Professional Documents
Culture Documents
CH.5
T/F
1. A work sheet is a mandatory form that must be prepared along with an income
statement and balance sheet.
2. If a work sheet is used, financial statements can be prepared before adjusting
entries are journalized.
3. If total credits in the income statement columns of a work sheet exceed total debits,
the enterprise has net income.
4. It is not necessary to prepare formal financial statements if a work sheet has been
prepared because financial position and net income are shown on the work sheet.
5. The adjustments on a work sheet can be posted directly to the accounts in the
ledger from the work sheet.
6. The adjusted trial balance columns of a work sheet are obtained by subtracting the
adjustment columns from the trial balance columns.
7. The balance of the depreciation expense account will appear in the income
statement debit column of a work sheet.
8. Closing entries are unnecessary if the business plans to continue operating in the
future and issue financial statements each year.
9. The owner's drawing account is closed to the Income Summary account in order
to properly determine net income (or loss) for the period.
10. After closing entries have been journalized and posted, all temporary accounts in
the ledger should have zero balances.
11. Closing revenue and expense accounts to the Income Summary account is an
optional bookkeeping procedure.
12. Closing the drawing account to Capital is not necessary if net income is greater
than owner's drawings during the period.
13. The owner's drawing account is a permanent account whose balance is carried
forward to the next accounting period.
14. Closing entries are journalized after adjusting entries have been journalized.
15. The amounts appearing on an income statement should agree with the amounts
appearing on the post-closing trial balance.
16. Retailers and wholesalers are both considered merchandising enterprises.
17. The steps in the accounting cycle are different for a merchandising company than
for a service enterprise.
18. Sales minus operating expenses equals gross profit.
19. Under a perpetual inventory system, the cost of goods sold is determined each
time a sale occurs.
20. A periodic inventory system requires a detailed inventory record of inventory items.
21. Freight terms of FOB Destination means that the seller pays the freight costs.
22. Freight costs incurred by the seller on outgoing merchandise are an operating
expense to the seller.
23. Sales revenues are earned during the period cash is collected from the buyer.
24. The Sales Returns and Allowances account and the Sales Discount account are
both classified as expense accounts.
25. The revenue recognition principle applies to merchandising companies by
recognizing sales revenues when they are earned.
26. Sales Allowances and Sales Discounts are both designed to encourage customers
to pay their accounts promptly.
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27. To grant a customer a sales return, the seller normally prepares a debit
memorandum.
28. If net sales are $1,000,000 and cost of goods sold is $700,000, the gross profit
rate is 30%.
MCQ
Pay Purchases cost after Accounts payable 3,500 Accounts payable 3,500
discount period
Cash 3,500 Cash 3,500
Sales operations
Sales, $3,800 in term 3/9,n/45 Accounts receivable 3,800 Accounts receivable 3,800
merchandise cost $2,400.
Sales revenue 3,800 Sales revenue 3,800
Inventory 2,400
Ex1. On September 1, Segar Supply had an inventory of 15 back packs at a cost of $20
each. The company uses a perpetual inventory system. During September, the
following transactions and events occurred.
Sept. 4 Purchased 40 back packs at $20 each from Janzen, terms 2/10, n/30.
Sept. 6 Received credit of $100 for the return of 5 back packs purchased on Sept. 4
that were defective.
Sept. 9 Sold 20 back packs for $28 each to McGill Books, terms 2/10, n/30.
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Sept. 13 Sold 15 back packs for $28 each to Calvin Office Supply, terms n/30.
Sept. 14 Paid Janzen in full, less discount.
Sept. 18 collect cash from McGill Books.
Instructions
Journalize the September transactions for Segar Supply.
The answer
April. 4 Purchased 40 bicycles at a cost of $150 each from the Lyons Bicycle
Company, terms 2/10, n/30.
5 Paid freight of $ 100 on the April 4 purchase.
6 Sold 10 bicycles to Team America for $225 each, terms 2/10, n/30.
7 Received credit from the Lyons Bicycle Company for the return of 4 defective
bicycles.
13 Issued a credit memo to Team America for the return of 2 defective bicycle.
14 Paid Lyons Bicycle Company in full, less discount.
15 collect cash reminded from Team America
Instructions
1- Prepare the journal entries to record the transactions assuming the company uses
a perpetual inventory system.
2- Prepare the journal entries to record the transactions assuming the company uses
a periodic inventory system.
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Solution
(1) perpetual inventory system.
April. 4 Inventory (40 x 150) ............................................................ 6,000
Accounts Payable ...................................................... 6,000
Ex2. The income statement columns of Rice Company's year-end work sheet are as
follows: Income Statement
Debit Credit
Sales $520,000
Sales Returns and Allowances $ 20,000
Sales Discounts 7,000
Cost of Goods Sold 347,000
Freight-out 2,000
Advertising Expense 15,000
Interest Expense 19,000
Store Salaries Expense 45,000
Utilities Expense 18,000
Depreciation Expense 7,000
Interest Revenue 25,000
Instructions
1. Use the above information to prepare a multiple-step income statement for the
year ended December 31, 2013
2. Determined the Gross profit rate.
solution
Income Statement
For the Year Ended December 31, 2015
Sales revenues
Sales ...................................................................... $520,000
Less: Sales returns and allowances ...................... $ 20,000
Sales discounts ........................................... ( 7,000 )
Net sales ................................................................ 493,000
Cost of goods sold ................................................... 347,000
Gross profit ............................................................ 146,000
Operating expenses
Selling expenses
Freight-out.................................................... $ 2,000
Advertising expense ..................................... 15,000
Store salaries expense ................................. 45,000
Total selling expenses ............................ 62,000
Administrative expenses
Utilities expense ........................................... 18,000
Depreciation expense .................................. 7,000
Total administrative expenses ................ 25,000
Total operating expenses ................. 87,000
Income from operations....................................................... 59,000
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Ex3. The Floyd Company gathered the following condensed data for the year
ended December 31, 2013:
Cost of goods sold $ 664,000
Net sales 1,250,000
Administrative expenses 239,000
Interest expense 58,000
Dividend revenue 38,000
Loss from employee strike 233,000
Selling expenses 45,000
Instructions
1. Prepare a single-step income statement for the year ended December 31, 2013.
2. Prepare a multiple-step income statement for the year ended December 31, 2013.
Solution
1. FLOYD COMPANY
Income Statement
For the Year Ended December 31, 2013
Revenues
Net sales
.............................................................................................. $1,250,000
Dividend revenue .......................................................................... 38,000
Total revenues ...................................................................... 1,288,000
Expenses
Cost of goods sold ........................................................................ $664,000
Selling expenses ........................................................................... 45,000
Administrative expenses ............................................................... 239,000
Interest expense ............................................................................ 58,000
Loss from employee strike ............................................................. 233,000
Total expenses ..................................................................... 1,239,000
2. FLOYD COMPANY
Income Statement
For the Year Ended December 31, 2013
Net sales
......................................................................... $1,250,000
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Correcting Entries
Ex .1 On May 18, Beirut Co. purchased on account equipment costing $4500. The
transaction was journalized and posted as a debit to Equipment $450 and a credit to
Accounts Payable $450. The error was discovered on June 3,
Instructions: Correcting Entry on June 3
The answer
Incorrect entry
Equipment………………….. ................................................................................... 450
Accounts payable .................................................................................... ………..450
Correct entry
Equipment………………… .................................................................................... 4500
Accounts payable .................................................................................... ………..4500
Correcting entry
Equipment…………………. .................................................................................... 4050
Accounts payable .................................................................................... ………….4050
Ex .2 On May 18, Tripoli Co. purchased on account equipment costing $5,000. The
transaction was journalized and posted as a debit to Equipment $50,000 and a credit to
Accounts Payable $50,000. The error was discovered on June 3,
Instructions: Correcting Entry on June 3
The answer
Incorrect entry
Equipment 50,000
Accounts payable 50,000
Correct entry
Equipment 5,000
Accounts payable 5,000
Correcting entry
Accounts payable 45,000
Equipment 45,000
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Ex .3 On May 10, Rabie Co. journalized and posted a $50 cash collection on account
from a customer as a debit to Cash $50 and a credit to Service Revenue $50. The
company discovered the error on May 20, when the customer paid the remaining
balance in full.
Incorrect entry
Cash 50
Service revenue 50
Correct entry
Cash 50
Accounts receivable 50
Correcting entry
Service revenue 50
Accounts receivable 50
MCQ
1. Ethics are the standards of conduct by which one's actions are judged as:
a. right or wrong. c. fair or not fair.
b. honest or dishonest. d. all of these options.
2. Combining the activities of Kellogg and General Mills would violate the
a. cost principle.
b. economic entity assumption.
c. monetary unit assumption.
d. ethics principle.
3. A business organized as a separate legal entity under state law having
ownership divided into shares of stock is a
a. proprietorship. c. corporation.
b. partnership. d. sole proprietorship.
4. Net income will result during a time period when:
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses.
5. Which of the following financial statements is prepared as of a specific date?
a. Balance sheet.
b. Income statement.
c. Owner's equity statement.
d. Statement of cash flows.
6. Debits:
a. increase both assets and liabilities.
b. decrease both assets and liabilities.
c. increase assets and decrease liabilities.
d. decrease assets and increase liabilities.
7. Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and owner’s capital.
c. assets, liabilities, and owner’s drawings.
d. assets, owner’s drawings, and expenses.
8. Posting:
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Ex.1 The Trial Balance Columns of Work Sheet Salma company at the December 31,
2016 ( the End of the Year )
Trial Balance
Account Titles Dr Cr
Cash 400,100
Supplies 20,000
Land 59,000
Building 155,000
Service Revenue
15
75,600
Rent Revenue
24,000
Salaries Expense
30,000
Advertising Expense
17,000
Utilities Expense
15,800
NO Account title Dr Cr
1 Supplies Expense 15,000
Supplies 15,000
2 Insurance Expense 1,700
Prepaid Insurance 1,700
3 Depreciation Expense-Building 7,100
Accum. Depr.—Building 7,100
(155,000 -13,000 ) /20 years = 7,100
4 Unearned Rent Revenue 3,000
Rent Revenue 3,000
5 Interest Expense 9,000
Interest Payable 9,000
=100,000 x 0.12 x 9/12 =9000$
2- Work Sheet For the Year Ended December 31, 2016
Trial Balance Adjustments Adjusted Income Statement Balance Sheet
Account Titles Trial Balance
(3)
Depr. Expense— 7,100 7,100 7,100 7,100
Building (3)
7,100 7,100
Accum. Depr.—
Building (5)
9,000 9,000 9,000
Interest Expense (5) 9,000
9,000 9,000
Interest Payable
95,600 102,600
Net Income 7,000 7,000
Totals 35,800 35,800 736,100 736,100 102,600 102,600 640,500 640,500
$22,800
Prepaid insurance
1400
4,800
Supplies
5000
002,300
Total current assets $ 406,500
45,300
Property, plant, and equipment
Land 59000
Building 155000
Less: Accumulated depreciation ( 7100 )
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147900
018,000 026,000)
Total assets 206900
Total assets $ 613,400
Notes Payable 100000
Unearned Rent Revenue 2000
Interest Payable 9000
Total Liabilities 111,000
Supplies 5,000
Land 59,000
Building 155,000
Ex.3 The following some Transactions of Ahmed Company for the month of October 2016.
The Beginning balance of: Account receivable $8000, Ahmed’s capital $60000 ,
land $32000, account payable $15100, cash $27000.
1/10 Invested an additional $40,000 cash in the business.
2/10 Purchased land costing $28,000 for cash.
3/10 Purchased equipment costing $8,000 for $4,000 cash and the remainder on credit.
4/10 Purchased supplies on account for $800.
5/10 Paid $1,000 for a one-year insurance policy.
6/10 Received $2,000 cash for services performed.
7/10 Received $4,000 for services previously performed on account.
8/10 Paid wages to employees for $2,500.
9/10 Ahmed withdrew $600 cash from the business.
10/10 paid 1,900 cash for previously Purchased equipment(Transaction No. 3)
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Instructions:
1. Prepare Journal entries to each transaction .
2. Compute ending balance of: Ahmed’s capital, land, Account receivable, cash & Accounts
Payable by using T account..
The answer
1/10 Cash ..................................................................................... 40,000
Ahmed’s capital............................................................... 40,000
2/10 Land ..................................................................................... 28,000
Cash ......................................................................... 28,000
3/10 Equipment ............................................................................ 8,000
Cash ....................................................................... 4,000
Accounts Payable ................................................... 4,000
4/10 Supplies ................................................................................ 800
Accounts Payable .................................................... 800
5/10 Prepaid Insurance ................................................................. 1,000
Cash ........................................................................ 1,000
6/10 Cash ..................................................................................... 2,000
Service Revenue ...................................................... 2,000
7/10 Cash ..................................................................................... 4,000
Accounts Receivable ................................................ 4,000
8/10 Wages Expense .................................................................... 2,500
Cash ...................................................................... 2,500
9/10 Ahmed, Drawing .................................................................... 600
Cash ......................................................................... 600
10/10 Accounts Payable ................................................................ 1,900
Cash ......................................................................... 1,900
Ahmed’s capital
Debit Credit
1/10 40,000
Land
Debit Credit
1/10 28000
Cash
Debit Credit
9/10 600
10/10 1900
Account receivable
Debit Credit
Accounts Payable
Debit Credit
3/10 4000
4/10 800