ADMAS UNIVERSITY
SCHOOL OF GRADUATE STUDIES
Department of Accounting and Finance
Exercises:
Part I: Choose the best answer for the following Questions
1. Which of the following does not describe accounting?
a. Language of business.
b. Is an end rather than a means to an end.
c. Useful for decision making.
d. Used by business, government, nonprofit organizations, and individuals.
2. To understand and use accounting information in making economic decisions, you
must understand:
a. The nature of economic activities that accounting information describes.
b. The assumptions and measurement techniques involved
in developing accounting information.
c. Which information is relevant for a particular type of
decision that is being made.
d. All of the above.
3. Purposes of an accounting system include all of the following except:
a. Interpret and record the effects of business transactions.
b. Classify the effects of transactions to facilitate the preparation of reports.
c. Summarize and communicate information to decision makers.
d. Dictate the specific types of business transactions that the enterprise may engage
in.
4. External users of financial accounting information include all of the following
except:
a. Investors. c. Line managers.
b. Labor unions. d. General public.
5. Objectives of financial reporting to external investors and creditors include
preparing information about all of the following except:
a. Information used to determine which products to produce.
b. Information about economic resources, claims to those resources, and changes in
both resources and claims.
c. Information that is useful in assessing the amount, timing, and uncertainty of
future cash flows.
d. Information that is useful in making investment and credit decisions.
6. Financial accounting information is characterized by all of the following except:
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a. It is historical in nature.
b. It sometimes results from inexact and approximate measures.
c. It is factual, so it does not require judgment to prepare.
d. It is enhanced by management’s explanation.
7. Which of the following financial statements is generally prepared first?
a. Income statement.
b. Balance sheet.
c. Statement of retained earnings.
d. Statement of cash flows.
8. Which of the following accounts would never be reported in the income statement
as an expense?
a. Depreciation expense.
b. Income taxes expense.
c. Interest expense.
d. Dividends expense.
9. Which of the following accounts would never appear in the after-closing trial
balance? (More than one answer may be correct.)
a. Unearned revenue.
b. Dividends.
c. Accumulated depreciation.
d. Income taxes expense.
10. Which of the following journal entries is required to close the Income Summary
account of a profitable company?
a. Debit Income Summary, credit Retained Earnings.
b. Credit Income Summary, debit Retained Earnings.
c. Debit Income Summary, credit Capital Stock.
d. Credit Income Summary, debit Capital Stock.
6. Indicate those items for which generally accepted accounting
11. Waterworld Boat Shop purchased a truck for $12,000, making a down payment
of $5,000 cash and signing a $7,000 note payable due in 60 days. As a result of this
transaction:
a. Total assets increased by $12,000.
b. Total liabilities increased by $7,000.
c. From the viewpoint of a short-term creditor, this transaction makes the business
more liquid.
d. This transaction had no immediate effect on the owners’ equity in the business.
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12. A transaction caused a $15,000 decrease in both total assets and total liabilities.
This transaction could have been:
a. Purchase of a delivery truck for $15,000 cash.
b. An asset with a cost of $15,000 destroyed by fi re.
c. Repayment of a $15,000 bank loan.
d. Collection of a $15,000 account receivable.
12. Which of the following is (are) correct about a company’s
balance sheet?
a. Displays sources and uses of cash for the period.
b. Is an expansion of the basic accounting equation:
Assets _ Liabilities _ Owners ’ Equity.
c. Is sometimes referred to as a statement of financial position.
d. It is unnecessary if both an income statement and statement of cash flows are
available
13. Which of the following would you expect to find in a correctly prepared income
statement?
a. Cash balance at the end of the period.
b. Revenues earned during the period.
c. Contributions by the owner during the period.
d. Expenses incurred during the period to earn revenues.
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ADMAS UNIVERSITY
SCHOOL OF GRADUATE STUDIES
Department of Accounting and Finance
Assignment I
Submission Date: February 22,2023
Part I: Discussion Questions
1. Differentiate between Management and Financial Accounting
2. Discuss the qualitative characteristics of accounting information,
and give instances of them.
3. The usefulness of financial information is enhanced if it is
comparable, verifiable, timely and understandable. Define these
terms
4. Accounting is sometimes described as the language of business.
What is meant by this description?
5. Discuss the definitions, write the normal balances of the following
Elements and give at least 3 examples of each.
a. Assets
b. Liabilities
c. Equity
d. Income and Expense
6. What is Economic/Business Entity assumption, is about?
7. Asset = Liability + Capital (Owner’s Equity) list points this formula
indicates.
8. Increases in Owners’ Equity The owners’ equity in a business comes from
two primary sources:
a…………………………..
b……………………………
and
Decreases in Owners’ Equity Decreases in owners’ equity also are caused
in two ways:
a………………………………..
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b……………………………..…
9. Can a business transaction cause one asset to increase without
affecting any other asset, liability, or owners’ equity?
Give an example of business transactions that would:
a. Cause one asset to increase and another asset to decrease, with
no effect on either liabilities or owners’ equity.
b. Cause both total assets and liabilities to increase with no effect on
owners’ equity.
10.
Green Company purchased a piece of machinery on credit for
$10,000. Briefly state the way this transaction affects the company’s
basic accounting equation.
11.
Foster, Inc., purchased a truck by paying $5,000 and
borrowing the remaining $25,000 required to complete the
transaction. Briefly state how this transaction affects the company’s
basic accounting equation.
Part II: Solve the following Problems
1. E & M company has the following information during 2020:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $300,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..80,000
What is the Owner’s Equity of the company?
2. ENANA Company’s transactions during January were as follows:
Jan. 20 Michael McBryan started the business by depositing
$80,000 received from the sale of capital stock in a company bank
account
Jan. 21 Purchased land for $52,000, paying cash.
Jan. 22 Purchased a building for $36,000, paying $6,000 in cash
and issuing a note payable for the remaining $30,000.
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Jan. 23 Purchased tools and equipment on account, $13,800.
Jan. 24 Sold some of the tools at a price equal to their cost, $1,800,
collectible within 45 days.
Jan. 26 Received $600 in partial collection of the account receivable
from the sale of tools.
Jan. 27 Paid $6,800 in partial payment of an account payable.
Jan. 31 Received $2,200 of sales revenue in cash.
Jan. 31 Paid $1,400 of operating expenses in cash—$200 for utilities
and $1,200 for wages.
Required:
i.
Analyze transactions and record in a journal
ii. Post transactions in to Ledger
iii. Prepare trial balance
iv. Close the temporary accounts
v.
Prepare post-closing trial balance
vi. Prepare income statement
vii. Prepare balance sheet
3. White Company’s assets total $780,000 and its owners’ equity
consists of capital stock of $500,000 and retained earnings of
$150,000. Does White Company have any outstanding liabilities
and, if so, what is the total amount of its liabilities?
4. Wiley Company had total revenues of $300,000 for a recent month.
During the month the company incurred operating expenses of
$205,000 and purchased land for $45,000. Compute the amount of
Wiley’s net income for the month.
5. Xavier Company had the following transactions during the current
year:
• Earned revenues of $100,000 and incurred expenses of $56,000,
all in cash.
• Purchased a truck for $20,000.
• Sold land for $10,000.
• Borrowed $15,000 from a local bank.
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What was the total change in cash during the year?
6. number of business transactions carried out by Smalling
Manufacturing Company are as follows:
a. Borrowed money from a bank.
b. Sold land for cash at a price equal to its cost.
c. Paid a liability.
d. Returned for credit some of the office equipment previously
purchased on credit but not yet paid for. (Treat this the opposite of a
transaction in which you purchased office equipment on credit.)
e. Sold land for cash at a price in excess of cost. (Hint: The difference
between cost and sales price represents a gain that will be in the
company’s income statement.)
f. Purchased a computer on credit.
g. The owner invested cash in the business.
h. Purchased office equipment for cash.
i. Collected an account receivable.
Required:
Indicate the effects of each of these transactions on the total amounts of
the company’s assets, liabilities, and owners’ equity. Organize your
answer in tabular form, using the following column headings and the code
letters I for increase, D for decrease, and NE for no effect. The answer for
transaction a is provided as an example:
Transaction
(a)
Assets _
I
Liabilities _
I
Owners’ Equity
NE
7. Hernandez, Inc., had the following transactions during the month of
March 2011. Prepare an income statement based on this
information, being careful to include only those items that should
appear in that financial statement.
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1. Cash received from bank loans was $10,000.
2. Revenues earned and received in cash were $9,500.
3. Dividends of $4,000 were paid to stockholders.
4. Expenses incurred and paid were $5,465.
8. Listed below in random order are the items to be included in the balance sheet
of Smokey Mountain
Lodge at December 31, 2011:
Equipment . . . . . . . . . . . . . . . $ 39,200
Land . . . . . . . . . . . . . . . . . . . . 425,000
Accounts Payable. . . . . . . . . . 54,800
Accounts Receivable . . . . . . . 10,600
Salaries Payable. . . . . . . . . . . 33,500
Interest Payable . . . . . . . . . . . 12,000
Buildings . . . . . . . . . . . . . . . . . $450,000
Capital Stock . . . . . . . . . . . . . 135,000
Cash . . . . . . . . . . . . . . . . . . . . 31,400
Furnishings . . . . . . . . . . . . . . . 58,700
Snowmobiles . . . . . . . . . . . . . 15,400
Notes Payable . . . . . . . . . . . . 620,000
Retained Earnings . . . . . . . . . ?
Instruction:
a. Prepare a balance sheet at December 31, 2011. Include a proper
heading and organize your balance sheet
9. Goldstar Communications was organized on December 1 of the current year
and had the following account balances at December 31, listed in tabular
form:
Owners’
Assets _
Liabilities
Equity
Office
Notes
Accounts
Cash + Land + Building + Equipment = Payable + Payable +
Bal . $37,000 $95,000 $125,000 $51,250
$80,000 $28,250
Capital Stock
$200,000
Early in January, the following transactions were carried out by Goldstar
Communications:
1. Sold capital stock to owners for $35,000.
2. Purchased land and a small office building for a total price of $90,000, of which
$35,000 was the value of the land and $55,000 was the value of the building. Paid
$22,500 in cash and signed a note payable for the remaining $67,500.
3. Bought several computer systems on credit for $9,500 (30-day open account).
4. Obtained a loan from Capital Bank in the amount of $20,000. Signed a note
payable.
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5. Paid the $28,250 account payable due as of December 31
6. Bought office equipment at a cost of $2,700. Paid cash.
7. Collected $4,000 of accounts receivable.
8. Paid $3,200 of accounts payable.
9. Borrowed $10,000 from a bank. Signed a note payable for that amount.
10. Purchased two trucks for $30,500. Paid $15,000 cash and signed a note payable
for the balance.
11. Sold additional stock to investors for $75,000.
Instructions
a. List the December 31 balances of assets, liabilities, and owners’ equity
in tabular form as shown.
b. Record the effects of each of the five transactions
10.In March 2011, Mary Tone organized a corporation to provide package delivery
services. The company, called Tone Deliveries, Inc., began operations immediately.
Transactions during the month
of March were as follows:
Mar. 2 The corporation issued 40,000 shares of capital stock to Mary Tone in
exchange for $80,000 cash.
Mar. 4 Purchased a truck for $45,000. Made a $15,000 cash down payment and
issued a note payable for the remaining balance.
Mar. 5 Paid Sloan Properties $2,500 to rent office space for the month.
Mar. 9 Billed customers $11,300 for services for the first half of March.
Mar. 15 Paid $7,100 in salaries earned by employees during the first half of March.
Mar. 19 Paid Bill’s Auto $900 for maintenance and repair services on the company
truck.
Mar. 20 Collected $3,800 of the amounts billed to customers on March 9.
Mar. 28 Billed customers $14,400 for services performed during the second half of
the month.
Mar. 30 Paid $7,500 in salaries earned by employees during the second half of the
month.
Mar. 30 Received an $830 bill from SY Petroleum for fuel purchased in March. The
entire amount is due by April 15.
Mar. 30 Declared a $1,200 dividend payable on April 30.
Required:
a. Prepare journal entries (including explanations) for each transaction.
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c. Post each transaction to the appropriate ledger accounts
d. Prepare a trial balance dated March 31, 2011.
Adjusting Entries
Part II: Solve the following questions
1. Internet Consulting Service, Inc., adjusts its accounts every
month. On the following page is the company’s year-end unadjusted
trial balance dated December 31, 2011. (Bear in mind that adjusting
entries already have been made for the first 11 months of 2011, but
have not been made for December.
2. Other Data
1. On December 1, the company signed a new rental agreement and
paid three months’ rent in advance at a rate of $2,100 per month.
This advance payment was debited to the Prepaid Office Rent
account.
2. . Dues and subscriptions expiring during December amounted to
$50.
3. An estimate of supplies on hand was made at December 31; the
estimated cost of the unused supplies was $450.
4. The useful life of the equipment has been estimated at five years (60
months) from date of acquisition.
5. Accrued interest on notes payable amounted to $100 at year-end.
(Set up accounts for Interest Expense and for Interest Payable.)
6. Consulting services valued at $2,850 were rendered during
December to clients who had made payment in advance.
7. It is the custom of the firm to bill clients only when consulting work
is completed or, in the case of prolonged engagements, at monthly
intervals. At December 31, consulting services valued at $11,000
had been rendered to clients but not yet billed. No advance payments
had been received from these clients.
8. Salaries earned by employees but not paid as of December 31
amount to $1,700.
9. Income taxes expense for the year is estimated at $56,000. Of this
amount, $51,000 has been recognized as expense in prior months,
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and $39,000 has been paid to tax authorities. The company plans to
pay the $17,000 remainder of its income tax liability on January 15.
Internet Consulting Service Inc.
Unadjusted Trial Balance
December 31, 2011
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,100
Consulting fees receivable . . . . . . . . . . . . . . . . . . . . . . 23,400
Prepaid office rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,300
Prepaid dues and subscriptions . . . . . . . . . . . . . . . . . . . . . 300
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36,000
Accumulated depreciation: equipment . . . . . . . . . . . . . . . . . . . .$ 10,200
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Unearned consulting fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,950
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30,000
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,700
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Consulting fees earned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,180
Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,820
Telephone expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,550
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000
Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,000
Dues and subscriptions expense . . . . . . . . . . . . . . . . . . . . . . 560
Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600
Depreciation expense: equipment . . . . . . . . . . . . . . . . . . . .6,600
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200
$353,030 $353,030
Instructions
a. Prepare the necessary adjusting journal entries on December 31, 2011.
b. Determine the amounts to be reported in the company’s year-end
adjusted trial balance for each of the following accounts:
Consulting Fees Earned
Dues and Subscriptions Expense
Salaries Expense
Depreciation Expense: Equipment
Telephone Expense
Miscellaneous Expenses
Rent Expense
Interest Expense
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Supplies Expense
Income Taxes Expense
c. Determine the company’s net income for the year ended December 31,
2011.
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