2010. During the first month of operations the following transactions occurred: Performed services for patients who had dental plan insurance. At January 31, $1,000 of such services was earned but not yet billed to the insurance companies. Salaries were incurred totaling $650 but not paid at month-end. Supplies totaling $600 were purchased on account. Prepare the adjusting entries on January 31. Omit explanations. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)
3. (TCO B) Adjusting Entries: William Bryant is the new owner of Ace Computer Services. At the end of August 2010, his first month of ownership, Bryant is trying to prepare monthly financial statements. At August 31, Bryant owed his employees $2,000 in wages that will be paid on September 1. At the end of the month he had not yet received the month’s utility bill. Based on past experience, he estimated that the bill would be approximately $800. A telephone bill in the amount of $317 covering August charges is unpaid at August 31. You are to provide the missing adjusting entries that must be made. For each journal entry write Dr. for debit and Cr. for credit (Points : 10)
4. (TCO B) Adjusting entries: When the accounts of Constantine Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of annual fiscal period. The prepaid insurance account shows a debit of $9,000, representing the cost of a 2-year fire insurance policy dated August 1 of the current year. On November 1, Rental Revenue was credited for $4,000, representing revenue from a sub-rental for a 3-month period beginning on that date. Interest of $900 has accrued on notes payable. You are to prepare the missing adjusting entry. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)
5. (TCO B) Adjusting Entries: On April 1, 2010, Prince Company assigns $500,000 of its Accounts Receivable to the Third National Bank as collateral for a $300,000 loan due July 1, 2010. The assignment agreement calls for Prince Company to continue to collect the receivables. Third National Bank asses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this Type:). Prepare the journal entry for Prince’s collection of $350,000 of the accounts receivable during the period from April 1, 2010 through June 30, 2010. You are to prepare the missing adjusting entry. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)
6. (TCO B) Adjusting Entries: Wizard Industries purchase $12,000 of merchandise on February 1, 2010, subject to a trade discount of 105 and with credit terms of 3/15/, n/60. It returned $3,000 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13. Assuming that Wizard uses the periodic method for recoding merchandise transactions, record the purchase, return, and payment using the gross method. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)
7. (TCO B) Adjusting Entries: Shabbona Corporation operates a retail computer store. To improve delivery services to customers, the company purchased a new truck on April 1, 2010. The terms for the acquisition of the truck are: it has a list price of $15,000 and is acquired for a cash payment of $13,900. Write the journal entry to record the purchase of the truck. Write Dr. for debit and Cr. for credit. (Points : 10)
8. (TCO D) The adjusted trial balance of Cavamanlis Co. as of December 31, 2011 contains the following:
Account Titles
Dr
Cr
Cash
$18,972
Accounts Receivable
6,920
Prepaid Rent
4,280
Equipment
20,050
Accumulated Depreciation
$5,895
Notes Payable
5,700
Accounts Payable
4,472
Common Stock
20,000
Retained Earnings
15,310
Dividends
4,000
Service Revenue
12,590
Salaries Expense
6,840
Rent Expense
2,760
Depreciation Expense
145
Interest Expense
83
Interest Payable
83
$64,050
$64,050
Instructions
Prepare in good form a balance sheet for the year ended December 31, 2011. (Points : 15)
1. (TCO C) Flynn Design Agency was founded by Kevin Flynn in January 2009. Presented below is the adjusted trial balance as of December 31, 2010.
Flynn Design Agency
Adjusted Trial Balance
December 31, 2010
Account Titles
Dr
Cr
Cash
$10,000
Accounts Receivable
21,500
Art Supplies
5,000
Prepaid Insurance
2,500
Printing Equipment
60,000
Accumulated Depreciation
$35,000
Accounts Payable
8,000
Interest Payable
150
Notes Payable
5,000
Unearned Advertising Revenue
5,600
Salaries Payable
1,300
Common Stock
10,000
Retained Earnings
3,500
Advertising Revenue
58,500
Salaries Expense
12,300
Insurance Expense
850
Interest Expense
500
Depreciation Expense
7,000
Art Supplies Expense
3,400
Rent Expense
4,000
Total
$127,050
$127,050
Prepare a single-step income statement for the year ending December 31, 2010. (Points : 15)
2. (TCO C) Two accountants for the firm of Allen and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2010 information related to Webster Company.
Administrative expense
Officers’ salaries
$5,900
Depreciation of equipment
3,960
Cost of Goods Sold
73,570
Rental revenue
17,230
Selling Expense
Transportation-out
2,690
Sales commission
7,980
Depreciation of equipment
6,480
Sales
116,500
Income tax
10,580
Interest expense
1,860
Prepare a single-step income statement for the year ended December 31, 2010. (Points : 20)
3. (TCO D) Bruno Company has seceded to expand its operations. The bookkeeper recently completed the balance sheet presented below in order to obtain additional funds for expansion.
Bruno Company
Balance Sheet
December 31, 2010
Current Assets
Cash
$280,000
Accounts Receivable (net)
340,000
Inventories at lower of average cost or market
500,000
Trading securities – at cost (fair value $120,000)
140,000
Property, plant and equipment
Building (net)
570,000
Office equipment (net)
160,000
Land held for future use
225,000
Intangible assets
Goodwill
100,000
Cash surrender value of life insurance
90,000
Prepaid expenses
12,000
Current liabilities
Accounts payable
175,000
Notes payable (due next year)
125,000
Pension obligation
122,000
Rent payable
49,000
Premium on bonds payable
53,000
Long-term liabilities
Bonds payable
500,000
Stockholders’ Equity
Common stock, $1.00 par, authorized
400,000 shares, issued 290,000
340,000
Additional paid-in capital
219,000
Retained earnings
?
Prepare a revised balance sheet given the available information. Assume that the accumulated depreciation balance for the buildings is $160,000 and for the office equipment, $105,000. The allowance for doubtful accounts has a balance of $17,000. The pension obligation is considered a long-term liability. (Points : 20)
4. (TCO F) Determine the cash account balance. If the item described is not reported as cash, explain the rationale. Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9,800; postage stamps on hand $620. (Points : 20)
5. (TCO F) At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000. On January 16, 2011, Sorter Company determined that its receivable from Ordonez Company of $8,000 will not be collected, and management authorized its write-off. What is the net realizable value of Sorter Company’s accounts receivable after the write-off of the Ordonez receivable? (Points : 20)
6. (TCO G) In your audit of Garza Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost $541,000 was on hand at that date. You also discover the following items were all excluded from the inventory count.
•Merchandise of $71,000 which is held by Garza on consignment. The consignee is the Bontemps Company.
•Merchandise costing $33,000 which was shipped by Garza f.o.b. shipping point to a customer on December 31, 2010. The customer was expected to receive the merchandise on January 6, 2011.
•Merchandise costing $46,000 which was shipped by Garza f.o.b. destination to a customer on December 29, 2010. The customer was schedule to receive the merchandise on January 2, 2011.
•Merchandise costing $73,000 shipped by a vendor f.o.b. shipping point on December 30, 2010, and received b y Garza on January 4, 2011.
•Merchandise costing $51,000 shipped by a vendor f.o.b. destination on December 31, 2010, and received b y Garza on January 5, 2011.
Based on the above information, calculate the amount that should appear on Garza’s balance sheet at December 31, 2010, for inventory. (Points : 20)
7. (TCO G) Werth Company asks you to review its December 31, 2010 inventory values and prepare the necessary adjustments to the books. The following information is given to you.
•Werth uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2010.
•Included in inventory is merchandise sold to Bubby on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,800 on December 31. The merchandise cost $7,350, and Bubby received it on January 3.
•Not included in inventory is $8,540 of merchandise purchased from Minsky Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.
•Included in inventory was $10,438 of inventory held by Werth on consignment from Jackel Industries.
•Excluded from inventory was a carton labeled “Please accept for creditâ€. This carton contains merchandise costing $1,500 which had been sold to a customer for $2,600. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged.
Determine the proper inventory balance for Werth Company at December 31, 2010. (Points : 20)
8. (TCO H) Pollachek Co. purchased land as a factory site for $450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to tear down the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an engineering firm for a land survey, and $65,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor’s charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction.
Determine the cost of the land and the cost of the building as they should be recorded on the books of Pollachek Co. Assume that the land survey was for the building. (Points : 30)
9. (TCO E) Maserati Corporation purchased a new machine for its assembly process on August 1, 2010. The cost of this machine was $150,000. The company estimated that the machine would have a salvage value of $24,000 at the end of its service life. Its life is estimated at 5 years and its working hours are estimated at 21,000 hours. Year-end is December 31. Compute the depreciation expense using the Sum-of-the-years-digits method for 2011. (Points : 30)
Jermaine Byrant
Nicole Johnson
OVER
RATING
YEARS
