Acc557 Financial Accounting: Week 2 Chapters 2 and 3

Acc557 Financial Accounting
Week 2 Assignment:
Chapter 2 (E2-6, E2-9, E2-11, P2-2A)
Chapter 3 (E3-6, E3-7, E3-11, P3-2A)

Exercise 2-6
Elvira Industries had the following transactions.
1. Borrowed $5,000 from the bank by signing a note.
2. Paid $2,500 cash for a computer.
3. Purchased $450 of supplies on account.

(a) Indicate what accounts are increased and decreased by each transaction.
(b) Journalize each transaction. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Exercise 2-9
Selected transactions from the journal of Roberta Mendez, investment broker, are presented below.
Date Account Titles and Explanation Ref. Debit Credit
Aug.1 Cash 5,000
Common Stock 5,000
(Investment of cash for stock)

10 Cash 2,700
Service Revenue 2,700
(Received cash for services provided)

12 Equipment 5,000
Cash 1,000
Notes Payable 4,000
(Purchased office equipment for cash and notes payable)

25 Accounts Receivable 1,600
Service Revenue 1,600
(Billed clients for services provided)

31 Cash 850
Accounts Receivable 850
(Receipt of cash on account)

a) Post the transactions to T accounts. (Post entries in the order displayed in the problem statement.)
b) Prepare a trial balance at August 31, 2014.

Exercise 2-11
Presented below is the ledger for Sparks Co.
Cash No. 101
1-Oct 5,000 4-Oct 400
10-Oct 650 12-Oct 1,500
10-Oct 3,000 15-Oct 280
20-Oct 500 30-Oct 300
25-Oct 2,000 31-Oct 500

Accounts Receivable No. 112
6-Oct 800 20-Oct 500
20-Oct 940

Supplies No. 126
4-Oct 400

Equipment No. 157
3-Oct 2,000

Notes Payable No. 200
10-Oct 3,000

Accounts Payable No. 201
12-Oct 1,500 3-Oct 2,000

Common Stock No. 311
1-Oct 5,000
25-Oct 2,000

Dividends No. 332
30-Oct 300

Service Revenue No. 400
6-Oct 800
10-Oct 650
20-Oct 940

Salaries and Wages Expense No. 726
31-Oct 500

Rent Expense No. 729
15-Oct 280

a. Reproduce the journal entries for the transactions that occurred on October 1, 10 and 20 and provide explanations for each. (Record entries, in the order displayed in the T-accounts. Credit account titles are automatically indented when amount is entered. Do not indent manually).
b. Determine the October 31 balance for each of the accounts above, and prepare a trial balance at October 31, 2014.

Problem 2-2A
Kara Shin is a licensed CPA. During the first month of operations of her business, Kara Shin, Inc., the following events and transactions occurred.
1-May Stockholders invested $20,000 cash in exchange for common stock.
2 Hired a secretary-receptionist at a salary of $2,000 per month.
3 Purchased $1,500 of supplies on account from Hartig Supply Company.
7 Paid office rent of $900 cash for the month.
11 Completed a tax assignment and billed client $2,800 for services provided.
12 Received $3,500 advance on a management consulting engagement.
17 Received cash of $1,200 for services completed for Lucille Co.
31 Paid secretary-receptionist $2,000 salary for the month.
31 Paid 40% of balance due Hartig Supply Company.
Kara uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 201 Accounts Payable, No. 209 Unearned Service Revenue, No. 311 Common Stock, No. 400 Service Revenue, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.

(a) Journalize the transactions. (If there is no transaction, enter No entry as the description and 0 for the amount.)
(b) Post to the ledger accounts. (If answer is zero, please enter 0. Do not leave any fields blank.)
(c) Prepare a trial balance on May 31, 2008. (If answer is zero, please enter 0. Do not leave any fields blank.)

Exercise 3-6
Orwell Company accumulates the following adjustment data at December 31.
1. Services provided but not recorded total $1,420.
2. Supplies of $300 have been used.
3. Utility expenses of $225 are unpaid.
4. Unearned service revenue of $260 is recognized for services performed.
5. Salaries of $800 are unpaid.
6. Prepaid insurance totaling $380 has expired.

For each of the above items indicate the following. (Answer for account balances before adjustment should be entered in alphabetical order.)
(a) The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense).
(b) The status of accounts before adjustment (overstatement or understatement).

Exercise 3-7
The ledger of Villa Rental Agency on March 31 of the current year includes the selected accounts, shown below, before adjusting entries have been prepared.
Debits Credits
Prepaid Insurance 3,600
Supplies 2,800
Equipment 25,000
Accumulated Depreciation-Equipment 8,400
Notes Payable 20,000
Unearned Rent Revenue 9,900
Rent Revenue 60,000
Interest Expense -
Wage Expense 14,000

An analysis of the accounts shows the following.
1. The equipment depreciates $300 per month.
2. One-third of the unearned rent revenue was earned during the quarter.
3. Interest of $500 is accrued on the notes payable.
4. Supplies on hand total $650.
5. Insurance expires at the rate of $200 per month.

Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Exercise 3-11
A partial adjusted trial balance of Ruiz Company at January 31, 2014, shows the following.
Ruiz Company
Adjusted Trial Balance
January 31, 2014
Debit Credit
Supplies 850
Prepaid Insurance 2,400
Salaries and Wages Payable 800
Unearned Service Revenue 750
Supplies Expense 950
Insurance Expense 400
Salaries and Wages Expense 2,500
Service Revenue 2,000

Answer the following questions, assuming the year begins January 1.
(a) If the amount in Supplies Expense is the January 31 adjusting entry, and $670 of supplies was purchased in January, what was the balance in Supplies on January 1?
(b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance premium was for one year, what was the total premium and when was the policy purchased?
(c) If $3,300 of salaries was paid in January, what was the balance in Salaries and Wages Payable at December 31, 2013?

Problem 3-2A
Lazy River Resort opened for business on June 1 with eight air-conditioned units. Its trial balance before adjustment on August 31 is as follows.
Lazy River Resort, Inc.
Trial Balance
August 31, 2014
Account Number Debit Credit
101 Cash 19,600
126 Supplies 3,300
130 Prepaid Insurance 6,000
140 Land 25,000
143 Buildings 125,000
157 Equipment 26,000
201 Accounts Payable 6,500
208 Unearned Rent Revenue 7,400
275 Mortgage Payable 80,000
311 Common Stock 100,000
332 Dividends 5,000
429 Rent Revenue 80,000
622 Maintenance and Repairs Expense 3,600
726 Salaries and Wages Expense 51,000
732 Utilities Expense 9,400
273,900 273,900

In addition to those accounts listed on the trial balance, the chart of accounts for Lazy River Resort also contains the following accounts and account numbers: No. 112 Accounts Receivable, No. 144 Accumulated Depreciation—Buildings, No. 158 Accumulated Depreciation—Equipment, No. 212 Salaries and Wages Payable, No. 230 Interest Payable, No. 631 Supplies Expense, No. 711 Depreciation Expense, No. 718 Interest Expense, and No. 722 Insurance Expense.

Other data:
1. Insurance expires at the rate of $400 per month.
2. A count on August 31 shows $900 of supplies on hand.
3. Annual depreciation is $4,500 on buildings and $2,400 on equipment.
4. Unearned rent revenue of $4,100 was recognized for services performed prior to August 31.
5. Salaries of $400 were unpaid at August 31.
6. Rentals of $3,700 were due from tenants at August 31. (Use Accounts Receivable.)
7. The mortgage interest rate is 9% per year. (The mortgage was taken out on August 1.)

(a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
b) Prepare a ledger using the three-column form of account. Enter the trial balance amounts and post the adjusting entries. (Post entries in the order of journal entries posted in the previous part of the question.)
c) Prepare an adjusted trial balance on August 31.
d) Prepare an income statement for the 3 months ending August 31
e) Prepare a retained earnings statement for the 3 months ending August 31. (List items that increase retained earnings first.)
f) Prepare a balance sheet as of August 31. (List assets in order of liquidity. List Property, plant and equipment in order of land, buildings and equipment.)
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