MBA560 Financial and Managerial Accounting: Module 3 HW (P5-32 Lakeview and P6-24 Optimal Solutions)

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MBA560 Financial and Managerial Accounting
Module 3 Homework (P5-32 and P6-24)

Problem 5-32 Comprehensive accounting cycle
The following trial balance was prepared for Lakeview Sales and Service on December 31, 2006 after the closing entries were posted.
Account Title Debit Credit
Cash 87,100
Accounts Receivable 18,760
Allowance for Doubtful Accounts 960
Inventory 94,600
Accounts Payable 44,000
Common Stock 90,000
Retained Earnings 65,500
Totals 200,460 200,460

Lakeview had the following transactions in 2007:
1. Purchased merchandise on account for $270,000.
2. Sold merchandise that cost $215,000 on account for $350,000.
3. Performed $80,000 of services for cash.
4. Sold merchandise for $76,000 to credit card customers. The merchandise cost $47,500. The credit card company charges a five percent fee.
5. Collected $360,000 cash from accounts receivable.
6. Paid $274,000 cash on account payable.
7. Paid $126,000 cash for selling and administrative expenses.
8. Collected cash for the full amount due from the credit card company (see item 4)
9. Loaned $60,000 to R. Shell. The note had an 8 percent interest rate and a one-year term to maturity.
10. Wrote off $650 of accounts as uncollectible.
11. Made the following adjusting entries:
(a) Recorded three months’ interest on the note at December 31, 2007 (see item 9).
(b) Estimated uncollectible accounts expense to be .5 percent of sales on account.

Required:
Prepare General journal entries for those transactions; post the entries to T-accounts; and prepare an income statement, a statement of stockholders’ equity, a balance sheet, a statement of cash flows for 2007.

Problem 6-24 Purchase and use of tangible asset: three accounting cycles, double- declining- balance depreciation
The following transactions pertain to Optimal Solutions Inc. Assume the transactions for the purchase of the computer and any capital improvements occur on January 1 each year.
2012
1. Acquired $60,000 cash from the issue of common stock.
2. Purchased a computer system for $25,000 cash. It has an estimated useful life of five years and a $3,000 salvage value.
3. Paid $1,500 sales tax on the computer system.
4. Collected $35,000 in data entry fees from clients.
5. Paid $1,200 in fees to service the computers.
6. Recorded double-declining-balance depreciation on the computer system for 2012.
7. Closed the revenue and expense accounts to Retained Earnings at the end of 2012.

2013
1. Paid $800 for repairs to the computer system.
2. Bought a case of toner cartridges for the printers that are part of the computer system, $1,200.
3. Collected $38,000 in data entry fees from clients.
4. Paid $900 in fees to service the computers.
5. Recorded double-declining balance depreciation for 2013.
6. Closed the revenue and expense accounts to Retained Earnings at the end of 2013.

2014
1. Paid $3,000 to upgrade the computer system, which extended the total life of the system to six years.
2. Paid $900 in fees to service the computers.
3. Collected $35,000 in data entry fees from clients.
4. Recorded double-declining balance depreciation for 2014.
5. Closed the revenue and expense accounts to Retained Earnings at the end of 2014.

Required
a. Use a horizontal statements model like the following one to show the effect of these transactions on the elements of financial statements.
b. Use a vertical model to present financial statements for 2012, 2013 and 2014.
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