Problem 1: The items making up the balance sheet of Jones Delivery at December 31 are

listed below in tabular form. Owners + Equity

Assets Cash Balances $8,20 0 Accounts + Receivable $9,600 Trucks $65,00 0

= Liabilities

Office Notes Accounts Capital + Equipment = Payable + Payable + Stock $4,000 $15,00 $6,100 $65,700 0

During a short period after December 31, Jones Delivery had the following transactions: 1. Bought office equipment at a cost of $3,200. Paid cash. 2. Collected $5,000 of accounts receivable. 3. Paid $1,200 of accounts payable. 4. Borrowed $8,000 from a bank. Signed a note payable for that amount. 5. Purchased two trucks for $40,000. Paid $10,000 cash and signed a note payable for the balance. 6. Sold additional stock to investors for $22,000. Instructions a. List the December 31 balances of assets, liabilities, and owners equity in tabular form as shown above. b. Record the effects of each of the six transactions in the tabular arrangement illustrated above. Show the totals for all columns after each transaction.

Problem 2: The balance sheet items for The Town Bakery (arranged in alphabetical order)
were as follows at August 1, 2002. (You are to compute the missing figure for retained earnings.) Accounts Payable...................$ 6,300 Accounts Receivable...............10,100 Building...................................80,000 Capital Stock...........................90,000 Cash ..........................................3,200 Equipment and Fixtures........$22,000 Land........................................40,000 Notes Payable..........................50,000 Salaries Payable........................4,200 Supplies.....................................6,200

During the next two days, the following transactions occurred: Aug. 2 Additional capital stock was sold for $20,000. The accounts payable were paid in full. (No payment was made on the notes payable or income taxes payable.) Aug. 3 Equipment was purchased at a cost of $5,000 to be paid within 10 days. Supplies were purchased for $1,100 cash from a restaurant supply center that was going out of business. These supplies would have cost $2,000 if purchased through normal channels. Instructions a. Prepare a balance sheet at August 1, 2002. b. Prepare a balance sheet at August 3, 2002, and a statement of cash flows for August 13. Classify the payment of accounts payable and the purchase of supplies as operating

activities. c. Assume the note payable does not come for several years. Is The Town Bakery in a stronger financial position on August 1 or on August 3? Explain briefly.

Problem 3: Ford Fenn is the founder and president of Kidney Construction, a real estate
development venture. The business transactions during February while the company was being organized are listed below. Apr. 1 Fenn and several others invested $800,000 cash in the business in exchange for $10,000 shares of capital stock. Apr. 6 The company purchased office facilities for $400,000, of which $80,000 was applicable to the land, and $320,000 to the building. A cash payment of $90,000 was made and a note payable was issued for the balance of the purchase price. Apr. 10 Computer equipment was purchased from PCWorld for $10,000 cash. Apr. 12 Office furnishings were purchased from Freds Furniture at a cost of $10,000. A $1,000 cash payment was made at the time of purchase, and an agreement was made to pay the remaining balance in two equal installments due May 1 and June 1. Freds Furniture did not require that Kidney sign a promissory note. Apr. 20 Office supplies were purchased from Office Planet for $800 cash. Apr. 25 Kidney discovered that it paid too much for a computer printer purchased on April 10. The unit should have cost only $500, but Kidney was charged $550. PCWorld promised to refund the difference within seven days. Apr. 28 Mailed Freds Furniture the first installment due on the account payable for office furnishings purchased on April 12. Apr. 29 Received $50 from PCWorld in full settlement of the account receivable created on April 25. Instructions a. Prepare journal entries to record the above transactions. Select the appropriate account titles from the following chart of accounts: Cash Land Accounts Receivable Office Building Office Supplies Notes Payable Office Furnishings Accounts Payable Computer Systems Capital Stock b. Indicate the effects of each transaction on the companys assets, liabilities, and owners equity for the month of April.

Problem 4: Dr. Filler, DMD, opened a dental clinic on August 1. The business transactions
for August are shown below: Aug. 1 Aug. 4 Dr. Filler invested $250,000 cash in the business in exchange for 1,000 shares of capital stock. Land and a building were purchased for $320,000. Of this amount, $85,000 applied to the land, and $235,000 to the building. A cash payment of $100,000 was made at the time of the purchase, and a note payable was issued for the remaining balance. Medical instruments were purchased for $62,000 cash. Office fixtures and equipment were purchased for $30,000. Dr. Filler paid $5,000 at the time of purchase and agreed to pay the entire remaining balance

Aug. 9 Aug. 16

Aug. 21 Aug. 24 Aug. 27 Aug. 28 Aug. 31

in 15 days. Office supplies expected to last several months were purchased $3,500 cash. Dr. Filler billed patients $2,500 for services rendered. Of this amount, $1,200 was received in cash, and $1,300 was billed on account (due in 30 days). A $500 invoice was received for several newspaper advertisements placed in August. The entire amount is due on September 8. Received a $400 payment on the $6,300 account receivable recorded August 24. Paid employees $2,700 for salaries earned in August.

Instructions: Analyze the effects that each of these transactions will have on the following six components of the companys financial statements for the month of August. Organize your answer in tabular form. Use I for increase, D for decrease, and NE for no effect.

Problem 5: Hudson Valley Health Club adjusts its accounts monthly and closes its
accounts yearly. Members pay their annual dues in advance by January 6. These amounts are credited to Unearned Membership Revenue. At the end of each month, an appropriate amount from this account is credited to Membership Revenue Earned. The following information is available as a source for preparing adjusting entries at December 31: 1. Salaries earned by personal trainers that have not been recorded or paid amount to $11,200. 2. The Hudson University gymnastics team used the health club facilities for a competition held on December 29. As of December 31, the fees owed by the team for using the club had not been recorded or paid. The amount was $800. 3. Membership fees earned in December, that were collected the previous January, amount to $6,000. 4. Depreciation of the clubs exercise equipment is based on a useful life of 10 years. The equipment had been purchased for $96,000. The straight-line method is used. 5. A 12 month bank loan for $18,000 was obtained by the health club on December 1. Interest on the loan is at 6% a year. No adjustment has been made to record interest expense accrued in December. 6. A one year liability insurance policy was purchased on April 1. The full premium of $6,600 was initially recorded as Prepaid Insurance. 7. Unrecorded Income Tax expense accrued in December totals $19,000. This amount will not be paid until January 15. INSTRUCTIONS a. For each of the above numbered paragraphs, prepare the necessary adjusting entry. Include an explanation.

Problem 5: The Cooper City Taxicab Company adjusts its accounts monthly and closes
them at year end on December 31. At September 30, the trial balance and other information shown below were available for adjusting the accounts: Cooper City Taxicab Company Trial Balance September 30, 2002

Cash

32,000

Prepaid License Fees............................................. 8,600 Unearned Taxicab Revenue.................................. Land Building Accumulated Depreciation: Bldg.......................... Taxicab Fleet......................................................... 122,000 Accumulated Depreciation: Taxi Fleet................. Notes Payable........................................................ Accounts Payable.................................................. Income Taxes Payable.......................................... Capital Stock......................................................... Retained Earnings................................................. Transportation Revenue........................................ Salaries Expense................................................... 42,500 Utilities Expense................................................... 7,800 Depreciation Expense: Bldg................................. 10,000 Depreciation Expense: Taxi Fleet......................... 2,200 Interest Expense.................................................... 1,950 Income Tax Expense............................................. 36,000 $ 551,050 $ 551,050 36,600 19,300 29,200 29,500 49,500 42,890 307,560 138,000 150,000 30,000 $ 6,500

1. License Fees for the month is $1075. Note that the licensing fees had been paid for several months in advance. 2. The building is being depreciated over a period of 15 years (180 months). 3. The taxi fleet is being depreciated over a 10 year period (120 months). 4. For the month of September, the accrued interest on the note payable amounted to $1,000. 5. The taxi company allows local businesses a 15% discount if they prepay their estimated monthly bill on the first of the month. $700 of these prepaid fares were redeemed during the month of September. 6. Salaries Earned by employees during September, but not yet recorded or paid amount to $7,700. 7. Income Tax Expense for September is estimated to be $2,500. This amount will be paid when the December 15 installment becomes due. 8. Utilities Expense is recorded as monthly bills are received. No adjusting entries for these items are made at the end of the month. INSTRUCTIONS: a. For each of the above numbered paragraphs, prepare the necessary adjusting entry (including the explanation). b. Refer to the balances in the UNADJUSTED Trial Balance at September 30. How many months worth of expense are included in each of the following account balances? Remember, Cooper City adjusts its accounts monthly, but does not close them until December 31. 1. Utilities Expense 2. Depreciation Expense: Building 3. Accumulated Depreciation: Building

Problem 1
Ow ne rs Equity Ca pita l Stock $65700 $65700 $65700 $65700 $65700 $65700 22000 $87700

Asse ts Ca sh 820 320 500 500 1000 120 880 800 1680 1000 680 2200 2880

De ce m be r 31 Ba la nce s (1) Ba la nce s (2) Ba la nce s (3) Ba la nce s (4) Ba la nce s (5) Ba la nce s (6) Ba la nce s

+ + +

$ $ $ $ $ $

0 0 0 0 0 0 0 0 0 0 0 0 0

Accounts Re ce iva ble $9600 $9600 5000 $4600 $4600 $4600 $4600 $4600

Trucks $65000 $65000 $65000 $65000 $65000 40000 $105000 $105000

Office Equipm e nt $4000 3200 + $7200 $7200 $7200 $7200 $7200 $7200

= =

Lia bilities Note s Accounts Pa ya ble Pa ya ble + $15000 $6100 $15000 $15000 $15 8 $23 + 30 $53 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $6100 $6100 1200 $4900 $4900 $4900 $4900

+ +

$53000

Problem 2
a. T H E T O W N B A K ER Y B a la n c e S h e e t A u g u st 1 , 2 002 L ia b ilitie s & O w n e rs Eq u ity 3200 L ia b ilitie s: 0100 N o te s p a ya b le $ 6200 A c co u n ts p a ya b le 0000 S a la rie s p a ya b le 0000 T o ta l lia b ilitie s $ 2000 O w n e rs e q u ity: C a p ita l sto ck R e ta in e d e a rn in g s 1500 T o ta l $1

A sse ts C a sh A c co u n ts re c e iva b le S u p p lie s La nd B u ild in g Eq u ip m e n t & fix tu re s

$ 1 4 8 2

50 6 4 60

0 3 2 5

0 0 0 0

0 0 0 0

T o ta l

$16

90000 11000 61500

Retained earnings ($11,000) = Total assets ($161,500), less total liabilities ($60,500) + capital stock ($90,000).

b .

Ae st ss Ch a s Aon r ci al c ut ee b c s v e S pe ul s pi Ln ad Bl i g ud i n E i mt&x r s q pe f t e u n iu

Tt l o a

TEONA R HTWB E KY Bac S e an h t l e e A u 320 u s , 02 gt Lbii s OnrE iy i i te&w s q t al e u $ 15800 Lbii s i i te: al 10100 Nepyb osaal t e 7300 Aon pyb c ut aal c s e 40000 Saepyb a r saal l i e 80000 Tt llaiii s o i bte a l 27000 Onreuy w s qi : e t C iasc a tl t k p o Ra e er i g e i da ns tn n $180200 Tt l o a

$ 50000 5000 4200 $ 59200 110000 11000 $180200

T ET W B K R H O N AEY S te e t o C s F w ta m n f a h lo s F r th P rio A g s 1 3 2 0 o e e d u ut , 0 2 C s flo sfr mo e a ga tiv s a h w o p r tin c itie : C s p y e t o a c u tsp y b a h a m n f c o n a a le C s p rc a eo s p lie ah u h s f u p s C s u e ino e a ga tiv s a h s d p r tin c itie C s flo sfr min e tin a tiv s a h w o v s g c itie : Nn oe C s flo sfr mfin n in a tiv s ah w o a c g c itie : S leo c p l s c a f a ita to k In r a einc s ce s ah C s b la c , A g s 1 2 0 a h a n e u ut , 0 2 C s b la c , A g s 3 2 0 a h a n e u ut , 0 2 $ ( 6300) ( 1100) $ ( 7400)

$ $ $

20000 12600 3200 15800

c. The Town Bakery is in a stronger financial position on August 3 than it was on August 1. On August 1, the highly liquid assets (cash and accounts receivable) total only $13,300, but the company has $10,500 in debts due in the near future (accounts payable plus salaries payable). On August 3, after additional infusion of cash from the sale of stock, the liquid assets total $25,900, and debts due in the near future amount to $9,200.

Problem 3

Transaction Apr. 1

Assets + $800,000 (Cash)

Liabilities $0

Owners Equity + $800,000 (Capital Stock)

Apr. 6

+ $80,000 (Land) + $320,000 (Office Building) $90,000 (Cash) + $10,000 (Computer Systems) $10,000 (Cash) + $10,000 (Office Furnishings) $1,000 (Cash) + $800 (Office Supplies) $800 (Cash) + $50 (Accounts Receivable) $50 (Computer Systems) $4,500 (Cash) + $50 (Cash) $50 (Accounts Receivable)

+ $310,000 (Notes Payable)

$0

Apr. 10 Apr. 12 Apr. 20 Apr. 25 Apr. 28 Apr. 29

$0 + $9,000 (Accounts Payable) $0 $0 - $4,500 (Accounts Payable) $0

$0 $0 $0 $0 $0 $0

a. General Journal 20__ Apr. 1 Cash Capital Stock 6 Land Office Building Cash Notes Payable 10 Computer Systems Cash 12 Office Furnishings Cash Accounts Payable 20 Office Supplies Cash 25 Accounts Receivable Computer Systems 28 Accounts Payable Cash 29 Cash Accounts Receivable 80000 320000 90000 310000 10000 10000 10000 1000 9000 800 800 50 50 4500 4500 50 50

800000 800000

Transaction Apr. 1

Assets + $800,000 (Cash)

Liabilities $0

Owners Equity + $800,000 (Capital Stock)

Apr. 6

+ $80,000 (Land) + $320,000 (Office Building) $90,000 (Cash) + $10,000 (Computer Systems) $10,000 (Cash) + $10,000 (Office Furnishings) $1,000 (Cash) + $800 (Office Supplies) $800 (Cash) + $50 (Accounts Receivable) $50 (Computer Systems) $4,500 (Cash) + $50 (Cash) $50 (Accounts Receivable)

+ $310,000 (Notes Payable)

$0

Apr. 10 Apr. 12 Apr. 20 Apr. 25 Apr. 28 Apr. 29

$0 + $9,000 (Accounts Payable) $0 $0 - $4,500 (Accounts Payable) $0

$0 $0 $0 $0 $0 $0

Problem 4
a. Transaction Aug. 1 Aug. 4 Aug. 9 Aug. 16 Aug. 21 Aug. 24 Aug. 27 Aug. 28 Aug. 31 Revenue NE NE NE NE NE I NE NE NE Income Statement Net Expenses = Income NE NE NE NE NE NE NE NE NE NE NE I D D NE NE I D Assets I I NE I NE I NE NE D Balance Sheet = Liabilities + NE I NE I NE NE I NE NE Owners Equity I NE NE NE NE I D NE D

b. General Journal 2002 Aug. 1 Cash Capital Stock Issued 1,000 shares of capital stock. 4 Land Building Cash Notes Payable Purchased land and building. 9 Medical Instruments Cash Purchased medical instruments. 16 Office Fixtures & Equipment Cash Accounts Payable Purchased fixtures and equipment. 21 Office Supplies Cash Purchased office supplies. 24 Cash Accounts Receivable Service Revenue Recorded dental service revenue earned. 27 Advertising Expense Accounts Payable Recorded advertising expense incurred in Aug. 28 Cash Accounts Receivable Collected cash for Aug. 24 services. 31 Salary Expense Cash Paid Aug. salary expense. 2700 2700 85000 235000 100000 220000

250000 250000

62000 62000

30000 5000 25000

3500 3500

1200 1300 2500

500 500

400 400

Aug. 1 Aug. 24 Aug. 28

Cash 250,000 1,200 400

Aug. 4 Aug. 9 Aug. 16 Aug. 21 Aug. 31

100,000 62,000 5,000 3,500 2,700

Notes Payable Aug. 4 Aug. 31 Bal.

220,000 220,000

Aug.31 Bal.

78,400

Aug. 24 Aug. 31 Bal.

Accounts Receivable 1300 Aug. 28 900 Office Supplies 3,500 3,500 Medical Instruments 62,000 62,000 Office Fixtures & Equipment 30,000 30,000 Land 85,000 85,000 Building 235,000 235,000

400

Accounts Payable Aug. 16 Aug. 27 Aug. 31 Bal. Capital Stock Aug. 1 Aug. 31 Bal. Service Revenue Aug. 24 Aug. 31 Bal. Advertising Expense 500 500 Salary Expense 2,700 2,700

25,000 500 25,500

Aug. 21 Aug. 31 Bal.

250,000 250,000

Aug. 9 Aug. 31 Bal.

2,500 2,500

Aug. 16 Aug. 31 Bal.

Aug. 27 Aug. 31 Bal.

Aug. 4 Aug. 31 Bal.

Aug. 31 Aug. 31 Bal.

Aug. 4 Aug. 31 Bal.

d.

DR. FILLER, DMD Trial Balance August 31, 2002 $ 784 9 35 620 300 850 2350 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $220000 25500 250000 0 2500 500 2700 $498000

Cash Accounts receivable Office supplies Medical instruments Office fixtures & equipment Land Building Notes payable Accounts payable Capital stock Retained earnings Service revenue Advertising expense Salary expense

$498000

e .

T o C A O M O L B

ta l a s s e ts : a s h c c o u n ts r e c e iv a b le ffic e s u p p lie s e d ic a l in s tr u m e n ts ffic e fix tu r e s & e q u ip m a n d u ild in g T o ta l a s s e ts lia s p u n a l b ilitie s : a y a b le ts p a y a b le lia b ilitie s

e n t

7 8 4 9 3 5 6 2 0 3 0 0 8 5 0 2 3 5 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0 $ 4 9 4 8 0 0

T o ta l N o te A c c o T o t

$ 2 2 0 0 0 0 2 5 5 0 0 $ 2 4 5 5 0 0

T o ta l o w n e r s ' (s to c k h o ld e r s ) e q u ity : T o t a l a s s et ot st a l l i a b i l i t i e s A s s h o w n b e lo w o f o p e r a tio n s : S e r v ic e r e v e n u e $ 5 0 0 2 7 0 0 , th e b u s in e s s w a s n o t p r o fita b le in its

$ 2 4 5 5 0 0 fir s t m o n th

2 5 0 0

L e s s :d v e r t i s i n g e x p e n s e A S a la r y e x p e n s e N e t lo s s N o t e t o I n s t rI u t to in itia lly r e s itu a tio n , th e A u g . th a t it is a b o u t th e e x c st o n r o: t u n i p o r t a n e r e w e r e d iffic u lt, p e c te d p c o m m o n fo t lo s s fr o m s o fe w r e v e if n o t im p o e r fo r m a n c e

$ r n e w s m a ll b o p e r a tio n s . In n u e a n d e x p e s s ib le , to d r a w o f th e d e n ta l u s in th is n s e a n c lin e s s e s p a r tic tr a n s a y c o n c ic in th

3 2 0 0 ( 7 0 0 )

u la r c tio n s in lu s io n s e fu tu r e .

Problem 5
General Journal

DEC

31

Salaries Salaries Payable To record accrued salaries for December Fees Receivable Fees Earned To record accrued fees earned in December Unearned Membership Revenue Membership Revenue Earned To record portion of membership fees collected in advance that were earned in December Depreciation Expense: Exercise Equipment Accumulated Depreciation: Exercise Equipment To record depreciation for the month Interest Expense Interest Payable To record accrued interest for the month Insurance Expense Prepaid Insurance To record portion of liability insurance policy expired in December Income Tax Expense Income Tax Payable To record income tax expense accrued in December.

1 1 2 0 0

1 1 2 0 0

31

8 0 0

8 0 0

31

6 0 0 0

6 0 0 0

31

8 0 0

8 0 0

31

9 0

9 0

31

5 5 0

5 5 0

31

1 9 0 0 0

1 9 0 0 0

Part B 1. To record unrecorded expenses. 2. To record unrecorded revenue. 3. To apportion unearned revenue. 4. To apportion recorded costs. 5. To record unrecorded expenses. 6. To apportion recorded costs. 7. To record unrecorded expenses.

Problem 6
General Journal

SEPT. 30

License Expense Prepaid License Fees To record license fees for September. Depreciation Expense: Building Accumulated Depreciation: Building To record depreciation on the building for September ($150,000 180, rounded). Depreciation Expense: Taxi Fleet Accumulated Depreciation: Taxi Fleet To record depreciation on the taxi fleet for September ($122,000 120, rounded). Interest Expense Interest Payable To record accrued interest on the notes payable. Unearned Taxicab Revenue Transportation Revenue To record $700 of the transportation revenue that had been paid for in advance. Salaries Expense Salaries Payable To record accrued salaries for September. Income Tax Expense Income Taxes Payable To record accrued income tax for September.

1 0 7 5

1 0 7 5

30

8 3 3

8 3 3

30

1 0 1 7

1 0 1 7

30

1 0 0 0

1 0 0 0

30

7 0 0

7 0 0

30

7 7 0 0

7 7 0 0

30

2 5 0 0

2 5 0 0

Part B 1. Utilities Expense 8 months. Septembers bill will be recorded when it is received. Refer to additional data item 8. 2. Depreciation Expense: Building 12 months Depreciation on the building is $833.33 per month ($150,000 180). $10,000 $833.33 = 12 months 3. Accumulated Depreciation: Building 36 months Depreciation on the building is $833.333per month ($150,000 180). $30,000 $833.33 = 36 months