INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 1|P a g e

Problem 01: THE ACCOUNTING CYCLE I (General Journal, Trial Balance & Financial Statements) Hagen Corporation opened the year 20x6, with the following trial balance information: Details Cash Accounts Receivable Land Accounts Payable Loan Payable Capital Stock Retained Earnings Dividends Revenues Salaries Expense Rent Expense Supplies Expense Interest Expense Debits Credits $ 100,000 $ 0 300,000 0 600,000 0 --- $ 240,000 --120,000 --200,000 --440,000 ------------------------$ 1000,000 $ 1000,000

Januarys transactions are listed below: Jan 02 Jan 03 Jan 05 Jan 07 Jan 11 Jan 12 Jan 15 Jan 17 Jan 20 Jan 23 Jan 24 Jan 29 Jan 31 Jan 31 : Collected $40,000 on an open account receivable. : Purchased additional tract of land for $80,000 cash. : Provided services on account to a customer for $60,000. : Borrowed $48,000 on a term of loan payable. : Paid salaries of $12,000. : Provided services to customers for cash, $44,000. : Purchased (and used) office supplies on account, $8,000. : The Company paid shareholders a $10,000 dividend. : Paid rent of $6,800. : Paid salaries of $16,000. : Paid $64,000 on the open accounts payable. : Collected $200,000 on accounts receivable. : Repaid loans of $88,000. : Paid interest on loans of $2,400.

a) Create the general ledger accounts, and enter the initial balances at the start of the month of January. This requirement is already completed on the worksheets. b) Prepare journal entries for Januarys transactions. c) Post Januarys transactions the appropriate general ledger accounts. d) Prepare a trial balance as of January 31. e) Prepare an income statement and statement of retained earnings for January, and a balance sheet as of the end of January.

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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 2|P a g e

Worksheet (a) Ledger Books CASH Date

Description

Debit

Credit

Balance 100,000

ACCOUNTS RECEIVABLES Date Description Jan 01 Balance forward

Debit -

Credit

Balance 300,000

LAND Date Jan 01

Description Balance forward

Debit -

Credit -

Balance 600,000

ACCOUNTS PAYABLE Date Description Jan 01 Balance forward

Debit -

Credit -

Balance 240,000

LOAN PAYABLE Date Description Jan 01 Balance forward

Debit -

Credit -

Balance 120,000

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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 3|P a g e

CAPITAL STOCK Date Description Jan 01 Balance forward

Debit -

Credit -

Balance 200,000

RETAINED EARNINGS Date Description Jan 01 Balance forward

Debit -

Credit -

Balance 440,000

DIVIDENDS Date Description Jan 01

Debit -

Credit -

Balance -

REVENUES Date Description Jan 01

Debit -

Credit -

Balance -

SALARIES EXPENSE Date Description Jan 01

Debit -

Credit -

Balance -

SUPPLIES EXPENSE Date Description Jan 01 Balance forward

Debit -

Credit -

Balance -

RENT EXPENSE Date Description Jan 01

Debit -

Credit -

Balance -

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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 4|P a g e

INTEREST EXPENSE Date Description Jan 01

Debit -

Credit -

Balance -

Worksheet (b) GENERAL JOURNAL Date Jan 02

Accounts

Debit

Credit

Jan 03

Jan 05

Jan 07

Jan 11

Jan 12

Jan 15

Jan 17

Jan 20

Jan 23
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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 5|P a g e

Jan 24

Jan 29

Jan 31

Jan 31

Worksheet (d) HAGEN CORPORATION Trial Balance January 31, 20x6 Accounts Debits Credits Cash $ - $ Accounts Receivable Land Accounts Payable Loan Payable Capital Stock Retained Earnings Revenues 104,000 Salaries Expense 28,000 Supplies Expense 8,000 Rent Expense 6,800 Interest Expense 2,400 Dividends 10,000 $ . $ .

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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 6|P a g e

Worksheet (e) HAGEN CORPORATION Income Statement For the Month Ending January 31, 20x6 Revenues Services to customers Expenses Salaries Supplies Rent Interest Net Income HAGEN CORPORATION Statement of Retained Earnings For the Month Ending January 31, 20x6 Beginning retained earnings Plus: Net Income Less: Dividends Ending Retained Earnings . .

HAGEN CORPORATION Balance Sheet January 31, 20x6 Assets Cash Accounts receivable Land Total assets Liabilities Accounts payable Loan payable Total liabilities Stockholders equity Capital stock Retained earnings Total stockholders equity Total liabilities and equity .

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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 7|P a g e

Problem 02: THE ACCOUNTING CYCLE II (Adjustments) Toto Motors is an automobile service center offering a full range of repair services for high performance cars. The following information is pertinent to adjusting entries that are needed to Toto, as of March 31, 20X5. Toto has a fiscal year ending on March 31, and only records adjusting entries at year end. Toto has a large investing in repair equipment, and maintains detailed asset records. These records show that depreciation for fiscal X5 is $61,700. As of March 31, 20X5, accrued interest on loans owed by Toto is $10,839. Auto dealerships outsource work to Toto. This work is done on account, and billed monthly. As of March 31, 20X5, $27,400 of unbilled services have been provided. Toto maintains a general business liability insurance policy. The prepaid annual premium is $12,000. The policy was purchased on October 1, 20X4. Another policy is a 6-month property and casualty policy, and it was obtained on December 1, 20X4, at a cost of $6,000. Both policies were initially recorded as prepaid insurance. The company prepared a detailed count of shop supplies at March 31, 20X4. $18,952 was on hand at that date. Management believed this level was greater than necessary and undertook a strategy to reduce these levels over the next year. During the fiscal year 20X5, Toto purchased an additional $62,500 of supplies and debited the Supplies account. By March 31, 20X5, the effort to reduce inventory was successful, as the count revealed an ending balance of only $6,800. During the fiscal year, Toto began offering a service contract to retail customers entitling them regular tire rotations, car washing and other routing maintenance items. Customers prepay for this service agreement, and Toto records the proceeds in the Unearned Revenue. The service plan is a flat fee of $189, and Toto sold the plan to 678 customers. At March 31, 20X5, it is estimated that 25% of the necessary work has been provided under these agreements. Totos primary advertising is on billboards. Big and Wide Outdoor Advertising sold Toto a plan for multiple sign locations around the city. Because Toto agreed to prepay the full price of $13,000, Big and Wide agreed to leave the signs up for 13 months. Toto paid on June 1, 20X4, and recorded the full amount as a prepaid. However, the advertising campaign was not begun until July 1, 20X4. It will conclude on July 31, 20X5. Toto leases shop space. Monthly rent is due and payable on the first day of each month. Toto paid Marchs rent on March 1, and expects to pay Aprils rent on April 1. Prepare adjusting entries (hint: when necessary) for Toto, as of March 31, 20X5.

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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 8|P a g e

Worksheet (a) Problem 02 GENERAL JOURNAL Date Mar 31

Accounts

Debit

Credit

Mar 31

Mar 31

Mar 31

Mar 31

Mar 31

Mar 31

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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 9|P a g e

Problem 03: THE ACCOUNTING CYCLE III (Adjustments Adjusted Trial Balance) Alberto Condor has an eye for quality. He recently formed an art gallery where allows artists to display their artwork for sale. Customers buy the artwork through the gallery, but payments are actually made payable directly to the originating artist. Artists, in turn, pay Albert a 20% commission that is appropriately reflected as revenue of the gallery. Following is Alberts trial balance after the first year of operation. This trial balance does not reflect the adjustments that are necessary, as described by the additional information. ALBERT CONDOR ART GALLERY Trial Balance As of December 31, 20x8 Accounts Debits Credits Cash $ 64,400 $ Supplies 23,765 Display equipment 52,500 Loan Payable 26,250 Capital Stock 87,500 Revenues 170,065 Rent Expense 38,500 Salaries Expense 84,000 Interest Expense 1,750 Utilities Expense 18,900 $ 283,815 $ 283,815 The display equipment was purchased near the beginning of the year. It has a 5-year life and no salvage value. Its cost should be depreciated equally over its life. Albert is entitled to receive $62,650 of commissions for art sold. This revenue has not yet been recorded, but it is fully expected that the artists will soon be making payment. Supplies on hand at year end were counted, and amount to $11,900. Decembers rent of $3,500 had not yet been paid. a) Prepare the necessary adjusting entries as of December 31, 20X8. b) Use T-accounts to determine the adjusted balances of the accounts. c) Prepare the adjusted trial balance for Amber Nestor.

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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 10 | P a g e

Worksheet (a) Problem 03 GENERAL JOURNAL Date Dec 31

Accounts

Debit

Credit

Dec 31

Dec 31

Dec 31

Worksheet (b) Problem 03 CASH REVENUES

ACCOUNTS RECEIVABLE

RENT EXPENSE

SUPPLIES

SALARIES EXPENSE

DISPLAY EQUIPMENT

INTEREST EXPENSE

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INTERMEDIATE FINANCIAL ACCOUNTING

2013
MBA/EMBA M. Azfar Javaid Attari Razavi Qadri 11 | P a g e

ACCUMULATED DEPRECIATION

UTILITIES EXPENSE

LOAN PAYABLE

RENT PAYABLE

CAPITAL STOCK

Worksheet (C) Problem 03 ALBERT CONDOR ART GALLERY Adjusted Trial Balance As of December 31, 20x8 Accounts Debits Credits Cash $ $ Accounts Receivable Supplies Display equipment Accumulated Depreciation Rent Payable Loan Payable Capital Stock Revenues Rent Expense Salaries Expense Interest Expense Utilities Expense

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