Principles Of Accounting

1. (1 point) Trenton Travel Agency purchased land for $90,000 cash on December 10, 2014. At December 31, 2014, the land’s value has increased to $93,000. What amount should be reported for land on Trenton’s balance sheet at December 31, 2014?

2. (2 points) Saylor Enterprises had a capital balance of $168,000 at the beginning of the period. At the end of the accounting period, the capital balance was $198,000.

a. Assuming no additional investment or withdrawals during the period, what is the net income for the period?

b. Assuming an additional investment of $13,000 but no withdrawals during the period, what is the net income for the period?

3. (4 points) Transactions for the Jo Smith Company for the month of June are presented below.

June 1

4.

Jo Smith invests $5,792 cash in a small welding business of which he is the sole proprietor.

2

5.

Purchases equipment on account for $1,854.

3

6.

$714 cash is paid to landlord for June rent.

12

7.

Sends a bill to M. Rodero for $497 for welding work performed on account.

Journalize the transactions.

4. (6 points) The following accounts are taken from the ledger of Chloe Company at December 31, 2014.

200

Notes Payable

$21,670

101

Cash

$7,667

301

Owner’s Capital

29,664

126

Supplies

4,333

157

Equipment

81,667

729

Rent Expense

5,667

306

Owner’s Drawings

9,667

212

Salaries and Wages Payable

4,667

726

Salaries and Wages Expense

39,667

201

Accounts Payable

12,667

400

Service Revenue

89,667

112

Accounts Receivable

9,667

Prepare a trial balance in good form.

5. (5 points) The Green Thumb Lawn Care Company began operations on April 1. At April 30, the trial balance shows the following balances for selected accounts.

Prepaid Insurance

$ 3,700

Equipment

27,800

Notes Payable

21,500

Unearned Service Revenue

4,500

Service Revenue

1,600

Analysis reveals the following additional data.

1.

Prepaid insurance is the cost of a 1-year insurance policy, effective April 1.

2.

Depreciation on the equipment is $500 per month.

3.

The note payable is dated April 1. It is a 6-month, 12% note.

4.

Seven customers paid for the company’s 6-month lawn service package of $410 beginning in April. The company performed services for these customers in April.

5.

Lawn services performed for other customers but not recorded at April 30 totaled $1,600.

Prepare the adjusting entries for the month of April.

6. (16 points) Natalie owns Cookie Creations. After journalizing and posting the December transactions and adjusting entries, Natalie prepared the following adjusted trial balance.

COOKIE CREATIONS

Adjusted Trial Balance

December 31, 2013

Debit

Credit

Cash

$1,180

Accounts Receivable

875

Supplies

350

Prepaid Insurance

1,210

Equipment

1,200

Accumulated Depreciation—Equipment

$40

Accounts Payable

75

Salaries and Wages Payable

56

Interest Payable

15

Unearned Service Revenue

300

Notes Payable

2,000

Owner’s Capital

800

Owner’s Drawings

500

Service Revenue

4,515

Salaries and Wages Expense

1,006

Utilities Expense

125

Advertising Expense

165

Supplies Expense

1,025

Depreciation Expense

40

Insurance Expense

110

Interest Expense

15

$7,801

$7,801

Using the information in the adjusted trial balance, do the following.

Prepare an income statement for the period ended December 31, 2013.

Prepare an owner’s equity statement for the period ended December 31, 2013.

Natalie has decided that her year-end will be December 31, 2013. Prepare closing entries as of December 31, 2013.

Prepare a post-closing trial balance.

7. (15 points) Because Natalie has had such a successful first few months, she is considering other opportunities to develop her business. One opportunity is the sale of fine European mixers. The owner of Kzinski Supply Co. has approached Natalie to become the exclusive distributor of these fine mixers in her state. The current cost of a mixer is approximately $575, and Natalie would sell each one for $1,150. Natalie comes to you for advice on how to account for these mixers. Each appliance has a serial number and can be easily identified. The trial balance for cookie creations as on December 31, 2011 is as follows:

COOKIE CREATIONS

Trial Balance

December 31, 2011

Account

Debit

Credit

Cash

$1,180

Accounts Receivable

875

Supplies

350

Prepaid Insurance

1,210

Equipment

1,200

Accumulated Depreciation, Equipment

$40

Accounts Payable

75

Salaries and Wages Payable

56

Unearned Service Revenue

300

Interest Payable

15

Notes Payable

2,000

Owner’s Capital

2,329

$4,815

$4,815

In the end, Natalie decides to use the perpetual inventory system. The following transactions happen during the month of January.

Jan. 4

Bought five deluxe mixers on account from Kzinski Supply Co. for $2,875, FOB shipping point, terms n/30.

6

Paid $100 freight on the January 4 purchase.

7

Returned one of the mixers to Kzinski because it was damaged during shipping. Kzinski issues Cookie Creations credit for the cost of mixer plus $20 for the cost of freight that was paid on January 6 for one mixer.

8

Collected $375 of the accounts receivable from December 2011.

12

Three deluxe mixers are sold on account for $3,450, FOB destination, terns n/30. (Cost of goods sold is $595 per mixer.)

14

Paid the $75 of delivery charges for the three mixers that were sold on January 12.

14

Bought four deluxe mixers on account from Kzinski Supply Co. for $2,300, FOB shipping point, terms n/30.

17

Natalie is concerned that there is not enough cash available to pay for all of the mixers purchased. She invests an additional $1,000 cash in Cookie Creations.

18

Paid $80 freight on the January 14 purchase.

20

Sold two deluxe mixers for $2,300 cash. (Cost of goods sold is $595 per mixer.)

28

Natalie issued a check to her assistant for all the help the assistant has given her during the month. Her assistant worked 20 hours in January and is also paid the $56 owed at December 31, 2011. (Natalie’s assistant earns $8 an hour.)

28

Collected the amounts due from customers for the January 12 transaction.

30

Paid a $145 cellphone bill ($75 for the December 2011 account payable and $70 for the month of January). (Recall that the cellphone is used only for business purposes.)

31

Paid Kzinski all amounts due.

31

Natalie withdrew $750 cash for personal use.

Prepare the January transactions.

8. (21 points) Natalie is busy establishing both divisions of her business (cookie classes and mixer sales) and completing her business degree. Her goals for the next 11 months are to sell one mixer per month and to give two to three classes per week.

The cost of the fine European mixers is expected to increase. Natalie has just negotiated new terms with Kzinski that include shipping costs in the negotiated purchase price (mixers will be shipped FOB destination). Assume that Natalie has decided to use a periodic inventory system and now must choose a cost flow assumption for her mixer inventory.

Inventory as on January 31, 2014 represents three deluxe mixer purchased at a unit cost of $545.

The following transactions occur in February to May 2014.

Feb. 2

Natalie buys two deluxe mixers on account from Kzinski Supply Co. for $1,200 ($600 each), FOB destination, terms n/30.

16

She sells one deluxe mixer for $1,150 cash.

25

She pays the amount owed to Kzinski.

Mar. 2

She buys one deluxe mixer on account from Kzinski Supply Co. for $618, FOB destination, terms n/30.

30

Natalie sells two deluxe mixers for a total of $2,300 cash.

31

She pays the amount owed to Kzinski.

Apr. 1

She buys two deluxe mixers on account from Kzinski Supply Co. for $1,224 ($612 each), FOB destination, terms n/30.

13

She sells three deluxe mixers for a total of $3,450 cash.

30

Natalie pays the amounts owed to Kzinski.

May 4

She buys three deluxe mixers on account from Kzinski Supply Co. for $1,875 ($625 each), FOB destination, terms n/30.

27

She sells one deluxe mixer for $1,150 cash.

Determine the cost of goods available for sale

Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate under each of the following methods: LIFO, FIFO, and average cost. (Round unit cost calculation in average cost method to 3 decimal places, e.g. 2.225. Round gross profit rate to 2 decimal places, e.g. 25.22%. Round all other answers to 0 decimal places, e.g. 2,525.)