. (TCO A) Listed below are some information characteristics and accounting principles and
assumptions. Match the letter of each with the appropriate phrase that states its application.
(Points: 30)
Matching:
Answer
Potential Matches:
: Consistency
characteristic
: Historical
cost principle
: Going
concern principle
: Periodicity
assumption
: Reliability
characteristic
: Economic
entity assumption
: Monetary
unit assumption
: Revenue
recognition principle
1: Presentation of error-free information with
representational faithfulness.
2: Money is the common denominator of economic activity
and provides an appropriate basis for accounting
measurement and analysis.
3: Business enterprise assumed to have a long life.
4: Application of the same accounting principles as in the
preceding year.
5: Valuing assets at amounts originally paid for them.
6: Implies that a company can divide its economic activities
into artificial time periods.
7: Notes as part of necessary information to a fair
presentation.
8: Affairs of the business distinguished from those of its
owners.
9: Economic activity can be identified with a particular unit
of accountability.
10: Earnings process completed and realized or realizable.
: Full
disclosure principle
: Economic
entity assumption
1) Reliability characteristic
2) Monetary unit assumption
3) Going concern principle
4) Consistency characteristic
5) Historical cost principle
6) Periodicity assumption
7) Full disclosure principle
8) Economic entity assumption
9) Economic entity assumption
10) Revenue recognition principle
2. (TCO B) Adjusting Entries: Unearned rent at 1/1/10 was $5,300 and at 12/31/10 was $9,000.
The records indicate cash receipts from rental sources during 2010 amounted to $40,000, all of
which was credited to the Unearned Rent Account. You are to prepare the missing adjusting
entry. For each journal entry write Dr for debit and Cr for credit. (Points: 10)
Unearned Rent Revenue ................................................................
Rent Revenue .................................................................
Cash receipts
Beginning balance
Ending balance
Rent revenue
36,300
36,300
$40,000
5,300
(9,000)
$36,300
3. (TCO B) Adjusting Entries: Data relating to the balances of various accounts affected
by adjusting or closing entries appear below. (The entries which caused the changes in
the balances are not given.) You are asked to supply the missing journal entries which
would logically account for the changes in the account balances.
Interest receivable at 1/1/10 was $1,000. During 2010 cash received from debtors for interest on
outstanding notes receivable amounted to $1,000. The 2010 income statement showed interest
revenue in the amount of $2,900. You are to provide the missing adjusting entry that must have
been made, assuming reversing entries are not made. For each journal entry write Dr for debit
and Cr for credit. (Points: 10)
Interest Receivable ...........................................................................
Interest Revenue ..............................................................
Interest revenue per books
Interest revenue received related to 2010
($1,000 – $1,000)
Interest accrued
2,900
2,900
$2,900
0
$2,900
4. (TCO B) Adjusting Entries: Accumulated depreciation-equipment at 1/1/10 was $230,000. At
12/31/10 the balance of the account was $380,000. During 2010, one piece of equipment was
sold. The equipment had an original cost of $40,000 and was 3/4 depreciated when sold. You are
to prepare the missing adjusting entry. For each journal entry write Dr for debit and Cr for credit.
(Points: 10)
Depreciation Expense ......................................................................
Accumulated Depreciation—Equipment ........................
180,000
180,000
Ending balance
Beginning balance
Difference
Write-off at time of sale 3/4 × $40,000
$380,000
230,000
150,000
30,000
$ 180,000
5. (TCO B) Adjusting Entries: Allowance for doubtful accounts on 1/1/10 was $70,000.
The balance in the allowance account on 12/31/10 after making the annual adjusting
entry was $70,000 and during 2010 bad debts written off amounted to $40,000. You are
to provide the missing adjusting entry. For each journal entry write Dr for debit and Cr for
credit. (Points: 10)
Bad Debt Expense ............................................................................
Allowance for Doubtful Accounts ..................................
Ending balance
Beginning balance
Difference
Written off
40,000
40,000
$70,000
70,000
0
40,000
$40,000
6. (TCO B) Adjusting Entries: Prepaid rent at 1/1/10 was $50,000. During 2010 rent payments of
$110,000 were made and charged to "rent expense." The 2010 income statement shows as a
general expense the item "rent expense" in the amount of $135,000. You are to prepare the
missing adjusting entry that must have been made, assuming reversing entries are not made. For
each journal entry write Dr for debit and Cr for credit. (Points: 10)
Rent Expense .........................................................................25,000
Prepaid Rent ....................................................................
Rent expense
Less cash paid
Reduction in prepaid rent account
25,000
$135,000
110,000
$ 25,000
7. (TCO B) Adjusting Entries: Retained earnings at 1/1/10 was $150,000 and at 12/31/10
it was $200,000. During 2010 cash dividends of $60,000 were paid and a stock dividend
of $40,000 was issued. Both dividends were properly charged to retained earnings. You
are to provide the missing closing entry. For each journal entry write Dr for debit and Cr
for credit. (Points: 10)
Income Summary ..............................................................................
Retained Earnings ...........................................................
150,000
150,000
Ending balance
Beginning balance
Difference
Cash dividends
Stock dividends
$200,000
150,000
50,000
$60,000
40,000
100,000
$150,000
PART 2
1. (TCO C) Presented below is information related to Big Blast Company.
Retained earnings, December 31, 2010
$ 2,350,000
Sales
2,600,000
Selling and administrative expenses
240,000
Earthquake loss (pre-tax) on plant (extraordinary item)
250,000
Cash dividends declared on common stock
53,600
Cost of goods sold
1,000,000
Gain resulting from computation error
520,000
on depreciation charge in 2009 (pre-tax)
Other revenue
80,000
Other expenses
50,000
Instructions
Prepare in good form a multiple-step income statement for the year 2011. Assume a 30% tax rate
and that 100,000 shares of common stock were outstanding during the year.
(Points: 40)
2. (TCO D) The following balance sheet was prepared by the bookkeeper for Brown Company as
of December 31, 2011.
Brown Company
Balance Sheet
As of December 31, 2011
Cash
$ 80,000
Accounts payable
$ 75,000
Accounts receivable (net)
52,200
Long-term liabilities
100,000
Inventories
57,000
Stockholders' equity
218,500
Investments
76,300
Equipment (net)
96,000
Patents
32,000
$393,500
$393,500
The following additional information is provided:
(1) Cash includes the cash surrender value of a life insurance policy $9,400, and a bank overdraft
of $2,500 has been deducted.
(2) The net accounts receivable balance includes:
(a) accounts receivable debit balances $60,000;
(b) accounts receivable credit balances $4,000;
(c) allowance for doubtful accounts $3,800.
(3) Inventories do not include goods costing $3,000 shipped out on consignment. Receivables of
$3,000 were recorded on these goods.
(4) Investments include investments in common stock, trading $24,000 and available-for-sale
$48,300, and franchises $4,000.
(5) Equipment costing $5,000 with accumulated depreciation $4,000 is no longer used and is held
for sale. Accumulated depreciation on the other equipment is $40,000.
Instructions
Prepare a balance sheet in good form (stockholders' equity details can be omitted.)
Do not worry about balancing the statement but rather use your time to compute the account
balances properly for presentation purposes.
(Points: 40)
3. (TCO E) Jack Sawyer is presently leasing a copier from John Office Equipment Company. The
lease requires 11 annual payments of $3,500 at the end of each year and provides the leaser
(John) with an 8% return on its investment. You may use the following 8% interest factors:
9 Periods
10 Periods
11 Periods
Future Value of 1
1.99900
2.15892
2.33164
Present Value of 1
.50025
.46319
.42888
Future Value of
12.48756
14.48656
16.64549
Ordinary Annuity of 1
Present Value of
6.24689
6.71008
7.13896
Ordinary Annuity of 1
Present Value of
6.74664
7.24689
7.71008
Annuity Due of 1
Instructions
(a) Assuming the computer has an eleven-year life and will have no salvage value at the
expiration of the lease, what was the original cost of the copier to John?
(b) What amount would each payment be if the 11 annual payments are to be made at the
beginning of each period?
(Points: 25)
4. (TCO F) Northville Paper and Paint deposits all receipts and makes all payments by check. The
following information is available from the cash records:
Month of May Results
Per Bank
Per Books
Balance May 31
$27,995
$24,355
May deposits
10,000
12,889
May checks
11,100
16,080
May note collected
3,000
-0(not included in April deposits)
May bank service charge
35
-0May NSF check of a customer
900
-0returned by the bank
(recorded by bank as a charge)
Calculate the following amounts:
1. Deposits in transit on May 31.
2. Outstanding checks on May 31.
(Points: 25)
5. (TCO G) Rye Company was formed on December 1, 2010. The following information is
available from Rye's inventory record for Product Bread.
Units
Unit Cost
January 1, 2011 (beginning inventory)
1,700
$17.00
Purchases:
January 5, 2011
2,600
$20.00
January 25, 2011
2,400
$21.00
February 16, 2011 1,000
$22.00
March 15, 2011
2,100
$25.00
A physical inventory on March 31, 2011, shows 3,000 units on hand.
Instructions
Prepare schedules to compute the ending inventory at March 31, 2011, under each of the
following inventory methods:
(a) FIFO.
(b) LIFO.
(c) Weighted-average.
Show supporting computations in good form.
(Points: 30)
6.
(TCO H) A machine cost $500,000 on April 1, 2010. Its estimated salvage value is $50,000 and
its expected life is eight years.
Instructions
Calculate the depreciation expense (to the nearest dollar) by each of the following methods,
showing the figures used.
(a) Straight-line for 2010
(b) Double-declining balance for 2011
(c) Sum-of-the-years'-digits for 2011
(Points: 30)