CHAPTER 2REVIEW OF THE ACCOUNTING PROCESS Problems 2-1. (TIGER COMPANY) a. Adjusting entries at December 31, 2012: a. b. c. d. e. f. g. b. 2-2. Supplies expense Supplies 25,000-8,500 16,500 16,500 Insurance expense Prepaid insurance 24,000 x 8/24 8,000 Rent revenue Unearned rent revenue 27,000/3 9,000 8,000 9,000 Depreciation expense Accumulated depreciation (360,000/10) x 10/12 30,000 30,000 Uncollectible accounts expense Allowance for uncollectible accounts 2% x 450,000 – 3,000 = 6,000 6,000 Interest expense Interest payable 200,000 x .12 x 30/360 2,000 Merchandise inventory Purchase returns and allowances Cost of goods sold Purchases Freight-in 6,000 2,000 480,000 25,000 415,000 900,000 20,000 Reversing entries at January 1, 2013 c. Unearned rent revenue Rent revenue 9,000 f. 2,000 Interest payable Interest expense 2,000 (DRAGON COMPANY) Adjusting entries at December 31, 2012: a. Salary expense Salaries payable 80,000 x 2/5 b. c. 9,000 Depreciation expense Accumulated depreciation 420,000 / 12 Interest receivable Interest revenue 60,000 x .12 x 3/12 32,000 32,000 35,000 35,000 1,800 1,800 3 Chapter 2 – Review of the Accounting Process d. e. f. g. h. i. 2-3. Supplies expense Store supplies Office supplies 28,400 Uncollectible accounts expense Allowance for uncollectible accounts (5% x 650,000 )+ 15,000 47,500 12,800 15,600 Insurance expense Prepaid insurance 5,280 Prepaid travel expense (or Prepaid expense) Travel expense 8,100 Prepaid rent Rent expense 18,000 x 2/6 6,000 5,280 c. d. e. f. g. h. 8,100 6,000 Income tax expense Income tax payable Reported net income Adjustments: (a) (b) (c) (d) (e) (f) (g) (h) Correct net income 365,916 365,916 1,352,000 (32,000) (35,000) 1,800 (28,400) (47,500) (5,280) 8,100 6,000 1,219,729 (MONKEY CORPORATION) a. Adjusting entries at December 31, 2012: a. Bad debts expense Allowance for bad debts b. 47,500 Insurance expense Prepaid insurance x 30% =365,916 1,700 1,700 1,250 1,250 Interest receivable Interest revenue 250 250 Prepaid rent Rent expense 1,550 1,550 Depreciation expense Accumulated depreciation Salary expense Salaries payable 25,000 25,000 8,000 8,000 Interest expense Interest payable 200 200 Rent revenue Unearned rent revenue 20,000 20,000 4 Chapter 2 – Review of the Accounting Process b. Closing entries (partial) a. Rent revenue Interest revenue Income summary b. c. f. g. h. Income summary Rent expense Salaries expense Interest expense Bad debts expense Depreciation expense Insurance expense 864,700 7,450 828,000 1,300 1,700 25,000 1,250 250 250 Rent expense Prepaid rent 1,550 Salaries payable Salary expense 8,000 1,550 8,000 Interest payable Interest expense 200 200 Unearned rent revenue Rent revenue 20,000 20,000 (ROOSTER COMPANY) a. b. c. d. e. f. g. 2-5. 83,850 Reversing entries at January 1, 2013 c. Interest revenue Interest receivable d. 2-4. 80,000 3,850 Amount of Adjustment 16,800 6,750 60,000 20,000 58,000 108,000 20,000 Salaries Payable Interest Payable Advertising Payable Accumulated Depreciation Office Supplies Unearned Plumbing Revenue Prepaid Insurance (SNAKE COMPANY) a. Adjusting entries at December 31, 2010: a. Financial assets at FVPL Unrealized gain on FVPL b. d. Operating expenses Prepaid expenses Req. bal in prepaid expenses: 144,000 x 4/12 48,000 Office supplies on hand 39,000 Store supplies on hand 23,000 Total 110,000 Reported amount 125,200 Req. decrease in PE 15,200 Operating expenses Accumulated depreciation 5 Amount that would appear in Statement of FP 16,800 6,750 60,000 30,000 28,000 36,000 40,000 13,000 13,000 15,200 15,200 156,000 156,000 Chapter 2 – Review of the Accounting Process e. No entry required. The required balance in accrued interest is P22,500, computed as 200,000 x 15% x 9/12. This amount is already included in the Trade and Other Payables balance. g. Rent revenue Unearned rent revenue Required balance in unearned rent 192,000 x 9/12 142,000 Reported balance 80,000 Required increase 62,000 62,000 Insurance expense Prepaid insurance 84,000 + 37,500 – 96,000 25,500 Depreciation expense Accumulated depreciation 133,050 + 8,850 – 127,800 14,100 Unearned rent Rent revenue 55,000 + 45,000 – 75,000 25,000 62,000 2-6. a. b. c. d. 25,500 14,100 Salaries payable Salary expense 21,430 – 17,380 25,000 4,050 4,050 2-7 a. P1,200,000 Same as given total. The transaction will increase office supplies and decrease cash whose balances are both reflected in total debit amount. b. P698,000 Accounts Payable R. Abbit, Capital Interest Payable Accumulated Depreciation Notes Payable Salaries Payable TOTAL 157,000 200,000 5,000 20,000 220,000 96,000 698,000 c. P2,220,000 Accounts Payable Accumulated Depreciation (810,000+27,000) B. Ox, Capital (1,100,000+410,000-15,00027,000-190,000) TOTAL 245,000 837,000 1,138,000 2,220,000 d. P744,000 729,000 + 15,000 = 744,000; The use of P12,000 office supplies does not affect the trial balance total. e. P243,500 Total debits is P243,500 consisting of Cash–P48,000; Accounts receivable–P27,500; Prepaid insurance– P8,000; Equipment– P80,000; Salaries expense–P42,000; Advertising expense– P14,000; Property tax expense–P9,000; and Hoe Rose, Drawing– P15,000. Total credits is P243,500 consisting of Accounts payable– P44,000; Property tax payable–P5,600; Service revenue– P66,900; and Hoe Rose, Capital – P127,000. 6 Chapter 2 – Review of the Accounting Process MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8 MC9 MC10 C D D A A B C B D D MC11 MC12 MC13 MC14 MC15 MC16 MC17 MC18 MC19 MC20 C A B C B B C D B A Problems MC21 MC22 MC23 MC24 MC25 MC26 MC27 MC28 MC29 MC30 MC31 MC32 MC33 MC34 MC35 MC36 B B A D C A C D MC37 B MC38 MC39 A B MC40 MC41 MC46 B C C A B A C B A A 16,000 + 29,000 – 21,000 = 24,000 122,500 + 437,500 – 105,000 = 455,000 990,000 + 50,000 – 60,000 = 980,000 400,000 + (15% x 3.0M) = 850,000 36,000 x 34/36 = 34,000; 44,100 – 33,100 = 11,000 60,000 – 17,000 = 43,000 12,350 - 1,850 + 5,300 = 15,800 P0. The post-closing trial balance includes real accounts only. 24,900 - 4,500 + 3,600 = 24,000 (14,400 x 5/12) + 9,600 + (11,200 x 12/16) = 24,000 30,000 + 45,000 + 20,000 = 95,000 144,000 – 95,000 = 49,000 36,000 x 4/12 = 12,000 1,337,100 + 274,000 – 120,000 + 67,000 = 1,558,100 or 1,684,000 – 274,000 + 120,000 + 80,100 – 52,000 = 1,558,100 (7,200 X 21/24) + (3,600 X 2/6) + (24,000 X 27/36) = 25,500 – 28,200 = 2,700 Decrease 45,000 x 10% x 30/360 = 375 (27,000 x 3/12) + (22,200 x 6/12) + (28,800 x 9/12) + (10,700 x 12/12) = 60,150 – 56,250 = 3,900 Increase 11,250 x 2/5 = 4,500 117,000 – (108,000 – 9,000) = 18,000 117,000 – (108,000 – 9,000) = 18,000; 18,000 – 9,000 = 9,000 7