Financial Accounting Practice Problems
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Transcript of Financial Accounting Practice Problems
F/Acc Practice Questions
Q1. The following are the transactions of Overnight Auto Service for the month of November 2006:
• Nov 1: McBryan started business by depositing $200,000 in a company bank account.• Nov 1: Received $2,400 cash in advance for 4 months (rent revenue).• Nov 1: Paid $3,000 cash in advance for 3 months (salaries expense). • Nov 2: Purchased an aircraft for $240,000. Made a $60,000 cash down payment and issued a note payable for remaining $180,000.• Nov 3: Purchased land for $45,000 by paying cash.• Nov 4: Paid Daily Tribune $500 cash for newspaper advertising to be run during November. • Nov 5: Purchased radio advertising from KRAM to be aired in November. The cost was $750, payable within 30 days.• Nov 5: Purchased a building for $64,800 - paying $10,800 in cash and issuing a note payable for the remaining $54,000. • Nov 6: Purchased various shop supplies cost $2,500, due in 30 days. These supplies are expected to meet Overnight’s needs for three or four months. • Nov 7: Collected $7,950 cash for repairs made to vehicles.• Nov 8: McBryan, the owner, withdrew $5,200 cash from the company’s bank account for his personal use.• Nov 9: McBryan found that he did not need all of the cash he had withdrawn on Nov 8, so he redeposited $2,000 in Overnight’s (business) bank account. • Nov 10: Paid all employees wages expense of $3,500. • Nov 11: Paid rent of amount $5,500.• Nov 12: Purchased tools and equipment on account for $23,800.• Nov 15: Billed customers $6,320 for services rendered during the 1st half of November.• Nov 16: Paid $2,400 for maintenance and repair services. • Nov 17: Collected $6,320 of the amounts billed to customers on November 15.• Nov 19: Received a fuel bill for $1,500 purchased during November. This amount is due by December 10.• Nov 20: Sold some of the tools and equipment at the price equal to its cost $2,800. Collectable within 45 days. • Nov 25: Received $1,200 in partial collection of the accounts receivable from the sale of the tools and equipment.• Nov 26: Paid $9,800 in partial payment of an account payable for the purchase of tools and equipment.• Nov 30: Billed Harbor Cab Co. $8,500 for maintenance and repair services rendered during November. The agreement with Harbor Cab calls for payment to be received by December 10.
Data for Adjusting Entries:(i) Cost of Air Craft = $240,000Useful life of Aircraft = 20 years(ii) Cost of Building = $64,800Useful life of building = 18 years(iii) Cost of Tools and Equipment = $21,000Useful life of Tools and Equipment =7 years(iv) Beginning Shop supplies = $2,500Ending Shop Supplies = $1,300(v) Prepaid salaries for 3 months is $3000.(vi) Unearned rent revenue is $2,400 for 4 months.(vii) Wages accrued but not recorded at the end of November is $1,200.
(viii) Repair services revenue accrued but not recorded at the end of the month is $2,500.
Required:I. Analyze these transactions (note down which accounts they will effect).II. Record these transactions in the journals.III. Post it into the ledger.IV. Draw up a trial balance.
Q2. Company A was incorporated on January 1, 2010 with an initial capital of 5,000 shares of common stock having $20 par value. During the first month of its operations, the company engaged in following transactions:
Date Transaction
Jan 2 An amount of $36,000 was paid as advance rent for three months.
Jan 3 Paid $60,000 cash on the purchase of equipment costing $80,000. The remaining amount was recognized as a one year note payable with interest rate of 9%.
Jan 4 Purchased office supplies costing $17,600 on account.
Jan 13
Provided services to its customers and received $28,500 in cash.
Jan 13
Paid the accounts payable on the office supplies purchased on January 4.
Jan 14
Paid wages to its employees for first two weeks of January, aggregating $19,100.
Jan 18
Provided $54,100 worth of services to its customers. They paid $32,900 and promised to pay the remaining amount.
Jan 23
Received $15,300 from customers for the services provided on January 18.
Jan 25
Received $4,000 as an advance payment from customers.
Jan 26
Purchased office supplies costing $5,200 on account.
Jan 28
Paid wages to its employees for the third and fourth week of January: $19,100.
Jan 31
Paid $5,000 as dividends.
Jan 31
Received electricity bill of $2,470.
Jan 31
Received telephone bill of $1,494.
Jan 31
Miscellaneous expenses paid during the month totaled $3,470
The ledger accounts shown below are derived from the journal entries of Company A.
Asset Accounts
Cash Accounts Receivable
$100,000
$36,000 $21,200 $15,300
28,500 60,000
32,900 17,600
15,300 19,100
4,000 19,100
5,000
3,470
$20,430 $5,900
Office Supplies Prepaid Rent
$17,600 $36,000
5,200
$22,800 $36,000
Equipment
$80,000
$80,000
Liability Accounts
Accounts Payable Notes Payable
$17,600 $17,600 $20,000
5,200
$5,200 $20,000
Utilities Payable Unearned Revenue
$2,470 $4,000
1,494
$3,964 $4,000
Equity Accounts
Common Stock
$100,000
$100,000
Revenue, Dividend and Expense Accounts
Service Revenue Dividend
$28,500 $5,000
54,100
$82,600 $5,000
Wages Expense Miscellaneous Expense
$19,100 $3,470
19,100
$38,200 $3,470
Electricity Expense Telephone Expense
$2,470 $1,494
$2,470 $1,494
Relevant information for the preparation of adjusting entries of Company A
Office supplies having original cost $4,320 were unused till the end of the period. Office supplies having original cost of $22,800 are shown on unadjusted trial balance.
Prepaid rent of $36,000 was paid for the months January, February and March.
The equipment costing $80,000 has useful life of 5 years and its estimated salvage value is $14,000. Depreciation is provided using the straight line depreciation method.
The interest rate on $20,000 note payable is 9%. Accrue the interest for one month.
$3,000 worth of service has been provided to the customer who paid advance amount of $4,000.
Solution Q2.
The following table shows the journal entries for the above events.
Date Account Debit Credit
Jan 1 Cash 100,000
Common Stock 100,000
Jan 2 Prepaid Rent 36,000
Cash 36,000
Jan 3 Equipment 80,000
Cash 60,000
Notes Payable 20,000
Jan 4 Office Supplies 17,600
Accounts Payable 17,600
Jan 13
Cash 28,500
Service Revenue 28,500
Jan 13
Accounts Payable 17,600
Cash 17,600
Jan 14
Wages Expense 19,100
Cash 19,100
Jan 18
Cash 32,900
Accounts Receivable 21,200
Service Revenue 54,100
Jan 23
Cash 15,300
Accounts Receivable 15,300
Jan 25
Cash 4,000
Unearned Revenue 4,000
Jan 26
Office Supplies 5,200
Accounts Payable 5,200
Jan 28
Wages Expense 19,100
Cash 19,100
Jan 31
Dividends 5,000
Cash 5,000
Jan 31
Electricity Expense 2,470
Utilities Payable 2,470
Jan 31
Telephone Expense 1,494
Utilities Payable 1,494
Jan 31
Miscellaneous Expense 3,470
Cash 3,470
Company A
Unadjusted Trial Balance
January 31, 2010
Debit Credit
Cash $20,430
Accounts Receivable 5,900
Office Supplies 22,800
Prepaid Rent 36,000
Equipment 80,000
Accounts Payable $5,200
Notes Payable 20,000
Utilities Payable 3,964
Unearned Revenue 4,000
Common Stock 100,000
Service Revenue 82,600
Wages Expense 38,200
Miscellaneous Expense 3,470
Electricity Expense 2,470
Telephone Expense 1,494
Dividend 5,000
Total $215,764 $215,764
The adjusting entries of Company A are:
Date Account Debit Credit
Jan 31 Supplies Expense 18,480
Office Supplies 18,480
Supplies Expense = $22,800 − $4,320 = $18,480
Jan 31 Rent Expense 12,000
Prepaid Rent 12,000
Rent Expense = $36,000 ÷ 3 = $12,000
Jan 31 Depreciation Expense 1,100
Accumulated Depreciation 1,100
Depreciation Expense = ($80,000 − $14,000) ÷ (5 × 12) = $1,100
Jan 31 Interest Expense 150
Interest Payable 150
Interest Expense = $20,000 × (9% ÷ 12) = $150
Jan 31 Unearned Revenue 3,000
Service Revenue 3,000
Company A
Adjusted Trial Balance
January 31, 2010
Debit Credit
Cash $20,430 −
Company A
Adjusted Trial Balance
January 31, 2010
Accounts Receivable 5,900 −
Office Supplies 4,320 −
Prepaid Rent 24,000 −
Equipment 80,000 −
Accumulated Depreciation − $1,100
Accounts Payable − 5,200
Utilities Payable − 3,964
Unearned Revenue − 1,000
Interest Payable − 150
Notes Payable − 20,000
Common Stock − 100,000
Service Revenue − 85,600
Wages Expense 38,200 −
Supplies Expense 18,480 −
Rent Expense 12,000 −
Miscellaneous Expense 3,470 −
Electricity Expense 2,470 −
Telephone Expense 1,494 −
Depreciation Expense 1,100 −
Interest Expense 150 −
Dividend 5,000 −
Total $217,014 $217,014
Q3. We are following Paul around for the first year as he starts his guitar store called Paul's Guitar Shop, Inc. Here are the events that take place.
Journal Entry 1 -- Paul forms the corporation by purchasing 10,000 shares of $1 par stock.Journal Entry 2 -- Paul finds a nice retail storefront in the local mall and signs a lease for $500 a month.Journal Entry 3 -- PGS takes out a bank loan to renovate the new store location for $100,000 and agrees to pay $1,000 a month. He spends all of the money on improving and updating the store's fixtures and looks.Journal Entry 4 -- PGS purchases $50,000 worth of inventory to sell to customers on account with its vendors. He agrees to pay $1,000 a month.Journal Entry 5 -- PGS's first rent payment is due.Journal Entry 6 -- PGS has a grand opening and makes it first sale. It sells a guitar for $500 that cost $100.Journal Entry 7 -- PGS sells another guitar to a customer on account for $300. The cost of this guitar was $100
Journal Entry 8 -- PGS pays electric bill for $200.Journal Entry 9 -- PGS purchases supplies to use around the store.Journal Entry 10 -- Paul is getting so busy that he decides to hire an employee for $500 a week. Pay makes his first payroll payment.Journal Entry 11 -- PGS's first vendor inventory payment is due of $1,000.Journal Entry 12 -- Paul starts giving guitar lessons and receives $2,000 in lesson income.Journal Entry 13 -- PGS's first bank loan payment is due.Journal Entry 14 -- PGS has more cash sales of $25,000 with cost of goods of $10,000.Journal Entry 15 -- In lieu of paying himself, Paul decides to declare a $1,000 dividend for the year.
Let's post the journal entries that Paul's Guitar Shop, Inc. made during the first year in business to the ledger accounts.
Following our year-end example of Paul's Guitar Shop, Inc., we can see that his unadjusted trial balance needs to be adjusted for the following events.
-- Paul pays his $1,000 January rent in December.-- Paul's December electric bill was $200 and is due January 15th.-- Paul's leasehold improvement depreciation is $2,000 for the year.-- On December 31, a customer prepays Paul for guitar lessons for the next 6 months.-- Paul's employee works half a pay period, so Paul accrues $500 of wages.
Solution Q3
Q4.Samson Company adjusted account balances as of December 31, 2005 are as follows (some noted balances are Jan. 1, 2005):
Sales . . . . . . . . . . . . . . . . . . . . . . . .1,200,000 Purchases . . . . . . . . . . . . . . . . . . . . . . 810,000 Marketable securities . . . . . . . . . . . . . . . . 15,000 Purchase discounts . . . . . . . . . . . . . . . . . 20,000 Purchase returns and allowances . . . . . . . . . . . 2,000 Extraordinary loss due to earthquake, net of applicable taxes of $15,000. . . . . . . . . . . . 35,000 Selling expenses . . . . . . . . . . . . . . . . . . 114,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . 90,000 Accounts receivable . . . . . . . . . . . . . . . . . 60,000 Common stock . . . . . . . . . . . . . . . . . . . . 150,000 Accumulated depreciation . . . . . . . . . . . . . . 42,000 Paid-in-capital in excess of par . . . . . . . . . . 30,000 Inventory, January 1, 2005 . . . . . . . . . . . . . 149,000 Inventory, December 31, 2005 . . . . . . . . . . . . 120,000 Accounts payable . . . . . . . . . . . . . . . . . . 71,000 Salaries payable . . . . . . . . . . . . . . . . . . 5,000 Cash surrender value of life insurance . . . . . . . 22,000 Patents . . . . . . . . . . . . . . . . . . . . . . . 18,000 Retained earnings, January 1, 2005 . . . . . . . . . 60,600 Interest expense . . . . . . . . . . . . . . . . . . 13,000 General and administrative expenses . . . . . . . . . 160,000 Dividend revenue. . . . . . . . . . . . . . . . . . . 6,000 Allowance for doubtful accounts . . . . . . . . . . . 3,000 Notes payable (maturity 7/1/07) . . . . . . . . . . . 105,000 Machinery and equipment . . . . . . . . . . . . . . . 150,000 Income tax expense . . . . . . . . . . . . . . . . . 30,600 Treasury stock . . . . . . . . . . . . . . . . . . . 10,000 Dividends declared and paid . . . . . . . . . . . . . 18,000
Prepare multi-step income statement:
Samson Company Income Statement For the Year Ended December 31, 2005
Sales $1,200,000
Cost of Goods Sold:
Beginning inventory $149,000 Purchases $810,000 Purchase discounts ( 20,000) Purchase returns and
allowances ( 2,000) ------- Net purchases 788,000 ------- Goods available for sale 937,000 Ending inventory 120,000 ------- Cost of goods sold 817,000 --------- Gross profit 383,000
Operating expenses: Selling expenses 114,000 General and administrative expenses 160,000 ------- Total operating expenses 274,000 --------- Operating income 109,000
Other income (expense): Dividend revenue 6,000 Interest expense ( 13,000) ------- Total other income (expense) ( 7,000) ---------
Income before income taxes 102,000
Income taxes 30,600 ---------
Income before extraordinary item 71,400
Extraordinary loss due to earthquake, net of applicable taxes of $15,000 ( 35,000)
-------- Net income $36,400 ========
Prepare a classified Balance Sheet:
Samson Company Balance Sheet December 31, 2005
Assets Current Assets: Cash $ 90,000 Marketable securities 15,000 Accounts receivable $ 60,000 Less allowance for doubtful accounts ( 3,000) ------- 57,000 Inventories 120,000 -------- Total Current Assets 282,000
Property, Plant, and Equipment Machinery and Equipment $150,000 Less accumulated depreciation ( 42,000) --------
Total Property, Plant, and Equipment 108,000
Other Assets: Cash surrender value of life insurance $ 22,000 Patents 18,000 ------- Total Other Assets 40,000 ------- Total Assets $430,000 ========
Income Statement/ Profit Loss Statemant Example
Here is a sample income statement of a service type sole proprietorship business. Let us name the
company Strauss Printing Services. All amounts are assumed and simplified for illustration purposes.
Strauss Printing Services
Income Statement
For the Year Ended December 31, 2014
Service Revenue $ 160,000
Less: Expenses
Salaries Expense $ 40,000
Supplies Expense 26,100
Rent Expense 20,500
Utilities Expense 11,300
Depreciation Expense 5,000 102,900
Net Income $ 57,100
Assume that the company started the year 2014 with $100,000 capital. During the year, the owner
made $10,000 additional contributions and $20,000 total withdrawals. The Statement of Owner's
Equity would look like this:
Strauss Printing Services
Statement of Owner's Equity
For the Year Ended December 31, 2014
Strauss, Capital $ 100,000
Add: Additional Contributions 10,000
Net Income 57,100
Total $ 167,100
Less: Strauss, Drawings 20,000
Strauss, Capital – Dec. 31, 2014 $ 147,100
Balance Sheet/ Statement of Financial Position
Strauss Printing Services
Statement of Financial Position
As of December 31, 2014
ASSETS
Current Assets:
Cash $ 21,000
Accounts Receivable 16,000
Prepaid Expenses 4,500$
41,500
Non-current Assets:
Property, Plant and Equipment
145,000
Total Assets$
186,500
LIABILITIES AND OWNER'S EQUITY
Current Liabilities:
Accounts Payable $ 8,400
Rent Payable 8,000$
16,400
Non-current Liability:
Loans Payable 23,000
Strauss, Capital 147,100
Total Liabilities and Owner's Equity$
186,500