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* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
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