Cash Balance Sheet Notes payable Wages expense Cost of goods sold by EC3l9C5


									                BUSINESS CYCLE ACCOUNTING – HOMEWORK #1

1. Indicate on which financial statement you would expect to find each of the following. The
       first is done for you.

        Cash                      Balance Sheet
        Notes payable             ___________
        Wages expense             ___________
        Cost of goods sold        ___________
        Sales revenue             ___________
        Inventory                 ___________
        Income tax expense        ___________
        Dividends                 ___________
        Retained earnings         ___________
        Accounts payable          ___________
        Rent expense              ___________

       Difficulty: Easy L.O.: 1
2. For each of the following items that appear on the balance sheet, identify each as an
   asset (A), liability (L), or element of stockholders' equity (SE). For any item that
   would not appear on the balance sheet, write the letter, N.

    Retained earnings               _______
    Accounts payable                _______
    Selling expense                 _______
    Contributed capital             _______
    Accounts receivable             _______
    Income tax expense              _______
    Dividends                       _______
    Property and equipment          _______

   Difficulty: Easy L.O.: 1
3. Fulton Company was established at the beginning of 2009 when several investors paid a
       total of $200,000 to purchase Fulton stock. No additional investments in stock were
       made during the year. By the end of that year, Fulton had cash on hand of $45,000,
       office equipment (net) of $40,000, inventories of $156,000, and accounts payable of
       $10,000. Sales for the year were $812,000. Of this amount, customers still owed
       $20,000. Fulton paid dividends of $25,000 to its investors.

       1. Based on the information above, prepare a balance sheet for Fulton Company as of
          December 31, 2009. In the process of preparing the balance sheet, you must
          calculate the ending balance in retained earnings.
       2. Prepare a statement of retained earnings. (The beginning amount of retained
          earnings was $0.)
       3. What was the amount of Fulton's net income for the year?
       4. Was Fulton successful during its first year in operation?

       Difficulty: Hard L.O.: 1
4.For each of the following accounts, complete the chart below by indicating whether the
       account is an asset (A), liability (L), or stockholders' equity (SE) and whether the
       account usually has a debit (Dr) or credit (Cr) balance.

                                           Balance Sheet Category        Debit or Credit
        1.    Retained earnings
        2.    Inventory
        3.    Contributed capital
        4.    Accounts payable
        5.    Accounts receivable
        6.    Property and equipment
        7.    Wages payable
        8.    Prepaid expenses

       Level: Medium L.O.: 4
5. For each financial statement element listed, enter check marks to reflect the Debit = Credit

        Element                                  Debit                     Credit
                                         Increase    Decrease       Increase   Decrease
        A.   Assets
        B.   Liabilities
        C.   Contributed Capital
        D.   Retained Earnings

       Level: Medium L.O.: 4

6. For each of the accounts listed below, enter a check mark in the space provided to the right
to indicate whether the typical or normal balance is a debit or credit.

                      Account                      Typical Balance
                                                  Debit       Credit
        A.    Inventory
        B.    Notes payable
        C.    Retained earnings
        D.    Equipment
        E.    Prepaid insurance
        F.    Accounts receivable
        G.    Land
        H.    Contributed capital
        I.    Accounts payable
        J     Unearned Revenue

       Level: Medium L.O.: 4
7. Al, Bill and Chad organized the ABC Corporation on January 1, 2006. Each of these
   owners invested $100,000 cash and received shares of stock. Below are selected
   transactions that were completed during January.

   (A) Give the entry on ABC's books for each transaction:
   (1) Sold stock to the owners.
   (2) Borrowed $80,000 on one-year note payable.
   (3) Purchased land by signing a $70,000 note payable.
   (4) Paid $10,000 of accounts payable.
   (5) Purchased two service vehicles, $24,000 each; paid cash.
   (6) Purchased $2,000 of supplies on credit.

   (B) Complete the following based only on the 6 transactions above:

   Assets                   $
   Liabilities              $
   Stockholders' equity     $

   Level: Medium L.O.: 4
8. Indicate the sequential order of the following steps in the accounting information
        processing cycle by entering numbers to the left. The earliest step will be 1 and the last
        step will be 6.

       ____ Analyzing transactions
       ____ Preparing financial statements
       ____ Developing a trial balance
       ____ Collecting original data
       ____ Posting to the accounts
       ____ Journalizing transactions

       Difficulty: Medium L.O.: 3
9. On October 1, 2006, World Services, Inc., was started with $100,000 invested by the
       owners as contributed capital. On October 31, the accounting records contained the
       following amounts:

        Accounts payable             $   100      Office supplies           $ 500
        Accounts receivable            3,900      Rent expense               1,500
        Cash                          25,000      Salaries expense           2,000
        Contributed capital           50,000      Supplies expense             100
        Consulting fees earned        10,500      Telephone expense            200
        Dividends declared             2,100
        Office equipment              24,100

       Prepare an income statement in good form for October 31, 2006 which is the first
       month of operation. Ignore taxes.

       Difficulty: Medium L.O.: 4
  10. Explain why the net income reported on the income statement is usually not equal to
      net cash flows from operating activities on the statement of cash flows.

       Difficulty: Medium L.O.: 4

11. Below are four transactions that were completed during 2009 by Timber Lodge. The
       annual accounting period ends on December 31. Each transaction will require an
       adjusting entry at December 31, 2009. You are to provide the 2009 adjusting entries
       required for Timber Lodge.

       A. On July 1, 2009, Timber Lodge paid a two-year insurance premium for a policy on
          its facilities. This transaction was recorded as follows:

            July 1, 2009:
            Prepaid insurance         $8,000
              Cash                                   8,000

          December 31, 2006--Adjusting entry:

       B. On December 31, 2009 a tenant renting some storage space from Timber Lodge
          had not paid the rent of $750 for December.

          December 31, 2009--Adjusting entry:

       C. On September 1, 2009, Timber Lodge borrowed $25,000 cash and gave a one-
          year, 10 percent, note payable. The total interest of $2,500 is payable on the due
          date, August 31, 2010. The note was recorded as follows:

            September 1, 2009:
            Cash                           $25,000
              Note payable                               $25,000

          December 31, 2009--Adjusting entry:
D. On October 1, 2009, Timber Lodge collected $3,600 for rental of space two years
   in advance. The $3,600 collection was recorded as follows:

    October 1, 2009:
    Cash                                 $3,600
      Unearned space revenues                            $3,600

   December 31, 2009--Adjusting entry:

Difficulty: Medium L.O.: 2
12. Four transactions are given below that were completed during 2006 by Russell Company.
      The annual accounting period ends December 31. Each transaction requires an
      adjusting entry at December 31, 2006. You are to provide the adjusting entries
      required for Russell Company.

       A. On December 31, 2006, Russell Company owed employees $3,750 for wages that
          were earned by them during December and were not recorded.

          December 31, 2006--Adjusting entry:

       B. During 2006, Russell Company purchased office supplies that cost $1,000 which
          were placed in the supplies room for use as needed. The purchase was recorded as

           Office supplies inventory         $1,000
           Cash                                          1,000

          At the beginning of 2006, the inventory of unused office supplies was $300. At the
          end of 2006, a count showed unused office supplies in the supply room amounting
          to $100.

          December 31, 2006--Adjusting entry:

       C. On December 1, 2006, Russell Company rented some office space to another
          party. Russell collected $900 rent for the period December 1, 2006, to March 1,
          2007. The rent collected was recorded as follows:

           December 1, 2006:
           Cash                                           $900
              Unearned rent

          December 31, 2006--Adjusting entry:

       D. On July 1, 2006, Russell Company borrowed $2,000 cash on a one-year, 8%
          interest-bearing, note payable. The interest is payable on the due date, May 31,
          2007. The note was recorded as follows:

           July 1, 2006:
           Cash                             $2,000

              Notes payable                             2,000

          December 31, 2006--Adjusting entry:
Difficulty: Medium L.O.: 2

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