Accounting 301 Practice Set

Background: Students entering Accounting 301 at SFSU come from diverse experiences
in Principles of Accounting. This Practice Set is meant as a review of the accounting
cycle, the basis of your Principles of Financial Accounting class taken as a prerequisite to
this course. ALL of the material below should have been learned in that entry level
course before you engage in Intermediate Accounting topics (if not, then you need to
study up on that material). Complete all the required entries, ratio analyses and
financial statements below and be prepared to discuss your answers in class when
we begin Chapter 3 on the second day of classes.
TimmyL Baseball Card Co. buys and sells baseball cards of a famous (ex) San Francisco
Giants baseball player. The company was formed in 2015. The post-closing trial balance
of that company for the end of operations in that first year is:
TimmyL Baseball Card Co.
Trial Balance
December 31, 2015
Account
Cash
Accounts Receivable
Allowance for Bad Debts
Inventory
Supplies
Prepaid Advertising
Land
Building
Accumulated Depreciation-B.
Patent
Accounts Payable
Dividends Payable
Income Tax Payable
Interest Payable
Salaries Payable
Notes Payable
Common Stock ($10 par value)
Paid in Capital in Excess of Par
Retained Earnings
Total

Debit
$250,000
80,000

Credit
$ 8,000

600,000
10,000
9,000
200,000
500,000
8,000
95,000

$1,744,000

100,000
30,000
75,000
3,000
20,000
120,000
100,000
900,000
380,000
$1,744,000

1. Accounting Cycle Step 1: The following entries occurred during the second year
of operations, 2016. (A) Journalize each below entry, (B) explain how that entry
affects total assets, total liabilities and total stockholders equity (does it increase,
decrease, or is there no effect on each balance sheet subsection?), (C) explain how
that entry affects the current ratio (current assets/current liabilities does that
ratio increase, decrease, or is indeterminable?), (D) explain how that entry affects
the leverage ratio (total liabilities/total equity does that ratio increase, decrease
or is indeterminable?), and (E) explain how that entry affects the profitability ratio
(net income/net sales does that ratio increase, decrease or is indeterminable?).
1/5 Paid the salaries due from the previous year.
1/30 The beginning inventory of 2016 consists of 10,000 baseball cards at a cost
of $60 each. TimmyL sold 5,000 of these cards, on account, at a price of $200
each. TimmyL uses a perpetual inventory system and uses FIFO as a cost flow
assumption.
2/1 Paid our suppliers the entire amount owed on the trade accounts payable from
the previous year.
2/15 Collected $900,000 in accounts receivable from customers.
3/1 Paid shareholders the dividend declared in 2015.
3/31 Paid the Notes Payable plus all accrued interest. The Notes Payable account
consists of a $120,000, 10 percent, 6 month obligation from the bank on 10/1/15.
4/1 Incurred and paid the utilities bill of $10,000.
4/15 Paid the government the taxes due from 2015.
5/1 Purchased on account 3,000 new baseball cards at a cost of $70 each.
5/15 Paid $200,000 of the amount owed on trade accounts payable.
6/1 Purchased $15,000 in supplies for cash and debited a permanent (real)
account [instead of a temporary (nominal) account].
6/15 One customer owing $10,000 was declared bankrupt. TimmyL wrote off
this account as uncollectable.
7/1 Purchased online advertising for one year at a cost of $2,000 per month for
cash and debited a temporary (nominal) account [instead of a real (permanent)
account].
7/5 Sold 5,000 new shares of common stock at a market price of $150 per share.

8/1 Lent the CEO of TimmyL $200,000 and accepted an eight month, eight
percent note receivable.
8/15 Paid $50,000 salaries.
8/31 Sold 5,000 baseball cards on account at a price of $250 per card.
9/1 Purchased a computer system for $70,000 by making a $10,000 down
payment and issuing a six month six per cent note for the balance.
9/15 Sold a quarter of the land owned by TimmyL for a cash price of $300,000.
10/1 Received $1,200,000 due from customers.
11/1 Received $100,000 in advance from a customer for the future sale of an
extra special baseball card that TimmyL will acquire in 2017. TimmyL credited a
permanent (real) account [instead of a temporary (nominal) account].
12/15 Declared an annual cash dividend of $5 per common share to shareholders
payable in ninety days.
2. Accounting Cycle Step 2: Post the above entries to the ledger (a list of Taccounts).
3. Accounting Cycle Step 3: Prepare an unadjusted trial balance at fiscal year end
2016.
4. Accounting Cycle Step 4: Prepare the following adjusting entries at the end of the
second year of operations, 2016. (A) Journalize each below entry, (B) explain
how that entry affects total assets, total liabilities and total stockholders equity
(does it increase, decrease, or is there no effect on each balance sheet
subsection?), (C) explain how that entry affects the current ratio (current
assets/current liabilities does that ratio increase, decrease, or is
indeterminable?), (D) explain how that entry affects the leverage ratio (total
liabilities/total equity does that ratio increase, decrease or is indeterminable?),
and (E) explain how that entry affects the profitability ratio (net income/net sales
does that ratio increase, decrease or is indeterminable?). (F) Lastly, prepare an
adjusted trial balance on December 31, 2016.

a. Salaries incurred but not paid, $75,000.

b. Supplies on hand, $5,000.
c. Adjusted the prepaid advertising account to reflect the appropriate expense
for 2016 and the ongoing asset balance.
d. The Buildings account reflects a $100,000 salvage (residual) value and a fifty
year economic life. (Assume straight-line depreciation and amortization for all
long-term assets)
e. The computer system has a $5,000 salvage value and a five year economic
life.
f. A patent was purchased on 1/1/15 for $100,000 with no salvage value and a
twenty year legal life.
g. One percent of sales is deemed uncollectable. TimmyL measures bad debts
using the percent of sales method.
h. Accrued income taxes is $95,000.
i. Recorded the necessary accrued interest from the note receivable and the note
payable.
5. Accounting Cycle Step 5: Prepare all necessary closing entries and a post-closing
trial balance for December 31, 2016.

6. Accounting Cycle Step 6: Prepare Financial Statements in good form for the
result of operations in 2016: (A) Income Statement, (B) Statement of Retained
Earnings/Statement of Changes in Stockholders Equity, and (C) Classified
Balance Sheet.