Tutorial Question 1

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Tutorial Question 1

Tutorial Question 1
Mona School of Business & Management (MSBM), University of the West Indies, Mona. – 1 – ACCT 1005 – FINANCIAL ACCOUNTING Worksheet 1 – Accounting & the Business Environment Lecture Problems Question 1 Jake’s Roasted Peanuts, a proprietorship, supplies snack foods. The business experienced the following events. State whether each event (1) increased, (2) decreased, or (3) had no effect on the total assets of the business. Identify any specific asset affected. a) Jake’s roasted Peanuts received a cash investment f rom the owner. b) Cash purchase of land for a building site. c) Paid cash on accounts payable d) Purchased equipment; signed a note payable in payme nt. e) Performed service for a customer on account. f) The owner withdrew cash from the business for perso nal use. g) Received cash from a customer on account receivable . h) Borrowed money from the bank. Question 2 Bob Grayson owns and operates an architectural firm called Grayson Architecture. The following amounts summarize the financial position of his bus iness on April 30, 20X7. ASSETS = LIABILITIES + OWNER’S EQUITY Cash + Accounts Receivable + Supplies + Land = Accounts Payable + Bob Grayson , Capital Bal. 1,720 3,240 24,100 5,400 23,660 During May 20X7 the following events occurred. a. Grayson received $12,000 as a gift and deposited th e cash in the business bank account. b. Paid off the beginning balance on accounts payable. c. Performed services for a client and received cash o f $1,100, d. Collected cash from a customer on account, $750. e. Purchased supplies on account, $720. f. Consulted on the interior design of a building and billed the client for services rendered, $5,000 on account. g. Invested personal cash of $1,700 in the business. h. Recorded the following business expenses for the mo nth: i. Paid office rent, $1,200 ii. Paid advertising, $600 i. Sold supplies to another interior designer for $80 cash, which was the cost of the supplies. j. Withdrew cash of $2,400 for personal use. Required: Analyze the effects of the preceding transactions o n the accounting equation of Grayson Architecture. UNIVERSITY OF THE WEST INDIES Mona School of Business & Management Mona School of Business & Management (MSBM), University of the West Indies, Mona. – 2 – Lecture Case Study Matthew is a first year financial accounting student at UWI, Mona who decided to open an apartment-locatio n business near the campus. He is the sole owner of t he business, which he names Campus Apartment Locato rs. With regards to preparing his financial statements, Matth ew secured the services of a first year accounting student Sheila to take him through the elements of the accounting cycle and all that he will need to learn about basic accounting. Sheila explained an expanded version of the cycle as f ollows: Having explained this, she further went on to demonst rate how his events/activities of his business will affect his investment of capital in the business (owner’s equi ty/capital). Matthew’s owner’s equity increases Matthew ’s owner’s equity decreases Refer to Question 2 Grayson Architecture. i) Assuming that there are no adjusting entries, use t he explanation given by Sheila to complete steps 2, 3, 4 an 7 of the cycle for Grayson Architecture. ii) Prepare the income statement of Grayson Architectur e for the month ended May 31, 20X7. List expenses in decreasing order by amount. iii) Prepare the statement of owner’s equity for Grayson Architecture for the month ended May 31, 20X7. iv) Prepare the balance sheet for Grayson Architecture at May 31, 20X7. 1. Analyze business transacti ons 2. Journalize the transactions 3. Post to the ledger accounts 4. Prepare an unadjusted trial balance 5. Journalize and post adjusting entries 6. Prepare an adjusted trial balance 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post closing trial balance Worksheet Optional Matthew’s investments in business Revenues Owner’s Equity Matthew’s withdrawals from business Expenses Mona School of Business & Management (MSBM), University of the West Indies, Mona. – 3 – Tutorial Questions Question 1 Abraham Woody practiced accounting with a partnersh ip for 5 years. Recently he opened his own accounting firm, which he operates as a proprietors hip. The name of the entity is Abraham Woody, CPA. Woody experienced the following events during the o rganizing phase of his new business and its first month of operations. Some of the events were person al and did not affect the business. Feb. 4 5 6 7 10 11 12 18 25 28 Received $75,000 cash from former accounting partne rs . Deposited $60,000 cash in a new business bank account titled Abraham Woody, CPA Paid $300 cash for letterhead stationery for the ne w office. Purchased office furniture for the office. Woody a greed to pay the account payable, $7,000, within three months. Sold personal investment in Amazon.com stock, which he had owned for several years, receiving $50,000. Deposited the $50,000 cash from sale of the Amazon stock in his personal bank account. A representative of a large company telephoned Wood y and told him of the company’s intention to transfer its accounting business to Wo ody. Finished tax hearing on behalf of a client and subm itted a bill for accounting services, $5,000. Woody expected to collect from this client within t wo weeks. Paid office rent $1,000. Withdrew $3,000 cash from the business for personal use. Required: 1. Analyze the effects of the preceding events on the accounting equation of the proprietorship of Abraham Woody, CPA. 2. At February 28, compute: a) Total assets b) Total liabilities c) Total owner’s equity d) Net income or net loss for February. Question 2 i) Sherman Lawn Service has been opened for one year a nd Haig Sherman, the owner, wants to know whether the business earned a net inc ome or a net loss for the period. First, he must identify the revenues earned and the expenses incurred during the year. What are revenues and expenses ? ii) Compute the missing amount for Jupiter. You will ne ed to prepare a statement of owner’s equity. Jupiter Company Beginning: Assets Liabilities $50,000 20,000 Mona School of Business & Management (MSBM), University of the West Indies, Mona. – 4 – Ending: Assets Liabilities Owner’s Equity: Investments by owner Withdrawals by owner Income Statement: Revenues Expenses $70,000 30,000 $ 0 45,000 $230,000 ? Did Jupiter earn a net income or suffer a net loss for the year? Compute the amount. Question 3 Presented here are (a) the assets and liabilities o f Gotcha Covered Security Systems at December 31, 2 0X7, and (b) the revenues and expenses of the business f or the year ended on that date. Land Note payable Property tax expense Rent expense Salary expense Salary payable Service revenue Supplies $60,000 35,000 4,000 23,000 63,000 1,000 189,000 3,000 Accounts payable Accounts receivable Advertising expense Building Cash Equipment Insurance expense Interest expense $19,000 12,000 13,000 131,000 14,000 20,000 2,000 9,000 The capital balance of Andrew Stryker, the owner, w as $150,000 at December 31, 20X6. During 20X7, Stryker withdrew $40,000 for personal use. Required: i) Prepare Gotcha Covered income statement for the yea r ended December 31, 20X7. ii) Prepare the statement of owner’s equity for the yea r ended December 31, 20X7. iii) Prepare the balance sheet as at December 31, 20X7. iv) Answer these questions about the business. a) Was the result of the operations for the year a pro fit or loss? How much? b) How much in total economic resources does the busin ess have as it moves into the New Year? How much does the business owe? What is the d ollar amount of Gotcha’s equity interest in the business at the end of the year? Practice Questions Question 1 (E1-23) The analysis of Roundtree TV Service’s first eight transactions follows. The owner of the business mad e only one investment to start the business and made no withdrawals. Cash + Accounts + Receivable Equipment = Accounts Payable + Owner Capital 1. +25, 000 +25, 000 2. +2,4 00 +2,4 00 3. +10 ,000 +10 ,000 4. +150 -150 5. -400 +400 6. -8,000 -8,000 7. +900 +900 8. -2,000 -2,00 0 Mona School of Business & Management (MSBM), University of the West Indies, Mona. – 5 – a) Describe each transaction b) If these transactions fully describe the operation of Roundtree TV Service during the month, what was the amount of net income or net loss? Question 2 (E1-25) Selected assets, liabilities, owner’s equity, reven ues and expenses of Ciliotta Design Studio at Decem ber 31, 20X7, the end of its first year of operation, h ave the following balances. During the year, J. Cil iotta, the owner, invested $15,000 in the business. Note payable Rent expense Cash Office Supplies Salary expense Salaries payable Property tax expense $41,000 24,000 3,600 4,800 60,000 2,000 1,200 Office furniture Utilities expense Accounts payable J. Ciliotta, capital Service revenue Accounts receivable Supplies expense $45,000 6,800 3,300 27,100 158,100 9,000 4,000 Required: i) Prepare the income statement of Ciliotta Design Stu dio for the year ended December 31, 20X7 ii) What was the amount of the proprietor’s withdrawals during the year? Question 3 (P1-32A) The bookkeeper of Lone Star Landscaping prepared th e balance sheet of the business while the accountant was ill. The balance sheet contains nume rous errors. In particular, the bookkeeper knew that the balance sheet should balance, so he plugged in the owner’s equity amount needed to achieve this balance. The owner’s equity amount, therefore, is i ncorrect. All other amounts are accurate, but some are out of place. LONE STAR LANDSCAPING Balance Sheet Month Ended July 31, 20X8 Assets Liabilities Cash Office Supplies Land Salary Expense Office Furniture Note Payable Rent Expense Total assets $4,000 1,000 50,000 2,500 16,000 36,000 2,500 $112,000 Accounts Receivable Service Revenue Property Tax Expense Accounts Payable $23,000 73,500 800 8,000 Owner’s Equity Owner’s equity Total Liabilities & OE 6,700 $112,000 Required: Prepare the corrected balance sheet and date it correctly. Compute total assets, total liabilities and owner’s equity. End of worksheet # 1

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