Ch 1 - 2 Problem Sets Completed PDF

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Chapter 1

The foundation for the accounting system and the financial statements is the accounting equation. Accounting Equation Assets =

Liabilities +

Stockholders' Equity

Consider the following transactions for Thomas Company and their effect on the accounting equation. Click on each transaction for transaction details. Determine the new balance for each component of the accounting equation resulting from the transaction. (You will not need to enter the amount of each transaction, only the balance after the transaction.) If an amount box does not require an entry, leave it blank. Transaction

Assets =

Liabilities +

$0

$0

Beginning 1. Investment in the business

16910

2. Borrow cash

7620

3. Purchase equipment

8500

16910

Stockholders' Equity $0 16910

7620

7620

8500

8500

Transaction

Assets =

4. Revenues earned

298200

5. Expenses incurred

210900

6. Dividends

14400

Liabilities +

Stockholders' Equity

298200

298200

-210900

-210900

-14400

-14400

1. 16910 + 7620 = 24530 which is 24530 = 0 + 16910 2. Which then becomes 24530 = 7620 + 16910 3. Purchase asset w/cash does nothing to equation as equipment is an asset like cash 24530 = 7620 + 16910 4. 24530 + 298200 rev = 322730 and 298200 + 16910 = 315110 which becomes 322730 = 7620 + 315110 5. Expenses – Stock Equity 315110 – 210900 = 104210 which becomes 11830 = 7620 + 104210 6. Dividends – Stock Equity 104210 – 14400 = 89810 which becomes 97430 = 89810 + 7620

1. Match each of the following scenarios with the accounting principle or accounting assumption that it best illustrates. Monetary unit assumption Time period assumption Business entity assumption Going concern assumption Measurement principle Historical cost principle Revenue recognition principle Expense recognition principle Accounting Scenario

Principle or Assumption

Despite several years of falling sales, Thomas Company continues to forecast Going concern assumption sales and make strategic plans to raise revenues and cut expenses. Several years after Thomas Company purchased new office equipment, the company’s accounting records still show the original purchase price. The accounting records of Thomas Company are in dollars, not euros, although the Ohio-based company is owned by a German firm. The home of Rob Elliot, the owner of GGE Enterprises Inc., is not listed among the company’s assets. Thomas Company provides earnings information to investors at the end of every quarter.

Thomas Company records sales for the month along with the expenses incurred to produce the sales.

Although GGE Enterprises Inc. received a good deal on a used truck, the amount recorded in the accounting records is the amount the company paid,

Historical cost principle Monetary unit assumption Business entity assumption Time period assumption Expense recognition principle

Measurement principle

not the amount the truck was actually worth. GGE Enterprises records a deposit received from a customer for work to be

Revenue

performed later in the month. The customer is billed for the remaining amount

recognition

after the work is complete, and the customer’s payment is recorded.

principle

Thomas Company has decided to purchase a company vehicle. The accountant was given all of the purchase details. Which should be used to record the vehicle in the accounting records? The average selling price of similar vehicles in the area. The amount of the loan with the bank. The manufacturer’s suggested retail price (MSRP). The price negotiated with the dealer. A business will construct its financial statements in a particular order because they are interrelated. This means that items formulated in an earlier statement feed into the subsequent statements, and changes to items on one financial statement can have compounding effects on the overall financial position of a company. Which of the following is one reason the retained earnings statement is prepared after the income statement? Net income is part of the computation for ending retained earnings. Which of the following is one reason the retained earnings statement is prepared before the balance sheet? Ending retained earnings must be computed for the balance sheet.

On November 1 of the current year, Rob Elliot invested $30,000.00 of his cash to form a corporation, GGE Enterprises Inc., in exchange for shares of common stock.  No other common stock was issued during November or December.  After a very successful first month of operations, the retained earnings as of November 30 were reported at $5,000.00.  After all transactions have been entered into the accounting equation for the month of December, the ending balances for selected items on December 31 follow.  On that date, the financial statements were prepared.  The balance sheet reported total assets of $55,650.00 and total stockholders' equity of $38,000.00. Fees earned – Total expenses = Net Income 26,750 – 18,000 = 8,750 Assets = Liabilities + Stockholders’ Equity 55,650 = ? + 38,000 ? = 17,650 Liabilities What is the amount reported for total liabilities and stockholders’ equity on December 31? 17,650 + 38,000 = 55,650 Balance Sheet What is the retained earnings amount reported on December 31? 8,000 Retained Earnings Statement Liabilities – Assets = Stockholders’ Equity then Stockholders’ Equity – Common Stock 17,650 – 55,650 = 38,000 38,000 – 30,000 = 8,000 How much does GGE Enterprises Inc. owe to its creditors? 17,650 Balance Sheet How much cash is being held by GGE Enterprises Inc.? 30,550 Balance Sheet By what amount did retained earnings increase or decrease during the period? 3,000 Retained Earnings Statement What is the amount of profit or loss during December? 8,750 Income Statement What were the total expenses for December? 18,000 Income Statement How much was paid for wages? 5,225 Income Statement

Review the following questions. Place an ‘X’ in the box to indicate which financial statement(s) report the desired information. Enter the amount reported on the financial statement.

Cost Principle On June 25, Ritts Roofing extended an offer of $250,000 for land that had been priced for sale at $300,000. On July 9, Ritts accepted the seller’s counteroffer of $275,000. On October 1, the land was assessed at a value of $280,000 for property tax purposes. On December 22, Ritts was offered $305,000 for the land by a national retail chain. At what value should the land be recorded in Ritts Roofing's records? $

275000

Accounting Equation

Assets = Liabilities + Stockholders’ Equity

Jan Petri is the stockholder and operator of Galaxy LLC, a motivational consulting business. At the end of its accounting period, December 31, 2017, Galaxy has assets of $686,000 and liabilities of $165,000. Using the accounting equation, determine the following amounts:

a. Stockholders' equity as of December 31, 2017. $

521000

686,000 = 165,000 + 521,000

b. Stockholders' equity as of December 31, 2018, assuming that assets increased by $130,000 and liabilities decreased by $40,000 during 2018. $

691000

816,000 = 125,000 + 691,000

685000 = 164000 + 521000 555000 = 125000 + 430000

Income Statement The revenues and expenses of Paradise Travel Service for the year ended May 31, 2018, follow: Accounts (revenue and expense items) Fees earned

$900,000

Office expense

300,000

Miscellaneous expense

15,000

Wages expense

450,000

Labels Expenses For the Year Ended May 31, 2018 May 31, 2018 Amount Descriptions Net income Net loss Total expenses Prepare an income statement for the year ended May 31, 2018. Refer to the lists of Accounts in the information given, Labels, and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a minus sign.

Balance Sheet The balances of Paradise Travel Service’s accounting equation items for the year ended May 31, 2018, are listed below. $10,000 of dividends were paid during the year. Retained earnings as of June 1, 2017, were $300,000. Accounts Fees earned

$900,000

Office expense

300,000

Miscellaneous expense

15,000

Wages expense

450,000

Accounts payable

18,000

Accounts receivable

38,000

Cash

52,000

Common stock

100,000

Land

450,000

Supplies

3,000

Accounts, Labels and Amount Descriptions Accounts Accounts payable Accounts receivable Cash Common stock Land Retained earnings Supplies Labels May 31, 2018

Accounts Amount Descriptions Net income Total assets Total expenses Total liabilities Total liabilities and stockholders’ equity Total revenue Total stockholders’ equity

Prepare a balance sheet as of May 31, 2018. Refer to the lists of Accounts, Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading.

Retained Earnings Statement The revenues and expenses of Paradise Travel Service for the year ended May 31, 2018, follow: Accounts Fees earned

$1,403,000

Office expense

303,000

Miscellaneous expense

32,000

Wages expense

864,000

Everett McCauley invested an additional $46,000 in the business in exchange for common stock, and $31,000 of dividends were paid during the year. Retained earnings as of June 1, 2017, was $562,000. Labels For the Year Ended May 31, 2018 May 31, 2018 Amount Descriptions Change in retained earnings Dividends Net income Net loss Retained earnings, June 1, 2017 Retained earnings, May 31, 2018 Prepare a retained earnings statement for the year ended May 31, 2018. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. “Less” or “Add” is not required. A decrease to retained earnings should be entered as a negative amount.

The revenues and expenses of Paradise Travel Service for the year ended May 31, 2018, follow:

Accounts Fees earned

$805,000

Office expense

295,300

Miscellaneous expense

10,300

Wages expense

451,600

Everett McCauley invested an additional $36,600 in the business in exchange for common stock, and $17,000 of dividends were paid during the year. Retained earnings as of June 1, 2017, was $365,000.

295300 + 10300 + 451600 = 757200 – 805000 = 47800 – 36000 = 11800

Chapter 2

Accounts Payable Cash Dividends Miscellaneous Expense Insurance Expense Fees Earned

is Liabilities is Assets is Stockholders’ Equity is Stockholders’ Equity is Stockholders’ Equity is Stockholders’ Equity

Journal Entry for asset purchase CHART OF ACCOUNTS General Ledger

11 12 13 14 15 16 17

Assets Cash Accounts Receivable Office Supplies Prepaid Insurance Land Office Equipment Automobiles

21 22

Liabilities Accounts Payable Unearned Rent

23 24

Notes Payable Salaries Payable

41 42

51 52 53 54 55 56 57 58

Revenue Fees Earned Sales Commission Expenses Advertising Expense Automobile Expense Insurance Expense Rent Expense Salary Expense Supplies Expense Utilities Expense Miscellaneous Expense

31 32 33

Equity Common Stock Retained Earnings Dividends

Prepare a journal entry for the purchase of office Supplies on March 9 for $1,775, paying $275 cash and the remainder on account. Refer to the Chart of Accounts for exact wording of account titles.

Journal Entry for fees earned Prepare a journal entry on August 13 for cash received for services rendered, $9,000. Refer to the Chart of Accounts for exact wording of account titles.

Journal Entry for dividends Prepare a journal entry on June 30 for dividends of $11,500. Refer to the Chart of Accounts for exact wording of account titles.

Missing amount from an account On August 1, the supplies account balance was $1,025. During August, supplies of $3,110 were purchased, and $1,324 of supplies were on hand as of August 31. Determine supplies expense for August $2,811 Beg. Bal Aug 1 Cash Receipts Aug 31 Bal

$1,025 $3,110 $1,324

1025 + 3110 – X = 4135 4135 – X = 1324 4135 – 1324 = X 2811 = X

Correcting Entries On March 1, it was discovered that the following errors took place in journalizing and posting transactions: a. The receipt of $8,400 for services rendered was recorded as a debit to Accounts Receivable and a credit to Fees Earned. b. The purchase of supplies of $2,500 on account was recorded as a debit to Office Equipment and a credit to Supplies. Journalize the entries on March 1 to correct the errors. Use two entries to correct the error described in (b). (That is, record an entry to reverse the incorrect entry and a second entry to record the correct entry.) Refer to the Chart of Accounts for exact wording of account titles.

Charts of Accounts The following accounts appeared in recent financial statements of Delta Air Lines. Identify each account as either a balance sheet account or an income statement account.  For each balance sheet account, identify it as an asset, a liability, or stockholders' equity .  For each income statement account, identify it as a revenue or an expense.

Rules of Debit and Credit The following table summarizes the rules of debit and credit. Indicate whether the proper answer is a debit or a credit.

Transactions Zenith Consulting Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment; Accounts Payable; Common Stock; Retained Earnings; Dividends; Fees Earned; Rent Expense; Advertising Expense; Utilities Expense; Miscellaneous Expense. Transactions Mar.

1

Paid rent for the month, $4,000.

3

Paid advertising expense, $1,350.

5

Paid cash for supplies, $1,800.

6

Purchased office equipment on account, $11,500.

10

Received cash from customers on account, $8,600.

15

Paid creditor on account, $3,180.

27

Paid cash for miscellaneous expenses, $700.

30

Paid telephone bill for the month, $550.

31

Fees earned and billed to customers for the month, $37,200.

31

Paid electricity bill for the month, $830.

31

Paid dividends, $2,000.

Journalize the preceding selected transactions for March 2018 in a two-column journal. Refer to the Chart of Accounts for exact wording of account titles. CHART OF ACCOUNTS

Zenith Consulting Co.

General Ledger

ASSETS 11 Cash 12 Accounts Receivable 13 Supplies

REVENUE 41 Fees Earned EXPENSES 51 Rent Expense

14 Office Equipment LIABILITIES 21 Accounts Payable EQUITY 31 Common Stock 32 Retained Earnings 33 Dividends

52 Advertising Expense 53 Utilities Expense 54 Miscellaneous Expense

Normal Balances of Accounts Identify each of the following accounts of Kaiser Services Co. as asset, liability, stockholders’ equity, revenue, or expense, and state in each case whether the normal balance is a debit or a credit ....