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PROBLEM - JOURNAL ENTRIES & PREPARING FINANCIAL STATEMENTS

Hart Concerts Inc. was organized on May 1, 2014, by two students majoring in education. The
two entrepreneurs provided entertainment for childrens birthday parties to supplement their
college career. The following transactions occurred during the first month of operations:
May 1: Received contribution of $6,000 from each of the two principal owners of the new
business in exchange for shares of stock.
May 1: Purchased lighting equipment for $300 on an open account. The company has 30 days to
pay for the equipment.
May 5: Registered as a vendor with the city and paid the $25 monthly fee.
May 9: Purchased an event tent to set up at parties for $2,400 cash.
May 10: Purchased $100 in miscellaneous supplies on account. The company has 30 days to pay
for the supplies.
May 15: Paid a $75 bill from local printer for advertisement signs.
May 17: Customers paid for services with cash of $1,500.
May 24: Billed the local park district $800 entertainment provided to a summer camp. The park
district is to pay one-half of the bill within five working days and the rest within 30 days.
May 29: Received 50% of the amount billed to the park district (i.e. from May 24).
May 30: Customers paid cash for parties of $2,000.
May 30: Paid wages of $300 to a friend who helped over the weekend.
May 31: Paid the balance due on the supplies.
Required
1. Prepare necessary journal entries for May. Note: most of the account titles are presented
in the Appendix.
2. Prepare an income statement for May
3. Prepare a classified balance sheet at May 31, 2014

PROBLEM - OPERATING ASSETS: PPE


1

Tasty Catering purchased a van on January 1, 2014 for $48,000. The company decided to
depreciate the van over a 5-year period using the straight-line method. The company estimated
its residual value at $3,000. Show how the costs should be presented on Tastys balance sheet
and income statement for the full year ended June 30, 2016. Label the statements properly.

PROBLEM 5 MULTIPLE CHOICE QUESTIONS (20%)

1. The three forms of business entities are:


a. Government, cooperatives, and philanthropic organizations
b. Financing, investing, and operating
c. Sole proprietorships, partnerships, and corporations
d. Wholesaler, manufacturer, and retailer
e. None of the above

2. Which of the following invests funds into a business and is considered an owner?
a. Stockholders
b. Creditors
c. Bankers
d. Lenders
e. All of the above

3. Claims to economic resources are known as


a. Assets and liabilities
b. Liabilities and stockholders equity
c. Owners equity and stockholders equity
d. Retained earnings and revenues
e. None of the above

4. Which of the following statements is false?


a. Checks and deposit slips are the main source of documents backing up the bank statement.
2

b. Retailers use cash register tapes to recognize sales.


c. Stock certificates are evidence of being a creditor of the company.
d. Time cards are used as the source of information to record wages.
e. None of the above

5. The Holmes Company purchased a building for $75,000 in cash. What is the effect on current
assets?
a. Increase in current assets
b. Decrease in current assets
c. No effect on current assets
d. Unable to determine
6. The system of accounting in which there are at least two accounts affected in every
transaction so that the accounting equation stays in balance is a(an)
a. Double-entry system
b. Debit
c. Credit
d. Journalizing

7. Which one of the following is not a cash equivalent?


a. 30-day certificate of deposit
b. 60-day commercial paper
c. 90-day U.S. treasury bill
d. 180-day note issued by a local or state government
e. C & D
f. All of them are

8. Checks returned by a bank because customers did not have sufficient funds in their account are
called
a. Canceled checks
b. Certified checks
c. NSF checks
d. Outstanding checks
e. None of the above

9. How would outstanding checks be dealt with in a bank reconciliation?


3

a. added to companys book balance


b. deducted from companys book balance
c. added to bank statement balance
d. deducted from bank statement balance

10. Which one of the following ratios is a common analytical tool used by merchandise corporations,
but not by service corporations?
a. Gross profit ratio
b. Earnings per share
c. Current ratio
d. Profit margin
e. None of the above

11. Sales Discounts is classified as what type of account?


a. an expense
b. a revenue
c. a contra-asset
d. a contra-revenue

12. Which of the following accounts is not classified as a current liability?


a. Taxes payable
b. Note payable, due in three (3) years
c. Salaries payable
d. Accounts payable
e. All of them are

13. The landlord records the security deposit she collects from the tenant as a(n)
a. asset
b. liability
c. contingent liability
d. contra liability

Music Corporation

The data below is for Music Corporation for 2015.


Accounts receivable - January 1, 2015
Credit sales during 2015
Collections from credit customers during 2015
Customer accounts written off as uncollectible during 2015
Allowance for doubtful accounts - January 1, 2015
Estimated uncollectible accounts based on an aging analysis

$236,000
820,000
590,000
8,000
8,700
9,600

14. Refer to the data for Music Corporation.


What is the balance of Accounts Receivable at December 31, 2015?
a. $336,000
b. $448,400
c. $458,000
d. $466,000
e. None of the above
15. Refer to the data for Music Corporation.
If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt
expense for 2015?
a. $8,000
b. $8,100
c. $8,700
d. $8,900
e. None of the above
16. Refer to the data for Music Corporation.
If the aging approach is used to estimate bad debts, what is the balance in the Allowance for
Doubtful Accounts after the bad debt expense adjustment?
a. $8,000
b. $8,100
c. $8,900
d. $9,600
e. None of the above

PROBLEM

Honda Corporation of Japan is a leading international manufacturer of cars and motorcycles. Its
recent balance sheet contained the below items (in billions). You have two assignments:
1) Prepare a balance sheet as of March 31, 2014. To finalise this you need to calculate the
total liabilities and stockholders equity (see below table).
2) Calculate Hondas liquidity. Please provide some comments on the outcome of your
liquidity analysis and explain why liquidity is important (or not) to companies.

Cash and cash equivalents


Contributed capital
Accounts payable
Inventories
Investments
Long-term debt
Property, plant and equipment
Other long-term assets
Other long-term liabilities
Retained earnings
Total assets
Total liabilities and stockholders
equity
Trade accounts and other
receivables

USD
690
259
4.237
1.244
639
1.933
2.148
6.244
1.519
3.871
11.819
?
854

PROBLEM - ACCOUNTING FOR PROPERTY, PLANT AND EQUIPMENT


6

At December 31, 2011, Moofy Corporation reported the following plant assets:
All values are in USD ($)

Land
Buildings
Less: accumulated
depreciation buildings

3,000,000
28,500,000
12,100,000

During 2012 following transactions occurred:

1)
2)
3)
4)

April 1 purchased land for $2,630,000 (paid in cash)


June 1 purchased equipment for $800,000 (paid with a long-term loan)
July 1, sold land purchased on July 1 1999 (cost price $800,000), for $1,800,000.
July 15 purchased a truck for $20,000. $15,000 was on account and $5,000 was paid
cash.
5) August 1 purchased flowers for the office for $1,000. Paid cash.
6) August 15 placed an order for an ice cream machine. The machine is likely to be
delivered in January 2013.
7) 31 December, recorded depreciation for the building.
The company uses straight-line depreciation. The building is depreciated over 40 years
and has no salvage value.
Required
1) Journalise above transactions
2) Prepare the plant asset section (i.e. property, plant & equipment) of Moofy Corporations

balance sheet.