Practice Problems
| Site: | Saylor Academy |
| Course: | BUS103: Introduction to Financial Accounting |
| Book: | Practice Problems |
| Printed by: | Guest user |
| Date: | Friday, April 19, 2024, 9:04 AM |
Description
Complete these practice problems. Check your answers after you finish.
Demonstration problem
Among other items, the trial balance of Korman Company for 2010 December 31, includes the following account balances:
| Debits |
Credits | |
| Supplies on Hand | $6,000 | |
| Prepaid Rent | 25,200 | |
| Buildings | 200,000 | |
| Accumulated Depreciation – Buildings | $33,250 | |
| Salaries Expense | 124,000 | |
| Unearned Delivery Fees |
4,000 |
Some of the supplies represented by the USD 6,000 balance of the Supplies on Hand account have been consumed. An inventory count of the supplies actually on hand at December 31 totaled USD 2,400.
On May 1 of the current year, a rental payment of USD 25,200 was made for 12 months' rent; it was debited to Prepaid Rent.
The annual depreciation for the buildings is based on the cost shown in the Buildings account less an estimated residual value of USD 10,000. The estimated useful lives of the buildings are 40 years each.
The salaries expense of USD 124,000 does not include USD 6,000 of unpaid salaries earned since the last payday.
The company has earned one-fourth of the unearned delivery fees by December 31.
Delivery services of USD 600 were performed for a customer, but a bill has not yet been sent.
a. Prepare the adjusting journal entries for December 31, assuming adjusting entries are prepared only at year-end.
b. Based on the adjusted balance shown in the Accumulated Depreciation – Buildings account, how many years has Korman Company owned the building?
Source: Textbook Equity, https://learn.saylor.org/pluginfile.php/41229/mod_resource/content/8/AccountingPrinciples.pdf
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License.
Solution to demonstration problems
| Date | Account Titles and Explanation | Post. Ref. |
Debit | Credit | |||||||||||||
| 2010 Dec. | 31 | Supplies Expense | 3 | 6 | 0 | 0 | |||||||||||
| Supplies on Hand | 3 | 6 | 0 | 0 | |||||||||||||
| To record supplies expense ($6,000 - $2,400). | |||||||||||||||||
| 31 | Rent Expense |
1 |
6 | 8 |
0 | 0 | |||||||||||
| Prepaid Rent | 1 | 6 | 8 | 0 | 0 | ||||||||||||
| To record rent expense ($25,200 X 8/12). | |||||||||||||||||
| 31 | Depreciation Expense – Buildings | 4 | 7 | 5 | 0 | ||||||||||||
| Accumulated Deprecation – Buildings | 4 | 7 | 5 | 0 | |||||||||||||
| To record depreciation ($200,000 - $10,000 / 40 years). | |||||||||||||||||
| 31 | Salaries Expense | 6 | 0 | 0 | 0 | ||||||||||||
| Salaries Payable | 6 | 0 | 0 | 0 | |||||||||||||
| To record accrued salaries. | |||||||||||||||||
| 31 | Unearned Delivery Fees | 1 | 0 | 0 | 0 | ||||||||||||
| Service Revenue | 1 | 0 | 0 | 0 | |||||||||||||
| To record delivery fees earned. | |||||||||||||||||
| 31 | Accounts Receivable | 6 | 0 | 0 | |||||||||||||
| Service Revenue | 6 | 0 | 0 | ||||||||||||||
| To record delivery fees earned. | |||||||||||||||||
Eight years; computed as:
Self-test
True-false
- Every adjusting entry affects at least one income statement account and one balance sheet account.
- All calendar years are also fiscal years, but not all fiscal years are calendar years.
- The accumulated depreciation account is an asset account that shows the amount of depreciation for the current year only.
- The Unearned Delivery Fees account is a revenue account.
- If all of the adjusting entries are not made, the financial statements are incorrect.
Multiple-choice
Select the best answer for each of the following questions.
1. An insurance policy premium of USD 1,200 was paid on 2010 September
1, to cover a one-year period from that date. An asset was debited on
that date. Adjusting entries are prepared once a year, at year-end. The
necessary adjusting entry at the company’s year-end, 2010 December 31,
is:
Insurance expense 400
Prepaid insurance 800
c. Prepaid insurance 800Insurance expense 800
d. Insurance expense 400Prepaid insurance 400
2. The Supplies on Hand account has a balance of USD 1,500 at year-end. The actual amount of supplies on hand at the end of the period was USD 400. The necessary adjusting entry is:
a. Supplies expense 1,100Supplies on hand 1,100
b. Supplies expense 400Supplies on hand 400
c. Supplies on hand 1,100Supplies expense 1,100
d. Supplies on hand 400Supplies expense 400
3. A company purchased a truck for USD 20,000 on 2010 January 1. The truck has an estimated residual value of USD 5,000 and is expected to last five years. Adjusting entries are prepared only at year-end. The necessary adjusting entry at 2010 December 31, the company’s year-end, is:
a. Deprecation expense – Trucks 4,000Accumulated 4,000
b. Deprecation expense – Trucks 3,000Trucks 3,000
c. Deprecation expense – Trucks 3,000Accumulated deprecation – Trucks 3,000
d. Accumulated deprecation trucks 3,000Deprecation expense – Trucks 3,000
4. A company received cash of USD 24,000 on 2010 October 1, as subscriptions for a one-year period from that date. A liability account was credited when the cash was received. The magazine is to be published by the company and delivered to subscribers each month. The company prepares adjusting entries at the end of each month because it prepares financial statements each month. The adjusting entry the company would make at the end of each of the next 12 months would be:
a. Unearned subscription fees 6,000Subscription fee revenue 6,000
b. Unearned subscription fees 2,000Subscription fee revenue 2,000
c. Unearned subscription feeds 18,000Subscription fee revenue 18,000
d. Subscription fee revenue 2,000Unearned subscription fees 2,000
5. When a company earns interest on a note receivable or on a bank account, the debit and credit are as follows:
| Debit | Credit |
|
| a. | Accounts receivable | Interest revenue |
| b. | Interest receivable | Interest revenue |
| c. | Interest revenue | Accounts receivable |
| d. | Interest revenue | Interest receivable |
6. If USD 3,000 has been earned by a company’s workers since the last payday in an accounting period, the necessary adjusting entry would be:
a. Debit an expense and credit a liability.
b. Debit an expense and credit an asset.
c. Debit a liability and credit an asset.
d. Debit a liability and credit an expense.
Answers to self-test
True-false
- True.
Every adjusting entry involves either moving previously recorded data
from an asset account to an expense account or from a liability account
to a revenue account (or in the opposite direction) or simultaneously
entering new data in an asset account and a revenue account or in a
liability account and an expense account.
- True. A fiscal year is any 12 consecutive months, so
all calendar years are also fiscal years. A calendar year, however,
must end on December 31, so it does not include fiscal years that end on
any date other than December 31 (such as June 30).
- False. The accumulated depreciation account is a contra asset that shows the total of all depreciation recorded on an asset from its acquisition date up through the balance sheet date.
- False. The Unearned Delivery Fees account is a
liability. As the fees are earned, the amount in that account is
transferred to a revenue account.
- True. If an adjusting entry is overlooked and not made, at least one income statement account and one balance sheet account will be incorrect.
Multiple-choice
1. d. One-third of the benefits have expired. Therefore, USD 400 must be moved from the asset (credit) to an expense (debit).
2. a. USD 1,100 of the supplies have been used, so that amount must be moved from the asset (credit) to an expense (debit).
3. c. The amount of annual depreciation is determined as (USD 20,000 – USD 5,000) divided by 5 = USD 3,000. The debit is to Depreciation Expense – Trucks, and the credit is to Accumulated Depreciation – Trucks, a contra asset account.
4. b. Each month USD 2,000 would be transferred from
the liability account (debit), Unearned Subscription Fees, to a revenue
account (credit).
5. b. An asset, Interest Receivable, is debited, and Interest Revenue is credited.
6. a. The debit would be to Salaries Expense, and the credit would be to Salaries Payable.