ARTS CPA Review

(Academic Review and Training School, Inc.)

2F & 3F Crème Bldg., Abella St., Naga City
Tel No.: (054) 472-9104; E-mail: artscparev@yahoo.com.

ACCOUNTING PROCESS

PRACTICAL ACCOUNTING I MICHAEL B. BONGALONTA,CPA,MICB,MBA

PROBLEM 1(adapted): Journalize the following business transactions in general journal

form. Identify each transaction by number. You may omit explanations of the
transactions.
1. The owner, Nick Brown, invests $20,000 in cash in starting a real estate office
operating as a sole proprietorship.
2. Purchased $400 of office supplies on credit.
3. Purchased office equipment for $7,500, paying $2,500 in cash and signed a 30-day,
$5,000, note payable.
4. Real estate commissions billed to clients amount to $5,000.
5. Paid $700 in cash for the current month's rent.
6. Paid $200 cash on account for office supplies purchased in transaction 2.
7. Received a bill for $500 for advertising for the current month.
8. Paid $2,200 cash for office salaries.
9. Brown withdrew $1,200 from the business for living expenses.
10. Received a check for $4,000 from a client in payment on account for commissions
billed in transaction 4.

PROBLEM 2(adapted): On December 31, 2002, Gomez Company prepared an income

statement and balance sheet and failed to take into account three adjusting entries. The
incorrect income statement showed net income of $40,000. The balance sheet showed
total assets, $120,000; total liabilities, $50,000; and owner's equity, $70,000.
The data for the three adjusting entries were:
(1) Depreciation of $12,000 was not recorded on equipment.
(2) Wages amounting to $8,000 for the last two days in December were not paid and
not recorded. The next payroll will be in January.
(3) Rent of $14,000 was paid for two months in advance on December 1. The entire
amount was debited to Rent Expense when paid.

Instructions
Complete the following tabulation to correct the financial statement amounts shown
(indicate deductions with parentheses):

Item Net Income Total Assets Total Liabilities Owner’s Equity

Incorrect balances $ 40,000 $120,000 $ 50,000 $ 70,000
Effects of:
Depreciation
Wages
Rent
Correct Balances

PROBLEM 3(adapted): Before month-end adjustments are made, the February 28 trial
balance of Al's Enterprise contains revenue of $9,000 and expenses of $4,800.
Adjustments are necessary for the following items:

 Depreciation for February is $1,300.

 Revenue earned but not yet billed is $2,800.
 Accrued interest expense is $900.
  Revenue collected in advance that is now earned is $3,500.
 Portion of prepaid insurance expired during February is $400.

Instructions
Calculate the correct net income for Al's Income Statement for February.

PROBLEM 4(adapted): Wyatt Company prepares monthly financial statements. Below

are listed some selected accounts and their balances in the September 30 trial balance
before any adjustments have been made for the month of September.

WYATT COMPANY
Trial Balance (Selected Accounts)
September 30, 2002
___________________________________________________________________

Debit Credit
Office Supplies ................................................................ $ 2,700
Prepaid Insurance ........................................................... 5,000
Office Equipment ............................................................ 16,200
Accumulated Depreciation—Office Equipment ...................... $ 400
Unearned Rent Revenue .................................................. 1,200

(Note: Debit column does not equal credit column because this is a partial listing of
selected account balances)

An analysis of the account balances by the company's accountant provided the following
additional information:
1. A physical count of office supplies revealed $1,500 on hand on September 30.
2. A two-year life insurance policy was purchased on June 1 for $6,000.
3. Office equipment depreciated $2,400 per year.
4. The amount of rent received in advance that remains unearned at September 30 is
$300.

Instructions
Using the above additional information, prepare the adjusting entries that should be
made by Wyatt Company on September 30.

PROBLEM 5(adapted): Jordan Insurance Agency prepares monthly financial

statements. Presented below is an income statement for the month of June that is
correct on the basis of information considered.
JORDAN INSURANCE AGENCY
Income Statement
For the Month Ended June 30
___________________________________________________________________
Revenues
Premium Commission Revenue .................................. $40,000
Expenses
Salary expense ........................................................ $6,000
Advertising expense ................................................. 800
Rent expense ........................................................... 4,200
Depreciation expense ................................................ 2,800
Total expenses ......................................................... 13,800
Net income .................................................................... $26,200

Additional Data: When the income statement was prepared, the company accountant
neglected to take into consideration the following information:
1. A utility bill for $2,000 was received on the last day of the month for electric and gas
service for the month of June.
2. A company insurance salesman sold a life insurance policy to a client for a premium of
$20,000. The agency billed the client for the policy and is entitled to a commission of
20%.
3. Supplies on hand at the beginning of the month were $3,000. The agency purchased
additional supplies during the month for $2,500 in cash and $1,000 of supplies were
on hand at June 30.
4. The agency purchased a new car at the beginning of the month for $19,200 cash.
The car will depreciate $3,600 per year.
5. Salaries owed to employees at the end of the month total $5,300. The salaries will be
paid on July 5.

Instructions
Prepare a correct income statement.

PROBLEM 6(adapted): All revenue and expense accounts have been closed at the end
of the calendar year for Sloan Company. The Income Summary account has total debits
of $450,000 and total credits of $600,000. As of the same date, Ron Sloan, Capital has a
balance of $115,000, and Ron Sloan, Drawing has a balance of $98,000.

Instructions
(a) Journalize the entries required to complete the closing of the accounts.
(b) Prepare an owner's equity statement for the year ended December 31, 2002.

PROBLEM 7(adapted): At March 31, account balances after adjustments for Norton
Cinema are as follows:
Account Balances
Accounts (After Adjustment)
Cash $ 24,000
Concession Supplies 4,000
Theatre Equipment 40,000
Accumulated Depreciation—Theatre Equipment 12,000
Accounts Payable 5,000
Norton, Capital 20,000
Norton, Drawing 18,000
Admission Ticket Revenues 70,000
Popcorn Revenues 37,000
Candy Revenues 19,000
Advertising Expense 12,000
Concession Supplies Expense 15,000
Depreciation Expense 4,000
Film Rental Expense 16,000
Rent Expense 12,000
Salaries Expense 13,000
Utilities Expense 5,000

Instructions
Prepare the closing journal entries for Norton Cinema.

PROBLEM 8(adapted): The trial balances of Howe Company follow with the accounts
arranged in alphabetic order. Analyze the data and prepare (a) the adjusting entries and
(b) the closing entries made by Howe Company.
Trial Balances
Unadjusted Adjusted Post-Closing
Accounts Payable $10,000 $10,000 $10,000
Accounts Receivable 2,200 5,200 5,200
Accumulated Depreciation 13,000 17,000 17,000
Advertising Expense 0 11,300 0
Cash 60,000 60,000 60,000
Depreciation Expense 0 4,000 0
Equipment 75,000 75,000 75,000
Howe, Capital 82,200 82,200 110,400
Howe, Drawing 11,000 11,000 0
Prepaid Advertising 17,800 6,500 6,500
Prepaid Rent 15,000 11,000 11,000
Rent Expense 0 4,000 0
Service Revenue 96,000 107,000 0
Supplies 3,200 1,700 1,700
Supplies Expense 2,000 3,500 0
Unearned Revenue 23,000 15,000 15,000
Wages Expense 38,000 45,000 0
Wages Payable 0 7,000 7,000

PROBLEM 9(adapted): Dan Scott, CPA, was asked by Lynn Pool to review the
accounting records and prepare the financial statements for her upholstering shop. Dan
reviewed the records and found three errors.
1. Cash paid on accounts payable for $830 was recorded as a debit to Accounts Payable
$380 and a credit to Cash $380.
2. The purchase of supplies on account for $500 was debited to Equipment $500 and
credited to Accounts Payable $500.
3. Lynn withdrew $2,500 of cash and the bookkeeper debited Accounts Receivable for
$250 and credited Cash $250.

Instructions
Prepare an analysis of each error showing the
(a) incorrect entry.
(b) correct entry.
(c) correcting entry.

PROBLEM 10(adapted):The financial statement columns of the work sheet for Audio
Concepts at December 31, 2002, are as follows:
AUDIO CONCEPTS
Work Sheet
For the Year Ended December 31, 2002

Income Statement Balance Sheet

Accounts Debit Credit Debit Credit
Cash 20,000
Accounts Receivable 11,000
Supplies 4,000
Prepaid Insurance 6,000
Audio Equipment 205,000
Accumulated Depreciation—Audio Equipment 29,000
Accounts Payable 19,000
Note Payable 70,000
Salaries Payable 3,000
J. Franco, Capital 112,000
J. Franco, Drawing 14,000
Audio Revenue 123,000
Advertising Expense 18,000
Depreciation Expense 12,000
Insurance Expense 3,000
Rent Expense 17,000
Salaries Expense 40,000
Supplies Expense 6,000
Totals 96,000 123,000 260,000 233,000
Net Income 27,000 27,000
123,000 123,000 260,000 260,000
Instructions
(a) Calculate the balance of J. Franco, Capital that would appear on a balance sheet at
December 31, 2002.
(b) Prepare a classified balance sheet for Audio Concepts at December 31, 2002
assuming the note payable is a long-term liability

PROBLEM 11(adapted): On October 1, Taylor Bicycle Store had an inventory of 20 ten

speed bicycles at a cost of $200 each. During the month of October, the following
transactions occurred.

Oct. 4 Purchased 20 bicycles at a cost of $200 each from Kuhn Bicycle Company,
terms 2/10, n/30.
6 Sold 10 bicycles to Team America for $300 each, terms 2/10, n/30.
7 Received credit from Kuhn Bicycle Company for the return of 2 defective
bicycles.
13 Issued a credit memo to Team America for the return of a defective bicycle.
14 Paid Kuhn Bicycle Company in full, less discount.

Instructions
Prepare the journal entries to record the transactions assuming the company uses a
perpetual inventory system.

PROBLEM 12(adapted): Trent Company completed the following transactions in

October:

Credit Sales Sales Returns Date of

Date Amount Terms Date Amount Collection
Oct. 3 $ 600 2/10, n/30 Oct. 8
Oct. 11 1,200 3/10, n/30 Oct. 14 $ 500 Oct. 16
Oct. 17 6,000 1/10, n/30 Oct. 20 1,200 Oct. 29
Oct. 21 1,700 2/10, n/60 Oct. 23 400 Oct. 27
Oct. 23 3,500 2/10, n/30 Oct. 27 500 Oct. 28

Instructions
(a) Indicate the cash received for each collection. Show your calculations.
(b) Prepare the journal entry for the
(1) Oct. 17 sale. The merchandise sold had a cost of $4,000.
(2) Oct. 23 sales return. The merchandise returned had a cost of $240.
(3) Oct. 28 collection.
Trent uses a perpetual inventory system.

PROBLEM 13(adapted):
The adjusted trial balance of Jordan Music Company appears below. Jordan Music
Company prepares monthly financial statements and uses the perpetual inventory
method.
Instructions

Complete the work sheet below.

 JORDAN MUSIC COMPANY
Work sheet
For the Month Ended April 30, 2002

Adjusted
Trial Balance Income Statement Balance Sheet
Debit Credit Debit Credit Debit Credit
Cash 13,000
Supplies 3,500
Merchandise Inventory17,000
Equipment 85,000
Accum. Depreciation—
Equipment 15,000
Accounts Payable 20,000
Jordan, Capital 92,000
Jordan, Drawing 5,000
Sales 44,000
Sales Discounts 2,000
Cost of Goods Sold 28,000
Advertising Expense 7,000
Supplies Expense 6,000
Depreciation Expense 1,000
Rent Expense 2,500
Utility Expense 1,000
171,000 171,000

PROBLEM 14(adapted): Bell Company purchased merchandise on account from Office

Suppliers for $85,000, with terms of 2/10, n/30. During the discount period, Bell
returned some merchandise and paid $73,500 as payment in full. Bell uses a perpetual
inventory system. Prepare the journal entries that Bell Company made to record:
(1) the purchase of merchandise.
(2) the return of merchandise.
(3) the payment on account.

PROBLEM 15(adapted): Ace Company sold merchandise to Vance Company on

account for $63,000 with credit terms of ?/10, n/30. The cost of the merchandise
sold was $42,000. During the discount period, Vance Company returned $3,000 of
merchandise and paid its account in full (minus the discount) by remitting $59,400
in cash. Both companies use a perpetual inventory system. Prepare the journal
entries that Ace Company made to record:
(1) the sale of merchandise.
(2) the return of merchandise.
(3) the collection on account.

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“In accounting, just master the BASIC”…mikecpamicbmba@125487