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AC 1070 10th Ed

1) The adjusted trial balance of Debit Company is shown below:

Debit Company

Adjusted Trial Balance

December 31, 2012

Cash $6,500

Accounts receivable 8,000

Supplies 1,000

Prepaid Rent (3 months) 2,500

Equipment, net 42,000

Accounts payable $4,000

Salary payable 2,000

Unearned revenue (2 month advance) 2,000

Note payable — long term 14,000

Common stock 10,000

Retained earnings 14,700

Dividends 4,000

Service revenue 75,000

Salary expense 40,000

Rent expense 10,000

Supplies expense 1,500

Depreciation expense 5,000

Utilities expense 1,200

Total $121,700 $121,700

Prepare Debit Company's income statement, statement of retained earnings and balance sheet for the year ended December 31, 2012. (10 points each, total 30 points)

2) The following financial statements are to be used to answer the following questions: (5 points each, total 35 points)

What is the Accumulated Depreciation for Buildings on December 31, 2012?

A) $12,000

B) $51,000

C) $63,000

D) $114,000

What is the Cost of goods sold for the year ended December 31, 2012?

A) $8,000

B) $12,000

C) $65,000

D) $100,000

What are the total current assets as of December 31, 2011?

A) $17,000

B) $45,000

C) $99,000

D) $152,000

What is the ending retained earnings balance as of December 31, 2012?

A) $30,000

B) $45,000

C) $758,000

D) $452,000

If Jane Austin Bookstore sold 10,000 books during 2012, what is the average selling price per book?

A) $3.50

B) $6.50

C) $7.25

D) $10.00

If trucks are depreciated over ten years with no residual value, how many years has Jane Austin Bookstore had this truck?

A) 1 year

B) 6 years

C) 9 years

D) 10 years

What are total long-term assets?

A) $53,000

B) $54,000

C) $107,000

D) $137,000

3) Indicate whether the account is an asset (A), liability (L), stockholders' equity (SE), revenue (R) or expense (E) account. Also indicate if the account would appear on the Balance Sheet (BS) or Income Statement (IS) or the Statement of Retained Earnings (SRE) The first account has been completed for you. (25 points)

	ACCOUNT	TYPE OF ACCOUNT	FINANCIAL STATEMENT
1.	Land
2.	Common Stock
3.	Notes Payable
4.	Service Revenue
5.	Telephone Expense
6.	Dividends
7.	Accounts Receivable
8.	Computer Supplies
9.	Accounts Payable
10.	Prepaid Expenses

4) Great Gardens, Inc., had the following transactions during its first month of operations:

May 1 Great Gardens received $20,000 cash and issued common stock to the stockholders.

May 1 Paid the May rent, $1,000.

May 3 Purchased equipment on account for $6,000.

May 5 Purchased gardening supplies for $2,000 on account.

May 8 Performed services for a client and received cash of $1,800.

May 12 Performed services for a client and billed the customer $12,200. The customer promised to pay within 10 days.

May 15 Paid for the equipment purchased May 3 on account.

May 22 Received payment from a customer on account, $12,200.

May 28 Borrowed $20,000 from First National Bank for business use.

May 30 Paid the employee salaries of $3,000 for the month.

May 31 Paid the utility bill of $800.

Required: Record the transactions of the business in a journal. Include an explanation for each entry. (22 points)

5) The Book Company had the following adjustments at December 31, the end of the accounting period:

A. The Book Company uses straight-line depreciation for its equipment. The amount of depreciation to be recorded for the equipment is $10,500.

B. Accrued interest of $2,000 on a note receivable will be received in January.

C. On November 1, The Book Company paid for five months of rent in advance and debited Prepaid Rent. Rent is $1,000 per month.

D. On August 1, the company collected $24,000 in advance for a consulting contract, which is to be earned evenly over the next 12 months. The original entry debited cash and credited unearned revenue.

E. Employees are owed salaries for 3 days of a 5 day workweek; weekly payroll is $30,000.

F. The unadjusted balance of the supplies account is $2,750. Based on a physical count, the cost of supplies on hand is $1,250.

G. The company has incurred interest expense of $850 that will be paid in January.

1. Journalize the adjusting entries. (18 points)

2. Assuming the adjustments were not made, calculate the net overstatement or understatement this would have on net income. Would the company appear to be more or less profitable if the adjustments were not made? (5 points)

6) After all the adjustments have been made, the following selected balances were taken from the adjusted trial balance of Evan's Ski Shop:

Accounts Payable $10,000

Accounts Receivable 3,000

Accumulated Depreciation 1,400

Depreciation Expense 1,500

Dividends 2,400

Insurance Expense 1,750

Interest Revenue 1,240

Prepaid Supplies 2,320

Retained Earnings 10,500

Salary Expense 4,100

Service Revenue 37,800

Journalize the entries to close the appropriate accounts. (15 points)