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Practice Questions # 3 - With Answers

The second document contains a third practice question that provides the assets, liabilities, revenues and expenses for Divine Co., a flying lesson company started by Michelle Sasse on June 1. It asks for the assets and liabilities as of June 30 and the revenues and expenses
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0% found this document useful (0 votes)
166 views14 pages

Practice Questions # 3 - With Answers

The second document contains a third practice question that provides the assets, liabilities, revenues and expenses for Divine Co., a flying lesson company started by Michelle Sasse on June 1. It asks for the assets and liabilities as of June 30 and the revenues and expenses
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Practice Questions #3

Q# 1. On April 1, Vinnie Venuchi established Vinnie’s Shop. The following transactions were completed during the month.
1. Invested $10,000 cash to start the agency.
2. Paid $400 cash for April office rent.
3. Purchased office equipment for $5,000 cash.
4. Incurred $250 of advertising costs in the Chicago Tribune, on account.
5. Paid $500 cash for office supplies.
6. Received $5,100 in cash from customers
7. Withdrew $1,000 cash for personal use.
8. Paid utility bill $140
9. Paid employees’ salaries $2,000.
10. Provided service on account to customers $750
11. Collected cash of $120 for services billed in transaction 10
Compute the net income or net loss for April.

Accounts Office Accounts VV


No. Cash Supplies = VV Capital Revenues Expenses
Receivable Equipment Payable Drawings
Increased by Increased by
1
$10,000 $10,000
Decreased by Office rent paid
2
$400 for $400
Decreased by Increased by
3
$5,000 $5,000
Increased by Advertisement
4
$250 cost for $250
Decreased by Increased
5
$500 by $500
Increased by
6 Earned $5,100
$5,100
Decreased by Increased
7
$1,000 by $1,000
Decreased by Utility bill paid
8
$140 for $140
Decreased by Salaries paid for
9
$2,000 $2,000
Increased by
10 Earned $750
$750
Increased by Decreased by
11
$750 $750

Net Income = Revenues – Expenses = (5,100 + 750) – (400 + 250 + 140 + 2,000) = $3,060
Q# 2. Jenny Brown opened a veterinary business, on July 1, 2008. On July 31, the balance sheet showed Cash $9,000, Accounts Receivable $1,700, Supplies
$600, Office Equipment $6,000, Accounts Payable $3,600, and Jenny Brown, Capital $13,700. During August the following transactions occurred.

1. Collected $1,300 of accounts receivable.


2. Paid $2,900 cash on accounts payable.
3. Earned revenue of $8,000 of which $2,500 is paid in cash and the balance is due in September.
4. Purchased additional office equipment for $2,100, paying $800 in cash and the balance on account.
5. Paid salaries $1,700, rent for August $900, and advertising expenses $300.
6. Withdrew $1,000 in cash for personal use.
7. Received $10,000 from Standard Federal Bank—money borrowed on a note payable.
8. Incurred utility expenses for month on account $170.

Prepare an income statement for August, an owner’s equity statement for August, and a balance sheet at August 31.

Accounts Office Notes Accounts JB


No. Cash Supplies = JB Drawings Revenues Expenses
Receivable Equipment Payable Payable Capital
Openin
g 9,000 1,700 600 6,000 3,600 13,700
Balance
1 1,300 (1,300)
2 (2,900) (2,900)
3 2,500 5,500 8,000
4 (800) 2,100 1,300
5 (2,900) (2,900)
6 (1,000) (1,000)
7 10,000 10,000
8 170 (170)
15,200 5,900 600 8,100 10,000 2,170 13,700 (1,000) 8,000 (3,070)

Jenny Brown
Income Statement
For the month ended, August 31, 2008

Revenue $8,000

Operating Expenses
Salaries 1,700
Rent 900
Advertisement Expense 300
Utilities Expense 170 3,070

Net Income $4,930


Jenny Brown
Owner’s Equity Statement
For the month ended, August 31, 2008

Jenny Brown Capital, August 1, 2008 $13,700

Jenny Brown Drawings (1,000)

Net Income 4,930

Jenny Brown Capital, August 31, 2008 $17,630


Jenny Brown
Balance Sheet
As at August 31, 2008

Assets
Current Assets
Cash $15,200  
Accounts Receivable 5,900  
Supplies 600  
Office Equipment 8,100  
  Total Current Assets 29,800

Total Assets $29,800


 
Liabilities
Current Liabilities 
Accounts Payable 2,170  
  Total Current Liabilities 2,170
  
Long-Term Debt 
 Notes Payable 10,000  
  Total Long-Term Debt 10,000
 
Total Liabilities $12,170

Owner's Equity
Jenny Brown Capital, August 1, 2008 13,700 
Jenny Brown Drawings 1,000
Net Income  4,930

Total Owner's Equity $17,630

Total Liabilities & Stockholder's Equity $29,800


Q# 3
On June 1, Michelle Sasse started Divine Co., a company that provides flying lessons, by investing $45,000 cash in the business. Following are the assets and
liabilities of the company at June 30 and the revenues and expenses for the month of June.

Cash $5,600 Notes Payable $30,000


Accounts Receivable 7,200 Accounts Payable 800
Lesson Revenue 7,500 Repair Expense 400
Rent Expense 1, 200 Fuel Expense 2,500
Advertising Expense 500 Insurance Expense 400
Equipment 64,000
Q# 4
Financial statement information about four different companies is as follows.
Donatello Company Raphael Company Michelangelo Company Leonardo Company
January 1, 2008
Assets $ 95,000 $110,000 (g) 120,000 $170,000
Liabilities 50,000 (d) 50,000 75,000 (j) 80,000
Owner’s equity (a) 45,000 60,000 45,000 90,000
December 31, 2008
Assets (b) 115,000 137,000 200,000 (k) 250,000
Liabilities 55,000 75,000 (h) 70,000 80,000
Owner’s equity 60,000 (e) 62,000 130,000 170,000
Owner’s equity changes in year
Additional investment (c) 10,000 15,000 10,000 15,000
Drawings 25,000 (f) 48,000 14,000 20,000
Total revenues 350,000 420,000 (i) 431,000 520,000
Total expenses 320,000 385,000 342,000 (l) 435,000

a. Determine the missing amounts.


Used the following formulas:
Assets = Liabilities + Owner’s Equity
Changes in Owner’s Equity = Equity at Year End – Equity at Year Beginning = Additional Investment – Drawings + Total Revenues – Total Expenses
b. Prepare the owner’s equity statement for Raphael Company.

Raphael Company
Owner’s Equity Statement
For the year ended, December 31, 2008

Raphael Company Capital, January 1, 2008 $60,000

Additional Investment 15,000

Jenny Brown Drawings (48,000)

Revenues 420,000

Expenses 385,000

Net Income $35,000

Raphael Company Capital, December 31, 2008 $62,000


Q# 5
The Mound View Motel opened for business on May 1, 2008. Its balance before adjustment on May 31 is as follows
.
MOUND VIEW MOTEL
Balances
May 31, 2008

Account No. Account No.


101 Cash $19,600 275 Mortgage Payable $80,000
126 Supplies 3,300 301 Kevin Henry, Capital 100,000
130 Prepaid Insurance 6,000 306 Kevin Henry, Drawing 5,000
140 Land 25,000 429 Rent Revenue 80,000
141 Cottage 125,000 610 Repair Expense 3,600
149 Furniture 26,000 726 Salaries Expense 51,000
201 Accounts Payable 6,500 732 Utilities Expense 9,400
208 Unearned Rent 7,400

In addition to those accounts listed on the trial balance, the chart of accounts for Mound View Motel also contains the following accounts and account numbers:
No. 112 Accounts Receivable, No. 144 Accumulated Depreciation—Cottage, No. 150 Accumulated Depreciation—Furniture, No. 212 Salaries Payable, No. 230
Interest Payable, No. 620 Depreciation Expense—Cottages, No. 621 Depreciation Expense—Furniture, No. 631 Supplies Expense, No. 718 Interest Expense, and
No. 722 Insurance Expense.

Other data:
1. Insurance expires at the rate of $400 per month.
2. A count on May 31 shows $600 of supplies on hand.
3. Annual depreciation is $6,000 on the cottages and $2,400 on furniture.
4. Unearned rent of $4,100 was earned prior to May 31.
5. Salaries of $7400 are accrued and unpaid at May 31.
6. Rentals of $1,000 were due from tenants at May 31.
7. The mortgage interest rate is 9%.per year (The mortgage was taken out on May 1.)

Prepare an income statement and an owner’s equity statement for the month of May and a balance sheet at May 31.
Q# 6
On November 1, 2008, the account balances of Morelli Equipment Repair were as follows.

No. Debits No. Credits


101 Cash $4,880 154 Accumulated Depreciation $ 1,500
112 Accounts Receivable 3,520 201 Accounts Payable 3,400
126 Supplies 2,000 209 Unearned Service Revenue 1,400
153 Store Equipment 15,000 212 Salaries Payable 500
301 V. Morelli, Capital 18,600
$25,400 $25,400

During November the following summary transactions were completed.


Nov. 8 Paid $1,400 for salaries due employees, of which $900 is for October salaries.
10 Received $1,200 cash from customers on account.
12 Received $3,400 cash for services performed in November.
15 Purchased store equipment on account $3,000.
17 Purchased supplies on account $1,200.
20 Paid creditors on account $4,500.
22 Paid November rent $500.
25 Paid salaries $1,250.
27 Performed services on account and billed customers for services provided $1,500.
29 Received $650 from customers for future service.

Adjustment data consist of:


1. Supplies on hand $1,200.
2. Accrued salaries payable $400.
3. Depreciation for the month is $100.
4. Unearned service revenue of $1,450 is earned.

Prepare an income statement and an owner’s equity statement for November and a balance sheet at November 30.
Q# 7
Lee Chang opened Chang’s Cleaning Service on July 1, 2008. During July the following transactions were completed.
July 1 Chang invested $12,000 cash in the business.
1 Purchased used truck for $6,000, paying $3,000 cash and the balance on account.
3 Purchased cleaning supplies for $1,300 on account.
5 Paid $2,400 cash on one-year insurance policy effective July 1.
12 Billed customers $2,500 for cleaning services.
18 Paid $1,000 cash on amount owed on truck and $800 on amount owed on cleaning supplies
20 Paid $1,200 cash for employee salaries.
21 Collected $1,400 cash from customers billed on July 12.
25 Billed customers $5,000 for cleaning services.
31 Paid gas and oil for month on truck $200.
31 Withdrew $900 cash for personal use.

The chart of accounts for Chang’s Cleaning Service contains the following accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 128 Cleaning Supplies, No.
130 Prepaid Insurance, No. 157 Equipment, No. 158 Accumulated Depreciation—Equipment, No. 201 Accounts Payable, No. 212 Salaries Payable, No. 301 Lee
Chang, Capital, No. 306 Lee Chang, Drawing, No. 350 Income Summary, No. 400 Service Revenue, No. 633 Gas & Oil Expense, No. 634 Cleaning Supplies
Expense, No. 711 Depreciation Expense, No. 722 Insurance Expense, and No. 726 Salaries Expense.

After taking into account following adjustments prepare the income statement and owner’s equity statement for July and a classified balance sheet at July 31.
(1) Services provided but unbilled and uncollected at July 31 were $1,500.
(2) Depreciation on equipment for the month was $300.
(3) One-twelfth of the insurance expired.
(4) An inventory count shows $400 of cleaning supplies on hand at July 31.
(5) Accrued but unpaid employee salaries were $600.
Q# 8
Kasur Consumer Electrics (KCE) buys goods from an overseas supplier. It has recently taken delivery of 1,000 units of component X. The quoted price of
component X was Rs. 1,200 per unit but KCE has negotiated a trade discount of 5% due to the size of the order. The supplier offers an early settlement discount of
2% for payment within 30 days and KCE intends to achieve this.

Import duties of Rs. 60 per unit must be paid before the goods are released through custom. Once the goods are released through customs KCE must pay a delivery
cost of Rs. 5,000 to have the components taken to its warehouse.

What is the cost of inventory?


Q# 9
Kasur Consumer Electrics (KCE) manufactures control units for air conditioning systems.

The following information is relevant:


Each control unit requires the following:
1 component X at a cost of Rs 1,205 each
1 component Y at a cost of Rs 800 each
Sundry raw materials at a cost of Rs. 150.

The company faces the following monthly expenses:


Rs.
Factory rent 16,500
Energy cost 7,500
Selling and administrative costs 10,000

Each unit takes two hours to assemble. Production workers are paid Rs. 300 per hour. Production overheads are absorbed into units of production using an hourly
rate. The normal level of production per month is 1,000 hours.

What is the cost of a single control unit?


Q# 10
The FMCG company has inventory on hand at the end of reporting period as follows (all costs in Rs.):

Units Raw Material Cost Production Overheads Expected Selling Price Attributable Selling Cost
Deluxe Soap 300 160 15 185 12
Toothpaste 250 50 10 75 10

At what amount will inventory be stated in the balance sheet?


Q# 11
Tino Ltd., manufacturer of cars, has an inventory in hand of 30 Cars each category at year ended 2018.

Per Car Supplier’s list price (Rs.) NRV (Rs.)


Power (1600 CC) 1,800,000 1,750,000
Sprinter (1300 CC) 1,500,000 1,550,000
Chillax (1000 CC) 1,100,000 1,000,000

What amount should be recorded in inventory in hand in the balance sheet?

Example:
A business has four items of inventory. A count of the inventory has established that the amounts of inventory currently held, at cost, are as follows:

Cost Sales price Selling costs


Inventory item A1 8,000 7,800 500
Inventory item A2 14,000 18,000 200
Inventory item B1 16,000 17,000 200
Inventory item C1 6,000 7,500 150

What is the value of closing inventory in the financial statements?


Q# 12
ABC – Balance as at 31 December 2017

Rupees.
Sales 428,000
Purchases 304,400
Wages and salaries 64,000
Rent 14,000
Heating and lighting 5,000
Inventory as at 1 January 2017 15,000
Drawings 22,000
Allowance for doubtful debts 4,000
Non-current assets 146,000
Accumulated depreciation 32,000
Trade receivables 51,000
Trade payables 42,000
Cash 6,200
Capital as at 1 January 2017 121,600

Further information:
a) Rs. 400 is owed for heating and lighting expenses.
b) Rs. 700 has been prepaid for rent.
c) It is decided that a bad debt of Rs. 1,200 should be written off, and that the allowance for doubtful debts should be increased to Rs. 4,500.
d) Depreciation is to be provided for the year at 10% on cost
e) Inventory at 31 December 2017 was valued at Rs. 16,500.

Prepare Financial Statements from above information.

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