Financial Accounting – Final Revision (practical part)

CHAPTER 1&2
Question No.1:
M. Hassan CPA opened a new accounting office. During September the office completed the following transaction:
Sep. 1 M. Hassan invested LE100,000 in the business.
Sep. 4 Purchased office equipment on account, LE12,000.
Sep. 10 Performed tax services for a customer on account, LE8,000.
Sep. 12 Paid LE2,000 on account.
Sep. 15 Received LE4,000 cash for consulting work just completed.
Sep. 20 M. Hassan withdrew cash of LE10,000.
Sep. 30 Paid employees salaries of LE20,000.
Sep. 30 Collected LE3,000 from a client on account.
Sep. 30 Paid monthly office rent of LE2,000.
Required:
a. Record the September transactions in the journal.
b. Open Cash account only in the ledger and post all transactions in which cash was involved. Use both T-
account and four-column ledger formats.
c. Open Accounts Payable account only in the ledger and post all transactions in which accounts payable was
involved. Use both T-account and four-column ledger formats.

Solution
a. Date Accounts and Explanations Debit Credit
Sep.1 Cash 100,000
M. Hassan, Capital 100,000
(invested cash into the business)
4 Office Equipment 12,000
Accounts Payable 12,000
(Purchased office equipment on account)
10 Accounts Receivable 8,000
Service Revenue 8,000
(performed service on account)
12 Accounts payable 2,000
Cash 2,000
(Paid cash on account)
15 Cash 4,000
Service Revenue 4,000
(performed service and received cash)
20 M. Hassan, Withdrawals 10,000
Cash 10,000
(withdrew cash)
30 Salaries Expense 20,000
Cash 20,000
(Paid salaries)
30 Cash 3,000
Accounts Receivable 3,000
(collected cash on account)
30 Rent Expense 2,000
Cash 2,000
(paid monthly rent)

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Question No.2:
On January 1, 2014, Shady opened a law office called Shady, Attorney. The trial balance of Shady, Attorney is dated
Feb 28,2015:
LE
Cash 14,000 Capital 28,200
Accounts Receivable 2,200 Drawings 1,200
Prepaid Insurance 2,700 Service Revenue 20,000
Prepaid Rent 6,000 Salaries expense 5,400
Office supplies 2,000 Utilities expense 1,500
Equipment 18,000 Insurance expense 1,400
Accumulated depreciation: equipment LE 7,200 Rent expense 12,000
Notes payable 6,000 66.400 66,400
Unearned Revenue 5,000

During March, the business completed the following transactions:

March 1 Shady Deposited LE100,000 in the business bank account.
March 2 Hired a secretary at a salary of LE5,000.
March 5 Purchased office supplies on account. LE1,200.
March 9 Defended a client in court and billed the client for LE800.
March 10 Purchased a small office building at a price of LE40,000 for the land and LE60,000 for the building.
Made a cash payment of 30% and signed a note payable for the balance.
March 12 Received a bill for utilities, LE500.
March 15 Paid LE3,000 cash for a 12-month insurance policy starting on April 1.
March 16 Returned supplies of LE200.
March 18 Borrowed LE50,000 by signing 6-month, 10%, notes payable.
March 20 LE 10,000 was collected for legal services to be performed during June, 2015.
March 21 Shady invested his automobile to the business. the market value of the automobile is LE10,000
March 23 Received LE6,000 cash for helping a client sell real estate
March 24 Received a check of LE12,000 for services rendered during march.
March 25 Shady deposited LE1,000 in his personal bank account.
March 27 Sold a computer to a customer at its cost of LE3000. The customer paid LE1000 and promised to pay
the remainder within 30 days.
March 29 Paid monthly rent of LE7,000.
March 30 Paid the secretary the agreed upon salary.
March 30 Shady withdrew LE4,000 for his personal use.
Required :
a. Journalize the transactions occurred during March,2015.
b. Prepare the ledger for cash account only. Use both T-account and four-column ledger formats.

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 Solution
a.
Date Accounts and explanations Debit Credit
March 1 Cash 100,000
Shady, Capital 100,000
(invested cash into the business)
2 No entry
5 Office Supplies 1,200
Accounts Payable 1,200
(Purchased office Supplies on account)
9 Accounts Receivable 800
Service Revenue 800
(performed service on account)
10 Land 40,000
Building 60,000
Cash 30,000
Notes payable 70,000
(purchased land and building)
12 Utilities Expense 500
Accounts Payable 500
(received a utility bill)
15 Prepaid Insurance 3,000
Cash 3,000
(paid insurance policy in advance)
16 Accounts Payable 200
Office Supplies 200
(returned supplies)
18 Cash 50,000
Notes Payable 50,000
(borrowed cash and signed a note)
20 Cash 10,000
Unearned Revenue 10,000
(received cash in advance of the revenue)
21 Automobile 10,000
Shady, Capital 10,000
(invested automobile)
23 Cash 6,000
Service Revenue 6,000
(performed service and received cash)
24 Cash 12,000
Service Revenue 12,000
(performed service and received cash)
25 No entry
27 Cash 1,000
Accounts Receivable 2,000
Computer 3,000
(sold computer)
29 Rent Expense 7,000
Cash 7,000
(paid monthly rent)
30 Salaries Expense 5,000
Cash 5,000
(paid salary to secretary)
30 Shady, Withdrawals 4,000
Cash 4,000
(withdrew cash for personal use)

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 CHAPTER 3

Important note concerning interest expense

The interest rate is always annually whatever the period of the loan.

Ex.1: on August 31, 2013 ABC Company borrowed 60,000 and signed 6 months, 8% note payable. The entire
amount of the loan plus the interest is due on February 28. Prepare adjusting entry for the year ended
December 31, 2013.
Solution
Interest expense per year = 60000 × 8%= 4800
Interest expense per month= 4800 ÷ 12 months= 400
Interest expense for the year ended dec.31, 2013 = 400 × 4 months = 1600

Imp. Note: here and in any problem we discard the period of the loan and we divide by 12 to calculate monthly
interest.

Date Accounts and explanation Debit Credit

2013 Interest Expense 1600
Dec.31 Interest Payable 1600
(to accrue interest expense)

Ex.2: on May 1, 2013 ABC Company borrowed 50,000 and signed 9 months, 12% note payable. Prepare adjusting
entry for the year ended December 31, 2013.
Solution

Interest expense per year = 50000 × 12%= 6000

Interest expense per month= 6000 ÷ 12= 500
Interest expense for the year ended dec.31, 2013 = 500 × 8 = 4000

Date Accounts and explanation Debit Credit

2013 Interest Expense 4000
Dec.31 Interest Payable 4000
(to accrue interest expense)

For all expenses, we make the adjusting entry by the amount incurred (used) during the
period. Not the remaining amount

For all revenues, we make the adjusting entry by the amount earned during the period. Not the
amount still unearned.

Very important: for solving adjusting entries, you have to know the ranking of months and to know
whether the month ends 30 or 31.

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Question No.1:
The following are selected balances from the trial balance of Haroon consulting firm dated September 30, 2009
Dr Cr
Supplies $3300
Prepaid Insurance 2400
Office equipment 15000
Accumulated Depreciation: office equipment $1250
Salaries Payable 2000
Unearned Service Revenue 4000
Service Revenue 7500
Salaries Expense 8000
Other data:
a. Supplies on hand at September 30,2009 are 900.
b. The insurance policy has been purchased on September 1, 2009 for 8 months.
c. The office equipment has a 5 year life, the residual value is $3000.
d. Salaries of 1500 are accrued at September 30,2009.
e. $2500 of the unearned revenue has been earned at the end of the month of September, 2009.
f. Invoices representing $3000 of services performed during the month have not been recorded as of September
2009.
Required:
Prepare the adjusting entries for the month of September, 2009.

Solution

Date Account titles and explanations Debit Credit

2009
Sep.30 Supplies Expense 2400
Supplies 2400
(To record Supplies expense)

30 Insurance Expense 300

Prepaid Insurance 300
(To record insurance expense)

30 Depreciation Expense - Office Equipment 200

Accumulated Dep. – Office Equip. 200
(To record dep. Exp. For the equipment)

30 Salaries Expense 1500

Salaries Payable 1500
(To accrue salaries expense)

30 Unearned Service Revenue 2500

Service Revenue 2500
(to record service revenue earned)

30 Accounts Receivable 3000

Service Revenue 3000
(to accrue service revenue)

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Question No.2:
All-Around Consulting adjusts its accounts at the end of each year. The trial balance at December 31,2012, before
adjustments is as follows
LE
Cash 13,200 Capital 27,400
Accounts Receivable 2,200 Drawings 1,200
Prepaid Insurance 2,700 Consulting Fees Earned 20,000
Prepaid Rent 6,000 Salaries expense 5,400
Office supplies 2,000 Utilities expense 1,500
Equipment 18,000 Insurance expense 1,400
Accumulated depreciation: equipment LE 7,200 Rent expense 12,000
Notes payable 6,000 65.600 65,600
Unearned Consulting Fees 5,000

Additional information:
a. Office Supplies on hand on December 31, amounted to LE 500.
b. The useful life of the Equipment was estimated to be 5 years.
c. Many patients pay in advance for major medical procedures. Fees of LE 4000 were earned during the year by
performing procedures on patients who had paid in advance.
d. Salaries earned by employees during the year but not yet recorded amounted to LE 2,300.
e. On November 1,2012, All-Around Consulting had moved and paid 3 month’s rent in advance LE 6,000.
f. On October 1, 2012, All-Around Consulting purchased 6-month insurance policy for LE 2700.
g. On September 1, 2012, All-Around Consulting borrowed LE 6000 by signing a 2-year, 10% note payable.
The entire amount, plus interest is due on September 1,2014.
h. Medical procedures performed during the month but not yet billed or recorded amounted to LE 4,600.
Required:
1. Prepare the necessary adjusting entries at December 31,2012.
2. Prepare the adjusted trial balance.

Solution
(1) Date Account titles and explanations Debit Credit
2012
Dec.31 Supplies Expense 1500
Office Supplies 1500
(To record Supplies expense)

31 Depreciation Expense - Equipment 3600

Accumulated Depreciation –Equip. 3600
(To record dep. Exp. For the equipment)

31 Unearned Consulting Fees 4000

Consulting Fees Earned 4000
(To record consulting fees earned)

31 Salaries Expense 2300

Salaries Payable 2300
(To accrue salaries expense)

31 Rent Expense 4000

Prepaid Rent 4000
(to record rent expense)

31 Insurance Expense 1350

Prepaid Insurance 1350
(to record insurance expense)

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 Date Account titles and explanations Debit Credit
2012
Dec.31 Interest Expense 200
Interest Payable 200
(To accrue interest expense)

31 Accounts Receivable 4600

Consulting Fees Earned 4600
(To accrue consulting fees earned)

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(2)
All-Around Consulting
Adjusted Trial Balance
Dec.31,2012
Accounts Titles Debit Credit
Cash LE 13200
Accounts Receivable 6,800
Prepaid Insurance 1350
Prepaid Rent 2000
Office Supplies 500
Equipment 18000
Accumulated Depreciation – Equipment LE 10800
Notes Payable 6000
Unearned Consulting Fees 1000
Salaries Payable 2300
Interest Payable 200
Capital 27400
Drawings 1200
Consulting Fees Earned 28600
Salaries Expense 7700
Utilities Expense 1500
Insurance Expense 2750
Rent Expense 16000
Supplies Expense 1500
Depreciation Expense – Equipment 3600
Interest Expense 200

Total LE 76300 LE 76300

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Question No.3:
Green Gardens Company provides gardening services. The company performs adjusting entries at the end of each
year. An unadjusted trial balance dated October 31, 2013 as follows:
Cash $33000
Fees receivable 33500 Unearned fees 3000
Prepaid rent 27000 Capital 61000
Prepaid insurance 600 Drawings 1000
Office supplies 500 Fees revenue 83000
Equipment 24000 Salaries expense 38000
Accumulated depreciation: equipment $7000 Insurance expense 600
Notes payable 6000 Advertising expense 2400
Accounts payable 2800 Utilities expense 2200
162800 162800
Additional information:
1. Nine months of rent were paid in advance on April 1, 2013.
2. Employees work Monday through Friday. The daily payroll is 1200 and is paid every Friday. October 31 is
Tuesday.
3. On September 1, 2013, Gardens borrowed $12000 by signing six-month, 8% note payable. The entire amount
plus interest is due on March 1,2014.
4. Accrued but unrecorded fees earned as of October 31, 2013, amounted to $1500.
5. One fifth of the unearned fees is still unearned as of October 31, 2013.
6. On October 1, 2013 Gardens purchased insurance policy for October and November.
7. Depreciation expense per month is 200.
8. Office supplies used amounted to 200.
Required: Prepare the necessary adjusting entries at October 31, 2013.
Solution

Date Account titles and explanations Debit Credit

2013
Oct.31 Rent Expense 21000
Prepaid Rent 21000
(To record rent expense)

Oct.31 Salary Expense 2400

Salary Payable 2400
(To accrue salary expense)

Oct.31 Interest Expense 160

Interest Payable 160
(To accrue interest expense)

Oct.31 Fees Receivable 1500

Fees Revenue 1500
(To accrue fees revenue)

Oct.31 Unearned Fees 2400

Fees Revenue 2400
(to record fees revenue earned)

Oct.31 Insurance Expense 300

Prepaid Insurance 300
(to record insurance expense)

Oct.31 Depreciation Expense- Equip. (200×12) 2400

Accumulated Depreciation-Equipment 2400
(To record depreciation expense)

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Oct.31 Supplies Expense 200 200
Office Supplies
(to record supplies expense)

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Question No. 4 (important):
Answer the following questions:
a. On march 1, 2013, ABC company purchased an insurance policy for 3 months at LE6000. prepare the
adjusting entry at the end of march.
b. On September 30, 2013, ABC company paid 6 month’s rent in advance for LE6000. Prepare the adjusting
entry for the year ended December 31,2013.
c. The beginning balance of office supplies was LE4000. During the year, ABC company purchased office
supplies of LE5000. At December 31, the office supplies on hand total LE2000. Prepare the adjusting entry
for the year ended December 31, 2013.
d. On April 1, 2013, ABC company borrowed 12,000 by signing a 6-month, 10%, notes payable. Prepare the
adjusting entry for the month of April.
e. On January 1, 2013, ABC company purchased an equipment at LE15000. The useful life of the equipment
was estimated to be 5 years. Prepare the adjusting entry at the end of January.
f. On December 1, 2013, ABC designed a landscape plan and the client prepaid LE10,000. The job will take
several months to complete, ABC estimates that the company has earned 40% of the total revenues during the
year. Prepare the adjusting entry for the year ended December 31,2013.
g. At December 31, ABC provided services of LE3500 to XYZ company. XYZ has stated that they will pay
ABC at January 10. Prepare the adjusting entry for ABC for the month ended December 31.
h. Accrued salaries during June is 1,000. Prepare the adjusting entry for the month of June.
(show all your supporting calculations)

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 CHAPTER 4
Question No.1:
The adjusted trial balance of Smith Real Estate Appraisal at June 30, 2014 follow:
Account Titles Debit Credit
Cash $ 4600
Accounts Receivable 4600
Office Supplies 2900
Prepaid Insurance 1700
Building 74700
Accumulated Depreciation – Building $ 8600
Land 14000
Accounts Payable 8900
Interest Payable 80
Salaries Payable 1300
Unearned Revenue 2000
Notes Payable 20000
Smith, Capital 20600
Smith, Withdrawals 17000
Service Revenue 98600
Insurance Expense 5500
Salaries Expense 22800
Supplies Expense 100
Interest Expense 80
Utilities Expense 3600
Depreciation Expense - Building 8500
Total $160,080 $160,080
Required:
a. Prepare the company’s financial statements in a proper format.
b. Journalize the closing entries.
c. Prepare the company’s post-closing trial balance.

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 Solution

(a)

SMITH REAL ESTATE APPRAISAL

Income Statement
Year Ended June 30, 2014

Revenues:
Service Revenue $ 98,600
Expenses:
Salaries Expense $ 22,800
Depreciation Expense—Building 8,500
Insurance Expense 5,500
Utilities Expense 3,600
Supplies Expense 100
Interest Expense 80
Total Expenses 40,580
Net Income $ 58,020

SMITH REAL ESTATE APPRAISAL

Statement of Owner’s Equity
Year Ended June 30, 2014

Smith, Capital, July 1, 2013 $ 20,600

Owner contribution 0
Net income for the year 58,020
$ 78,620
Owner withdrawal (17,000)
Smith, Capital, June 30, 2014 $ 61,620

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 SMITH REAL ESTATE APPRAISAL
Balance Sheet
June 30, 2014

Assets
Current Assets:
Cash $ 4,600
Accounts Receivable 4,600
Office Supplies 2,900
Prepaid Insurance 1,700
Total Current Assets $ 13,800
Plant Assets:
Building $ 74,700
Less: Accumulated Depreciation—Building (8,600) 66,100
Land 14,000
Total Plant Assets 80,100
Total Assets $ 93,900

Liabilities
Current Liabilities:
Accounts Payable $ 8,900
Interest Payable 80
Salaries Payable 1,300
Unearned Revenue 2,000
Total Current Liabilities $ 12,280
Long-Term Liabilities:
Notes Payable 20,000
Total Liabilities $ 32,280

Owner’s Equity
Smith, Capital 61,620
Total Liabilities and Owner’s Equity $ 93,900

NOTE: in all cases, make the balance sheet a classified one (like this form)

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(b)

Date Accounts and Explanation Debit Credit

Jun. 30 Service Revenue 98,600
Income Summary 98,600
(To close revenue)

30 Income Summary 40,580

Insurance Expense 5,500
Salaries Expense 22,800
Supplies Expense 100
Interest Expense 80
Utilities Expense 3,600
Depreciation Expense—Building 8,500
(To close expenses)

30 Income Summary 58,020

Smith, Capital 58,020
(To close Income Summary)

30 Smith, Capital 17,000

Smith, Withdrawals 17,000
(To close withdrawals)

Note: Revenues have a credit balance, so it is debited in order to be closed.

Note: Expenses have a debit balance, so it is credited in order to be closed.

Income Summary
40,580 98,600

Bal 58,020

Smith, Capital
This credit balance of 20,600
income summary will 17,000 58,020
be closed through Bal 61,620
debiting it.

This balance will go

directly to the post
closing trial balance.

Note: if the income summary has a credit balance, this means that revenues are greater than expense and it will be
debited in order to be closed.

Note: if the income summary has a debit balance, this means that expenses are greater than revenues (net loss) and it
will be credited in order to be closed.

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Note: Post closing trial balance includes only assets, liabilities and capital.

(c)

SMITH REAL ESTATE APPRAISAL

Post-Closing Trial Balance
June 30, 2014
Account Titles Debit Credit
Cash $ 4600
Accounts Receivable 4600
Office Supplies 2900
Prepaid Insurance 1700
Building 74700
Accumulated Depreciation – Building $ 8600
Land 14000
Accounts Payable 8900
Interest Payable 80
Salaries Payable 1300
Unearned Revenue 2000
Notes Payable 20000
Smith, Capital 61620
Total $102,500 $102,500

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Question No.2:
The adjusted trial balance of New Hope at Nov. 30, 2014 follow:

New Hope
Adjusted Trial Balance
Nov. 30, 2014
Account Titles Debit Credit
Cash $ 4600
Accounts Receivable 4600
Office Supplies 2900
Prepaid Insurance 1700
Building 44700
Accumulated Depreciation – Building $ 8600
Land 14000
Accounts Payable 8900
Interest Payable 80
Salaries Payable 1300
Unearned Revenue 2000
Notes Payable 20000
Smith, Capital 40600
Smith, Withdrawals 8400
Service Revenue 20000
Insurance Expense 5500
Salaries Expense 2800
Supplies Expense 3780
Depreciation Expense - Building 8500
Total $101,480 $101,480
Required:
a. Journalize the closing entries.
b. Prepare the company’s post-closing trial balance.

Solution

(a)

Date Accounts and Explanation Debit Credit

Nov. 30 Service Revenue 20,000
Income Summary 20,000
(To close revenue)

30 Income Summary 20,580

Insurance Expense 5,500
Salaries Expense 2,800
Supplies Expense 3780
Depreciation Expense—Building 8500
(To close expenses)

30 Smith, Capital 580

Income Summary 580
(To close Income Summary)

30 Smith, Capital 8,400

Smith, Withdrawals 8,400

(To close withdrawals)

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 Income Summary
20,580 20,000

Bal 580

Smith, Capital
580 40,600
8,400
Bal 31,620

(b)

New Hope
Post-closing Trial Balance
Nov. 30, 2014
Account Titles Debit Credit
Cash $ 4600
Accounts Receivable 4600
Office Supplies 2900
Prepaid Insurance 1700
Building 44700
Accumulated Depreciation – Building $ 8600
Land 14000
Accounts Payable 8900
Interest Payable 80
Salaries Payable 1300
Unearned Revenue 2000
Notes Payable 20000
Smith, Capital 31620
Total $72,500 $72,500

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Question No. 3: (important):

Presented here are the accounts of Quick and EZ Delivery for the year ended Dec.31, 2014:
Land $7,000 Owner Contribution, 2014 $32,000
Notes Payable 25,000 Accounts Payable 14,000
Property Tax Expense 2,900 Accumulated Depreciation - Equipment 1,000
Trott, Withdrawals 32,000 Accounts Receivable 1,700
Rent Expense 13,000 Advertising Expense 17,000
Salaries Expense 69,000 Building 147,900
Salaries Payable 400 Depreciation Expense - Equipment 500
Accumulated Depreciation - Building 10,000 Cash 6,000
Service Revenue 192,000 Equipment 18,000
Office Supplies 7,000 Insurance Expense 2,000
Trott, Capital, 12/31/13 51,000 Interest Expense 4,000
Prepaid Insurance 1,000 Depreciation Expense – Building 1,500
Unearned Revenue 100 Mortgage payable 5,000
Requirements:
1. Prepare Quick and EZ Delivery’s income statement.
2. Prepare the statement of owner’s equity.
3. Prepare the classified balance sheet.

Solution

(1)

QUICK AND EZ DELIVERY

Income Statement
For the Year Ended December 31, 2014
Revenues:
Service Revenue $ 192,000
Expenses:
Salaries Expense $ 69,000
Advertising Expense 17,000
Rent Expense 13,000
Interest Expense 4,000
Property Tax Expense 2,900
Insurance Expense 2,000
Depreciation Expense - Building 1,500
Depreciation Expense - Equipment 500
Total Expenses 109,900
Net Income $ 82,100
(2)

QUICK AND EZ DELIVERY

Statement of Owner’s Equity
For the Year Ended December 31, 2014
Trott, Capital, January 1, 2014 $ 51,000
Owner contribution 32,000
Net income for the year 82,100
$ 165,100
Owner withdrawals (32,000)
Trott, Capital, December 31, 2014 $ 133,100

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(3)

Quick and EZ Delivery

Balance Sheet
December 31, 2014

Assets
Current Assets:
Cash $6,000
Accounts Receivable 1,700
Office Supplies 7,000
Prepaid Insurance 1,000
Total Current Assets $ 15,700
Plant Assets:
Equipment $18,000
Less: Accumulated Depreciation -Equipment (1000) 17,000
Building 147,900
Less: Accumulated Depreciation – Building (10,000) 137,900
Land 7,000
Total Plant Assets 161,900
Total Assets $ 177,600

Liabilities
Current Liabilities:
Accounts Payable $14,000
Salaries Payable 400
Unearned Revenue 100
Total Current Liabilities $ 14,500
Long-Term Liabilities:
Notes Payable 25,000
Mortgage Payable 5,000
Total long – term Liabilities $ 30,000
Total liabilities 44,500

Owner’s Equity
Trott, Capital 133,100
Total Liabilities and Owner’s Equity $ 177,600

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