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Stockholders Equity and the Accounting Equation

The total assets and liabilities at the beginning and end of the year for Luther Company are listed below. Assets $200,000 $275,000 Liabilities $125,000 $165,000

Beginning of the year End of the year Required

Determine Luthers net income or net loss for the year under each of the following alternatives: 1. The stockholders made no investments in the business, and no dividends were paid during the year. 2. The stockholders made no investments in the business, but dividends of $20,000 were paid during the year. 3. The stockholders invested $40,000 in the business, but no dividends were paid during the year. 4. The stockholders invested $15,000 in the business, and dividends of $12,000 were paid during the year.

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Integration of Financial Statements The following three independent sets of financial statements have several amounts missing. Income Statement Revenues Expenses Net income $ Set A $4,500 a. b. $ $ 2,000 h. -$500 Set B g. Set C $300 m.

Statement of Retained Earnings Beginning balance Net income Less dividends Ending balance 400 $3,600 $ $2,500 c. $600 1,600 i. j. $ $2,400 n. o. p.

Balance sheet Total assets Liabilities Stockholders equity Common Stock Retained earnings Total liabilities and stockholders equity Required 1. 2.

Set A $ $8,000 d.

Set B $20,000 $15,000

Set C $ $ q. r.

2,000 e. $ f. $

3.000 k. l.

1,000 1,700 $8,000

Complete each set of financial statements by determining the amounts that correspond to the letters. In what order is it necessary to prepare the financial statements? Why is that order necessary?

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Preparation and Integration of Financial Statements

Proviso Corporation engaged in the following activities during the year 2011: Service Revenue, $28,000; Rent Expense, $2,400; Wages Expense, $16,500; Advertising Expense, $2,000; Utilities Expense, $1,800; Income Taxes Expense, $1,000; and Dividends, $800. In addition, the year-end balances of selected accounts were as follows: Cash, $3,100; Accounts Receivable, $1,500; Supplies, $200; Land, $4,000; Accounts Payable, $900; Wages Payable, $350; Income Taxes Payable, $50; and Common Stock, $2,000. Required In proper format, prepare the income statement, the statement of retained earnings, and balance sheet for Proviso Corporation (assume that the fiscal year ends on 31 December, 2011). (Hint: You must solve for the beginning and ending balances of Retained Earnings for 2011.)

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Transaction Analysis

The following accounts are applicable to Dales Lawn Service, Inc., a company that maintains condominium grounds. 1. 2. 3. 4. 5. 6. 7. 8. Accounts Payable Accounts Receivable Cash Equipment Lawn Services Revenue Rent Expense Supplies Wages Expense

Dales Lawn Service, Inc., completed the following transactions: Debit 1 Credit 3

a. b. c. d. e. f. g. h. i. j.

Paid for supplies purchased on credit last month. Received cash from customers billed last month. Made a payment on accounts payable. Purchased supplies on credit. Billed a client for lawn services. Made a rent payment for the current month. Received cash from customers for current lawn services. Paid employee wages. Ordered equipment. Received and paid for the equipment ordered in i.

Required Analyze each transaction and show the accounts affected by entering the corresponding numbers in the appropriate debit or credit columns as shown in transaction a. Indicate no entry if appropriate.

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F2-2 Preparing a Trial Balance The list that follows presents the accounts (in alphabetical order) of the Dymarski Corporation as of 31 March, 2010. The list does not include the amount of Accounts Payable. Accounts Payable Accounts Receivable Bonds Payable Building Cash Common Stock Dividends Equipment Income Taxes Expense Income Taxes Payable Insurance Expense Interest Expense Land Marketing Expense Mortgage Payable Notes Payable Prepaid Insurance Retained Earnings Salaries Expense Salaries Payable Supplies Supplies Expense Required Prepare a trial balance with the proper heading (see Exhibit 2) and with the accounts listed in the chart of accounts sequence (see Exhibit 3). Compute the balance of Accounts Payable. ? $ 2,800 4,000 24,000 3,900 14,000 800 7,200 1,750 250 1,900 3,800 15,000 2,400 18,000 5,000 600 5,600 12,900 400 300 900

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Transaction Analysis: Bookkeeping, Journal Entries

KML Airlines Corporation engaged in the following transactions during 2011. Its fiscal year is from 1 January to 31 December. 1 Jan. Issued 20,000 shares of Common Stock for $500,000 cash. 5 Jan. Purchased and received office supplies on account, $950. 1 Feb. Acquired a building for $900,000. KML got a $900,000, 8% mortgage from the ROAM Bank. The interest is due semi-annually. Depreciation of the building is straight-line, estimated useful life is 25 years, estimated residual value is $30,000. 27 Feb. Billed $25,000 for services provided to travel agencies. 1 Mar. Paid Aero Insurances Corp. $81,000 in cash for a 5-year property insurance for the Corporations buildings. 1 Apr. Signed a 10-year rent contract. Sun Travels will rent a part of KMLs office building for a yearly rent of $72,000. Rent is due in advance semi-annually. Received first half years rent per bank today. 6 June Received the bill for fuel used in May, $375,000. 31 July Paid mortgage interest due. 1 Aug. Accepted a 12%, 9-month $150,000 note, resulting from a payment agreement with a client. The client is suffering temporary liquidity problems. Repayment of interest and principal is due after 9 months. 1 Oct. Received in cash the office building rent. 5 Dec. Paid a cashdividend of $25,000.

Required Prepare journal entries for the transactions during 2011.

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Transaction Analysis: Bookkeeping, Adjusting Entries

After preparing the unadjusted trial balance, the controller of KML airlines intends to prepare the financial statements on 2011. Before doing so, he has to make the year-end-adjusting entries at the end of the accounting period. Use the data of assignment F2-3 and the following additional information to make the adjusting entries. 1. 2. 3. 4. 5. 6. 7. Beginning office supplies inventory was $100. A physical count reveals that office supplies on hand on 31 December 2011 is $50. The depreciation of the building must be recorded. The accrual of interest pertaining to the 8% mortgage payable. The expired property insurance must be journalized. The accrued office rent pertaining to the 10-year rent contract. The accrued interest on the 12% Note Receivable. On 6 January, 2012, a $540,000 bill for fuel used during December 2011, was received and paid.

Required a. b. Prepare the adjusting entries. Give checking calculations of the year-end balances on 31 December 2011 of the following accounts after the adjusting entries are made: 1. Prepaid Property Insurance. 2. Interest Expense Mortgage. Assume the controller erroneously doesnt make the adjustment for the property insurance. This mistake will have the following consequences for the fiscal year 2011: Overstated Net Income Assets Liabilities Stockholders Equity None Understated


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