ADVENTIST UNIVERSITY OF CENTRAL AFRICA INTERNATIONAL ACCOUNTING PRACTICE QUESTIONS 1. After planning for several months, Barbara Schmidt decided to start her own haircutting business called The Cutlery. During its first month of operations, The Cutlery completed the following transactions: a. On August 1, 2008 Schmidt put $2,000 of her savings into a checking account in the name of The Cutlery. b. On August 2, she bought $600 of supplies for the shop. c. On August 3, she paid $500 rent for the month of August for a small store. d. On August 5, she furnished the store, installing new fixtures that the supplier sold to her for $1,200. This amount is to be repaid in three equal payments at the end of August, September, and October. e. The Cutlery opened August 12; and in the first week of business ended August 16, receipts from sales amounted to $825. f. On August 17, Schmidt paid $125 to an assistant for working during the business’s grand opening. g. Receipts from cash sales during the two-week period ended August 30 amounted to $1,930. h. On August 31, Schmidt paid the first installation on the fixtures. i. On August 31, she withdrew $1,100 cash for her personal expenses. Required i) Arrange the following asset, liability and owner’s equity in an equation. Cash, Store Supplies, Store Equipment (Fixtures), Accounts payable, and Barbara Schmidt, Capital. Show by additions and subtractions the effects of each of the above transactions on the equation. ii) Prepare the Income Statement, Statement of Changes in Owner’s Equity, Balance Sheet and the Statement of Cash flows of August 2008 for The Cutlery. 2. Using the information presented below, record the transactions affecting the accounting equation. Use (+) to indicate increase and (-) to indicate decrease. After recording the last transaction prepare the financial statements for the month. a) Ralph Harding invested $10,000 of personal funds in an account in the name of Farrier Service. b) Paid $1,050 for the three-month’s rent on a new van to be used as a traveling blacksmith’s shop. c) Purchased Farrier supplies, paying $300 cash. d) Purchased equipment worth $3,000 on credit. e) Purchased a portable gas stove for heating horseshoes for $650 cash. f) Provided services to a cash customer, collecting $35. g) Provided services to a charge customer, local stable, for $400. h) Paid the apprentice’s weekly wage, $220. i) Received and paid the telephone bill, $80. j) Received the gas bill of $125. k) Ralph withdrew $300 for personal expenses. l) Collected $150 from the customer in transaction (g). m) Provided services to a charge customer for $500. n) Paid the apprentice’s weekly wage, $220. o) Ralph withdrew $700 to pay personal expenses. p) Paid $1,000 to the creditor to transaction (d). q) Ralph decided to contribute his old pickup truck to the business for use by the apprentice. The truck has a fair value of $4,200. r) Provided $900 worth of services to a customer. The customer paid $300 down and promised to pay the balance next month. s) Paid the gas bill received in transaction (j). t) Purchased $1,500 worth to additional equipment to outfit the apprentice’s truck. Paid $600 down and placed the balance on account. 3. On July 1 of the current year, Lamar Todd established Sky Roody, which completed the following transactions during the month: a. Lamar Todd transferred cash from a personal bank account to be used for the business, $15,000. b. Paid rent on office and equipment for the month, $2,500. c. Purchased supplies on account, $1,500. d. Paid creditor on account, $900. e. Earned sales commissions, receiving cash, $20,750. f. Paid automobile expenses (including rental charge) for month, $2,400 and miscellaneous expenses, $1,250. g. Paid office salaries, $4,000. h. Determined that the cost of supplies used was $1,050. i. Withdrew cash for personal use, $1,500. Required Journalize entries for transactions (a) through (i), using the following account titles: Cash; Supplies; Accounts payable; Lamar Todd, Capital; Lamar Todd, Drawing; Sales Commissions; Office salaries expense; Rent expense; Automobile expense; Supplies expense; Miscellaneous expense. Explanations may be omitted. 4. The following data relate to the accounts of Jeff Company. Prepare the necessary adjusting entries indicated by each item for the year ended December 31, 2008. 1) A three-year insurance policy was purchased on March 1, 2008. The $360 insurance premium was fully paid on that date and a debit to prepaid insurance was recorded. 2) Unpaid salaries at year end amount to $650. 3) Service revenue was credited for $816 on May 1, 2008. The amount represents a one year advance payment for services to be performed by Jeff Company through April 30, 2008. 4) The Office Supplies account shows a balance of $1,250 on December 31, 2008. A physical count of the supplies on hand at this date reveals a total of $480 available. 5) Jeff Company holds bonds of another corporation that pay interest at a rate of $900 per year. These bonds were purchased on August 1, 2008, and the first interest payment will be received on August 1, 2008 5. Items concerning the accounts of the Bluebird Company for the Current year are described below: a. On July 1, a two-year comprehensive insurance policy was purchased for $1200. b. On December 1, a customer paid $500 in advance for services to be performed next January. The payment was credited to Unearned revenue. c. On January 1, the Office Supplies account had a $250 balance. Supplies costing $1,000 were purchased during the year. At December 31, and inventory count showed $300 of supplies on Hand. d. On December 31, $3,750 of employee salaries had accumulated. No entry for these salaries was recorded. Required Prepare a year-end adjusting entry for each item, or indicate that an adjusting entry is not necessary. 6. The unadjusted trial balance of Countrywide Moving and Storage follows: COUNTRYWIDE MOVING AND STORAGE Trial Balance December 31, 2007 Cash $ 2,990 Accounts Receivable 775 Prepaid Insurance 4,500 Office Supplies 485 Investment in Trial inc., Common Stock 10,000 Office Equipment 4,500 Accumulated Depreciation-Office Equipment 2,000 Trucks 54,000 Accumulated Depreciation-Trucks 14,000 Building 160,000 Accumulated Depreciation-Building 35,000 Land 21,000 Franchise 30,000 Unearned storage fees 2,075 Long-term notes payable 144,000 Dennis Meade, Capital 65,000 Dennis Meade, Withdrawals 29,000 Revenue from moving services 110,000 Storage fees earned 8,325 Office salaries expense 13,745 Driver’s and helpers’ wages expense 32,950 Gas, Oil, and repairs expense 3,525 Interest expense 12,930 Totals $380,400 $380,400 Required 1) Set up accounts for the items in the trial balance plus these additional accounts: Salaries and Wages Payable; Insurance Expense; Office Supplies Expense; Depreciation Expense, Office Equipment; Depreciation Expense, Trucks; and Depreciation Expense, Building. Enter the trial balance amounts in the accounts. 2) Journalize and post adjusting entries given the following information: a. Insurance premiums of $2,820 expired during the year. b. An inventory showed $165 of unused office supplies on hand. c. Estimated depreciation on the office equipment, $545; (d) on the trucks, $5,300; and (e) on the building, $6,700. f. Of the $2,075 credit balance in Unearned Storage Fees, $1,700 was earned by the year-end. g. Accrued storage fees earned but unrecorded at year-end totaled $315. h. There were $730 of earned but unrecorded drivers’ and helpers’ wages at the year-end. 3) Prepare an adjusted trial balance, an income statement for the year, a statement of changes in owner’s equity, and a classified year-end balance sheet. Meade’s Capital account balance reflects the December 31, 2006, balance plus a January 1, 2007, investment of $50,000. A $4,800 installment on the note payable is due within one year.