financial accounting 7th edition

Chapter Four

Challenge Exercise 1Expands on: E4-1LO: 1

The trial balance columns of the worksheet for Lenny Company at June 30, 2014, are as follows.

LENNY COMPANYWorksheet

For the Month Ended June 30, 2014

Trial Balance

Account Titles Dr. Cr. . Cash $2,200Accounts Receivable 2,900Supplies 2,050Accounts Payable $1,300Unearned Service Revenue 300Notes Payable 2,000Common Stock 3,200Service Revenue 2,100Salaries and Wages Expense 1,200Miscellaneous Expense 550 .

$8,900 $8,900

Other data: 1. A physical count reveals $440 of supplies on hand. 2. The unearned revenue was collected on June 1 and will be earned over the 4 months starting June 1 3. The 6-month note payable was signed June 1 and bears an annual interest rate of 12%. 4. Lenny has recognized $600 of revenue on account (which has not yet been recorded).

Instructions: Enter the trial balance on a worksheet and complete the worksheet.

Challenge Exercise 2

Copyright © 2012 John Wiley & Sons, Inc. Weygandt, Financial and Managerial Accounting, Challenge Exercises

(For Instructor Use Only) Page 4-1

Expands on: E4-7LO: 2, 3

Psyche Company had the following adjusted trial balance.

PSYCHE COMPANYAdjusted Trial Balance

For the Month Ended June 30, 2014Adjusted Trial Balance

Account Titles Debits Credits Cash $4,000 Accounts Receivable 4,200 Supplies 700 Accounts Payable $1,900 Unearned Service Revenue 200 Common Stock 5,400 Retained Earnings 800 Dividends 350 Service Revenue 4,400 Salaries and Wages Expense 1,500 Miscellaneous Expense 300Supplies Expense 2,400 Salaries and Wages Payable 750

$13,450 $13,450

Instructions: (a) Prepare closing entries at June 30, 2014. (b) Prepare a post-closing trial balance. (c) Prepare the stockholders’ equity section of the June 30, 2014 balance sheet.

Challenge Exercise 3Expands on: E4-9



SO: 5, 6

The adjusted trial balance for Navajo Company is presented below.NAVAJO COMPANY

Adjusted Trial BalanceJuly 31, 2014

No. Account Titles Debits Credits

101 Cash $ 16,000 112 Accounts Receivable 9,000 157 Equipment 25,000 167 Accumulated Depreciation $ 8,000 201 Accounts Payable 4,500 208 Unearned Rent Revenue 2,000 311 Common Stock 22,000 320 Retained Earnings 27,500 332 Dividends 17,000 400 Service Revenue 64,000 429 Rent Revenue 11,000 711 Depreciation Expense 5,000 720 Salaries and Wages Expense 57,000 732 Utilities Expense 10,000 .

$139,000 $139,000

Navajo made an error during year when they debited Utilities Expense for $2,000 instead of Equipment for a cash purchase of equipment. In addition, Navajo failed to accrue $4,000 of Service Revenue.

Instructions: (a) Prepare an income statement and a retained earnings statement for the year. (b) Prepare a classified balance sheet at July 31.




Andy Richter Company discovered the following errors made in January 2014.

1. A payment of Salaries and Wages Expense of $1,000 was debited to Equipment and credited to Cash, both for $1,000. Andy Richter recorded $200 of depreciation on this “equipment”.2. A collection of $2,000 from a client on account was debited to Cash $200 and credited to Service Revenue $200. 3. The purchase of equipment on account for $970 was debited to Supplies $790 and credited to Accounts Payable $790. 4. The purchase of Inventory for $1,200 cash was debited to Prepaid Insurance and credited to Cash. At yearend, $400 of the “prepaid insurance” was recorded as insurance expense.

Instructions: (a) Correct the errors by reversing the incorrect entry and preparing the correct entry. (b) Correct the errors without reversing the incorrect entry.



(For Instructor Use Only) -4

The following are the major balance sheet classifications.

Current assets (CA) Current liabilities (CL) Long-term investments (LTI) Long-term liabilities (LTL) Property, plant, and equipment (PPE) Stockholders’ equity (SE) Intangible assets (IA)

Instructions:

Classify each of the following accounts taken from Don Company’s balance sheet.

______ Accounts payable ______ Accumulated depreciation ______ Accounts receivable ______ Buildings ______ Cash ______ Land ______ Common stock ______ Long-term debt ______ Patents ______ Supplies ______ Salaries and wages payable ______ Equipment ______ Inventory ______ Prepaid insurance ______ Investments (to be sold in 6 months) ______ Notes receivable (due in 9 months)______Land improvements ______Furniture______Taxes payable ______Copyrights______Interest payable ______Trademarks______Mortgage payable ______Retained earnings


The following items were taken from the financial statements of Yusuf Company. (All dollars are in thousands.)



Long-term debt $ 950 Accumulated depreciation $ 5,600 Prepaid expenses 900 Accounts payable 1,444 Equipment 11,300 Notes payable (due after 2015) 1,024Long-term investments 464 Common stock 10,000 Short-term investments 3,490 Retained earnings 2,800 Notes payable (due in 2015) 474 Accounts receivable 1,734 Cash 2,648 Inventory 1,456 Patents 6002014 net income was $1,000 and dividends were $700.

Instructions: Prepare a classified balance sheet in good form as of December 31, 2014.




ConeZone Company pays salaries of $20,000 every Monday for the preceding 5-day week (Monday through Friday). Assume December 31 falls on a Wednesday, so ConeZone’s employes have worked 3 days without being paid. In addition, ConeZone has recognizeded $3,500 of revenue on account which has not yet been recorded.

Instructions:

(a) Assume the company does not use reversing entries. Prepare the December 31 adjusting entry for salaries and the entry on Monday, January 5, when ConeZone pays the payroll. (b) Assume the company does use reversing entries. Prepare the December 31 adjusting entry for salaries, the January 1 reversing entry, and the entry on Monday, January 5, when ConeZone pays the payroll.(c) Assume the company does not use reversing entries. Prepare the December 31 adjusting entry for service revenue, and the entry on Tuesday, January 6, when ConeZone receives the cash. (d) Assume the company does use reversing entries. Prepare the December 31 adjusting entry for service revenue, the January 1 reversing entry, and the entry on Tuesday, January 6, when ConeZone receives the cash.



financial accounting 7th edition

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