Excerises on Chapter 4: Completing the accounting cycle

1. "The only place where success comes before workis in dictionary"Vidal Sassoon

2. No Cellphone

3. Principles Of Accounting (1) Chapter 4 Completing the accounting cycle Mohamed Mahmoud mmahmoud@eelu.edu.eg Tel: (+202) 33318449

4. Objectives : Revision Worksheet preparation (Review Lecture) Closing books Correcting entries The Classified Balance Sheet (Review Lecture)

5. Revision

6. Trail Balance

7. Exercises

8. Exercise 1 A. Prepare the necessary adjusting entry for each of the following: 1. Services provided but unrecorded totaled $900. 2. Accrued salaries at year-end are $1,000. 3. Depreciation for the year is $600. Answer: Accounts Receivable........................................................................ 900 Service Revenue..................................................................... 900 Salaries Expense ............................................................................. 1,000 Salaries Payable ..................................................................... 1,000 Depreciation Expense...................................................................... 600 Accumulated Depreciation ...................................................... 600

9. Exercise 1 (Continued) Indicate: a) The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense). b) The accounts before adjustment (overstated or understated) for each of the following: 1. Supplies of $200 have been used. 2. Salaries of $600 are unpaid. 3. Rent received in advance totaling $300 has been earned. 4. Services provided but not recorded total $500.

10. B. Type of Adjustment (b) Accounts before Adjustment 1. Prepaid Expense Assets Overstated Expenses Understated 2. Accrued Expense Expenses Understated Liabilities Understated 3. Unearned Revenue Liabilities Overstated Revenues Understated 4. Accrued Revenue Assets Understated Revenues Understated

11. Exercise 2 For each of the following transactions below, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on September 30, the end of the fiscal year. On September 1, paid rent on the track facility for three months, $180,000. On September 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totaled $840,000. On September 1, borrowed $300,000 from First National Bank by issuing a 9% note payable due in three months. On September 5, schedules for 20 racing days in September, 25 racing days in October, and 15 racing days in November were printed for $2,400. The accountant for the concessions company reported that gross receipts for September were $140,000. Ten percent is due to Ottawa and will be remitted by October 10.

12. Answers (1) Journal Entry Prepaid Rent........................................................................... 180,000 Cash .............................................................................. 180,000 Adjusting Entry Rent Expense ......................................................................... 60,000 Prepaid Rent.................................................................. 60,000 (2) Journal Entry Cash ....................................................................................... 840,000 Unearned Admissions Revenue .................................... 840,000 Adjusting Entry Unearned Admissions Revenue ............................................. 70,000 Admissions Revenue ..................................................... 70,000 ($840,000 ÷ 12 = $70,000)

13. Answers (3) Journal Entry Cash ....................................................................................... 300,000 Note Payable ................................................................. 300,000 Adjusting Entry Interest Expense..................................................................... 2,250 Interest Payable............................................................. 2,250 ($300,000 × .09 × 1 ÷ 12 = $2,250) (4) Journal Entry Prepaid Printing ...................................................................... 2,400 Cash .............................................................................. 2,400 Adjusting Entry Printing Expense .................................................................... 800 Prepaid Printing ............................................................. 800 ($2,400 × 20 ÷ 60 = $800) (5) Journal Entry None Adjusting Entry Accounts Receivable .............................................................. 14,000 Concessions Revenue................................................... 14,000

14. Exercise 3 The adjusted trial balance of Sameh Inc. on December 31, 2009 includes the following accounts: Accumulated Depreciation $6,000; Depreciation Expense $2,000; Note Payable $7,500; Interest Expense $150; Utilities Expense $300; Rent Expense $500; Service Revenue $19,600; Salaries Expense $4,000 ; Supplies, $200; Supplies Expense, $1,200; Wages Payable $600. Prepare an income statement for the month of December.

15. a. Sameh Inc. Income Statement For the Month Ended December 31, 2009 Service Revenue……………………………………………………………………….. $19,600 Expenses: Depreciation expense……………………………………… $2,000 Interest expense…………………………………..…………… 150 Utilities expense………………………………………………... 300 Rent expense…………………………………………………… 500 Salaries expense……………………………………………… 4,000 Supplies expense……………………………………………… 1,200… ..(8,150) Net Income…………………………………………………………………………………. $11,450

16. Exercise 3 (Continued) The adjusted trial balance of Amr Company at December 31,2009 includes the following accounts: Amr Capital $12,600; Amr, Drawing $6,000; Service Revenue $35,000; Salaries Expense $13,000; Insurance Expense $2,000; Rent Expense $3,500; Supplies Expense $500; and Depreciation Expense $1,000. Prepare an owner’s equity statement for the year.

17. b. Amr CORPORATION Owner’s Equity Statement For the Year Ended December 31, 2009 —————————————————————————————————— Amr, Capital, January 1……………………………..……………………………… $12,600 Plus: Net Income ……………………………………………………………………… 15,000 Less: Drawings ………………..………………………………………………………..(6,000) Amr, Capital, December 31 ………………………………………………………... $21,600

18. Exercise 4 The adjusted trial balance of Pool Financial Planners appears below. Using the information from the adjusted trial balance, you are to prepare for the month ending December 31: an income statement. 2. an owner's equity statement. 3. a balance sheet. POOL FINANCIAL PLANNERS Adjusted Trial Balance December 31, 2009 ———————————————————————————————————— DebitCredit Cash....................................................................................................... $ 5,400 Accounts Receivable ............................................................................. 2,200 Office Supplies....................................................................................... 1,800 Office Equipment ................................................................................... 15,000 Accumulated Depreciation—Office Equipment.............................................................. $ 4,000 Accounts Payable ............................................................................................................ 3,300 Unearned Revenue........................................................................................................... 6,000 Pool, Capital.................................................................................................................... 14,400 Pool, Drawing.......................................................................................... 2,500 Service Revenue............................................................................................................... 4,200 Office Supplies Expense.......................................................................... 600 Depreciation Expense............................................................................ 2,500 Rent Expense ........................................................................................ 1,900 $31,900 $31,900

19. POOL FINANCIAL PLANNERS Income Statement For the Month Ended December 31, 2009 ——————————————————————————————————————— Revenues Service Revenue................................................................................................ $ 4,200 Expenses Depreciation expense ................................................................... $2,500 Rent expense.................................................................................. 1,900 Office supplies expense ................................................................... 600 Total expenses.................................................................................................. (5,000) Net loss .................................................................................................................. $ (800)

20. POOL FINANCIAL PLANNERS Owner's Equity Statement For the Month Ended December 31, 2009 —————————————————————————————————————----- Pool, Capital, December 1 ................................................................................... $14,400 Less: Net loss ...................................................................................... $ 800 Drawings .................................................................................... 2,500 ……….. 3,300 Pool, Capital, December 31 ................................................................................. $11,100

21. POOL FINANCIAL PLANNERS Balance Sheet December 31, 2009 ——————————————————————————————————————————— Assets Cash ........................................................................................................................... $ 5,400 Accounts receivable ...................................................................................................... 2,200 Office supplies............................................................................................................... 1,800 Office equipment ................................................................................... $15,000 Less: Accumulated depreciation—office equipment .............................. 4,000……..… 11,000 Total assets ................................................................................................................. $20,400 Liabilities and Owner's Equity Liabilities Accounts payable .............................................................................. $3,300 Unearned revenue............................................................................... 6,000 Total liabilities .................................................................................................... $ 9,300 Owner's Equity Pool, Capital ............................................................................................................. 11,100 Total liabilities and owner's equity ..................................................................... $20,400

22. 3. Closing books At the end of the accounting period, the company makes the accounts ready for the next period.

23. 3. Closing books(continued) Note: Owner’s Drawing is closed directly to Capital and not to Income Summary because Owner’s Drawing is not an expense. Illustration 4-6 Owner’s Capital is a permanent account; all other accounts are temporary accounts.

24. 3. Closing books (continued) Journalize the closing entries from the financial statement columns of the worksheet. Service revenue 3,170 Income summary 3,170 Income summary 2,410 Salary expense 1,050 Supplies expense 960 Depreciation expense 200 Miscellaneous expense 200 Income summary 760 Ahmed, Capital 760 Ahmed, Capital 600 Ahmed, Drawing 600 Closing Entries need to be Posted

25. Summary of the Accounting Cycle 1. Analyze business transactions 2. Journalize the transactions 9. Prepare a post-closing trial balance 8. Journalize and post closing entries 3. Post to ledger accounts 7. Prepare financial statements 4. Prepare a trial balance 6. Prepare an adjusted trial balance 5. Journalize and post adjusting entries

26. 4. Correcting Entries The following errors were discovered after the transactions had been journalized and posted. Prepare the correcting entries. 1. A collection on account from a customer was recorded as a debit to Cash and a credit to Service Revenue for $780. Cash 780 Incorrect entry Service revenue 780 Cash 780 Correct entry Accounts receivable 780 Service revenue 780 Correcting entry Accounts receivable 780

27. 4. Correcting Entries (continued) The following errors were discovered after the transactions had been journalized and posted. Prepare the correcting entries. 2. The purchase of supplies on account for $1,570 was recorded as a debit to Store Supplies and a credit to Accounts Payable for $1,750. Store Supplies 1,750 Incorrect entry Accounts payable 1,750 Store Supplies 1,570 Correct entry Accounts payable 1,570 Accounts payable 180 Correcting entry Store Supplies 180