Acct 1211-Chapter 4

   

Question 1

(10 marks)

May Day operated a proprietorship, Days Gone Bye. On January 01, 2018, the opening capital balance was $ 55,000. Days Gone Bye, in 2018, earned $ 70,000 revenue and incurred $ 110,000 expenses. May Day withdrew $ 5,000 from her personal bank account.

Required:

What was Days Gone Bye’s capital balance at December 31, 2018 after the closing journal entries were recorded and posted?

Question 2

(20 marks)

Required:

1. Prepare a single journal entry, with explanation, for each of the following transactions to correct the error made:

A. Debited office furniture and credited accounts payable regarding a $ 6,000 purchase of computer equipment on account.

B. Accrued a $ 12,000 bonus by debiting salary expense and crediting accounts payable.

C. Adjusted prepaid advertising by debiting prepaid advertising and crediting advertising expense for $ 3,000. This adjusting journal entry should have debited advertising expense and credited prepaid advertising for $ 3,000.

D. Debited accounts receivable and credited revenue $ 5,000 for work not yet performed.

E. Debited amortization expense and credited computer equipment $ 4,000 when recording the amortization expense.

2. Prepare two journal entries, with explanation, for each of the above transactions to correct the error made.

Question 3

(50 marks)

Barbara Imagine created Imagine That, a proprietorship, in 2016. Imagine That’s unadjusted T-accounts had the following December 31, 2018 balances:

  

Cash

Accounts   Receivable

Supplies

 

Bal. 82,000

Bal. 127,000

Bal. 13,000

           

  

Office Furniture

Accumulated   Amortization, Office Furniture

Accounts Payable

 

Bal. 166,000

Bal. 31,000

Bal. 43,000

           

  

Bank Loan

Unearned Service   Revenue

Salary Payable

 

Bal. 115,000

Bal. 1,000

           

  

Barbara Imagine,   Capital

Barbara Imagine,   Withdrawals

Service Revenue

 

Bal. 118,000

Bal. 157,000

Bal. 375,000

           

  

Supplies Expense

Salary Expense

Advertising   Expense

 

Bal. 103,000

Bal. 25,000

           

  

Amortization Expense,

Office Furniture

Interest Expense

 

Bal.   10,000

         

Accounts that required adjustments at December 31, 2018 were comprised of the following:

a. Amortization for the year was $ 16,500.

b. Supplies on hand at December 31, 2018 were $ 5,000.

c. Bonuses accrued at year end were $ 43,000 and were going to be paid in March, 2019.

d. Imagine That signed a contract on December 31, 2018. The contract stated that Imagine That was to provide interior design work for a shopping mall that was going to be open in June 2019. Imagine That was given a cheque for $ 250,000.

e. On December 31, 2018, Imagine That received a $ 6,000 invoice regarding an ad that it placed on the internet. The invoice will be paid in February 2019.

Required:

A. Record the above T-account information on a worksheet trial balance column. Then, record the adjusting journal entries onto the worksheet, and complete the worksheet. Identify each adjusting journal entry by the numeral corresponding to the data given.

B. In a journal, record the adjusting and closing journal entries. Provide explanations.

C. Prepare Imagine That’s December 31, 2018 income statement.

D. Prepare Imagine That’s December 31, 2018 statement of owner’s equity.

E. Prepare Imagine That’s December 31, 2018 balance sheet.

F. Prepare Imagine That’s December 31, 2018 post-closing trial balance.

  

Question 4

(20 marks)

John Tell created Tennis Rackets, a proprietorship, in 2015. Tennis Rackets produced a post-closing trial balance on December 31 2018, which included the following:

  

Tennis Rackets

 

Post-Closing Trial   Balance

 

December 31, 2018

 

ACCOUNT

DEBIT

CREDIT

 

Cash

$ 30,000

 

Accounts Receivable

80,000

 

Supplies

5,000

 

Prepaid Insurance

6,000

 

Office Equipment

130,000

 

Accumulated Amortization, Office Equipment

$ 60,000

 

Building

300,000

 

Accumulated Amortization, Building

45,000

 

Land

400,000

 

Accounts Payable

49,000

 

Salary Payable

80,000

 

Unearned Service Revenue

25,000

 

Note Payable, Long Term

55,000

 

Mortgage Payable

450,000

 

John Tell, Capital

  

187,000

 

Total

$ 951,000

$ 951,000

Required:

A. Prepare a December 31, 2018 classified balance sheet for Tennis Rackets.

B. Calculate Tennis Rackets’ current ratio and debt ratio at December 31, 2018.

Note that 1 year ago, the current ratio was 1.25, and the debt ratio was 0.96. Did Tennis Rackets’ ability to pay debts improve or deteriorate during 2018?