Practice Problems

Site: Saylor Academy
Course: BUS103: Introduction to Financial Accounting
Book: Practice Problems
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Date: Thursday, June 20, 2024, 5:36 AM

Description

Complete these practice problems. Check your answers after you finish.

Demonstration problem

This problem involves using a work sheet for Green Hills Riding Stable, Incorporated, for the month ended 2010 July 31, and performing the closing process. The trial balance for Green Hills Riding Stable, Incorporated, as of 2010 July 31, was as follows:

GREEN HILLS RIDING STABLE, INCORPORATED

Trial Balance

2010 July 31

Acct.
No.
Account Title Debits Credits
100 Cash $ 10,700
103 Accounts Receivable 8,100
130 Land 40,000
140 Buildings 24,000
200 Accounts Payable $ 1,100
201 Notes Payable 40,000
300 Capital Stock 35,000
310 Retained Earnings, 2010 July 1 3,100
320 Dividends 1,000
402 Horse Boarding Fees Revenue 4,500
404 Riding Lesson Fees Revenue 3,600
507 Salaries Expense 1,400
513 Feed Expense 1,100
540 Interest Expense 200
568 Miscellaneous Expense 800
$ 87,300 87,300

Depreciation expense for the month is USD 200. Accrued salaries on July 31 are USD 300.

a. Prepare a 12-column work sheet for the month ended 2010 July 31.

b. Journalize the adjusting entries.

c. Journalize the closing entries.


Source: Textbook Equity, https://learn.saylor.org/pluginfile.php/41229/mod_resource/content/8/AccountingPrinciples.pdf
Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License.

Solution to demonstration problem

a. See the work sheet below.

GREEN HILLS RIDING STABLE, INCORPORATE

Work Sheet

For the Month Ended 2010 July 31

Acct. Account Titles Trial Balance Adjustments Adjusted Balance Income Statement Statement of Retained Earnings Balance Sheet
No. Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
100 Cash 10,700 10,700 10,700
103 Accounts Receivable S,100 3,100 S,100
130 Land 40,000 40,000 40,000
140 Buildings 24,000 24,000 24,000
200 Accounts Payable 1,100 1,100 1,100
201 Notes Payable 40,000 40,000 40,000
300 Capital Stock 35,000 35,000 35,000
310 Retained Earnings 2010 July 1 3,100 3,100 3,100
320 Dividends 1,000 1,000 1,000
402 Horse Boarding Fees Revenue 4,500 4,500 4,500
404 Riding and Lesson Fees Revenue 3,500 3,600 3,600
507 Salaries Expense 1,400 (2) 300 1,700 1,700
513 Feed Expense 1,100 1,100 1,100
540 Interest Expense 200 200 200
563 Miscellaneous
Expense
300
87,300

37,300
SOO SOO
520 Depreciation Expense Buildings (1) 200 200 200
141 Accumulated Depreciation Buildings (1) 200 200 200
206 Salaries Payable

EOO
(2) 300
5oo


87,500
300

37,300
300
Net Income 4,000
4,100
8,100


4,100
Retained Earnings, 2010 July 31 8,100 8,100 1,000 7,200 82,300 76,600



6,200
7,200

7,200

S2,S00
6,200
32,800

b.

GREEN HILLS RIDING STABLE, INCORPORATED

General Journal

Date
Account Titles and Explanation Post.
Ref.
Debt Credit
2010
Adjusting Entries
July
31 Depredation Expense Buildings (-SE) 520 200
Accumulated Depreciation Buildings (-A) 141 200
To record depreciation expense.

31 Salaries Expense (-SE) 507 300


Salaries Payable (+L)
206

300


To record accrued salaries.



c.

GREEN HILLS RIDING STABLE, INCORPORATED

General Journal

Date Account Titles and Explanation
Post.
Ref.
Debt Credit
2010 Closing Entries
July 31 Horse Boarding Fees Revenue 402 4500
Riding Lesson Fees Revenue
404 3600
Income Summary 600 8100
To close revenue accounts.
31 Income Summary 600 4000
Salaries Expense 507 1700
Feed Expense 513 1100
Interest Expense 540 200
Miscellaneous Expense 568 800
Depreciation Expense – Buildings 520 200
To close expense accounts.






31 Income Summary 600 4100
Retained Earnings 310 4100
To close Income Summary account.
31 Retained Earnings 310 1000
Dividends 320 1000
To close dividends account.

Self-test

True-false

Indicate whether each of the following statements is true or false.

  1. At the end of the accounting period, three trial balances are prepared.
  2. The amounts in the Adjustments columns are always added to the amounts in the Trial Balance columns to determine the amounts in the Adjusted Trial Balance columns.
  3. If a net loss occurs, it appears in the Income Statement credit column and Statement of Retained Earnings debit column.
  4. After the closing process is complete, no balance can exist in any revenue, expense, Dividends, or Income Summary account.
  5. The post-closing trial balance may contain revenue and expense accounts.
  6. All accounting systems currently in use are computerized.

Multiple-choice

Select the best answer for each of the following questions.

1. Which of the following accounts is least likely to be adjusted on the work sheet?

a. Supplies on Hand.

b. Land.

c. Prepaid Rent.

d. Unearned Delivery Fees.


2. If the Balance Sheet columns do not balance, the error is most likely to exist in the:

a. General journal.

b. General ledger.

c. Last six columns of the work sheet.

d. First six columns of the work sheet.


3. Net income for a period appears in all but which one of the following?

a. Income Statement debit column of the work sheet.

b. Statement of Retained Earnings credit column of the work sheet.

c. Statement of retained earnings.

d. Balance sheet.


4. Which of the following statements is false regarding the closing process?

a. The Dividends account is closed to Income Summary.

b. The closing of expense accounts results in a debit to Income Summary.

c. The closing of revenues results in a credit to Income Summary.

d. The Income Summary account is closed to the Retained Earnings account.


5. Which of the following statements is true regarding the classified balance sheet?

a. Current assets include cash, accounts receivable, and equipment.

b. Plant, property, and equipment is one category of long-term assets.

c. Current liabilities include accounts payable, salaries payable, and notes receivable.

d. Stockholders' equity is subdivided into current and long-term categories.

Answers to self-test

True-false Answers

  1. True. The three trial balances are the unadjusted trial balance, the adjusted trial balance, and the post-closing trial balance. The first two trial balances appear on the work sheet.
  2. False. If a debit-balance account (such as Prepaid Rent) is credited in the adjustment, the amount in the Adjustments columns is deducted from the amount in the Trial Balance columns to determine the amount for that item in the Adjusted Trial Balance columns.
  3. True. The net loss appears in the Income Statement credit column to balance the Income Statement columns. Then the loss appears in the Statement of Retained Earnings debit column because it reduces Retained Earnings.
  4. True. All of these accounts are closed, or reduced to zero balances, as a result of the closing process.
  5. False. All revenue and expense accounts have zero balances after closing.
  6. False. Some manual accounting systems are still in use.

Multiple-choice Answers

1. b. The other accounts are very likely to be adjusted. The Land account would be adjusted only if an error has been made involving that account.

2. c. The Adjusted Trial Balance columns should balance before items are spread to the Income Statement, Statement of Retained Earnings, and Balance Sheet columns. Therefore, if the Balance Sheet columns do not balance, the error is likely to exist in the last six columns of the work sheet.

3. d. The net income for the period does not appear in the balance sheet. It does appear in all of the other places listed.

4. a. The Dividends account is closed to the Retained Earnings account rather than to the Income Summary account.

5. b. Plant, property, and equipment is one of the long-term asset categories. Response (a) should not include equipment. Response (c) should not include notes receivable. Stockholders' equity is not subdivided into current and long-term categories.