Acct 220 Midterm Review Questions: Journal Entries

Acct 220 Midterm Review Questions 1 JOURNAL ENTRIES Journalize the follow

Acct 220 Midterm Review Questions 1. JOURNAL ENTRIES Journalize the follow

Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transactions.

  • Received $50,000 from stockholders.
  • Purchased equipment for $75,000, paying $15,000 in cash and giving a note payable for the remainder.
  • Paid $3,000 rent for the month.
  • Recorded $12,500 of services provided on account.
  • Paid wages of $9,500.
  • Received $7,000 in cash for services provided.
  • Collected $2,000 from customers on account.

2. ADJUSTING ENTRIES A review of the ledger of Wilde Co. at December 31, 2014, produces the following data pertaining to the preparation of annual adjusting entries:

  • (a) Salaries and Wages Payable $0: Salaries are paid every Friday for the current week. Five employees receive a weekly salary of $800, and three employees earn a weekly salary of $700. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.
  • (b) Unearned Rent Revenue $58,000: The company had several lease contracts during the year as shown below: Rent Term per Lease | Number of leases | Date | (in months) | Oct. 1 | 12 | $8,000 | 3 | Dec. 1 | 2 | $2,000
  • (c) Notes Receivable $90,000: This is a 6-month note, dated November 1, 2014, with a 6% interest rate.

Instructions: Prepare the adjusting entries at December 31, 2014. Show all computations.

3. INVENTORY COMPUTATIONS Lan Enterprises uses a periodic inventory system for buckets it sells. It had a beginning inventory on April 1 of 80 units at a cost of $6 per unit. During April, the following purchases and sales were made:

  • Purchases and sales details:
  • April 5: 120 units at $6, 60 units at $7, 80 units at $8, 40 units at $8.
  • April 7: 60 units at $7.

Instructions: Compute the April 30 ending inventory and April cost of goods sold under (a) average cost, (b) FIFO, and (c) LIFO. Provide appropriate supporting calculations.

(1) Average - Ending Inventory = $_________; Cost of Goods Sold = $_________.

(2) FIFO - Ending Inventory = $_________; Cost of Goods Sold = $_________.

(3) LIFO - Ending Inventory = $_________; Cost of Goods Sold = $_________.

4. RATIOS Sanders Enterprises reported the following information for 2014: Beginning inventory $32,000, Cost of goods sold $404,000, Ending inventory $45,000, Net income $28,000, Net sales $750,000, Operating expenses $220,000, Sales revenue $765,000.

Instructions: Compute each of the following ratios:

  1. Gross profit rate
  2. Inventory turnover
  3. Days in inventory
  4. Profit margin

5. Multiple-Step Income Statement Below is a partial listing of the adjusted account balances of Barnett Cabinets at year-end on December 31, 2014: Accounts receivable $24,000, Cost of goods sold $256,000, Selling expenses (includes depreciation) $48,000, Interest expense $3,000, Accumulated depreciation—Building $15,000, Sales discounts $5,000, Inventory $52,000, Administrative expenses (includes depreciation) $65,000, Sales revenue $418,000, Accounts payable $34,000, Interest revenue $500.

Instructions: Using whatever data you believe appropriate, prepare a multiple-step income statement for Barnett Cabinets for the year ended December 31, 2014.

Sample Paper For Above instruction

Introduction

The purpose of this paper is to demonstrate comprehensive accounting skills by addressing various core topics, including journal entries, adjusting entries, inventory computations, financial ratios, and preparation of a multi-step income statement. These exercises not only test fundamental accounting principles but also illustrate real-world applications within a typical business operation, such as that of Barnett Cabinets and Sanders Enterprises.

Journal Entries for Business Transactions

In recording the business transactions, the emphasis is on proper journalization aligned with generally accepted accounting principles (GAAP). For example, the receipt of funds from stockholders is recorded as a debit to Cash and a credit to Common Stock. The purchase of equipment involves a debit to Equipment, a credit to Cash for the amount paid, and a credit to Notes Payable for the balance. Payments like rent and wages are straightforward debits to Rent Expense and Wages Expense, respectively, and credits to Cash. Recording services provided on account involves debiting Accounts Receivable and crediting Service Revenue. Cash received for services and collections from customers on account both involve cash and revenue or receivables, properly noted in journal entries.

Adjusting Entries and Computations

The adjusting entries require detailed calculations to ensure accurate financial reporting. Salaries payable for the ending period are accrued based on weekly wages, considering the days worked. Unearned rent revenue is adjusted based on the lease terms and months elapsed. The interest on notes receivable is accrued using the simple interest formula. The computations involve proportional calculations dependent on the period and relevant rates, reflecting the accrual accounting concept.

Inventory Computations - Periodic System

Using the periodic inventory system, the calculations for ending inventory and cost of goods sold differ based on the inventory valuation method. For average cost, the total cost of goods available for sale is divided by the total units to derive a weighted average cost per unit. FIFO assumes the oldest inventory is sold first, so ending inventory comprises the most recent purchases. Conversely, LIFO assumes the newest inventory is sold first, leading to different ending inventory and COGS figures. Supporting calculations are detailed below to illustrate each method.

Average Cost

Total cost of beginning inventory and purchases: (80 units x $6) + (120 units x $6) + (60 units x $7) + (80 units x $8) + (40 units x $8) = ...

FIFO

Ending inventory considers the most recent purchases, starting with the latest units at each purchase price.

LIFO

Ending inventory comprises the earliest units remaining, reflecting the newest costs as sold first.

Financial Ratios Computation

Ratios such as gross profit rate, inventory turnover, days in inventory, and profit margin provide insights into the financial health of the enterprise. The gross profit rate is calculated as gross profit divided by net sales. Inventory turnover measures how often inventory is sold and replaced, calculated as COGS divided by average inventory. Days in inventory estimates how many days inventory remains on hand, computed as 365 divided by inventory turnover. Profit margin shows net income as a percentage of sales, calculated as net income divided by net sales.

Preparation of Multi-step Income Statement

The income statement consolidates revenues and expenses into meaningful categories. The gross profit is derived by subtracting cost of goods sold from sales revenue. Operating expenses are classified into selling and administrative expenses. Operating income is gross profit minus operating expenses. Other income and expenses, such as interest revenue and expense, are then incorporated to determine net income, providing a comprehensive view of the company's profitability.

Conclusion

This exercise incorporates essential accounting processes, reinforcing theoretical knowledge through practical application. Accurate journal entries, proper adjusting entries, precise inventory valuation, insightful financial ratios, and clear presentation of financial position are fundamental skills vital for accountants and financial analysts.

References

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