Fluent Essays

Who can complete this accounting test by tomorrow? CMBA 603-S Name ___________________________ Test 1 – part 1 (discussion) Fall 2021 Discussion – Answer the following questions in your own words – do not copy from the book or notes. Answers should be typed. This is an open-book, open-notes test. You may not use the internet or consult with other people, but you may use our textbook and notes from this class. Both parts of the test are due at midnight, Monday, September 27. Upload your files to Canvas. 1. (a) Explain the difference between the net and gross methods of recording purchases. (b) Explain the difference between the net and gross methods of recording sales. Include in your answers how to account for discounts taken or not taken under each of the methods. Why might the net method be considered theoretically and/or practically better than the gross method (for purchases and for sales)? 2. Discuss “inventory shrinkage” and how it impacts the financial statements. 3. Explain each of the following concepts surrounding accrual accounting and tell how they are related: realization principle, matching principle, accruals, deferrals. Why did the accounting profession decide that accrual accounting was superior to cash accounting for meeting the needs of the primary users of financial statements? 4. Explain the “cost principle” in relation to accounting for assets (chapter 2). What are the pros and cons of this approach? 5. Explain the three parts of the cash flows statement and give two examples of items that would appear in each section. 6. Are debits “good” and credits “bad” in relation to a company’s financial health? Explain. 7. Explain owners’ equity and its subparts for a private company and for a corporation. Theoretically, what can you learn by examining the owners’ equity section of a corporation? 8. Define and differentiate between financial accounting and managerial accounting. Which one is more regulated and why? 9. Define “Generally Accepted Accounting Principles (GAAP).” Do all companies have to follow GAAP? Explain. 10. What is “double entry accounting” and how did it help with the development of business? 11. Are dividends expenses? Why or why not? 12. Define “depreciation” and explain its purpose in financial accounting. If a company forgot to record depreciation for a given year, what parts of the financial statements would be incorrect that year and the following year (if uncorrected)? 13. Discuss the pros and cons of the periodic method and the perpetual method of accounting for inventory. 14. Hypothetically, assume that a company offers its customers terms of 3/10, n/30 for paying bills. What annual rate of interest does this equate to, assuming a 360-day year? Explain your answer and why knowing the annual rate is important for the customers. 15. Define and compare special journals and subledgers. How can they improve the accounting system? 16. In your opinion, which two measures were most informative in the project using the Home Depot annual report? (You may use the ones you submitted or ones that others submitted). Explain why. Also, discuss facts you learned about Home Depot that helped you understand the company’s current or past operating environment. CMBA 603-S Name ___________________________ Test 1 – part 2 (problems) Fall 2021 Problems – Work the following either by completing the answers on this document or else by using Excel. Be sure to show your work! This is an open-book, open-notes test. You may not use the internet or consult with other people, but you may use our textbook and notes from this class. Both parts of the test are due at midnight, Monday, September 27. Upload your files to Canvas. Classifications: Part I For each of the following accounts, state (a) the specific type of account (asset, liability, revenue, etc.) (b) the normal balance – debit or credit and (c) whether it would be closed (as part of the year-end closing entries). (a) Type of Account (b) Debit or Credit? (c) Close?yes or no 1. dividends payable __________________ ______ ______ 2. purchase discounts lost (periodic) ____ 3. accumulated depreciation __________________ ______ ______ 4. common stock __________________ ______ ______ 5. cost of goods sold __________________ ______ ______ 6. dividends (declared) __________________ ______ ______ 7. interest earned __________________ ______ ______ 8. depreciation for the current year __________________ ______ ______ 9. accounts receivable __________________ ______ ______ 10. retained earnings _________________ ______ ______ 11. prepaid (unexpired) insurance __________________ ______ ______ 12. sales returns __________________ ______ ______ 13. gain on sale of land __________________ ______ ______ 14. investments __________________ ______ ______ 15. unearned rent revenue __________________ ______ ______ Classifications: Part II State the impact on net income in the current month under the accrual method (increase, decrease, or no effect) Impact on Net Income 1. recorded interest on a note receivable; the interest and note will be received next month __________________ 2. collected a deposit on a sale of goods that will be delivered next month __________________ 3. paid cash dividends that were declared last month __________________ 4. purchased inventory for cash (perpetual system) __________________ 5. sold land for more than its cost __________________ 6. recorded this month’s depreciation __________________ 7. updated unearned rent revenue by moving the current month’s rent to the appropriate account __________________ 8. purchased a building by signing a mortgage payable and also giving a cash downpayment __________________ 9. accrued utilities for the month (to be paid next month) __________________ 10. recorded the expiration of this month’s portion of prepaid insurance __________________ 11. signed a purchase order for goods to be received next year __________________ 12. issued bonds payable __________________ Problem 1 Recording Transactions Able Co. began operations in December 2021 with the following transactions occurring in that month. Note that there are no beginning balances in the accounts because this is the first month of operation. a. Sold shares of the company’s stock for $430,000 cash. b. Purchased land worth $60,000 and a building worth $90,000, paying a $20,000 down payment and signing a note payable for the remainder. c. Performed services for $235,000 on credit. d. Purchased supplies on account for $12,400. e. Paid $36,000 for a two-year insurance policy. f. Received $120,000 cash payment for the services previously performed on account. g. Paid wages to employees for $48,000 (not previously recorded). h. Declared dividends to stockholders of $20,000. i. Recorded $1,200 depreciation on the building. j. Recorded the use of one month of insurance (see part e above). k. Paid the dividends that were declared in part h above. l. Determined that ending supplies on hand at December 31 were $1,800. Recorded the use of supplies for the month. m. Recorded the utility bill of $2,300 for December’s utilities; the bill will be paid next month. n. Recorded taxes at a tax rate of 30% (Hint: Do the income statement to determine the dollar amount for this entry). Required: 1) Prepare journal entries for each of the above transactions. Omit explanations. 2) Prepare an income statement, balance sheet, and statement of cash flows for December. Assume a tax rate of 30%. (For the statement of cash flows, it may be easiest to prepare a T-account for tax and then determine where each increase and decrease in cash would go in the statement). Problem 2 Comprehensive Problem Benton Company has made adjusting entries for January through November, but not December. The company only prepares closing entries at the end of the year. The accounts from its unadjusted trial balance on December 31 (the end of its fiscal year) are shown below in alphabetical order. Assume that each account has its normal balance of debit or credit. December 31, 2021 Accounts Payable 6,900 Accounts Receivable 9,400 Accumulated Depreciation—Equipment 1,200 Cash 11,800 Common Stock 18,000 Depreciation Expense 1,200 Dividends 5,800 Equipment 16,000 Insurance Expense 1,500 Notes Receivable 9,000 Prepaid Insurance 2,500 Rent Expense 12,000 Rent Revenue 14,400 Retained Earnings 14,100 Salaries and Wages Expense 18,100 Service Revenue 34,600 Supplies 700 Supplies Expense 1,800 Unearned Rent Revenue 600 a. According to a physical count, the supplies on hand at December 31 are $360. b. The company purchased an 8-month insurance policy for $4,000 on September 1. c. The company accepted a note receivable from a customer on December 1 of the current year. The note has an annual interest rate of 6%, and the note and interest will be received on May 31 of next year. d. The balance in unearned rent revenue is from a $3,600 check received on February 1 of the current year for 12 months of rent. e. Rent earned, but not yet recorded, at year-end is $1,600. f. The equipment was purchased on October 1 of the current year and has an expected salvage value of $1,600. The estimated useful life is 2 years. g. Additional dividends declared, but not yet recorded (to be paid next month) are $2,400. h. Service revenue earned, but not yet recorded, is $6,700. Required: 1) Prepare all necessary adjusting journal entries for the month of December. (You may also want to do T-accounts, but they are not required). 2) Prepare closing entries for the year. 3) Prepare an income statement for the year. 4) Prepare a balance sheet as of year end (December 31). Be sure to update all accounts (including retained earnings) for the adjusting and closing entries! Problem 3 Adjusting Journal Entries Prepare December 31 (fiscal year-end) entries for each of the following (unrelated) items. Assume that no monthly adjusting entries have been made. All adjustments are made at year-end. T-accounts may help! a. The company had a beginning balance of $2,400 in supplies on hand. During the year, $6,800 of supplies were purchased and recorded as supplies on hand (also known as supplies inventory). At the end of the year, supplies on hand were $3,400 (according to a physical count). b. The company paid rent of $360,000 for 2½ years on September 1 of this year. c. The company received rent of $180,000 for 3 years on March 1 of this year. d. Before adjustment, the company shows accumulated depreciation of $32,000 on its equipment. The accountant determines that the amount of depreciation for the current year is $7,600. e. The company signed a $70,000, 9% note payable on May 1. The note and interest are due January 31. f. The company pays employees each Friday. December 31 fell on a Tuesday, so the company has incurred salaries of $2,800 that have not yet been recorded. g. On December 31, the company entered into a $90,000 agreement to provide services to a new customer, with the services to start next year on January 5. h. (This one is different – think about it!) The company had a beginning balance of $1,400 in supplies on hand. During the year, $8,700 of supplies were purchased and recorded as supplies expense (because they thought the supplies would all be used up by year-end). At the end of the year, a physical count determined that supplies on hand were $2,800. 1) Compute the amount of supplies actually used 2) What is the correct ending balance of supplies on hand (inventory)? ______________ 3) Prepare the adjusting journal entry needed to arrive at the correct ending balances in supplies expense and supplies on hand. Problem 4 Merchandise Transactions Elite Enterprises entered into the transactions listed below: 1 Purchased merchandise from Celeste Co. on credit for $14,000, terms 2/10, n/30. 6 Purchased $12,400 of merchandise from Ace Co. on credit (no discount offered). 7 Paid for half of the goods purchased from Celeste (on July 1). Received the appropriate discount. 8 Returned $2,000 of the items purchased on July 6. 9 Paid freight charges of $240 on the items purchased July 6. 12 Sold merchandise on credit to Light Co. for $8,700. The merchandise had an inventory cost of $6,400. 14 Of the merchandise sold to Light Co. on July 12, $800 of it was returned. The items had cost the store $500. 16 Received payment from Light Co. for the balance owed. 17 Paid Ace Co. the balance owed. 22 Paid Celeste the balance owed (purchased on July 1), receiving no discount. Required: Don’t forget returns when you pay balances! 1) Prepare all journal entries for July for Elite Enterprises, assuming the use of the perpetual inventory system. 2) Prepare all journal entries for July for Elite Enterprises, assuming the use of the periodic inventory system.