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Exercise 1. E.3-7. A partial adjusted trial balance of Piper Co at January 31, 2005 shows the following : Debit Credit Supplies $ 700 Prepaid Insurance $ 2,400 Salaries Payable $ 800

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Exercise 1

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Exercise 1 l.jpg

Exercise 1

  • E.3-7. A partial adjusted trial balance of Piper Co at January 31, 2005 shows the following : DebitCredit

  • Supplies $ 700

  • Prepaid Insurance $ 2,400

  • Salaries Payable $ 800

  • Unearned Revenue $ 750

  • Supplies Expense $ 950

  • Insurance Expense $ 400

  • Salaries Expense $ 1,800

  • Service Revenue $ 2,000

  • Answer the following questions, assuming the year begins January 1.

  • If the amount in Supplies Exp is the Jan’31 adjusting entry and $ 850 of supplies was purchased in Jan what was the balance in Supplies on Jan’1.

  • If the amount in Insurance Expense is the January 31 adjusting entry and the original insurance premium was for one year, what was the total premium and when was the policy purchased.

  • If $ 2,500 of salaries was paid in January, what was the balance in Salaries payable at December 31, 2004.

  • If $ 1,600 was received in Jan for services performed in Jan, what was the balance in Unearned revenue at Dec 31, 2004.


Answer of exercise 1 l.jpg

Answer of Exercise 1

  • Ending balance of supplies $ 700

  • + Adjusting entry 950

  • - Purchases _850

  • Beginning balance of supplies 800

  • b.Total prepaid insurance (400 x 12) $ 4,800

  • Amount used (6 x $ 400) _ 2,400

  • Present balance 2,400

  • The policy was purchased six months ago (Augt 1,2004)

  • c. The entry in January to record salary expense was

  • Salaries Expense 1,800

  • Salaries Payable 700

  • Cash 2,500


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Answer of Exercise 1

c. continued…

The beginning balance of Salaries Payable :

Ending balance of salaries payable $ 800

+ Reduction of salaries payable _ 700

Beginning balance of salaries payable 1,500

d. Service revenue $ 2,000

Cash received _ 1,600

Unearned revenue reduced 400

Ending unearned revenue January 31,2005 $ 750

+ Unearned revenue reduced _ 400

Beginning unearned revenue Dec 31,2004 1,150


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Exercise 2

P.3-7. Presented below are the trial balance and the other information related to Muhammad Ali, a consulting engineer at December 31, 2005 shows the following :

DebitCredit

Cash $ 31,500

Account Receivable 49,600

Allowance for Doubtful Accounts $ 750

Engineering Supplies Inventory 1,960

Unexpired Insurance 1,100

Furniture and Equipment 25,000

Accumulated Depr Furniture and Equipment 6,250

Notes Payable 7,200

Muhammad Ali, Capital 35,010

Service Revenue 100,000

Rent Expense 9,750

Office Salaries Expense 28,500

Heat, Light and Water Expense 1,080

Miscellaneous Office Expense _ 720_ _

$ 149,210 $ 149,210


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Exercise 2

  • Fees received in advance from clients $ 6,900.

  • Services performed for clients that were not recorded by December 31, $ 4,900.

  • Bad debt expense for the year is $ 1,430.

  • Insurance expired during the year $ 480.

  • Furniture and equipment is being depreciated at 12,5 % per year.

  • Muhammad Ali gave the bank a 90 day, 10 % note for $ 7,200 on December 1, 2005.

  • Rent of the building is $ 750 per month. The rent for 2005 has been paid, as has that for January 2006.

  • Office salaries earned but unpaid December 31, 2005, $ 2,510.

  • Instructions :

  • From the trial balance and other information given, prepare annual adjusting entries as of December 31, 2005.

  • Prepare an income statement for 2005, a balance sheet, and a statement of owner’s equity. Muhammad Ali withdraw $ 17,000 cash for personal use during the year.


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Answer of Exercise 2

  • 1. Service Revenue 6,900

  • Unearned Service Revenue 6,900

  •   2. Accounts Receivable 4,900

  • Service Revenue 4,900

  • 3. Bad Debt Expense 1,430

  • Allowance for Doubtful Accounts 1,430

  •   4. Insurance Expense 480

  • Unexpired Insurance 480

  • 5. Depreciation Expense—Furniture and Eqp 3,125

  • Accum. Depr.—Furniture and Equipment 3,125

  • ($ 25,000 x 0.125 = $ 3,125)

  • 6. Interest Expense 60

  • Interest Payable ($ 7,200 x 0.10 x 30/360) 60

  • 7. Prepaid Rent 750

  • Rent Expense 750

  •   8. Office Salaries Expense 2,510

  • Salaries Payable 2,510


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Answer of Exercise 2

(b) Muhammad Ali, Consulting Engineer

Income Statement

For the Year Ended December 31, 2005

Service Revenue ($ 100,000 – $ 6,900 + $ 4,900) $ 98,000

Deduct Expenses :

Office salaries expense ($ 28,500 + $ 2,510) $ 31,010

Heat, light, and water expense 1,080

Rent expense ($ 9,750 – $ 750) 9,000

Insurance expense 480

Bad debt expense 1,430

Depreciation expense 3,125

Miscellaneous office expense 720

Interest expense 60

Total expenses 46,905

Net income $ 51,095


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Answer of Exercise 2

Muhammad Ali, Consulting Engineer

Balance Sheet

December 31, 2005

Assets

Current assets

Cash $ 31,500

Accounts receivable(49,600 + $ 4,900) $ 54,500

Less: Allowance for doubtful accounts (2,180)* 52,320

Engineering supplies inventory 1,960

Unexpired insurance ($ 1,000 – 480) 620

Prepaid rent 750

Total current assets $ 87,150

Furniture and equipment 25,000

Less: Accum. Depreciation (9,375)

15,625

Total assets $ 102,775

*($ 750 + $ 1,430)


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Answer of Exercise 2

Muhammad Ali, Consulting Engineer

Balance Sheet

December 31, 2005

Liabilities and Owner’s Equity

Current liabilities

Unearned service revenue $ 6,900

Interest payable 60

Salaries payable 2,510

Notes payable 7,200 16,670

Muhammad Ali, Capital ($ 35,010 + $ 51,095) 86,105

Total liabilities and capital $ 102,775


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Answer of Exercise 2

Muhammad Ali, Consulting Engineer

Statement of Owner’s Equity

For the Year Ended December 31, 2005

Muhammad Ali, Capital, as of January 1, 2005 $ 52,010a

Add: Net income 51,095

Deduct: Withdrawals ( 17,000)

Muhammad Ali, Capital, as of December 31, 2005 $ 86,105

aMuhammad Ali, Capital—trial balance$ 35,010

Withdrawals during the year 17,000

Muhammad Ali, Capital, as of January 1, 2005$ 52,010


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