Ass xam(1-3)

Questions 1-3 [The following information applies to the questions displayed below.]

Answer the following questions. (Hint: Use the accounting equation.)

1.

a.	At the beginning of the year, Addison Company's assets are $186,000 and its equity is $139,500. During the year, assets increase $80,000 and liabilities increase $45,000. What is the equity at the end of the year?

	Assets = Liabilities + Equity Beginning $186,000 = $46,500 + $139,500 Change 80,000 = 45,000 + 35,000 Ending $266,000 = $91,500 + $174,500

Explanation:

Using the accounting equation at the beginning of the year:

Assets	=	Liabilities	+	Equity
$186,000	=	$46,500	+	$139,500

Using the accounting equation at the end of the year:

Assets	=	Liabilities	+	Equity
$186,000 + $80,000	=	$46,500 + $45,000	+	Equity
$266,000	=	$91,500	+	$174,500

2.

b.	Office Store has assets equal to $250,000 and liabilities equal to $217,000 at year-end. What is the total equity for Office Store at year-end?

	Assets = Liabilities + Equity $250,000 = $217,000 + $33,000

Explanation:

Assets	=	Liabilities	+	Equity
$250,000	=	$217,000	+	$33,000

3.

c.	At the beginning of the year, Quaker Company's liabilities equal $54,000. During the year, assets increase by $60,000, and at year-end assets equal $190,000. Liabilities decrease $15,000 during the year. What are the beginning and ending amounts of equity?

	Assets = Liabilities + Equity Beginning $130,000 = $54,000 + $76,000 Change 60,000 = (15,000) + 75,000 Ending $190,000 = $39,000 + $151,000

Explanation:

Using the accounting equation at the end of the year:

Assets	=	Liabilities	+	Equity
$190,000	=	$54,000 – $15,000	+	Equity
$190,000	=	$39,000	+	$151,000

Using the accounting equation at the beginning of the year:

Assets	=	Liabilities	+	Equity
$190,000 – $60,000	=	$54,000	+	Equity
$130,000	=	$54,000	+	$76,000

-----------------------------------------------------------------------------------------------------------------------------------

4.
Swiss Group reports net income of $36,000 for 2015. At the beginning of 2015, Swiss Group had $133,000 in assets. By the end of 2015, assets had grown to $183,000.

What is Swiss Group's 2015 return on assets?

	Return on Assets Choose Numerator: / Choose Denominator: = Return on Assets Net income / Average total assets = Return on assets $36,000 / $158,000 = 22.8%

Explanation:

Return on assets	= Net income / Average total assets
	= $36,000 / [($133,000 + $183,000)/2]
	= 22.8%

-----------------------------------------------------------------------------------------------------------------------------------

Questions 5-8

[The following information applies to the questions displayed below.]

On October 1, Ebony Ernst organized Ernst Consulting; on October 3, the owner contributed $84,470 in assets to launch the business. On October 31, the company’s records show the following items and amounts.

  

Cash	$	9,750		Cash dividends	$	2,530
Accounts receivable		15,600		Consulting fees earned		15,600
Office supplies		3,710		Rent expense		4,070
Land		45,970		Salaries expense		7,450
Office equipment		18,450		Telephone expense		810
Accounts payable		8,900		Miscellaneous expenses		630
Common stock		84,470

5.

Using the above information prepare an October income statement for the business.

	ERNST CONSULTING Income Statement For Month Ended October 31 Revenues Consulting fees earned $15,600 Total revenues $15,600 Expenses Salaries expense 7,450 Rent expense 4,070 Telephone expense 810 Miscellaneous expenses 630 Total expenses 12,960 Net income $2,640

6.

Using the above information prepare an October statement of retained earnings for Ernst Consulting.

	ERNST CONSULTING Statement of Retained Earnings For Month Ended October 31 Retained earnings, Oct. 1 Add: Net income 2,640 2,640 Less: Dividends 2,530 Retained earnings, Oct. 31 $110

7.

Using the above information prepare an October 31 balance sheet for Ernst Consulting.

	ERNST CONSULTING Balance Sheet As of October 31 Assets Liabilities Cash $9,750 Accounts payable $8,900 Accounts receivable 15,600 Office supplies 3,710 Office equipment 18,450 Equity Land 45,970 Common stock 84,470 Retained earnings 110 Total assets $93,480 Total liabilities and equity $93,480

8.

Also assume the following:

a.	The owner’s initial investment consists of $38,500 cash and $45,970 in land in exchange for its common stock.
b.	The company’s $18,450 equipment purchase is paid in cash.
c.	The accounts payable balance of $8,900 consists of the $3,710 office supplies purchase and $5,190 in employee salaries yet to be paid.
d.	The company’s rent, telephone, and miscellaneous expenses are paid in cash.
e.	No cash has been collected on the $15,600 consulting fees earned.

  

Using the above information prepare an October 31 statement of cash flows for Ernst Consulting. (Cash outflows should be indicated by a minus sign.)

ERNST CONSULTING Statement of Cash Flows For Month Ended October 31 Cash flows from operating activities Cash paid to employees (2,260) Cash paid for rent (4,070) Cash paid for telephone expenses (810) Cash paid for miscellaneous expenses (630) Net cash used by operating activities $(7,770) Cash flows from investing activities Purchase of office equipment (18,450) Net cash used by investing activities (18,450) Cash flows from financing activities Cash investment from stockholders 38,500 Cash dividends (2,530) Net cash provided by financing activities 35,970 Net increase in cash 9,750 Cash balance, October 1 Cash balance, October 31 $9,750

Explanation:
$7,450 Salaries expense – $5,190 still owed = $2,260 paid to employees.

-----------------------------------------------------------------------------------------------------------------------------------

9.

Following are the transactions of a new company called Pose-for-Pics.

Aug. 1	Madison Harris, the owner, invested $6,250 cash and $26,875 of photography equipment in the company in exchange for common stock.
2	The company paid $2,400 cash for an insurance policy covering the next 24 months.
5	The company purchased office supplies for $1,188 cash.
20	The company received $2,850 cash in photography fees earned.
31	The company paid $882 cash for August utilities.

  

Prepare general journal entries for the above transactions.

Date	General Journal	Debit	Credit
Aug 01	Cash	6,250
	Photography equipment	26,875
	Common stock		33,125
Aug 02	Prepaid insurance	2,400
	Cash		2,400
Aug 05	Office supplies	1,188
	Cash		1,188
Aug 20	Cash	2,850
	Photography fees earned		2,850
Aug 31	Utilities expense	882
	Cash		882

-----------------------------------------------------------------------------------------------------------------------------------

10.

'The transactions of Spade Company appear below.

a.	Kacy Spade, owner, invested $15,250 cash in the company in exchange for common stock.
b.	The company purchased office supplies for $442 cash.
c.	The company purchased $8,433 of office equipment on credit.
d.	The company received $1,800 cash as fees for services provided to a customer.
e.	The company paid $8,433 cash to settle the payable for the office equipment purchased in transaction c.
f.	The company billed a customer $3,233 as fees for services provided.
g.	The company paid $515 cash for the monthly rent.
h.	The company collected $1,358 cash as partial payment for the account receivable created in transaction f.
i.	The company paid $1,100 cash in dividends to the owner (sole shareholder).

Prepare the Trial Balance.

	SPADE COMPANY Trial Balance May 31, 2015 Debit Credit Cash $7,918 Accounts receivable 1,875 Office supplies 442 Office equipment 8,433 Accounts payable Common stock 15,250 Dividends 1,100 Fees earned 5,033 Rent expense 515 Totals $20,283 $20,283

Explanation:

Cash = a,b,d,e,g,h,i 
Accounts Receivable = f,h 
Office Supplies = b 
Office Equipment = c 
Accounts Payable = c,e 
Common Stock = a 
Dividends = i 
Fees Earned = d,f 
Rent Expense = g 

-----------------------------------------------------------------------------------------------------------------------------------

11.

A corporation had the following assets and liabilities at the beginning and end of this year.

	Assets	Liabilities
Beginning of the year	$ 82,500	$ 35,368
End of the year	133,000	53,865

    

a.	Owner made no investments in the business, and no dividends were paid during the year.
b.	Owner made no investments in the business, but dividends were $950 cash per month.
c.	No dividends were paid during the year, but the owner did invest an additional $45,000 cash in exchange for common stock.
d.	Dividends were $950 cash per month, and the owner invested an additional $25,000 cash in exchange for common stock.

Determine the net income earned or net loss incurred by the business during the year for each of the aboveseparate cases: (Decreases in equity should be indicated with a minus sign.)

	a. b. c. d. Beginning of the year—Equity $47,132 $47,132 $47,132 $47,132 Owner investments 0 0 45,000 25,000 Less dividends 0 (11,400) 0 (11,400) Net income (loss) 32,003 43,403 (12,997) 18,403 End of the year—Equity $79,135 $79,135 $79,135 $79,135

Explanation:

	Assets		–	Liabilities		=	Equity
Beginning of the year	$	82,500	–	$	35,368	=	$	47,132
End of the year		133,000	–		53,865	=		79,135
Net increase in equity							$	32,003
a.   Net income $ 32,003   Plus owner investments 0   Less dividends  (0 )   Change in equity $ 32,003 Since there were no additional investments or dividends, the net income for the year equals the net increase in equity. b.   Net income $ 43,403   Plus owner investments 0   Less dividends ($950/mo. × 12 mo.) (11,400 )   Change in equity $ 32,003 The dividends were added back because they reduced equity without reducing net income.

c.

Net income	$	(12,997	)
Plus owner investments		45,000
Less dividends		(0	)
Change in equity	$	32,003

The investment was deducted because it increased equity without creating net income.

d.

Net income	$	18,403
Plus owner investments		25,000
Less dividends ($950/mo. × 12 mo.)		(11,400)
Change in equity	$	32,003

The dividends were added back because they reduced equity without reducing net income and the investments were deducted because they increased equity without creating net income.

-----------------------------------------------------------------------------------------------------------------------------------

12.

Carmen Camry operates a consulting firm called Help Today, which began operations on August 1. On August 31, the company’s records show the following accounts and amounts for the month of August.

  

Cash	$	25,270	Consulting fees earned	$	26,920
Accounts receivable		22,280	Rent expense		9,460
Office supplies		5,150	Salaries expense		5,510
Land		43,940	Telephone expense		760
Office equipment		19,910	Miscellaneous expenses		430
Accounts payable		10,700	Common stock		101,000
Dividends		5,910

Use the above information to prepare an August 31 balance sheet for Help Today. (The owner invested $101,000 cash in the company on August 1 in exchange for common stock.)

	HELP TODAY Balance Sheet As of August 31 Assets: Liabilities: Cash $25,270 Accounts payable $10,700 Accounts receivable 22,280 Office supplies 5,150 Equity: Office equipment 19,910 Common stock 101,000 Land 43,940 Retained earnings 4,850 Total Assets $116,550 Total Liabilities and Equity $116,550

Explanation:

HELP TODAY Income Statement For Month Ended August 31

Revenues:
Consulting fees earned			$	26,920
Expenses:
Rent expense	$	9,460
Salaries expense		5,510
Telephone expense		760
Miscellaneous expenses		430
Total expenses				16,160
Net income			$	10,760

HELP TODAY Statement of Retained Earnings For Month Ended August 31
Retained earnings, July 31	$	0
Add: Net income		10,760
		10,760
Less: Dividends		5,910
Retained earnings, August 31	$	4,850

-----------------------------------------------------------------------------------------------------------------------------------

13.
Compute the missing amount for each of the following separate companies a through d. (Losses and amounts to be deducted should be indicated with a minus sign.)

	(a) (b) (c) (d) Equity, December 31, 2014 $0 $0 $0 $0 Owner investments for stock during the year 115,500 106,000 102,713 226,665 Dividends during the year (109,500) (53,000) (8,000) (53,000) Net income (loss) for the year 111,500 60,975 (6,000) (47,000) Equity, December 31, 2015 $117,500 $113,975 $88,713 $126,665

-----------------------------------------------------------------------------------------------------------------------------------

14.

Pablo Management has two part-time employees, each of whom earns $90 per day. They are normally paid on Fridays for work completed Monday through Friday of the same week. Assume that December 28, 2015, was a Friday, and that they were paid in full on that day. The next week, the two employees worked only four days because New Year’s Day was an unpaid holiday.

Prepare the adjusting entry that would be recorded on Monday, December 31, 2015 and Friday, January 4, 2016.

Transaction	General Journal	Debit	Credit
1	Wages expense	180
	Wages payable		180
2	Wages expense	540
	Wages payable	180
	Cash		720

1

Dec. 31, 2015: To record accrued wages for one day (2 workers × $90) = $180.

2

Jan. 4, 2016: To record accrued and current wages.

Wages expense = 2 workers × 3 days × $90 = $540.

Cash = 2 workers × 4 days × $90 = $720.

-----------------------------------------------------------------------------------------------------------------------------------

15.

a.	Depreciation on the company's equipment for 2015 is computed to be $15,000.
b.	The Prepaid Insurance account had a $6,000 debit balance at December 31, 2015, before adjusting for the costs of any expired coverage. An analysis of the company’s insurance policies showed that $1,270 of unexpired insurance coverage remains.
c.	The Office Supplies account had a $210 debit balance on December 31, 2014; and $2,680 of office supplies were purchased during the year. The December 31, 2015, physical count showed $248 of supplies available.
d.	One-fifth of the work related to $10,000 of cash received in advance was performed this period.
e.	The Prepaid Insurance account had a $5,300 debit balance at December 31, 2015, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $4,030 of coverage had expired.
f.	Wage expenses of $1,000 have been incurred but are not paid as of December 31, 2015.

Prepare adjusting journal entries for the year ended (date of) December 31, 2015, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance of work are initially recorded as liabilities.

Transaction	General Journal	Debit	Credit
a.	Depreciation expense—Equipment	15,000
	Accumulated depreciation—Equipment		15,000
b.	Insurance expense	4,730
	Prepaid insurance		4,730
c.	Office supplies expense	2,642
	Office supplies		2,642
d.	Unearned fee revenue	2,000
	Fee revenue		2,000
e.	Insurance expense	4,030
	Prepaid insurance		4,030
f.	Wages expense	1,000
	Wages payable		1,000

b.	Prepaid insurance* = ($6,000 – $1,270) = $4,730
c.	Office supplies** = ($210 + $2,680 – $248) = $2,642
d.	Fee revenue = ($10,000 × 1/5) = $2,000

-----------------------------------------------------------------------------------------------------------------------------------

16.

Following are Nintendo's revenue and expense accounts for a recent calendar year.

Net sales	¥	1,948,622
Cost of sales		1,924,981
Advertising expense		118,408
Other expense, net		398,444

Prepare the company's closing entries for its revenues and its expenses.

Date	General Journal	Debit	Credit
Dec 31	Net sales	1,948,622
	Income summary		1,948,622
Dec 31	Income summary	2,441,833
	Cost of sales		1,924,981
	Advertising expense		118,408
	Other expense, net		398,444

-----------------------------------------------------------------------------------------------------------------------------------


17.

Account Title	Debit		Credit
Cash	$	7,000
Accounts receivable		17,500
Office supplies		7,013
Trucks		161,000
Accumulated depreciation—Trucks			$	33,166
Land		50,000
Accounts payable				11,000
Interest payable				18,000
Long-term notes payable				42,000
Common stock				32,100
Retained earnings				128,402
Dividends		48,000
Trucking fees earned				123,000
Depreciation expense—Trucks		21,392
Salaries expense		59,798
Office supplies expense		5,000
Repairs expense—Trucks		10,965
Totals	$	387,668	$	387,668

  

Use the above adjusted trial balance to prepare Wilson Trucking Company’s classified balance sheet as of December 31, 2015.

WILSON TRUCKING COMPANY Balance Sheet December 31, 2015 Assets Current assets Cash $7,000 Accounts receivable 17,500 Office supplies 7,013 Total current assets $31,513 Plant assets Trucks $161,000 Accumulated depreciation—Trucks (33,166) 127,834 Land 50,000 Total plant assets 177,834 Total assets $209,347 Liabilities Current liabilities Accounts payable $11,000 Interest payable 18,000 Total current liabilities 29,000 Long-term liabilities Long-term notes payable 42,000 Total liabilities 71,000 Equity Common stock 32,100 Retained earnings 106,247 Total liabilities and equity $209,347

Explanation:

Retained earnings is computed as:
Beginning balance	$	128,402
Plus: Net income ($123,000 – $21,392 – $59,798 – $5,000 – $10,965)		25,845
Less: Dividends		(48,000	)
Ending balance	$	106,247

-----------------------------------------------------------------------------------------------------------------------------------

18.
Use the following information to compute profit margin for each separate company a through e. (Round your answers to 1 decimal place.)

	Net Income Net Sales Profit Margin (%) a. $4,835 $42,790 11.3% b. 81,117 380,831 21.3% c. 86,098 243,903 35.3% d. 52,846 1,390,675 3.8% e. 68,070 415,063 16.4%

Which of the five companies is the most profitable according to the profit margin ratio?

Company c

Explanation: Company c earns 35.3 cents. (the most profitable)

-----------------------------------------------------------------------------------------------------------------------------------


19.

1.	Compute the current ratio in each of the separate cases. (Round your answers to 2 decimal places.)

	Current Assets Current Liabilities Current Ratio Case 1 $77,000 $36,321 2.12 . Case 2 102,410 87,512 1.17 . Case 3 43,428 56,123 0.77 . Case 4 83,391 94,329 0.88 . Case 5 59,213 115,416 0.51 ;

2.	Identify the company case with the strongest liquidity position. (These cases represent competing companies in the same industry.)
	Case 1

		Current assets
Current ratio	=
		Current liabilities

Analysis: Company case 1 is in the strongest liquidity position. It has about $2.12 of current assets for each $1 of current liabilities. The only potential concern is that Company 1 may be carrying too much in current assets that could be better spent on more productive assets (note that its remaining competitors’ current ratios range from 1.17 to 0.51).

-----------------------------------------------------------------------------------------------------------------------------------

Assets created by selling goods and services on credit are:

Accounts receivable.

The right side of a T-account is a(n):

Credit.

Identify the account below that is classified as an asset account:

Supplies

A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error?

Supplies, overstated $130; Fees Earned, overstated $130.

After preparing and posting the closing entries for revenues and expenses, the income summary account has a debit balance of $33,000. The entry to close the income summary account will be:

Debit Retained Earnings $33,000; credit Income Summary $33,000.

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption.

The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

Business entity assumption.

The adjusting entry to record the salaries earned due to employees for services provided but unpaid at the end of the accounting period affects the accounts in which of the following ways?

Debit Salaries Expense and credit Salaries Payable.

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Accrual basis accounting.

A classified balance sheet:

Organizes assets and liabilities into important subgroups that provide more information.

A company borrows $125,000 from the Northern Bank and receives the loan proceeds in cash. This represents a(n):

Financing activity.

A post-closing trial balance reports:

All permanent ledger accounts with balances.

Rico's Taqueria had cash inflows from operating activities of $27,000; cash outflows from investing activities of $22,000, and cash outflows from financing activities of $12,000. Calculate the net increase or decrease in cash.

$7,000 decrease.

At year-end, a trial balance showed total credits exceed total debits by $4,950. This difference could have been caused by:

The balance of $5,500 in the Office Equipment account being entered on the trial balance as a debit of $550.

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

Cost principle.

Risk is:

The uncertainty about the return expected to be earned.

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Book Value.

Which of the following is the usual final step in the accounting cycle?

Preparing a post-closing trial balance.

On a trial balance, if the Debit and Credit column totals are equal, then:

Equal debits and credits have been recorded for transactions.

Revenues are:

The increase in equity from a company's sales of products and services.

Resources a company owns or controls that are expected to yield future benefits are:

Assets.

The independent group that is attempting to harmonize accounting practices of different countries is the:

IASB.

On May 31, the Cash account of Bottle's R Us had a normal balance of $5,000. During May, the account was debited for a total of $12,200 and credited for a total of $11,500. What was the balance in the Cash account at the beginning of May?

A $4,300 debit balance.

A financial statement providing information that helps users understand a company's financial status, and which lists the types and amounts of assets, liabilities, and equity as of a specific date, is called a(n):

Balance sheet.

If a company has excess space in its building that it rents to another company for $700, what is the effect on the accounting equation when the first rent payment is collected?
Assets would increase $700 and equity would increase $700.

Assets, liabilities, and equity accounts are not closed; these accounts are called:

Permanent accounts.

Net Income:

Is the excess of revenues over expenses.

Two common subgroups for liabilities on a classified balance sheet are:

Current liabilities and long-term liabilities.

It is obvious that an error occurred in the preparation and/or posting of closing entries if:

all balance sheet accounts have zero balances.

Able Graphics received a $400 utility bill for the current month's electricity. It is not due until the end of the next month which is when they intend to pay it. Which of the following general journal entries will Able Graphics make to record this transaction?

Utilities Expense	400
Accounts Payable		400

--------------------------------------------

The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain entries for the following:

1. Office supplies used during the period, $1,200.
2. Expiration of prepaid rent, $700.
3. Accrued salaries expense, $500.
4. Depreciation expense, $800.
5. Accrued service fees receivable, $400.

The Adjusted Trial Balance columns total is:

$85,700.

Explanation:

	Debit	Credit
Balance	$84,000	$84,000
1. Supplies Expense	$1,200
Supplies	(1,200)
2. Rent Expense	700
Prepaid rent	(700)
3. Salaries Expense	500
Salaries payable		500
4. Depr. Expense	800
Accum. Depr.		800
5. Accts. Receivable	400
Fees earned		400
Adjusted total	$85,700	$85,700