Principles of Accounting – Test 2: Chapters 3 and 4 1. For each of the following, journalize the necessary adjusting entry: (a) A business pays weekly salaries of $15,000 on Friday for a five­day week ending on that day. Journalize the necessary adjusting entry at the end of the fiscal period, assuming that the fiscal period ends (1) on Wednesday, (2) on Thursday. (b) The balance in the prepaid insurance account before adjustment at the end of the year is $14,000. Journalize the adjusting entry required under each of the following alternatives: (1) the amount of insurance expired during the year is $4,500; (2) the amount of unexpired insurance applicable to a future period is $1,500. (c) On July 1 of the current year, a business pays $36,000 to the city for license taxes for the coming fiscal year. The same business is also required to pay an annual property tax at the end of the year. The estimated amount of the current year's property tax allocable to July is $3,200. (1) Journalize the two adjusting entries required to bring the accounts affected by the taxes up to date as of July 31. (2) What is the amount of tax expense for July? (d) The estimated depreciation on equipment for the year is $24,000. (a) (1) (2) (b) (1) (2) (c) (1) (2) (d)
2. Journalize the six entries that adjust the accounts at December 31. One of the accounts was affected by two different adjusting entries. Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation Wages Payable Unearned Fees Ann Cole, Capital Fees Earned Wages Expense Supplies Expense Insurance Expense Depreciation Expense Total (1) debit credit (2) debit credit (3) debit credit (4) debit credit (5) debit credit (6) debit credit
Unadjusted Trial Balance 3,000 30,000 1,700 2,000 9,000 6,000 20,000 62,000 42,300 88,000 ====== 88,000 ====== Adjusted Trial Balance 3,000 30,500 100 400 9,000 1,500 4,000 1,500 20,000 67,000 46,300 1,600 1,600 1,500 94,000 94,000 ====== ====== 5. The balances in the ledger of Landscape Services as of December 31, 2005 before adjustments are as follows: Cash $ 4,500 Tim Welch, Capital $33,050 Supplies 4,150 Tim Welch, Drawing 2,900 Prepaid Insurance 8,700 Service Revenue 52,500 Equipment 42,000 Salary Expense 26,600 Accumulated Rent Expense 5,000 Depreciation 10,200 Miscellaneous Expense 1,900 Adjustment data are as follows: supplies on hand, December 31, $1,000; insurance expired for December, $900; depreciation on equipment for December, $1,500; salaries accrued, December 31, $1,000. (a) Prepare a ten­column work sheet for Landscape Services for December, 2005. (b) On the basis of the work sheet in (a), present the following in good order: (1) income statement, (2) statement of owner's equity (no additional investments were made during the month), and (3) balance sheet. (c) On the basis of the work sheet in (a), journalize the closing entries as of December 31, 2005. Note: Parenthesis and numbers in columns indicate where the worksheet columns would join­ (a) Landscape Services ) Work Sheet ) For the Month Ended December 31, 2005 ) Trial Balance Adjustments ) Account Title Dr. Cr. Dr. Cr. ) Cash 1) Supplies 2) Prepaid Insurance 3) Equipment 4) Accumulated 5) Depreciation Tim Welch, Capital 6) Tim Welch, Drawing 7) Service Revenue 8) Salary Expense 9) Rent Expense 10) Miscellaneous Expense 11) 12) 13) Supplies Expense 14) Insurance Expense 15) Depreciation Expense 16) Salaries Payable 17) Net Income 18)
( Adjusted (Trial Balance ( Dr. 1( 2( 3( 4( 5( 6( 7( 8( 9( 10( 11( 12( 13( 14( 15( 16( 17( 18( 19( (b) (1) Cr. Income Statement Dr. Cr. Balance Sheet Dr. Cr. Landscape Services Income Statement For the Month Ended December 31, 2005 ======= (2) Landscape Services Statement of Owner's Equity For the Month Ended December 31, 2005
(3) Landscape Services Balance Sheet December 31, 2005 Assets Current assets: Liabilities Current liabilities: Owner's Equity Property, plant, and equipment: (c) Closing Entries Jan. 31 31
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6. Compute working capital and the current ratio from the following information. Roy Reed, Consultant Balance Sheet December 31, 2005 Cash Accounts receivable Prepaid insurance Land Building Equipment Total assets $50 8 12 25 12 14 $121 === Accounts payable Wages payable Mortgage payable (long term) Roy Reed, capital Total liabilities and owner's equity $ 9 5 50 57 $121 === Working Capital: Current Ratio