Practice Problems Flashcards
On January 1, 2015, Spencer Ltd. Paid $2,000 cash for equipment to be used in its operations. The equipment was delivered and placed in service on January 1, 2015 and has an expected life of five years. Choose the correct entry (if any) to be made on January 1, 2015.
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Debit: Equipment (+A) $2,000
Credit: Cash (-A) $2,000
Spencer Ltd. Has excess space in its warehouse that it rents out to another company, BTW Inc. On December 31, 2015, Spencer Ltd. Received a full year’s rent payment for $24,000 from BTW Inc. for the use of the warehouse space for the calendar year 2016. Choose the correct entry (if any) to be made by Spencer Ltd. On December 31, 2015.
Debit: Cash (+A) $24,000
Credit: Unearned Revenue (+L) $24,000
On January 1, 2015, Spencer Ltd. Borrowed $100,000 from a local financial institution. The note payable has an annual interest rate of 4%. Interest payments are made at the end of each quarter (that is, March 31st, June 30th, etc.). The note’s principal of $100,000 is to be repaid on January 1, 2016. Choose the correct entry (if any) to be made on January 1, 2015.
Debit: Cash (+A) $100,000
Credit: Note Payable (+L) $100,000
On April 1, 2015, Spencer Ltd. Purchased $43,000 of merchandise inventory from a wholesale distributor. Spencer Ltd. Intends to offer these items for sale to its customers. The merchandise was received on that date and would be paid for at the end of April 2015. Choose the correct entry (if any) to be made on April 1, 2015.
Debit: Merchandise Inventory (+A) $43,000
Credit: Accounts Payable (+L) $43,000
On June 23, 2015, Spencer Ltd. received cash payment of $17,000 from a customer for products that had been delivered to the customer in May 2015. It is common practice in Spencer Ltd.’s industry to allow customers to pay a month after delivery, so the delay in payment was not a reflection of the customer’s ability or willingness to pay for the products received. Choose the correct entry (if any) to be made on June 23, 2015.
Debit: Cash (+A) $17,000
Credit: Accounts Receivable (-A) $17,000
On April 17, 2015, Spencer Ltd. Received an order from a customer for a delivery to be made in May 2015. Spencer Ltd. The customer has agreed to pay Spencer Ltd. for the delivery in May 2015. The items will cost Spencer Ltd. $7,500 and the customer will pay $11,000 once the items are delivered. Choose the correct entry (if any) to be made on April 17, 2015.
No entry should be made at this time.
The company failed to record a dividend of $250,000 that was declared in 2014, but not been paid to shareholders as of December 31, 2014.
Debit: Retained earnings (-SE) $250,000
Credit: Dividends payable (+L) $250,000
Assets: No Effect Liabilities: Understated SE: Overstated Revenues: No Effect Expenses: No Effect Net Income: No Effect
On November 1, 2014, Bryant Company signed a 6-month, 6% (annual rate, or 0.5% per month) note payable to a bank and received $540,000 cash from the bank. Bryant Company neglected to record ANY entries relating to this note.
Debit: Cash (+A) $540,000
Credit: Note payable (+L) $540,000
Debit: Interest Expense (+E, -SE) $5,400
Credit: Interest payable (+L) $5,400
Assets: Understated Liabilities: Understated SE: Overstated Revenues: No Effect Expenses: Understated Net Income: Overstated
Rizzo, Inc. neglected to record the receipt of $12 million in cash on December 15, 2014 from the CEO’s brother in return for 15,000 shares of the company’s $2 par value stock.
Debit: Cash (+A) $12,000,000
Credit: Common Stock (+SE) $30,000
Credit: Additional paid-in capital (+SE) $11,970,000
Assets: Understated Liabilities: No Effect SE: Understated Revenues: No Effect Expenses: No Effect Net Income: No Effect
Schwarber Corporation neglected to record ANY journal entries relating to the purchase of one-year property insurance policy effective October 1, 2014 for $72,000. Schwarber paid the full amount of the annual premium at the inception of the policy.
Debit: Prepaid insurance (+A) $72,000
Credit: Cash (-A) $72,000
Debit: Insurance expense (+E, -SE) $18,000
Credit: Prepaid insurance (-A) $18,000
Assets: Overstated Liabilities: No Effect SE: Overstated Revenues: No Effect Expenses: Understated Net Income: Overstated
Arrieta Auto Sales neglected to record ANY entries relating to transactions involving six sport utility vehicles (SUVs) purchased for its inventory in November, 2014. The purchase price for each SUV was $22,000 and Arrieta Auto paid its supplier in cash. Four of the SUVs were sold to customers in December, 2014 at a price of $37,000. The remaining vehicles were still available for sale in the Arrieta Auto customer showroom at the end of December, 2014.
Record the purchase of inventory
Debit: Inventory (+A) $132,000
Credit: Cash (-A) $132,000
Record Revenue and Cost of Goods Sold from the sale of four SUVs
Debit: Cash (+A) $148,000
Credit: Sales (+R, +SE) $148,000
Debit: Cost of goods sold (+E, -SE) $88,000
Credit: Inventory (-A) $88,000
Assets: Understated Liabilities: No Effect SE: Understated Revenues: Understated Expenses: Understated Net Income:Understated
When multiple products or services are bundled and sold for one price, the revenue should be
Allocated among the different elements and recognized as each element is delivered to the customer.
If bad debts expense is determined by estimating uncollectible accounts receivable, the entry to record the write-off of a specific uncollectible account would decrease
allowance for uncollectible accounts
- If management intentionally underestimates bad debts expense, then net income is
overstated and assets are overstated.
You are given the following information from Spencer Ltd.'s Balance Sheet: (in millions) 2014 2013 Accounts Receivable 10,926 11,429 Less: Allowance for doubtful accounts 715.5 508.5 Accounts Receivable, Net of Allowance 10,210.5 10,920 During 2014, Spencer Ltd. reported revenues of $56,119.5 million. Assume Spencer Ltd. collected $56,236.5 million in cash from its customers during 2014. Determine the bad debts expense recognized by Spencer Ltd. in 2014.
BOY A/R, net of Allowance + Revenue – Cash Collections – EOY A/R, net of Allowance = Bad Debt Expense
$10,920 + $56,119.50 - $56,236.5 - $10,210.5 = $592.50
Analyzing changes in Retained Earnings
On December 31, 2015, the credit balances of the Common Stock and Retained Earnings accounts were $30,000 and $18,000, respectively, for Architect Services Company. Its stock issuances for 2016 totaled $6,000, and it declared and paid $9,700 toward dividends in 2016. For the year ended December 31, 2016, the company had net income of $29,900.
What was the balance of Retained Earnings on the December 31, 2016 Balance Sheet?
$38,200
Assume you are in the process of closing procedures for Echo Corporation. You have already closed all revenue and expense accounts to the Retained Earnings account. The total debits to Retained Earnings equal $308,800 and total credit to Retained Earnings equal $347,400. The Retained Earnings accounts had a credit balance of $99,000 at the start of this current year. Assume no dividends were declared during the period. What is the post-closing ending balance of Retained Earnings at the end of this current year?
a. $137,600
The Income Statement for the period December 31, 2016, for Smith Company is as follows:
Commissions Revenue $84,900 Expenses: Wages expense $36,000 Insurance expense $1,900 Utilities expense $8,200 Depreciation expense $9,800 Net Income $29,000 Prepare the closing entry:
Debit: Commissions Revenue $84,900 Credit: Wages expense $36,000 Credit: Insurance expense $1,900 Credit: Utilities expense $8,200 Credit: Depreciation expense $9,900 Credit: Retained Earnings $29,000
The Income Statement for the period December 31, 2016, for Smith Company is as follows:
Commissions Revenue $84,900 Expenses: Wages expense $36,000 Insurance expense $1,900 Utilities expense $8,200 Depreciation expense $9,800 Net Income $29,000
What is the ending balance of Retained Earnings as of December 31, 2016? The Balance in Retained Earnings as of December 31, 2014 was $72,100. Assume no dividends were declared during the period.
a. $101,100
Norton Company closes its accounts on December 31 each year. The company works a five-day work week and pays its employees every two weeks. On December 31, 2016, Norton accrued $4,700 of salaries payable. On January 7, 2017, the company paid salaries of $12,000 cash to employees.
Prepare a journal entry related to salaries for December 31, 2016.
a. Debit: Salaries expense $4,700
Credit: Salaries payable $4,700
