Cases MA-BK 2.4 2011-2012 1 of 33

F1-1 Stockholders’ Equity and the Accounting Equat ion The total assets and liabilities at the beginning and end of the year for Luther Company are listed below.

Assets Liabilities Beginning of the year $200,000 $125,000 End of the year $275,000 $165,000

Required

Determine Luther’s net income or net loss for the year under each of the following alternatives: 1. The stockholders made no investments in the business, and no dividends were paid during the year.

2. The stockholders made no investments in the business, but dividends of $20,000 were paid during the year.

3. The stockholders invested $40,000 in the business, but no dividends were paid during the year. 4. The stockholders invested $15,000 in the business, and dividends of $12,000 were paid during the year.

Cases MA-BK 2.4 2011-2012 2 of 33

F1-2 Integration of Financial Statements The following three independent sets of financial statements have several amounts missing.

Income Statement Set A Set B Set C

Revenues $4,500 $ g. $300

Expenses a. 2,000 m.

Net income $ b. $ h. -$500

Statement of Retained Earnings

Beginning balance $2,500 $600 $2,400

Net income c. 1,600 n.

Less dividends 400 i. o.

Ending balance $3,600 $ j. $ p.

Balance sheet Set A Set B Set C

Total assets $ d. $20,000 $ q.

Liabilities $8,000 $15,000 $ r.

Stockholders’ equity

Common Stock 2,000 3.000 1,000

Retained earnings e. k. 1,700

Total liabilities and stockholders’ equity

$ f. $ l. $8,000

Required

1. Complete each set of financial statements by determining the amounts that correspond to the letters. 2. In what order is it necessary to prepare the financial statements? Why is that order necessary?

Cases MA-BK 2.4 2011-2012 3 of 33

F1-3 Preparation and Integration of Financial State ments Proviso Corporation engaged in the following activities during the year 2011: Service Revenue, $28,000; Rent Expense, $2,400; Wages Expense, $16,500; Advertising Expense, $2,000; Utilities Expense, $1,800; Income Taxes Expense, $1,000; and Dividends, $800. In addition, the year-end balances of selected accounts were as follows: Cash, $3,100; Accounts Receivable, $1,500; Supplies, $200; Land, $4,000; Accounts Payable, $900; Wages Payable, $350; Income Taxes Payable, $50; and Common Stock, $2,000. Required

In proper format, prepare the income statement, the statement of retained earnings, and balance sheet for Proviso Corporation (assume that the fiscal year ends on 31 December, 2011). (Hint: You must solve for the beginning and ending balances of Retained Earnings for 2011.)

Cases MA-BK 2.4 2011-2012 4 of 33

F2-1 Transaction Analysis The following accounts are applicable to Dale´s Lawn Service, Inc., a company that maintains condominium grounds.

1. Accounts Payable 2. Accounts Receivable 3. Cash

4. Equipment 5. Lawn Services Revenue 6. Rent Expense 7. Supplies 8. Wages Expense

Dale´s Lawn Service, Inc., completed the following transactions:

Debit Credit a. Paid for supplies purchased on credit last month. 1 3

b. Received cash from customers billed last month.

c. Made a payment on accounts payable.

d. Purchased supplies on credit.

e. Billed a client for lawn services.

f. Made a rent payment for the current month.

g. Received cash from customers for current lawn services.

h. Paid employee wages.

i. Ordered equipment.

j. Received and paid for the equipment ordered in i. Required

Analyze each transaction and show the accounts affected by entering the corresponding numbers in the appropriate debit or credit columns as shown in transaction a. Indicate no entry if appropriate.

Cases MA-BK 2.4 2011-2012 5 of 33

F2-2 Preparing a Trial Balance The list that follows presents the accounts (in alphabetical order) of the Dymarski Corporation as of 31 March, 2010. The list does not include the amount of Accounts Payable.

Accounts Payable ? Accounts Receivable $ 2,800 Bonds Payable 4,000

Building 24,000 Cash 3,900 Common Stock 14,000 Dividends 800 Equipment 7,200 Income Taxes Expense 1,750

Income Taxes Payable 250 Insurance Expense 1,900 Interest Expense 3,800 Land 15,000 Marketing Expense 2,400 Mortgage Payable 18,000 Notes Payable 5,000

Prepaid Insurance 600 Retained Earnings 5,600 Salaries Expense 12,900 Salaries Payable 400 Supplies 300 Supplies Expense 900

Required

Prepare a trial balance with the proper heading (see Exhibit 2) and with the accounts listed in the chart of accounts sequence (see Exhibit 3). Compute the balance of Accounts Payable.

Cases MA-BK 2.4 2011-2012 6 of 33

F2-3 Transaction Analysis: Bookkeeping, Journal Entries KML Airlines Corporation engaged in the following transactions during 2011. Its fiscal year is from 1 January to 31 December.

1 Jan. Issued 20,000 shares of Common Stock for $500,000 cash.

5 Jan. Purchased and received office supplies on account, $950.

1 Feb. Acquired a building for $900,000. KML got a $900,000, 8% mortgage from the ROAM Bank. The interest is due semi-annually. Depreciation of the building is straight-line, estimated useful life is 25 years, estimated residual value is $30,000.

27 Feb. Billed $25,000 for services provided to travel agencies.

1 Mar. Paid Aero Insurances Corp. $81,000 in cash for a 5-year property insurance for the Corporation’s buildings.

1 Apr. Signed a 10-year rent contract. Sun Travels will rent a part of KML’s office building for a yearly rent of $72,000. Rent is due in advance semi-annually. Received first half year’s rent per bank today.

6 June Received the bill for fuel used in May, $375,000.

31 July Paid mortgage interest due.

1 Aug. Accepted a 12%, 9-month $150,000 note, resulting from a payment agreement with a client. The client is suffering temporary liquidity problems. Repayment of interest and principal is due after 9 months.

1 Oct. Received in cash the office building rent.

5 Dec. Paid a cashdividend of $25,000. Required Prepare journal entries for the transactions during 2011.

Cases MA-BK 2.4 2011-2012 7 of 33

F3-1 Transaction Analysis: Bookkeeping, Adjusting E ntries After preparing the unadjusted trial balance, the controller of KML airlines intends to prepare the financial statements on 2011. Before doing so, he has to make the year-end-adjusting entries at the end of the accounting period. Use the data of assignment F2-3 and the following additional information to make the adjusting entries.

1. Beginning office supplies inventory was $100. A physical count reveals that office supplies on hand on 31 December 2011 is $50.

2. The depreciation of the building must be recorded.

3. The accrual of interest pertaining to the 8% mortgage payable.

4. The expired property insurance must be journalized.

5. The accrued office rent pertaining to the 10-year rent contract.

6. The accrued interest on the 12% Note Receivable.

7. On 6 January, 2012, a $540,000 bill for fuel used during December 2011, was received and paid.

Required

a. Prepare the adjusting entries.

b. Give checking calculations of the year-end balances on 31 December 2011 of the following accounts after the adjusting entries are made:

1. Prepaid Property Insurance. 2. Interest Expense Mortgage.

c. Assume the controller erroneously doesn’t make the adjustment for the property insurance.

This mistake will have the following consequences for the fiscal year 2011:

Overstated None Understated Net Income Assets Liabilities Stockholders’ Equity