BUS 321 Intermediate Accounting I
October 6, 2016
Name _________________
1. SEC What does SEC stand for?
Generally Accepted Accounting Principles
Financial Accounting Standards Board
Generally Accepted Accounting Principles
Securities and Exchange Commission
2. FINANCIAL REPORTING What is the Objective of Financial Reporting?
Generally Accepted Accounting Principles
The objective of financial reporting is to provide financial information about companies that is useful to capital
providers in making decisions.
3. REVENUES / EXPENSES Reflect on the definition of revenue. Please describe an INFLOW as the term is used in
accounting.
Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions.
Inflows or other
enhancements of assets of an entity or settlements of its liabilities
during a period from delivering or producing goods, rendering services, or
other activities that constitute the entity’s ongoing major or central operations.
4. REVENUES / EXPENSES Reflect on the definition of revenue. Please describe an an entity’s ongoing major operations in
very generic terms.
Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions.
Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from
ongoing major or central operations.
delivering or producing goods, rendering services,
or other activities that constitute the entity’s
5. ASSETS / LIABILITIES Write the definition of assets.
Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, or
rendering services, or other activities that constitute the entity’s ongoing major or central operations.
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets
or provide services to other entities in the future as a result of past transactions or events.
Probable future economic benefits arising obtained or controlled by a particular entity as a result of past transactions or
events.
6. EXPENSES / LOSSES Briefly explain how Expenses differ from Losses.
Expenses involve delivering or producing goods, rendering services or other activities that constitute the entity’s ongoing
major or central operations while Losses arise from peripheral of incidental transactions of the entity.
Expenses involve
activities that constitute the entity’s ongoing major or central operations.
whereas losses arise from peripheral of incidental transactions
.
delivering or producing goods, rendering services or other
of the entity
7. ACCOUNTING CYCLE Please list the steps in the accounting cycle
Record Journal Entries in the General Journal
Post Entries in the General Journal into the General Ledger
Prepare a Trial Balance
Record Adjusting Journal Entries in the General Journal
Post Entries in the General Journal into the General Ledger
Prepare an Adjusted Trial Balance
Prepare the Income Statement, Statement of Retained Earning and the Balance Sheet from the balances in the Trial
Balance (or General Ledger).
Record Closing Journal Entries in the General Journal
Post Entries in the General Journal into the General Ledger
Prepare a Post-Closing Trial Balance
8. BALANCE SHEET Use the following Trial Balance to prepare a Multi-Step Income Statement.
9. BALANCE SHEET Use the following Trial Balance to prepare a Classified Balance Sheet.
14,085
Miller Motor Co,
Income Statement
2,000 for the Month ending September 30, 2016
14,085
2,500
50
depreciation
2,100
5,000
Sales
Cost of goods sold
Gross profit
4,000
2200
1,800
Depeciation expense
Rent expense
Salaries expense
Utilities expense
Operating expenses
Operating income
50
300
700
200
1250
550
2,200
0
50
2,000
25
25
10
10
1,600
2,000
3,000
300
300
100
700
0
Interest revenue
Interest expense
Other gains / losses / expenses
10
25
-15
Income before income tax
Income tax expense
Net Income
535
0
535
4,000
200
Miller Motor Co,
Balance Sheet
As of September 20, 2016
2,100
2,500
10
2,000
1,600
300
2,000
depreciation
100
2,200
Cash
Accounts receivable
Interest receivable
Note receivable
Inventory
Prepaid rent
50
2,000
25
Current Assets
0
3,000
5,000
0
4,000
Property, Plant & Equipment
Equipment
accumulated depreciation
2100
2500
10
2000
1600
300
Accounts payable
Interest payable
Salaries payable
Deferreed revenue
Notes payable
2,000
25
0
0
3,000
Current Liabilities
5,025
Common Stock
Retained earnings
5,000
435
Stockholders' Equity
5,435
8,510
2000
50
1,950
Liabilities and
Assets
10,460
Stockholders' Equity
10,460
10. ADJUSTING ENTRIES FOR SUPPLIES. MMC began the year with a $360 balance in Supplies. On Mar. 9th, MMC bought
supplies costing $2,400. Prepare the Adjusting Journal Entry MMC will make on Dec. 31st if $400 worth of supplies
remain.
Supplies expense
Supplies
2,360
2,360
11. ADJUSTING ENTRIES FOR PREPAID RENT. MMC began the year with $7,200 in their Prepaid Rent account. The rent was
through April 30, 2016. On May 1st, they paid $24,000 to prepay their rent through April 30, 2017.
How much rent expense will MMC report for 2016?
What will be the balance in the Prepaid Rent account as of 12/31/16?
Rent expense
Prepaid Rent
Prepaid Rent
Cash
Rent expense
Prepaid Rent
7,200
7,200
24,000
24,000
16,000
16,000
23,200 expense
8,000 balance
12. BALANCE SHEET Please list the five (5) classifications of assets on the balance sheet?
Current Assets
Investments
Property, Plant and Equipment
Intangible Assets
Other Assets
Current Liabilities
Non-Current Liabilities
Stockholders’ Equity
13. PROPERTY, PLANT AND EQUIPMENT What are the common characteristics of property, plant and equipment?
The common characteristics of property, plant and equipment are that they are tangible, long-lived, and used in the
operations of the business.
Cash and other assets that are reasonably expected to be converted into cash or consumed within the coming year, or
within the normal operating cycle of the business if it is longer than one year.
14. CURRENT ASSETS / LIABILITIES Write the definition of Current Liabilities.
Those obligations that are expected to be satisfied through the use of current assets or the creation of other current
liabilities.
Cash and other assets that are reasonably expected to be converted to cash or consumed within the coming year, or
within the normal operating cycle it that is longer than one year.
15. MANAGEMENT DISCUSSION AND ANALYSIS What three issues must Management address in their Discussion and
Analysis?
Operations
Liquidity
Capital Resources
Sales
Purchases
Inventory on 1/1
Inventory on 12/31
Sales returns
Freight Out
Purchase returns
Purchase discounts
Sales discounts
Freight In
25,000
20,000
1,500
1,450
525
350
250
125
200
75
16.
Net Sales Use the information in the preceding table
to calculate Cost of Goods Sold.
17.
GROSS PROFIT. Use the information in the preceding
table to calculate Gross Profit.
Sales
- Sales returns
- Sales discounts
Net Sales
25,000
- 525
- 200
24,275
Inventory @1/1
Purchases
- purchase discounts
- purchase returns
+ freight in
= goods available
- Inventory @ 12/31
=Cost of Goods Sold
Gross Profit
1,500
20,000
- 125
- 250
75
21,200
1,450
19,750
4,525
18. JOURNAL ENTRY FOR SALES. Stumble and Fall is a new car dealership. Prepare the journal entry on September 30,
2016 when Stumble & Fall has a clearance sale and sells a car costing $37,500 to a customer for $35,000, on
account with terms 2%/10 n/30. I suggest you use the Gross Method, if you are using the Net Method, please
indicate that you are using the Net Method.
19. CONTINUING FROM THE PREVIOUS PROBLEM Prepare the entry when the customer pays their account in full on
October 5, 2016.
Account receivable
Sales
Cost of Goods Sold
Inventory
35,000
35,000
37,500
37,500
Cash
34,300
Sales discount
700
Account receivable
35,000
DISCONTINUED OPERATIONS MMC was comprised of two divisions: TAD Inc. and PAT Inc. On March 16th MMC sold the
Pat Inc. operating division for $200. At the time of the sale, PAT Inc.’s Stockholder’s Equity totaled $240 ( $1,080
Assets less $840 Liabilities). Assume a 30% tax rate and show your calculations.
Income from Operations before Tax
20. $____1,750 ___
$_____ 84____
TAD Inc.
PAT Inc.
Total
1,750
160
1,910
What amount will MMC report for Income from Continuing Operations (after tax)?
What amount will MMC report for the Discontinued Operations?
$____1,834____ What amount will MMC report for Net Income?
21. CHANGE IN ACCOUNTING PRINCIPLES We use three methods to account for Changes.
 Indicate whether Changes in Accounting Principles are reported using the Cumulative Effect, Prospective or
Retrospective presentation.
 Indicate whether Changes in Accounting Estimates are reported using the Cumulative Effect, Prospective or
Retrospective presentation.
 Indicate whether Corrections of Prior Period Errors are reported using the Cumulative Effect, Prospective or
Retrospective presentation.
 If a type of presentation is appropriate in certain situations, but not always, you should indicate
“sometimes.”
presentation method
cumulative
type of change
prospective
retrospective
effect
Change in actg principle always sometimes never always sometimes never always sometimes never
Change in estimate
always sometimes never always sometimes never always sometimes never
Correction of an error
always sometimes never always sometimes never always sometimes never
22. CHANGE IN ACCOUNTING PRINCIPLES
 Indicate whether the Cumulative Effect method presents the change on the income statement or the
statement of retained earnings.
 Indicate whether the Prospective method presents the change on the income statement or the statement
of retained earnings.
 Indicate whether the Retrospective method presents the change on the income statement or the statement
of retained earnings.
On which financial statement will the amount of each type of change appear
cumulative effect
prospective
retrospective
Income Statement
State of Retained Earnings
not applicable
Income Statement
State of Retained Earnings
not applicable
Income Statement
State of Retained Earnings
not applicable
23. COMPREHENSIVE INCOME The Stockholders’s Equity section of MMC’s balance sheet appears below. During the year,
MMC reported Net Income of $48 and Total Comprehensive Income of $64. MMC did not pay dividends during the
year. What would the ending balances be in Retained Earnings and Accumulated Other Comprehensive Income?
Common Stock
Additional Paid in Capital
Retained Earnings
Accumulated Other Comprehensive Income
Stockholders’ Equity
100
750
930
45
1,825
100
750
48
978
16
61
1,889
24. STATEMENT OF CASH FLOWS List the three types of activity classifications on the Statement of Cash Flows.
Operating
Investing
Financing
25. SOURCE OR USE OF CASH MMC is in its first year of operations; you can assume every account had a $0 balance on
Jan. 1st. You are to calculate (show your work) the cash flow related to sales for the Statement of Cash Flows. Also
indicate whether it is a source or use of cash. The Dec. 31st balances for various accounts are shown below.
Sales
Accounts Payable
Accounts Receivable
500
40
62
12/31/2015
Sales
cost of goods sold
net income
102,870
91,948
2,061
accounts receivable
inventory
total assets
current liabilities
shareholders’ equity
1,201
7,894
30,286
19,271
11,015
Current Ratio
26. LIQUIDITY
27. FINANCING
500 source
not applicaable
62 use
438 source
12/31/2014
1,026
7,096
27,137
14,622
12,515
0.472
1.750
Cur Assets / Cur Liab
0.472
calculate the current ratio
calculate the debt to equity ratio