Chapter 2 Class exercises - accruals
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Class Exercise #1
Cash versus accrual basis of accounting (taken from Stickney Weil Shipper Francis 13E, 2010
).
Thompson Hardware Store commences operations on January 1, 2008, when Jacob Thompson invests
$30,000 for all of the common stock of the firm. The firm rents a building on January 1 and pays two
months’ rent in advance in the amount of $2,000. On January 1 it also pays the $1,200 premium for
property and liability insurance coverage for the year ending on December 31, 2008. The firm purchases
$28,000 of merchandise inventory on account on January 2 and pays $10,000 of this amount on January
25. On January 31 the cost of unsold merchandise is $15,000. During January the firm makes cash sales
to customers totaling $20,000 and sales on account totaling $9,000. The firm collects $2,000 from these
credit sales by the end of January. The firm pays costs during January as follows: utilities, $400;
salaries, $650; and taxes, $350. What are Thompson Hardware Store’s revenues, expenses, and income
for January, assuming (1) the accrual basis of accounting, and (2) the cash basis of accounting?
Class Exercise #2
The ledger of Madsen Kids on March 31
of the current year includes the following selected
accounts before adjusting entries have been prepared. Debit
Credit
Accounts Receivable
7,000
Supplies
2,800
Allowance for Doubtful Accounts
150
Equipment
25,000
Accumulated Depreciation
8,400
Unearned Rent Revenue
9,300
Rent Revenue
60,000
Depreciation Expense
0
Supplies Expense
0
Bad Debt Expense
0
Prepare the necessary adjusting entries at the end of the quarter
on March 31 (i.e., 3 months
have passed) to reflect the following facts. You shouldn’t need to create any new ledger accounts. 1.
The equipment’s useful life is 25 years, with an estimated salvage value of $0. No equipment was acquired or disposed during the quarter. 2.
One-third of the unearned revenue was recognized as revenue during the quarter. 3.
Supplies on hand total $850.
4.
The company estimates bad debt expense using the percentage-of-accounts-receivable method with a rate of 2%.
Class Exercise #3
It is December 31 and Kaia Enterprises has just reached its fiscal year end. Please refer to the unadjusted trial balance below for Kaia Enterprises and make the six (6) adjusting entries listed on the following page
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and answer all questions. Please provide both the journal entries and an updated trial balance.
1.
Kaia depreciates its Property, Plant, and Equipment using a straight-line depreciation method to zero salvage value over 20 years. DR_______________________
CR_____________________________
2.
Kaia uses the percentage-of-accounts receivable method to adjust the allowance for bad debts account. The target balance for the allowance account is 5% of ending accounts receivable. DR_______________________
CR_____________________________
3.
On December 1 Kaia sent a check to its landlord for $6,800 covering rent for the subsequent four months. This was properly recorded as prepaid rent on December 1. DR_______________________
CR_____________________________
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4.
Kaia owes employees in its administrative offices $800 for work completed at the end of December but not yet paid or recorded.
DR_______________________
CR_____________________________
5.
On October 1 Kaia signed a contract to provide 6 months of business services and was paid $6,300 in advance on that date. This payment was correctly recorded as unearned revenue on October 1. Kaia is current on its obligations related to this contract.
DR_______________________
CR_____________________________
6.
A Note Payable for $30,000 plus accrued interest is due 30 April of the next year. The note was signed on 1 August and simple interest accrues on the Notes Payable at 0.5% per month. The note was correctly recorded on August 1. No cash payments were made this year, and any interest is added to the balance of the note. DR_______________________
CR_____________________________
7.
Calculate Kaia’s pre-tax Net Income
Calculate Kaia’s Total Assets
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Procedures:
1. Analyze the following business transactions below.
For the month of December 2022, Mr. Mira Shikigami had the following transactions:
Dec.
Mr. Mira Shikigami invested P1,200,000 to start the business, Shikigami Accounting Firm
1
1
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1
The firm paid P180,000 for the annual rent of the office space. The lease contract will
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The firm purchased a laptop in cash, P50,000. The laptop has an estimated useful life of
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On May 1, Year 1, Benz's Sandwich Shop loaned $12,000 to Mark Henry for one year at 7 percent interest.
Required
a. What is Benz's interest income for Year 1?
b. What is Benz's total amount of receivables at December 31, Year 1?
c. How will the loan and interest be reported on Benz's Year 1 statement of cash flows?
d. What is Benz's interest income for Year 2?
e. What is the total amount of cash that Benz's will collect in Year 2 from Mark Henry?
f. How will the loan and interest be reported on Benz's Year 2 statement of cash flows?
g. What is the total amount of interest that Benz's earned on the loan to Mark Henry?
(For all requirements, round your answers to the nearest dollar amount.)
а. Int
est income
b. Receivables
C.
d. Interest income
e. Cash
f.
g. Interest earned
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On May 1, Year 1, Benz's Sandwich Shop loaned $10,000 to Mark Henry for one year at 6 percent interest.
Required
a. What is Benz's interest income for Year 1?
b. What is Benz's total amount of receivables at December 31, Year 1?
c. How will the loan and interest be reported on Benz's Year 1 statement of cash flows?
d. What is Benz's interest income for Year 2?
e. What is the total amount of cash that Benz's will collect in Year 2 from Mark Henry?
f. How will the loan and interest be reported on Benz's Year 2 statement of cash flows?
g. What is the total amount of interest that Benz's earned on the loan to Mark Henry?
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On November 1, Year 1 Shelter Company loaned $4,000 cash to Cove Company. The one-year note carried a 5% rate of interest. Which of the following shows how the loan will affect Shelter's financial statements on November 1, Year 1?
Balance Sheet
=Liabilities+ Stockholders' Equity
Accounts Common Retained
Stock + Earnings
ΝΑ
ΝΑ
ΝΑ
ΝΑ
A.
B.
C.
D.
Assets
Cash
-4,000
-4,000
-4,000
-4,000
Multiple Choice
Net
+ Receivable = Payable +
4,000
ΝΑ
4,000
ΝΑ
ΝΑ
4,000
ΝΑ
-4,000
Option A
Option C
Option B
Option D
ΝΑ
ΝΑ
ΝΑ
ΝΑ
Revenue
ΝΑ
ΝΑ
ΝΑ
ΝΑ
Income Statement
Expense
ΝΑ
ΝΑ
ΝΑ
ΝΑ
Net Income
ΝΑ
3333
ΝΑ
ΝΑ
ΝΑ
Statement of
Cash Flows
-4,000 IA
-4,000 OA
4,000 IA
-4,000 OA
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Which of the following shows how the recognition of revenue in Year 1 will affect the company's accounting equation?
A. 4,500
B.
C.
D.
Assets
Accounts
Cash + Receivable =
8,000
Multiple Choice
4,500
8,000
Option D
Option B
Option C
Balance Sheet
= Liabilities +
Accounts
Option A
Stockholders' Equity
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Earnings
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4,000
8,000
8,000
Common
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April May
2. On the books & records of Company A:
In January, Company A purchased Investment in XYZ for $100. Payment was made in cash.
In March, Company A sold Investment in XYZ for $150. Payment was received in cash.
3. On the books & records of Company A:
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Record 4/30/17 journal entry
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1.
2.
Lily Corporation rings up cash sales and sales taxes separately on its cash register. On April 10, the register totals are pre-tax
sales of sales $4,200 plus GST of $210 and PST of $336.
(i) During the month of March, Bramble Corporation's employees earned gross salaries of $60,000. Withholdings deducted
from employee earnings related to these salaries were $3,254 for CPP, $948 for El, $7,050 for income taxes. (ii) Bramble's
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credit entries.)
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Balance Sheet
Income Statement
Net
Statement of
Assets = Liabilities +
Equity Revenues
Expenses
Income
Cash Flows
A.
ΝΑ
B.
ΝΑ
C.
ΝΑ
=
D.
ΝΑ
|| || || | ||
8,340 +
(8,340)
ΝΑ
-
8,340 = (8,340)
(8,340) OA
8,340
+
(8,340)
ΝΑ
-
8,340 =
(8,340)
ΝΑ
5,960
+
(5,960)
ΝΑ
-
5,960 = (5,960)
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5,960
+
(5,960)
ΝΑ
5,960 = (5,960)
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Multiple Choice
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Q1
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Riley Company borrowed $40,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley
carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $1,060 in Year 1
and $1,500 in Year 2 Assume no other transactions.
The amount of cash flow from operating activities that would appear on the Year 2 statement of
cash flows would be:
Multiple Choice
.
.
$800 inflow
$1,300 outflow
$40,800 outflow
$1,500 inflow
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- Ashvinnarrow_forwardOn August 1, Year 1, Gomez Company borrowed $65,000 cash. The one-year note carried a 22% rate of interest. Which of the following shows how the December 31, Year 1, recognition of accrued interest will effect Gomez's financial statements? Balance Sheet Income Statement Net Statement of Assets = Liabilities + Equity Revenues Expenses Income Cash Flows A. ΝΑ B. ΝΑ C. ΝΑ = D. ΝΑ || || || | || 8,340 + (8,340) ΝΑ - 8,340 = (8,340) (8,340) OA 8,340 + (8,340) ΝΑ - 8,340 = (8,340) ΝΑ 5,960 + (5,960) ΝΑ - 5,960 = (5,960) (5,960) OA 5,960 + (5,960) ΝΑ 5,960 = (5,960) ΝΑarrow_forwardOn May 15, 2022, Powell Incorporated obtained a six-month working capital loan from its bank. The face amount of the note signed by the treasurer was $478,700. The interest rate charged by the bank was 6.75%. The bank made the loan on a discount basis. Exercise 7-7 (Algo) Part a - Journal entry a-3. Record the journal entry to show the effect of signing the note and the receipt of the cash proceeds on May 15, 2022. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.arrow_forward
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