounts Receivable
Rent Expense
Building
Retained Earnings
Capital Stock
Sales Revenue
Cash
Supplies
Cost of Goods Sold
Utilities Expense
Equipment
Wages Expense
Inventory
a.
b.
c.
d.
15.
650
14,000
1,600
3,000
30,000
2,252
??
57,500
2,320
1,112
35, 938
1,032
9,400
4,000
6,000
$10,000 credit
$20,000 credit
$30,000 credit
$40,000 credit
The December 31, 2001 Trial Balance of Colvern Services, Inc., a corporation, is
summarized below.
Accounts Payable
Notes Payable
Accounts Receivable
Rent Expense
Building
Retained Earnings
Capital Stock
Sales Revenue
Cash
650
14,000
1,600
3,000
30,000
2,252
20,000
57,500
2,320
81
Supplies
Cost of Goods Sold
Utilities Expense
Equipment
Wages Expense
Inventory
1,112
35,938
1,032
9,400
4,000
6,000
What are the Total Assets to be reported on Colvern's Balance Sheet dated December 31,
2001?
a.
$41,032
b.
$49,320
c.
$50,432
d.
$86,370
16.
Selected accounts from the Trial Balance of Schreck Web Services, a sole proprietorship,
are shown below:
Fees Earned
Wages Expense
Insurance Expense
Equipment
Supplies
Supplies Expenses
30,000
3,000
2,000
8,000
1,000
3,000
Net income for the period is:
a.
$24,000
b.
$20,000
c.
$25,000
d.
$22,000
17.
The December 31, 2001 Trial Balance of Colvern Services, Inc., a corporation, is
summarized below.
Accounts Payable
Notes Payable
Accounts Receivable
Rent Expense
Building
Retained Earnings
Capital Stock
Sales Revenue
Cash
Supplies
Cost of Goods Sold
Utilities Expense
Equipment
Wages Expense
Inventory
650
14,000
1,600
3,000
30,000
2,252
20,000
57,500
2,320
1,112
35,938
1,032
9,400
4,000
6,000
82
What is the Net Income to be reported on Colvern's Income Statement for the year ended
December 31, 2001?
a.
$17,562
b.
$14,562
c.
$13,530
d.
$12,418
18.
Bob and Ray organized BR, Incorporated, a corporation for which they are the only
stockholders. After investing $100,000 each, they are issued all of the shares of the
corporation. Net Income/(Loss) and Dividends for the first two years of operations are:
Year 1
Year 2
Net Income
$50,000
$(45,000)
Dividends
$4,000
$0
The Retained Earnings balance at the end of Year 2 is:
a.
$ 1,000
b.
$ 4,000
c.
$ 5,000
d.
$ 46,000
19.
Carriage Corporation's Retained Earnings balance was $46,800 on January 1, 2001. Net
income for 2001 was $26,480. Retained Earnings had a credit balance of $21,000 after
Net Income and Dividends were posted on December 31, 2001. Additional stock of
$13,000 was issued during the year. Dividends paid during 2001 were:
a.
$38,800
b.
$52,280
c.
$60,280
d.
$73,280
20.
Carriage Corporation's Retained Earnings and Capital Stock balances were $46,800 and
$25,000, respectively, on January 1, 2001. Net income for 2001 was $26,480. Retained
Earnings had a credit balance of $21,000 after Net Income and Dividends were posted on
December 31, 2001. Additional stock of $13,000 was issued during the year. Total
Stockholders' Equity at December 31, 2001 was:
a.
$38,000
b.
$46,000
c.
$52,280
d.
$59,000
21.
Which of the following accounts have a normal debit balance?
a.
Revenue
b.
Capital Stock
c.
Accounts Receivable
d.
Retained Earnings
83
22.
Which of the following accounts have a normal credit balance?
a.
Accounts Receivable
b.
Cash
c.
Capital Stock
d.
Dividends
23.
The list of all the accounts with their ending balances is called the:
a.
Trial Balance
b.
Income Statement
c.
Statement of Retained Earnings
d.
Balance Sheet
24.
Assume that a company had a beginning balance in Retained earnings was $1,200. The
company earned revenues of $3,600 and incurred expenses of $1,600. The ending
balance in Retained Earnings was:
a.
2,000
b.
3,200
c.
1,200
d.
6,400
25.
Which of the following statements shows the assets, liabilities and owners' equity
accounts?
a.
Trial Balance
b.
Income Statement
c.
Statement of Retained Earnings
d.
Balance Sheet
26.
The statement of changes in owner's equity for a sole-proprietorship shows the beginning
and ending balances in:
a.
Retained Earnings
b.
Capital Stock
c.
Owner, Capital
d.
Drawings
27.
For a sole-proprietorship, which of the following is subtracted from the beginning
owner's equity to calculate the ending owner's equity?
a.
Net Income
b.
Dividends
c.
Owner, Capital
d.
Drawings
28.
For a corporation, which of the following is subtracted from the beginning owner's
equity to calculate the ending owner's equity?
a.
Net Income
b.
Dividends
c.
Owner, Capital
d.
Drawings
84
29.
Which of the following statements describes the relationship between the different types
of accounts on the balance sheet?
a.
Assets = Liabilities + Owner's Equity
b.
Assets = Liabilities-Owner's Equity
c.
Assets + Liabilities = Owner's Equity
d.
Assets + Owner's Equity = Liabilities
30.
Assume that the beginning balances in the Capital Stock and Retained earnings of a
company were $10,000 and $1,200 respectively. The company paid dividends of $1,000
for the period. Also the company earned revenues of $3,600 and incurred expenses of
$1,600. The ending balance in the Capital Stock and Retained Earnings accounts were:
a.
$10,000; $2,200
b.
$11,000; $1,200
c.
$9,000; $3,200
d.
$10,000; $1,200
85
MODULE 3
REVENUE AND EXPENSE RECOGNITION
Demonstration Problem 1
Music Stop
Transactions for June 2000
This example discusses revenue and expense recognition for June 2000 for Music Stop, a music
store selling CDs and tapes. This problem shows whether revenue, expenses, cash inflows or
cash outflows result from these events using the accrual method.
For each transaction, the appropriate answer(s) are shown based on the following list.
A. Cash was received B. Cash was paid C. Revenue was earned D. Expense was incurred
E. None of the above
1.
On June 1, the company signed a two year note for $24,000. (A)
2. On June 1, the company paid $1,800 as rent in advance for June, July and August. (B)
3. Merchandise costing $20,000 was purchased on credit. (E)
4. Goods costing $3,000 were sold for $3,500. (A), (C), (D)
5. June wages of $1,500 will be paid at the beginning of next month. (D)
6. The company received the utility bill of $100 for June. The bill will be paid at the beginning
of July. (D)
7. A payment of $2,000 was made for the merchandise purchased previously on credit. (B)
8. Interest on the note for the month of June is $200. This interest will be paid with the
principal at the end of two years. (D)
86
Practice Problem 1
Gym on Wheels
Gym on Wheels provides gymnastics fitness classes at various daycare centers. A bus equipped
with gym equipment visits each daycare center once a week. This assignment requires you to
indicate whether revenue, expenses, cash inflows or cash outflows result from these events using
the accrual method.
For each transaction, select the appropriate answer(s) from the following list.
A. Cash was received B. Cash was paid C. Revenue was earned D. Expense was incurred
E. None of the above
1. The owners contributed an additional $13,000 to the business to finance an expansion of
operations. (A)
2. Gymnastics lessons provided to customers totaled $15,000. These were performed on credit
during June and billed to customers. (C)
3. Instructors were paid their June salaries totaling $4,000. (B, D)
4. Other expenses in the amount of $3,000 were incurred during the month. One-third had been
paid for by month-end. (B, D)
5. Cash of $6,000 was collected from customers for whom services were performed in April
and May. (A)
6. Gym lessons totaling $2,000 were provided for customers who had paid for the services in
advance in May. (C)
87
Practice Problem 2
Moore Advertising Incorporated
This assignment describes events for Moore Advertising Inc for November 2000. This
assignment requires you to indicate whether revenue, expenses, cash inflows or cash outflows
result from these events using the accrual method.
For each transaction, select the appropriate answer(s) from the following list.
A. Cash was received B. Cash was paid C. Revenue was earned D. Expense was incurred
E. None of the above
1. Performed advertising services for clients for $5,700. These were performed on credit during
November and billed to customers. (C)
2. Paid the utilities bill of $118 for October. The bill was received and recorded on October 30.
(B)
3. Employees were paid wages of $2,700 for October. The wages earned by employees in
October were already recorded on Oct. 31. (B)
4. Purchased furniture on credit for $5,600. (E)
5. Purchased supplies for $160. (B)
6. Collected $3,000 from customers for whom services were performed in October. (A)
7. Services were provided to customers. The customers had paid $2,500 for these services in
advance in October. (C)
8. Supplies costing $100 were used in May. (D)
88
Homework Problem 1
APlus Hardware
This assignment describes events for APlus Hardware for August 2000. This assignment
requires you to indicate whether revenue, expenses, cash inflows or cash out flows result from
these events using the accrual method.
For each transaction, select the appropriate answer(s) from the following list.
A. Cash was received B. Cash was paid C. Revenue was earned D. Expense was incurred
E. None of the above
1.
APlus Hardware borrowed $12,000 from a bank in exchange for a 10%, two year note payable. (A)
2.
The utilities bill of $98 for July was paid in August. (B)
3.
Supplies were purchased for $120. (B)
4.
Inventory was purchased for $6,400. $2,000 was paid in cash. (B)
5.
$1,350 was paid to suppliers for inventory purchased in July. (B)
6.
Sold goods for $5,500 in cash. (A,C)
7.
The cost of the goods sold was $4,200. (D)
8.
Rent of $550 was paid for August. (B,D)
9.
August salaries of $1,200 were paid to employees. (B,D)
10.
The utilities bill of $140 for August will be paid in September. (D)
11.
Supplies costing $115 were used in August. (D)
89
Homework Problem 2
Haskell and Connolly
This assignment describes events for the law firm of Haskell and Connolly for May 2000. This
assignment requires you to indicate whether revenue, expenses, cash inflows or cash outflows
result from these events using the accrual method.
For each transaction, select the appropriate answer(s) from the following list.
A. Cash was received B. Cash was paid C. Revenue was earned D. Expense was incurred
E. None of the above
1. Performed legal services for a client and received cash of $2,000. (A,C)
2. $500 was paid for printing new letterhead envelopes. The new item will not be used, however,
until the old supply is exhausted sometime in June. (B)
3. A computer was purchased for $1,500. (B)
4. The secretary was paid a salary of $800 for May. (B,D)
5. The May telephone bill of $120 will be paid in June. (D)
6. The electric bill for April totaled $124 and was paid in cash. (B)
7. An advertisement was placed in a newspaper in May. The $1,000 cost had been paid in April.
(D)
8. Defended a client in court. The client will pay for these services in June. (C)
9. Supplies costing $100 were used in May. (D)
10. $800 was collected from customers for services provided in April. (A)
90
Homework Problem 3
Dalton Nursery
This assignment describes events for Dalton Nursery for April 2000. This assignment requires
you to indicate whether revenue, expenses, cash inflows or cash outflows result from these
events using the accrual method.
For each transaction, select the appropriate answer(s) from the following list.
A. Cash was received B. Cash was paid C. Revenue was earned D. Expense was incurred
E. None of the above
1.
The owners invested $10,000 in the business. (A)
2.
The advertising bill of $107 for March was paid in April. (B)
3.
Supplies were purchased for $230. (B)
4.
Inventory was purchased for $7,400. $1,000 was paid in cash. (B)
5.
$2,500 was paid to suppliers for inventory purchased in March. (B)
6.
Sold goods for $4,900 in cash. (A,C)
7.
The cost of the goods sold was $3,400. (D)
8.
Rent of $550 was paid for April. (B,D)
9.
April salaries of $1,400 were paid to employees. (B,D)
10.
The utilities bill of $140 for April will be paid in May. (D)
11.
Supplies costing $75 were used in April. (D)
91
Homework Problem 4
Bennett Architectural Designs
The transactions for Bennett Architectural Designs for March 2000 are given below. This
assignment requires you to indicate whether revenue, expenses, cash inflows or cash outflows
result from these events using the accrual method.
For each transaction, select the appropriate answer(s) from the following list.
A. Cash was received B. Cash was paid C. Revenue was earned D. Expense was incurred
E. None of the above
1.
An office was rented at $1,250 per month and two months' rent was paid in advance.
(B)
2.
A used automobile was purchased for $6,500. $2,000 was paid and a note was
signed for the balance. (B)
3.
Supplies were purchased for $500. (B)
4.
$400 was paid for advertising that appeared in the paper during February. (B)
5.
$1,500 was collected from a client for services provided in February. (A)
6.
Plans were prepared for clients for $6,200. Cash will be received from customers in
April. (C)
7.
$200 of the supplies were used during the month. (D)
8.
$110 was paid for gas and oil for the automobile. (B,D)
9.
The assistant was paid a salary of $1,200 for March. (B,D)
10.
The utility bill of $105 for March will be paid in April. (D)
92
Homework Quiz
Revenue and Expense Recognition
1.
Which of the following statements properly describes the Revenue Recognition Principle
as employed under the accrual-basis of accounting?
a.
Revenue is recognized when the earning process is complete.
b.
Revenue is recognized when cash is received.
c.
Revenue is recognized when the manufacture of the product to be sold is
completed.
d.
Revenue is recognized when the selling price is firmly established.
2.
Ensuring that all expenses incurred in generating revenues are recognized in the same
period as those revenues is called the:
a.
Periodicity
b.
Revenue Recognition Principle
c.
Matching Principle
d.
Going Concern Concept
3.
Expenses are most often recognized when:
a.
Cash is paid for them.
b.
Assets are purchased.
c.
They are incurred.
d.
Assets are ordered by the entity.
4.
Simply stated, the matching concept requires a:
a.
Matching of cash outflows and cash inflows.
b.
Matching of expenses with revenues earned.
c.
Matching of Assets with Liabilities.
d.
Matching of Assets Owner's Equity.
5.
Culpepper Industries utilizes the accrual basis of accounting. It will earn revenue of
$2,000 during 2001, but does not anticipate collecting the actual payment until 2002.
Which statement properly apportions the revenue earned to each of the two years?
a.
Year 2001: $1,000; Year 2002: $1,000
b.
Year 2001: $ -0-; Year 2002: $2,000
c.
Year 2001: $ 500; Year 2002: $1,500
d.
Year 2001: $2,000; Year 2002: $ -0-
6.
On November 1, 2001, Steve's Sports Shop sold inventory costing $600 for $900. As a
result of this transaction:
a.
Cash was received; Cash was paid; Revenue was earned.
b.
Cash was received; Revenue was earned; Cash was paid.
c.
Cash was received; Expense was incurred; Cash was paid.
d.
Cash was received; Revenue was earned; Expense was incurred.
93
7.
On November 1, 2001, Steve's Sports Shop sold inventory costing $600 for $900. As a
result of this transaction:
a.
Net Income increased by $300.
b.
Net Income increased by $600.
c.
Net Income increased by $900.
d.
Net Income did not change.
8.
On November 1, 2001 Steve's Sports signed a four-month, 15 percent Note Payable. As
a result of this signing:
a.
Cash was received; Revenue was earned; Expense was incurred.
b.
Cash was paid; Revenue was earned; Expense was incurred.
c.
Cash was received; Revenue was not earned; Expense was not incurred.
d.
Cash was paid; Revenue was not earned; Expense was not incurred.
9.
On November 1, 2001 Steve's Sports Shop signed a $900, four-month, 15 percent Note
Payable. Interest will be paid in full on the note's maturity date. Steve uses a calendar
year and employs the accrual basis of accounting. How much interest expense should be
assigned to 2001 and 2002?
a.
Year 2001: $ 45.00; Year 2002: $ -0b.
Year 2001: $ -0-; Year 2002: $ 45.00
c.
Year 2001: $ 22.50; Year 2002: $ 22.50
d.
Year 2001: $ 30.00; Year 2002: $ 15.00
10.
Wilson Company is a calendar-year company and employs the accrual basis of
accounting. On October 1, 2001, Wilson obtained a $30,000, one-year, 10 percent bank
loan. Interest will be paid in full on the loan's maturity date. How much interest expense
should be assigned to 2001 and 2002?
a.
Year 2001: $ 3,000; Year 2002: $ -0b.
Year 2001: $ -0-; Year 2002: $ 3,000
c.
Year 2001: $ 1,500; Year 2002: $ 1,500
d.
Year 2001: $ 750; Year 2002: $ 2,250
11.
Ace Photography employs a calendar year and the accrual basis of accounting. Ace pays
its employees each Friday for a five-day total workweek. The payroll is $16,000 per
week. If December 31st of the current year occurs on a Wednesday, how should the
weekly payroll expense be assigned:
a.
Current Year: $ -0-; Following Year: $16,000
b.
Current Year: $ 9,600; Following Year: $6,400
c.
Current Year: $ 8,000; Following Year: $8,000
d.
Current Year: $12,800; Following Year: $3,200
12.
A Fixed Asset is best described as:
a.
An asset whose benefit is assigned (fixed) to only the current accounting period.
b.
An asset whose benefit is assigned (fixed) to the owner's specific purpose in the
current accounting period.
c.
An asset whose benefit is assigned (fixed) to the current and future
accounting periods.
d. None of the above.
94
13.
An appropriate definition for Depreciation Expense is:
a.
The accumulation of funds to allow for asset replacement.
b.
The procedure employed to reduce assets' carrying cost to current market values.
c.
The allocation of an asset's initial cost over its estimated useful life.
d.
The primary method employed by the business entity to derive tax benefits.
14.
The Accumulated Depreciation account is credited when:
a.
One asset is traded for a new, similar asset.
b.
A new asset is acquired.
c.
Depreciation expense is recorded.
d.
One asset is traded for a used, similar asset.
15.
Accumulated Depreciation is best described as:
a.
The amount of cost expiration associated with inventory.
b.
A term synonymous with Depreciation Expense.
c.
The amount of cost expiration of a natural resource.
d.
A Contra Account used to offset the initial cost of a Fixed Asset.
16.
On December 31, 2001, Steve's Sports Shop recorded Depreciation Expense amounting
to $16,000. As a result of this transaction:
a.
Assets decreased; Expense increased; Cash was paid.
b.
Assets increased; Expense increased; Cash was not paid.
c.
Assets increased; Expense increased; Cash was paid.
d.
Assets decreased; Expense increased; Cash was not paid.
17.
On January 1, 2001, Mark's Cleaning Service, Inc. (MCS) purchased cleaning equipment
costing $12,600. The equipment had an estimated useful life of 3 years. MCS uses the
straight-line method for recording depreciation. The depreciation expense for the year
ending December 31, 2001, will be:
a.
$12,600
b.
$ 6,300
c.
$ 4,200
d.
$ 2,100
18.
On January 1, 2001, Mark's Cleaning Service, Inc. (MCS) purchased cleaning equipment
costing $12,600. The equipment had an estimated useful life of 3 years. MCS uses the
straight-line method for recording depreciation. The Book Value of the cleaning
equipment at December 31, 2002, will be:
a.
$12,600
b.
$ 8,400
c.
$ 6,300
d.
$ 4,200
95
19.
Equipment costing $160,000 is assigned an estimated useful life of 8 years. The
Equipment will be depreciated by the straight-line method. What is the amount of
Depreciation Expense for Year 3 and the Equipment's Book Value at the end of Year 5?
a.
Depreciation Expense Year 3: $20,000; Equipment's Book Value, End of
Year 5: $60,000
b.
Depreciation Expense Year 3: $40,000; Equipment's Book Value, End of Year 5:
$80,000
c.
Depreciation Expense Year 3: $20,000; Equipment's Book Value, End of Year 5:
$80,000
d.
Depreciation Expense Year 3: $40,000; Equipment's Book Value, End of Year 5:
$60,000
20.
Equipment costing $250,000 is assigned an estimated useful life of 20 years. The
Equipment will be depreciated by the straight-line method. What is the balance in the
Accumulated Depreciation account at the end of Year 4 and the Equipment's Book Value
at the end of Year 7?
a.
Accumulated Depreciation End of Year 4: $62,500; Equipment's Book Value,
End of Year 7: $150,000
b.
Accumulated Depreciation End of Year 4: $50,000; Equipment's Book
Value, End of Year 7: $162,500
c.
Accumulated Depreciation End of Year 4: $37,500; Equipment's Book Value,
End of Year 7: $175,000
d.
Accumulated Depreciation End of Year 4: $25,000; Equipment's Book Value,
End of Year 7: $137,500
21.
A company purchased furniture for $4,200 on January 1, 2000. The useful life of the
furniture is estimated to be seven years. The depreciation expense for 2002 is:
a.
$600
b.
$1,800
c.
$2,400
d.
$1,600
22.
A company purchased furniture for $4,200 on January 1, 2000. The useful life of the
furniture is estimated to be seven years. The balance in accumulated depreciation after
posting the adjustments for 2002 is:
a.
$600
b.
$1,800
c.
$2,400
d.
$1,600
23.
A company pays rent of $1,800 for three months in advance on November 1, 2000. The
end of the fiscal period is December 31. Which of the following statements is true?
a.
Rent Expense of $1,800 is recognized on November 1
b.
Rent Expense of $1,200 is recognized on December 31
c.
Rent Expense of $600 is recognized on December 31
d.
Cash is reduced by $1,200 on December 31
96
24.
A company pays rent of $1,800 for three months in advance on November 1, 2000. In
addition to recording a decrease in Cash on November 1, the company should:
a.
Recognize an expense
b.
Increase a liability
c.
Increase an asset
d.
Recognize revenue
25.
The balance in the Supplies account of a company on January 1, 2000, was $300.
Supplies were purchased for $650 in 2000. The balance in the Supplies account on
December 31, 2000 was $350. The Supplies Expense for 2000 was:
a.
$300
b.
$600
c.
$350
d.
$650
26.
A company borrowed $7,200 by signing a one year, 10% note on July 1, 2000. In
addition to recording interest expense on December 31, the company should:
a.
Decrease cash
b.
Increase a liability
c.
Increase an asset
d.
Increase cash
27.
A company paid wages of $250 for December 2000 on January 2, 2001. On January 2,
the company must:
a.
Decrease cash
b.
Increase a liability
c.
Increase an asset
d.
Increase cash
28.
The utilities bill of $105 for December 2000 will be paid in January 2001. On
December 31, the company should:
a.
Decrease cash
b.
Decrease a liability
c.
Increase an asset
d.
Recognize an expense
29.
A company provided services for $750 to customers in December 2000. They expect to
collect cash in January. In addition to recording revenue on December 31, 2000, the
company should:
a.
Increase cash
b.
Decrease a liability
c.
Increase an asset other than cash
d.
Recognize an expense
30.
A company provided services for $750 to a customer in December 2000. When the cash
is collected in January 2001, the company should:
a.
Increase cash
b.
Decrease a liability
c.
Recognize revenue
d.
Recognize an expense
97