ARTS CPA Review
(Academic Review and Training School, Inc.)
2F & 3F Crème Bldg., Abella St., Naga City
Tel No.: (054) 472-9104; E-mail:
[email protected].
ACCOUNTING PROCESS
PRACTICAL ACCOUNTING I MICHAEL B. BONGALONTA,CPA,MICB,MBA
PROBLEM 1: On December 31, 2002, Gomez Company prepared an income statement and
balance sheet and failed to take into account three adjusting entries. The incorrect income
statement showed net income of $40,000. The balance sheet showed total assets, $120,000;
total liabilities, $50,000; and owner's equity, $70,000.
The data for the three adjusting entries were:
(1) Depreciation of $12,000 was not recorded on equipment.
(2) Wages amounting to $8,000 for the last two days in December were not paid and not
recorded. The next payroll will be in January.
(3) Rent of $14,000 was paid for two months in advance on December 1. The entire amount was
debited to Rent Expense when paid.
Instructions
Complete the following tabulation to correct the financial statement amounts shown (indicate
deductions with parentheses):
Item Net Income Total Assets Total Liabilities Owner’s Equity
Incorrect balances $ 40,000 $120,000 $ 50,000 $ 70,000
Effects of:
Depreciation
Wages
Rent
Correct Balances
PROBLEM 2: Before month-end adjustments are made, the February 28 trial balance of Al's
Enterprise contains revenue of $9,000 and expenses of $4,800. Adjustments are necessary for
the following items:
Depreciation for February is $1,300.
Revenue earned but not yet billed is $2,800.
Accrued interest expense is $900.
Revenue collected in advance that is now earned is $3,500.
Portion of prepaid insurance expired during February is $400.
Instructions
Calculate the correct net income for Al's Income Statement for February.
PROBLEM 3: Jordan Insurance Agency prepares monthly financial statements. Presented below
is an income statement for the month of June that is correct on the basis of information
considered.
JORDAN INSURANCE AGENCY
Income Statement
For the Month Ended June 30
_________________________________________________________________________
Revenues
Premium Commission Revenue ........................................... $40,000
Expenses
Salary expense ................................................................. $6,000
Advertising expense .......................................................... 800
Rent expense ................................................................... 4,200
Depreciation expense ........................................................ 2,800
Total expenses ................................................................. 13,800
Net income .............................................................................. $26,200
Additional Data: When the income statement was prepared, the company accountant neglected to
take into consideration the following information:
1. A utility bill for $2,000 was received on the last day of the month for electric and gas service
for the month of June.
2. A company insurance salesman sold a life insurance policy to a client for a premium of
$20,000. The agency billed the client for the policy and is entitled to a commission of 20%.
3. Supplies on hand at the beginning of the month were $3,000. The agency purchased
additional supplies during the month for $2,500 in cash and $1,000 of supplies were on hand
at June 30.
4. The agency purchased a new car at the beginning of the month for $19,200 cash. The car will
depreciate $3,600 per year.
5. Salaries owed to employees at the end of the month total $5,300. The salaries will be paid on
July 5.
Compute the correct income statement.
PROBLEM 4: All revenue and expense accounts have been closed at the end of the calendar year
for Sloan Company. The Income Summary account has total debits of $450,000 and total credits
of $600,000. As of the same date, Ron Sloan, Capital has a balance of $115,000, and Ron Sloan,
Drawing has a balance of $98,000.
Instructions
(a) Journalize the entries required to complete the closing of the accounts.
(b) Prepare an owner's equity statement for the year ended December 31, 2002.
PROBLEM 5: Dan Scott, CPA, was asked by Lynn Pool to review the accounting records and
prepare the financial statements for her upholstering shop. Dan reviewed the records and found
three errors.
1. Cash paid on accounts payable for $830 was recorded as a debit to Accounts Payable $380 and
a credit to Cash $380.
2. The purchase of supplies on account for $500 was debited to Equipment $500 and credited to
Accounts Payable $500.
3. Lynn withdrew $2,500 of cash and the bookkeeper debited Accounts Receivable for $250 and
credited Cash $250.
Instructions
Prepare an analysis of each error showing the
(a) incorrect entry.
(b) correct entry.
(c) correcting entry.
PROBLEM 6: On October 1, Taylor Bicycle Store had an inventory of 20 ten speed bicycles at a
cost of $200 each. During the month of October, the following transactions occurred.
Oct. 4 Purchased 20 bicycles at a cost of $200 each from Kuhn Bicycle Company, terms 2/10,
n/30.
6 Sold 10 bicycles to Team America for $300 each, terms 2/10, n/30.
7 Received credit from Kuhn Bicycle Company for the return of 2 defective bicycles.
13 Issued a credit memo to Team America for the return of a defective bicycle.
14 Paid Kuhn Bicycle Company in full, less discount.
Instructions
Prepare the journal entries to record the transactions assuming the company uses a perpetual
inventory system.
PROBLEM 7: Trent Company completed the following transactions in October:
Credit Sales Sales Returns Date of
Date Amount Terms Date Amount Collection
Oct. 3 $ 600 2/10, n/30 Oct. 8
Oct. 11 1,200 3/10, n/30 Oct. 14 $ 500 Oct. 16
Oct. 17 6,000 1/10, n/30 Oct. 20 1,200 Oct. 29
Oct. 21 1,700 2/10, n/60 Oct. 23 400 Oct. 27
Oct. 23 3,500 2/10, n/30 Oct. 27 500 Oct. 28
Instructions
(a) Indicate the cash received for each collection. Show your calculations.
(b) Prepare the journal entry for the
(1) Oct. 17 sale. The merchandise sold had a cost of $4,000.
(2) Oct. 23 sales return. The merchandise returned had a cost of $240.
(3) Oct. 28 collection.
Trent uses a perpetual inventory system.
PROBLEM 8: Bell Company purchased merchandise on account from Office Suppliers for
$85,000, with terms of 2/10, n/30. During the discount period, Bell returned some merchandise
and paid $73,500 as payment in full. Bell uses a perpetual inventory system. Prepare the journal
entries that Bell Company made to record:
(1) the purchase of merchandise.
(2) the return of merchandise.
(3) the payment on account.
PROBLEM 9: Ace Company sold merchandise to Vance Company on account for $63,000 with
credit terms of ?/10, n/30. The cost of the merchandise sold was $42,000. During the
discount period, Vance Company returned $3,000 of merchandise and paid its account in full
(minus the discount) by remitting $59,400 in cash. Both companies use a perpetual
inventory system. Prepare the journal entries that Ace Company made to record:
(1) the sale of merchandise.
(2) the return of merchandise.
(3) the collection on account.
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“The men who succeed are the efficient few. They are the few who have the ambition and will
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