Practice Set (Version 1)
Directions: You, as the main accountant for Indiana Jones, Inc., are responsible for
recording all the transactions during the year, as well as the adjusting entries at the end of
the year. You are also responsible for preparing the financial statements for Indiana
Jones, Inc. You must prepare a Multi-Step Income Statement, a Statement of
Stockholders’ Equity, and a Classified Balance Sheet (don’t worry about the Statement of
Cash Flows—someone else prepares this) for fiscal year 2005, which ends on December
31, 2005. You will use the Excel workbook set up for this problem. Included in the
workbook are the beginning account balances at January 1, 2005, the Transaction
Worksheet, the Cost of Goods Sold worksheet, the ending account balances at December
31, 2005, the Post-Closing account balances at December 31, 2005 and a worksheet to
create financial statements. You must record all the transactions and adjusting entries in
the Transactions Worksheet. Increase or decrease the accounts for each transaction. I
have added a column on the far right to ensure that each transaction balances in the
accounting equation (if it balances, you will see a zero in the column to the far right. If it
doesn’t balance you will see a number). Note that the total balance for each account is
indicated on the bottom of the Transaction Worksheet (before and after closing entries)
and is linked to the ending account balances at December 31, 2005 (regular and post-
closing). Make sure the closing entries are posted to area at the bottom of the general
ledger worksheet (clearly marked “Closing Entries” and highlighted in grey). Once you
have recorded all transactions, adjustments, and closing entries, the year-end account
balances should automatically fill in. Use them to produce the financial statements.
Note: Round all amounts to the nearest $1. The finished product must be E-MAILED
to me by the due date BEFORE class starts.
You are given the beginning balances of all accounts at January 1, 2005 (after fiscal year
2004’s closing entries have been posted—see Excel workbook). You will be given a
series of transactions to record that occur throughout the year 2005. Indiana Jones’ fiscal
year is on the calendar year (i.e. the year-end is December 31, 2005). Indiana Jones uses
accrual-basis accounting. Indiana Jones, Inc. is a corporation. The company uses the
following accounting methods:
1. The Company uses LIFO for inventory valuation. The Company uses the
Periodic Method for inventory valuation. The Company only stocks
Merchandise Inventory. Inventory purchases are booked directly to the
merchandise inventory account. Since the Company uses the periodic
method, the cost of goods sold account is not updated until the end of the year.
Note: The January 1, 2005 inventory balance consists of 400 units with a
per unit cost of $10.
2. The Company determines its Allowance for Doubtful Accounts by estimating
that 10% of the ending balance of Accounts Receivable will be uncollectible.
When specifically identified accounts are determined to be uncollectible, then
the Company writes them off against the Allowance.
3. Indiana Jones Inc. depreciates Property, Plant, and Equipment using the
straight-line method. Buildings are depreciated over 40 years. Equipment is
depreciated over a 10-year life. There is no salvage value. You will find the
original cost of the buildings and equipment in the beginning balances sheet.
4. The Company owns a patent for laser excavation technology it developed two
years past. The patent is amortized on a straight-line basis over its 10-year
life. Amortization expense is $3,500 per year, and booked at the end of the
Other relevant information:
1. The A/R balance at January 1, 2005 consists of the following customer
Lauche Industries…………$10,000 (current)
Temple of Doom Co……...$6,000 (90 days past due)
Asp Co……………………$12,000 (current)
Ark of the Covenant Inc….$20,000 (current)
2. The Company’s common stock was issued with a $2 par value. 100,000
shares are authorized. 40,000 shares are issued and outstanding.
3. The prepaid insurance amount relates to four years’ worth of insurance that
began on January 1, 2005 (how convenient!)
4. The Note Payable is a ten-year note that was taken out on December 31, 2001.
The interest rate is 10% per annum. Interest payments are due January 5 for
the previous year’s interest (i.e. fiscal year 2005 interest is due January 5,
2006) (the entry has already been made for the January 5, 2005 payment).
Timeline of Events:
January 5: Indiana Jones pays off $10,000 of its Accounts Payable balance.
January 8: Indiana Jones sells 200 units of its product for $100 each to Shankara Inc.
Shankara Inc. pays $10,000 in cash and the rest is put on credit.
January 10: Indiana Jones pays off its Accrued Payroll amount of $10,000. Indiana
Jones also pays off its Accrued Income Taxes amount of $8,000.
January 12: Shankara pays off the balance of its January 8th purchase.
February 13: Lauche pays off its A/R amount in full. ($10,000)
February 20: Asp and Ark of the Covenant pay off their A/R amounts in full. ($32,000)
March 2: Indiana Jones purchases Merchandise Inventory. The purchase is for 400
units at $14 each. The Company makes the purchase on credit.
March 10: Indiana Jones pays off the rest of its A/P balance that was outstanding at the
beginning of the year. ($20,000)
March 15: Indiana Jones pays off its A/P balance from the March 2 purchase.
April 9: Indiana Jones makes a sale to Asp Co. for 220 units at $100 each. The whole
sale is made on credit.
May 14: Indiana Jones buys 300 units of Merchandise Inventory at $15 each on credit.
May 25: Indiana Jones pays off its A/P from the May 14th inventory purchase.
May 28: Indiana Jones earns the revenue for the Unearned Revenue balance that was on
the books at the beginning of 2005. The amount was $50,000 and did not
relate to sales of inventory. Record the entry to sales revenue.
July 17: Indiana Jones determines that the Temple of Doom A/R amount is uncollectible.
The amount is written off.
August 16: Indiana Jones Inc. makes a sale to Asp, Inc. on credit. The sale is for 300
units for $100 per unit.
September 21: Indiana Jones Inc. makes a purchase of Merchandise inventory. The
Company buys 400 units at $17 each. The purchase is made on credit.
October 2: Indiana Jones pays for the purchase made on Sept. 21.
October 22: Indiana Jones sells 460 units to Lauche Industries for $100 each. The sale is
made on credit.
November 1: Lauche pays for all of the purchased items from October 22.
November 1: Indiana Jones purchased a 12-month $30,000 certificate of deposit. The
per year interest rate is 10%. Note: the company will only earn 2 months of
interest by the end of the year. Only record the purchase of the investment on
Nov. 1. You will accrue the interest later.
November 15: Indiana Jones purchases 625 units for $18 each. The purchase is made
entirely on credit.
November 20: Indiana Jones pays for the merchandise purchased on Nov. 15, in full.
December 22: Indiana Jones sells 180 units to Ark of the Covenant for $100 each for
December 23: Indiana Jones sells 200 units to Lauche for $100 each on credit.
December 24: Indiana Jones sells 150 units to Short Round Co. for $100 each on credit.
December 31: Indiana Jones records cost of goods sold for the year using the periodic
method. (Use the COGS worksheet in the Excel Workbook)
1. The Company’s employees earned and were paid $70,000 for the year
(just make one entry for simplicity’s sake). Earned but unpaid salaries
were $6,000 at December 31, 2005.
2. Utilities expense for the year was $7,000. The entire amount will be paid
3. Income taxes are $4,000 and they have not yet been paid.
4. Interest income must be accrued on the certificate of deposit investment.
5. Remember to record bad debt expense (note: there is already a balance in
the allowance for doubtful accounts account)
6. Remember to depreciate the equipment.
7. Remember to depreciate the building.
8. Remember to amortize the patent.
9. Remember to adjust prepaid insurance.
10. Remember to accrue interest expense on note payable.
Hints: Total Assets = $464,360 Net Income = $70,360 COGS = $27,940