accounting

1) Date of maturity is December 23 and the maturity value is $50,666.67

Bad debts expense	5,000
Allowance for doubtful accounts		5,000

2) a)

b)

Bad debts expense	400
Joe Smiths A/c		400

3)

	Debit	Credit
Notes receivable	9600
Accounts receivable		9600

4)

	Debit	Credit
Interest receivable	96
Interest Income		96

5)

Cash	9696
Notes receivable		9600
Interest income		96

6) Examples of intangible assets are:

Copyrights

Copyrights grant a business sole authority to reproduce and sale a software, book, magazine, journal, etc.

Patents

Patents grant a manufacturing and research company control over the use and sale of a specific design in manufacturing process, etc.

Software

Software developed for internal use. This is the cost of software developed for internal use, with no plan to market it externally. You amortize these costs over the useful life of the asset.

7) Examples of natural resources include minerals, oil, natural gas wells and timber. As these resources are removed from the ground or harvested, they are converted into inventory. For this reason, natural resources are usually listed separately from other tangible assets on a company's balance sheet.

Natural resources are recorded on the company's balance sheet at cost. Oftentimes this cost will include not only the purchase price of the asset, but also exploration and development costs if they are reasonably expected to provide future benefits.

Company A paid $100,000,000 to obtain rights to natural gas reserves held within the Marcellus Shale region. Exploration and development costs were $10,000,000, and it has been determined these reserves held 1 billion cubic feet of extractable gas. The rights to these natural gas reserves are expected to have a residual value of $1,000,000.

In the current accounting period 50,000,000 cubic feet of natural gas was extracted from the ground. The depletion per unit for Company A would be:

= ($100,000,000 + $10,000,000 - $1,000,000) / 1,000,000,000 = $109,000,000 / 1,000,000,000, or $0.109 unit

The depletion expense for Company A would be:

= $0.109 per unit x 50,000,000 units, or $5,450,000

8) a) Straight line depreciation = (Cost – salvage value)/No. of years

= (200000 – 50000)/5

= $30,000

b) Depreciation per unit = (200000 – 50000)/1300000

= 0.1154 per unit

Depreciation in year 1 = 250000 x 0.1154

= 28846.153

9) a)

	Debit	Credit
Machinery	$100,000
Payable		$100,000

b)

	Debit	Credit
Cash	$42,000
Acc. Depreciation	$62,666
Gain on disposal		$4,666
Machine		$100,000

10)

	Debit	Credit
Cash	$78,000
Goodwill	$42,000
Brise A/c		$120,000

5) A temporary account is a general ledger account that begins each accounting year with a zero balance. At the end of the accounting year any balance in the account will be transferred to another account. This is referred to as closing the account. An example of a temporary account is the Sales account.

6) Permanent accounts also referred to as real accounts. Accounts that do not close at the end of the accounting year. The permanent accounts are all of the balance sheet accounts (asset accounts, liability accounts, owner's equity accounts) except for the owner's drawing account.

7) a) Cost of goods sold

b) Selling expense

c) Gross margin

d) Goods available for sale

8) a

	Debit	Credit
Purchase	$6,400
Accounts Payable		$6,400

b.

	Debit	Credit
Accounts Payable	$6,400
Discount received		$64
Bank		$6,336

c)

	Debit	Credit
Sales	$900
Accounts receivable		$900

d)

	Debit	Credit
Bad debts	$9,000
Allowance for bad debts		$9,000

15)

	Debit	Credit
Bad debts	$400
Jane Doe		$400

16) Maturity date is 9 January and the maturity value is $30,500

Straight line depreciation = (Cost – salvage value)/No. of years

= (400000 – 40000)/4

= $90,000

18) Depreciation = 400000 x 45% = $180,000

19)

	Debit	Credit
Cash	$150,000
Acc. Depreciation	$150,000
Loss on disposal		$50,000
Machine		$350,000

21)

	Debit	Credit
Cash	$198,000
Jordan A/c		$198,000

	Debit	Credit
Goodwill	$17,000
Smith A/c		$3,400
Jones A/c		$10,200
Browns A/c		$3,400

Lack of Money: You know you have the skills to make the business successful. You can devote 100% of your time and effort to the venture. The only thing that is stopping you from jumping in is not enough money. The bank is not willing to lend you because you are too high risk for them. Though deep in your heart you know you can make the venture successful only if you can get financial support to give you a jump start. This could be the time to look for a partner who has money to invest; but does not have time or skills to get in the business. Before you go ahead with the partnerships make sure you set proper expectations and put correct monetary value on your efforts.

Lack of Skills: What if you have extra money waiting to be invested in higher return producing ventures; but don’t have skills required to run the business. This may be the time to consider getting a partner who is in the opposite situation.

Lack of Time – This situation is similar to case 2 in that you have extra money to offer to the partnership; but you want to be more of a passive investor because you cannot devote time to the joint venture. You will need to seek a partner who can work full-time on the business. This situation is applicable to the business that doesn’t require specific skills as in the case of restaurant. For example, to run a convenience store or a gas station requires a person without specific skills for the most part.

Lack of Scale – You are already running a successful business; however you would like to expand by applying the proven formula at multiple locations. In order to avoid being stretched too thin you might consider finding a partner who has equal enthusiasm and drive to succeed. The key to success in this situation is to make sure you do not dilute the proven formula and have the partner who has “bought into” your plans. Another pitfall to watch out for is to ensure you are not stretched too thin.

9) Two types of inventory systems are

Periodic System

Primary use of the periodic inventory system occurred prior to the introduction of point-of-sale scanners and computers. Companies such as drug and hardware stores that sold lots of small merchandise found it easier to update their inventory balances periodically instead of trying to account for every item sold on a daily basis. The periodic inventory system allows a company to record sales of merchandise in a special account. When merchandise gets sold, the company records the revenue but does not record a cost of goods sold (CoGS) entry.

Perpetual System

The introduction of point-of-sale systems and computers greatly advanced the use of the perpetual inventory system. Perpetual inventory records each sale of merchandise and places an entry in the company’s inventory account. This system also immediately reduces sold inventory from stock and adds inventory back to stock when a customer returns merchandise

10) Inventory valuation methods are:

First-in-First-Out Method (FIFO)

According to FIFO, it is assumed that items from the inventory are sold in the order in which they are purchased or produced. This means that cost of older inventory is charged to cost of goods sold first and the ending inventory consists of those goods which are purchased or produced later. This is the most widely used method for inventory valuation. FIFO method is closer to actual physical flow of goods because companies normally sell goods in order in which they are purchased or produced.

Last-in-First-Out Method (LIFO)

This method of inventory valuation is exactly opposite to first-in-first-out method. Here it is assumed that newer inventory is sold first and older remains in inventory. When prices of goods increase, cost of goods sold in LIFO method is relatively higher and ending inventory balance is relatively lower. This is because the cost goods sold mostly consists of newer higher priced goods and ending inventory cost consists of older low priced items.

Average Cost Method (AVCO)

Under average cost method, weighted average cost per unit is calculated for the entire inventory on hand which is used to record cost of goods sold. Weighted average cost per unit is calculated as follows:

Weighted Average Cost Per Unit=	Total Cost of Goods in Inventory
	Total Units in Inventory

The weighted average cost as calculated above is multiplied by number of units sold to get cost of goods sold and with number of units in ending inventory to obtain cost of ending inventory.

11) Four types of special journals are:

Purchases Journal

· The purchases journal lists all purchases that are bought on account rather than paid for at time of receipt. A credit is made to accounts payable and a debit to the asset account. Column labels in this journal typically include date of entry, supplier name and invoice amount. There might also be a column for each asset account, such as supplies or inventory.

Cash Payments Journal

· Sometimes referred to as a cash disbursement journal, any transaction that results in the decrease in cash is recorded here and a credit is posted to the cash column. If the payment is for items that had been bought on credit, the accounts payable column is debited. Typical column headings are date, check number, general ledger account name, and amount

Sales Journal

The sales journal records only those sales made on account. A debit is made to accounts receivable and a credit is made to sales. The sales column is sometimes broken into two columns: one for the actual sale with another column for sales tax. The journal might include additional information such as the date, customer and invoice number.

Cash Receipts Journal

The cash receipts journal records all cash transactions that increase cash, such as cash sales. When cash is received for payment on account, a credit is posted to accounts receivable while the debit is posted to cash. If the cash received is for a sale, the credit is posted to sales. Typical column headings include date, customer name, a reference number and the amount.

12) Seven principals are:

Separation of Duties

Separation of duties involves splitting responsibility for bookkeeping, deposits, reporting and auditing. The further duties are separated, the less chance any single employee has of committing fraudulent acts. For small businesses with only a few accounting employees, sharing responsibilities between two or more people or requiring critical tasks to be reviewed by co-workers can serve the same purpose.

Access Controls

Controlling access to different parts of an accounting system via passwords, lockouts and electronic access logs can keep unauthorized users out of the system while providing a way to audit the usage of the system to identify the source of errors or discrepancies. Robust access tracking can also serve to deter attempts at fraudulent access in the first place

Physical Audits

Physical audits include hand-counting cash and any physical assets tracked in the accounting system, such as inventory, materials and tools. Physical counting can reveal well-hidden discrepancies in account balances by bypassing electronic records altogether. Counting cash in sales outlets can be done daily or even several times per day. Larger projects, such as hand counting inventory, should be performed less frequently, perhaps on an annual or quarterly basis.

Documentation

Standardizing documents used for financial transactions, such as invoices, internal materials requests, inventory receipts and travel expense reports, can help to maintain consistency in record keeping over time. Using standard document formats can make it easier to review past records when searching for the source of a discrepancy in the system. A lack of standardization can cause items to be overlooked or misinterpreted in such a review.

Trial Balances

Using a double-entry accounting system adds reliability by ensuring that the books are always balanced. Even so, it is still possible for errors to bring a double-entry system out of balance at any given time. Calculating daily or weekly trial balances can provide regular insight into the state of the system, allowing you to discover and investigate discrepancies as early as possible.

Reconciliations

Occasional accounting reconciliations can ensure that balances in your accounting system match up with balances in accounts held by other entities, including banks, suppliers and credit customers. For example, bank reconciliation involves comparing cash balances and records of deposits and receipts between your accounting system and bank statements. Differences between these types of complementary accounts can reveal errors or discrepancies in your own accounts, or the errors may originate with the other entities.

Approval Authority

Requiring specific managers to authorize certain types of transactions can add a layer of responsibility to accounting records by proving that transactions have been seen, analyzed and approved by appropriate authorities. Requiring approval for large payments and expenses can prevent unscrupulous employees from making large fraudulent transactions with company funds, for example.

13) An act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The Sarbanes-Oxley Act (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. SOX was enacted in response to the accounting scandals in the early 2000s. Scandals such as Enron, Tyco, and WorldCom shook investor confidence in financial statements and required an overhaul of regulatory standards.

The rules and enforcement policies outlined by the SOX Act amend or supplement existing legislation dealing with security regulations. The two key provisions of the Sarbanes-Oxley Act are: 1. Section 302: A mandate that requires senior management to certify the accuracy of the reported financial statement 2. Section 404: A requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls. Section 404 had very costly implications for publicly traded companies as it is expensive to establish and maintain the required internal controls.

Accounting 2301 Final Exam

1)

			Amount in $
Revenues			80,000
Less: Expenses
Rent Expense	80,000
Salary Expense	20,000	(100,000)
Net Loss		(20,000)

2)The sequence of six steps in the processing of financial transactions (from the time they occur to their inclusion in financial statements) pertaining to an accounting period. These steps are: (1) analyzing the transactions as they occur, (2) recording them in the journals, (3) posting debits and credits from journal entries to the general ledger, (4) adjusting the assets with a trial balance, (5) preparing financial statements, and (6) closing the temporary accounts.

3) A normal balance is the expectation that a particular type of account will have either a debit or a credit balance based on its classification within the chart of accounts. It is possible for an account expected to have a normal balance as a debit to actually have a credit balance, and vice versa, but these situations should be in the minority.

3 a)

	Debit	Credit
Rent Expense	$800
Cash		$800

b)

	Debit	Credit
Cash	$1,000
Fees Income		$1,000

c)

	Debit	Credit
Fees receivable	$500
Fees Income		$500

d)

	Debit	Credit
Supplies	$300
Accounts payable		$300

e)

	Debit	Credit
Truck	$15,000
Cash		$5,000
Notes Payable		$10,000

Accounting 2301 Exam 5

a)

	Debit	Credit
Cash	$5,750
Sales		$5,750

	Debit	Credit
Income	$2,850
Retained earnings		$2,850

	Debit	Credit
Warranty Expense	$575
Expense payable		$575

	Debit	Credit
Purchase	$40,000
Accounts payable		$40,000

	Debit	Credit
Accounts Payable	$40,000
Cash		$40,000

	Debit	Credit
Cash	$22,000
Bank Loan		$22,000

	Debit	Credit
Interest Expense	$367
Interest Payable		$367