BUSINESS

9. Review the following facts for four separate companies. Identify the two companies that lost money during the year, explaining how you reached your conclusion for each.

 

 

 

COMPANY A Ending retained earnings was less than beginning retained earnings and dividends were twice as much as income during the year.

 

COMPANY B Ending retained earnings was more than beginning retained earnings, but the company issued stock in an amount greater than the increase in retained earnings; no dividends were declared or paid.

 

COMPANY C No stock was issued and no dividends were declared or paid; total liabilities went up more than total assets.

 

COMPANY D Expenses exceeded revenues, but the company issued additional shares of stock in an amount that exceeded the difference between revenues and expenses.

 

 

 

Involved

 

 

 

I-01.03;

 

Prepare Bisceglia’s income statement, statement of retained earnings, and balance sheet for the year ending December 31, 20X5. The following information is all that is available. Be sure to prepare proper headings and dates on each financial statement.

 

 

 

Capital stock $41,000

 

Rent expense $10,000

 

Wage expense 37,000

 

Accounts payable 4,000

 

Revenue 90,000

 

Equipment 80,000

 

Cash 9,000

 

Dividends 5,000

 

Utilities expense 6,000

 

Accounts receivable 19,000

 

Beginning retained earnings 11,000

 

Notes payable 20,000

 

 

 

 I-01.05

 

Bingo Corporation is a newly formed company. Below are the first 10 transactions that Bingo encountered. Prepare an income statement, statement of retained earnings, and balance sheet immediately following each of these consecutive transactions.

 

(1) Issued capital stock for $50,000 cash.

 

(2) Purchased building for $120,000, making a $20,000 down payment and signing a promissory

 

note payable for the balance.

 

(3) Paid wages expense of $5,000.

 

(4) Provided services to customers for $15,000 cash.

 

(5) Paid utilities expense of $2,000.

 

(6) Reduced note payable with an $8,000 cash payment (ignore interest costs).

 

(7) Provided services to customers on account, $10,000.

 

(8) Incurred wages expense of $3,000, to be paid in the future.

 

(9) Collected $4,000 on an outstanding account receivable.

 

(10) Declared and paid dividend of $6,000.

 

 

 

Chapter 2

 

 

 

 

 

  1. Perhaps you have watched the game show known as “Jeopardy.” Contestants must prepare a question that is answered by a given prompt. It is your turn to play “Jeopardy” and your category is “tools of accounting.” For instance, if your prompt was “book of original entry,” you would reply: “What is the general journal?” And remember, the prompts get harder as you go. Don’t forget to answer in the form of a question!

 

(a) Debits must equal these

 

(b) Used to increase expense accounts

 

(c) The process of transferring data from journal to ledger

 

(d) Not a financial statement, showing balance

 

(e) The offspring of a control account

 

(f ) A “scratch pad” for accountants

 

 

 

  1. Review the following list of accounts, and indicate the debit/credit rules for the account, as well as the account’s normal balance. The first one is done as an example.

 

 

 

                                               Increased with a:               Decreased with a:        Normal Balance:

 

(A) Cash Debit Credit Debit           Debit                                       Debit                     Credit                             

 

(b) Capital Stock

 

(c) Accounts Payable

 

(d) Revenues

 

(e) Rent Expense

 

(f ) Equipment

 

(g) Dividends

 

(h) Utilities Expense

 

(i) Accounts Receivable

 

(j) Loan Payable

 

 

 

  1. Mo Lambert formed a corporation to provide concrete construction work. His jobs typically involve building parking lots, drives, and foundations. Mo provided the following information about transactions occurring during the first month of operation. Evaluate the transactions and prepare journal entries for this activity.

 

Jan. 2, 20X5 Mo Lambert invested $10,000 cash in the capital stock of the newly formed corporation.

 

Jan. 4, 20X5 Purchased equipment on account for $7,500.

 

Jan. 12, 20X5 Proceeds received from customers for services provided

 

Jan. 15, 20X5 Received a bill for construction supplies used in the amount of $2,000.

 

Jan. 18, 20X5 Provided $3,200 of services on account.

 

Jan. 20, 20X5 Paid employees $2,300 for wages earned.

 

Jan. 22, 20X5 Collected 60% of the amount due for the work provided on January 18.

 

Jan. 23, 20X5 Paid 40% of the amount due on the equipment purchased on January 4.

 

Jan. 25, 20X5 Purchased (and immediately used) construction supplies for cash in the amount of $600.

 

Jan. 31, 20X5 The company paid Mo Lambert a $1,500 dividend.

 

 

 

  1. Yorkston Corporation was formed in 1961. The company came into existence concurrent with the beginning of construction of super highways throughout the country. It seems the company’s founders had innovated a unique process of applying high-gloss luminescent paint to street signs, and these were in high demand for the new high-speed roadways.

 

The company has gone on to develop a full line of highway safety products. Yorkston is now in the process of building a company museum. Someone has dug up the first page from the company’s original general journal. This page will be on display in the museum. When you examine this page, you will note that the bookkeeper simply recorded the debits and credits, but included no descriptions.

 

Your job is to review the journal page and write a description for each transaction. These descriptions will

 

be included on an explanatory diagram included in the display case. The diagram should also include some information that would allow a museum visitor to know what the document is and what it was used for.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Bikash Mishra recently formed a financial services and consulting firm in Nepal. He was very busy during the first month and has not yet had an opportunity to install his computerized accounting package. But, he did understand the need to keep track of all transactions as they occurred. Following is a manual journal that he maintained for transactions occurring during January. All amounts are in the Nepalese rupee (NPR).Bikash has requested that you prepare a ledger of the company’s accounts, and post these transactions to determine the balance of each account. He needs this data in order to begin the process of transitioning to his new computerized accounting system.

 

 

 

 

 

 

 

 

  1. The CEO of newly formed Targus Company printed a copy of the company’s general ledger prior to a recent plane flight. She settled into seat 7A next to where you were sitting. Once airborne, she removed the printed “GL” from her brief case and began examining the report. Unfortunately, she realized that her printer had run out of ink on the very last page. She is frustrated because she is not able to determine the company’s exact profitability to date, and is on her way to a shareholder meeting where she is to issue a report on the company’s progress. She happened to note that you were studying an accounting book, and asked if you might help her. Prepare a trial balance from the general ledger, determine the missing amount for salaries expense, and determine the company’s profit for its first month. 

 

  CASH
  Date Description Debit Credit Balance
  02-Jan-X8 Balance forward                     –                     –                     –
  03-Jan-X8 Journal Page 1          250,000                     –          250,000
  10-Jan-X8 Journal Page 1                     –            75,000          175,000
  14-Jan-X8 Journal Page 1                     –            15,000          160,000
  18-Jan-X8 Journal Page 2            40,000                     –          200,000
  21-Jan-X8 Journal Page 2                4,000          196,000
  26-Jan-X8 Journal Page 2                3,000          193,000
  31-Jan-X8 Journal Page 2            26,000                     –          219,000
           
  ACCOUNTS RECEIVABLE
  Date Description Debit Credit Balance
  02-Jan-X8 Balance forward                     –                     –                     –
  06-Jan-X8 Journal Page 1            55,000                     –            55,000
  18-Jan-X8 Journal Page 2                     –            40,000            15,000
           
  LAND
  Date Description Debit Credit Balance
  02-Jan-X8 Balance forward                     –                     –                     –
  10-Jan-X8 Journal Page 1            75,000                     –            75,000
           
  SALARIES PAYABLE
  Date Description Debit Credit Balance
  02-Jan-X8 Balance forward                     –                     –                     –
  31-Jan-X8 Journal Page 2                     –            18,000            18,000
           
  CAPITAL STOCK
  Date Description Debit Credit Balance
  02-Jan-X8 Balance forward                     –                     –                     –
  03-Jan-X8 Journal Page 1                     –          250,000          250,000
           
  REVENUES
  Date Description Debit Credit Balance
  02-Jan-X8                       –                     –                     –
  06-Jan-X8 Journal Page 1                     –            55,000            55,000
  31-Jan-X8 Journal Page 2                     –            26,000            81,000
           
  SUPPLIES EXPENSE
  Date Description Debit Credit Balance
  02-Jan-X8                       –                     –                     –
  26-Jan-X8 Journal Page 2              3,000                     –              3,000
           
  UTILITIES EXPENSE
  Date Description Debit Credit Balance
  02-Jan-X8                       –                     –                     –
  21-Jan-X8 Journal Page 2              4,000                     –              4,000
           
  SALARIES EXPENSE
  Date Description Debit Credit Balance
  02-Jan-X8                       –                     –                     –
  14-Jan-X8 Journal Page 1            15,000    
  31-Jan-X8 Journal Page 2  

 

 

 

  1.  

 

Professor Drebin’s Executive MBA students were recently discussing the benefits of a chart of accounts. Following is a transcript of the discussion. Most of the comments were correct, but two students were off base. Assume the role of Professor Drebin, and identify and adjust the incorrect statements.

 

Susie- I am a sales manager, but I occasionally need to review our company’s general journal.

 

It frustrates me because the accounts are often listed only by a number. What’s up with that?

 

Professor- What you are likely seeing are references to the chart of accounts. Chart of accounts are quite typical. Why would a company use a chart of accounts?

 

Miguel- I am an IT manager, and I can tell you that computer programming is much simpler when numeric values are used in lieu of text descriptions. This aids the construction of underlying computer programs that are able to match and sort.

 

Roberta- Miguel may be right, but I work in our cash department and I have to monitor receivables, payables, and cash. A key benefit for me is that I can determine the total of all receivables by doing a query of our 1002 accounts. If I want data by customer, I can refine the query to look for sub accounts like 1002.003, etc. And, the same thing is true for cash and payables. For example, our cash account is 1001, but we have unique sub accounts for each bank account (1001.001, 1001.002, etc.). So, I think one key benefit is to have a unique master account that can easily be broken down into many sub components.

 

Fletcher- This is all interesting to me. I guess you don’t even need textual names for accounts if you use a numeric system.

 

Randy- I had no idea about this. All I know is that I am in charge of managing our delivery trucks, and I track individual trucks for scheduled maintenance based on an asset ID tag number. Each truck has a unique long number, but it just occurred to me that it always begins with the digits 10005. I wonder if that “10005” might tie back to the company’s chart of accounts as well.

 

Jana- Randy, I doubt it. We have trucks, and I know for a fact that they are numbered 1500 in our chart of accounts. I am pretty sure that all company’s must use the same chart of accounts. Otherwise, comparing data from different companies would be chaos.

 

Louis- Jana makes an interesting point. But, I don’t think everyone uses the same chart of accounts. Although, I must add that I recently read about a project called XBRL that purports to develop some uniform data management schemes that will aid data comparison and exchange. And, it involves a lot more than just the chart of accounts.

 

Arman- I am a divisional manager, and I regularly review our unit’s ledger accounts and compare them to balances of other divisions. It is very helpful to be able to identify all assets, expenses, and so forth by uniform account numbering. This uniformity greatly aids data mining and evaluation. For example, our travel costs all start with a 503 digit, but 503.01 further identifies air travel, 503.02 relates to lodging, and so forth. This scheme enables me to look

 

at overall data, as well as its components. It sure helps me control costs and compare results

 

 

 

 

 

  1. The following narratives describe transactions impacting cash, accounts receivable, accounts payable, revenues, and selected expense accounts. Use T-accounts to analyze this activity and determine the ending balances for accounts receivable and accounts payable. At the beginning of the period, accounts receivable totaled $54,300, while accounts payable totaled $31,275. The company started the period with $85,000 in cash.

     

 

Transaction #1 Services were provided to customers for cash in the amount of $15,230.

 

Transaction #2 Supplies were purchased and used. This purchase occurred on account, in the

 

amount of $2,400.

 

Transaction #3 Collections of outstanding receivables occurred in the amount of $19,410.

 

Transaction #4 Utilities costs in the amount of $763 were incurred and paid in cash.

 

Transaction #5 Payments on outstanding accounts payable were made for $23,900.

 

Transaction #6 Services were provided to customers on account in the amount of $48,654.

 

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