Individual Post Course Accounting EMBA Assignment, March 2020

This accounting assignment solution addresses various aspects of financial accounting, including journal entries, revenue recognition, adjusting entries, and the statement of cash flows. The solution includes detailed journal entries for various transactions, such as investments, purchases, loans, and sales. It also covers the identification and recognition of revenues, the preparation of adjusting entries for accrued and deferred items, and the calculation of dividends and stock issuances. Furthermore, the solution presents a statement of cash flows using the indirect method, along with the calculation of free cash flow and changes in cash. Additional topics covered include the journalizing of sales transactions, the determination of the effects of transactions on financial statement components, and the recording of bad debt expense using the aging analysis method. Finally, the solution also addresses the calculation of missing amounts in an income statement.

Individual Post Course Assignment
Course: Accounting EMBA 2019 / 2020
Date: March 2020
Total Points: 240
Name:
Part 1 – INDIVIDUAL QUESTIONS
1. Journalizing transactions (10 points)
The following events occurred for Morgan Company:
a. Received investment of $52,000 cash by organizers and distributed stock to them.
b . Purchased $18,000 of land; paid $3,000 in cash and signed a mortgage note for the balance.
c. Purchased $4,000 of equipment, paying $500 in cash and signing a note for the rest.
d. Borrowed $10,000 cash from a bank.
e. Loaned $700 to an employee who signed a note.
Prepare journal entries.
Event Particulars Debit ($) Credit ($)
A Cash $52,000
Contributed Capital $52,000
(Cash received and distributed as
stock)
B Land $18,000
Cash $3,000
Mortgage Payable $15,000
(Purchased land for cash and
credit)
C Equipment $4,000
Cash $500
Note Payable $3,500
(Equipment Purchased on cash and
credit)
D Cash $10,000
1

Loan Payable $10,000
(Loan taken in business)
E Loan receivable $700
Cash $700
(Loan given to employee)
2. Identifying Revenues. (13 points)
The following transactions occur in June 2019:
a. A popular food magazine company receives a total of $14,980 from subscribers. The subscriptions
begin in the next fiscal year. Answer from the magazine company’s standpoint.
b. On June 1, 2019, a bank lends $2,400 to a company; the note principal and $384 ($2,400 x 16 percent)
annual interest are due in one year. Answer from the bank’s standpoint.
c. Honda, Inc., sells a truck with a list, or “sticker,” price of $27,089 for $21,559 cash.
d. Taryt department store orders 1,000 boy’s shirts for $12 each for future delivery from T-shirt World
Corporation. The terms require payment in full within 30 days of delivery. Answer from T-shirt World’s
standpoint.
e. T-shirt World Corporation completes production of the shirts described in (d) and delivers the order.
Answer from T-shirt World’s standpoint.
f. T-shirt World Corporation receives payment from Taryt’s for the order described in (d). Answer from T-
shirt World’s standpoint.
g. A customer purchases a ticket from United Airlines for $322 cash to travel the following January.
Answer from United Airlines’ standpoint.
h. BMW issues $20 million in new common stock.
i. University of Miami receives $18,300,000 cash for 60,000 twelve-game season football tickets.
j. University of Miami plays the first football game referred to in (i).
k. Precision Builders signs a contract with a customer for the construction of a new $500,000 warehouse.
At the signing, Precision receives a check for $150,000 as a deposit on the future construction. Answer
from Precision’s standpoint.
l. A customer orders and receives 72 MP3 players from Best Buy; the customer promises to pay $9,000
within three months. Answer from Best Buy’s standpoint.
m. Delights, a retail store, sells a $45 lamp to a customer who charges the sale on his store credit card.
Answer from Delights’ standpoint.
For each of the transactions, if revenue is to be recognized in June, indicate the revenue account title and
amount. If revenue is not to be recognized in June, explain why.
a Not recognised as the revenue is not related to the current year and relates to a future
period
b Not recognised as the revenue is not related to the current year and relates to a future
period
c Yes. Sales Revenue a/c
d No. As the service has not been completed yet
e Yes. Sales Revenue a/c
f Yes. Sales Revenue a/c
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g Not recognised as the revenue is not related to the current year and relates to a future
period
h Yes. Common stock a/c
i Not recognised as the revenue is not related to the current year and relates to a future
period
j Yes. Ticket revenue a/c
k No. As the service has not been completed yet
l Yes. Sales Revenue a/c
m Yes. Sales Revenue a/c
3. Recording Adjusting Entries (10 points)
Lamar Marina repairs, stores, and cleans boats for customers. It is completing the accounting
process for the year just ended, November 30, 2019. The transactions during 2019 have been
journalized and posted. The following data with respect to adjusting entries are available:
a. Lamar borrowed $325,000 at a 12 percent annual interest rate on April 1, 2019, to expand its
boat
storage facility. The loan requires Lamar’s to pay the interest quarterly until the note is repaid in
three years. Lamar paid quarterly interest on July 1 and October 1.
b. The Young family paid Lamar $3,240 on November 1, 2019, to store its sailboat for the winter
until May 1, 2020. Lamar credited the full amount to Unearned Storage Revenue on November 1.
c. Lamar used boat-lifting equipment that cost $250,000; $25,000 was the estimated depreciation
for 2019.
d. Boat repair supplies on hand at December 1, 2018, totaled $17,500. Repair supplies purchased
and debited to Supplies during the year amounted to $44,000. The year-end count showed $10,400
of the supplies on hand.
e. Wages earned by employees during November 2019, unpaid and unrecorded at November 30,
2019, amounted to $3,950. The next payroll date will be December 5, 2019.
1. Identify each of these transactions as a deferred revenue, deferred expense, accrued revenue, or
accrued expense.
2. Prepare the adjusting entries that should be recorded for Lamar at November 30, 2019.
Event
a Deferred Expense
b Deferred Revenue
c Deferred Expense
d Accrued Expense
e Accrued Expense
Event Particulars Debit Credit
3

A Interest Expense 6500
Interest Payable 6500
(Interest accrued for October and November)
b Unearned Revenue 540
Service Revenue 540
(Revenue recorded for November)
c Depreciation 25000
Accumulated Depreciation 25000
(Depreciation added to accumulated
depreciation)
d Supplies Expense 51100
Supplies 51100
(Supplies used during the year)
e Wages expense 3950
Wages Payable 3950
(Wages earned but not paid during the year)
4

4. Inferring Stock Issuances and Cash Dividends from Changes in Stockholders’ Equity (6 points)
The Corner Co. is a large retailer that processes food. Corner reported the following January 31
balances in its stockholders’ equity accounts (dollars in millions):
Current Year Prior Year
Common stock $ 925 $ 919
Paid-in capital 3,366 3,231
Retained earnings 8,489 5,480
During the current year, Corner reported net income of $3,249.
1. How much did Corner declare in dividends for the year?
2. Assume that the only other transaction that affected stockholders’ equity during the current year
was a single stock issuance. Recreate the journal entry reflecting the stock issuance.
1 Particulars Amount Amount
Net Income during the year 3249
Change in retained earnings during the
year
3009
Dividends Declared during the year 240
2 Cash 141
Common Stock 6
Paid-in-capital 135
(Additional Stock issued during the year)
5

5. Preparing a Simple Statement of Cash Flows Using the Indirect Method (16 points)
Nancy & Donald Corp. is preparing its annual financial statements as of December 31,
2019. Listed below are Balance Sheets for 2019 and 2018 as well as the Income
Statement for 2019. Cash Flow statement is missing.
Balance Sheets 2018 2019 Income Statement 2019
$ in millions $ in millions
Assets Net revenues 610
Cash 25 55 COGS 280
Accounts receivable 160 130 Depreciation expense 50
Prepaid Expense 10 30 Earnings before interest
Inventory 220 285 and taxes (EBIT) 280
Total Current Assets 415 500 Interest expense 20
Profit before tax 260
Net PP&E 485 600 Taxes paid 60
Total Assets 900 1100 Net income 200
Liabilities and equity Dividends declared and paid 100
Accounts payable 50 80
Notes payable 70 85
Other short term debt 40 55
Total Current Liabilities 160 220
Long-term debt 105 125
Shareholders’ equity
Common stock 240 260
Retained earnings 395 495
Total Shareholder's Equity 635 755
Total liabilities and equity 900 1100
A. Prepare (show the “waterfall”) the 2019 statement of cash flows for Nancy &
Donald Corp. (10 points)
B. What is the amount of cash flow from Operations for 2019 ? (2 points)
C. What is the amount of Free Cash Flow for 2019 ? (2 points)
D. What is the change in cash for 2019 ? (2 points)
6

Cash Flow Using Indirect Method:
Particulars Amount Amount
Net Income 200
Adjustments to reconcile net income to
Net cash provided by operating expenses:
Depreciation expense 50
(Increase) decrease in assets:
Decrease in accounts receivable 30
Increase in prepaid expense -20
Increase in Inventory -65
Increase (decrease) in liabilities:
Increase in Accounts Payable 30
Increase in Notes Payable 15
Increase in other short term debt 15
Increase in Long-term debt 20
Net cash provided by operating activities 275
Cash flow from investing activities:
Increase in Plant, Property and Equipment -165
Cash flow from financing activities:
Issue of common stock 20
Dividends paid during the year -100 -80
Cash at beginning 25
Changes in Cash 30
Cash at End 55
2. The cash flow from operations for the year is $275 million.
3. The amount of free cash flow for the year is $55 million.
4. The change in cash for the year is $30 million.
7

6. On March 3, 2019, Gooddeal.com sold merchandise for $2,500, terms 2/10 n/30. Prepare the
journal entry. This merchandise originally cost $2,000. (5 points)
Debit and credit the accounts affected
Mar. 3 Accounts Receivable $2500
Sales Revenue $2500
Cost of Goods Sold $2000
Inventory $2000
On March 6, 2019, the customer returned $1,250 (or one-half) of the merchandise that
was purchased back on March 3. Prepare the journal entry. (5 points)
Debit and credit the accounts affected
Mar. 6 Sales returns and allowances $1,250
Accounts Receivable $1,250
Inventory $1,000
Cost of Goods Sold $1,000
The customer paid for the merchandise on March 8, 2019, taking advantage of the
permitted discount. Prepare the journal entry. (3 points)
Debit and credit the accounts affected
Mar. 8 Cash $1,225
Sales Discount $25
Accounts receivable $1,250
8

7. Determine the effect of the following transactions on the identified financial statement
components and ratios. (8 points)
Code your answers as follows:
I: If the transaction results in an increase in the financial statement component or ratio.
D: If the transaction results in a decrease in the financial statement component or ratio.
N: If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company issued common stock at a price in excess of par value.
Revenues ___N__
Assets ____N_
Stockholders' equity __I___
Return on assets ratio __D___
Transaction 2: A company recorded depreciation expense at year-end.
Net income _____D
Assets _____D
Stockholders' equity __N___
Total asset turnover ratio _I____
8. Recording and Reporting a Bad Debt Estimate Using Aging Analysis (6 points).
Columbia Company uses the aging approach to estimate bad debt expense. The balance of each
account receivable is aged on the basis of three time periods as follows:
(1) not yet due, $65,000,
(2) up to 180 days past due, $17,000, and
(3) more than 180 days past due, $6,000.
Experience has shown that for each age group, the average loss rate on the amount of the
receivables at year-end due to uncollectability is (1) 3 percent, (2) 12 percent, and (3) 32 percent,
respectively. At December 31, 2019 (end of the current year), the Allowance for Doubtful
Accounts balance is $300 (credit) before the end-of-period adjusting entry is made.
1. Prepare the appropriate bad debt expense adjusting entry for the year 2019.
2. Show how the various accounts related to accounts receivable should be shown on the
December 31, 2019, balance sheet.
9

1 Date Particulars Debit Credit
31-12-
19
Bad Debt expense 5910
Allowance for doubtful debts 5910
2 Accounts Receivable 88000
Less: Allowance for doubtful debts 5910
Accounts Receivable, net of allowance for doubtful
debts
82090
9. Inferring Missing Amounts Based on Income Statement Relationships (10 points)
Supply the missing dollar amounts for the income statement for each of the following independent
cases:
Case Sales
Revenue
Beg.
Inven-
tory
Pur-
chases
Total
Avail-
able
Ending
Inventory
Cost of
Goods
Sold
Gross
Profit
Ex-
penses
Pretax
Income
or
(Loss)
A $ 655 $115 $800 ? $400 ? ? $130 ?
B 1,300 250 900 ? ? ? ? 150 300
C ? 105 ? ? 300 155 445 125 ?
D 1,800 ? 550 ? 300 ? ? 300 1,000
E 1,200 ? 1,000 1,200 ? ? 500 ? (75)
Case Sales Revenue
Beg.
Inven-
tory
Pur-
chases
Total
Avail-
able
Ending
Inventory
Cost of
Goods
Sold
Gross
Profit
Ex-
penses
Pretax
Income
or
(Loss)
A $655 $115 $800 $915 $400 $515 $140 $130 $10
B 1,300 250 900 $1,150 $300 850 450 150 300
C 600 105 350 $455 300 155 445 125 320
D 1,800 250 550 $800 300 500 1,300 300 1,000
E 1,200 200 1,000 1,200 500 700 500 575 -75
10. Reporting Inventory at Lower of Cost or Market (5 points)
Vargas Company is preparing the annual financial statements dated December 31, 2019. Ending
inventory information about the five major items stocked for regular sale follows:
10

Ending Inventory 2019
Item Quantity Unit Cost When Acquired
(FIFO)
Replacement Cost
Market at Year end
A 57 $16 $13
B 87 31 45
C 17 49 53
D 77 26 31
E 357 11 6
Compute the valuation that should be used for the 2019 ending inventory using the LCM rule
applied
on an item-by-item basis. (Hint: Set up columns for Item, Quantity, Total Cost, Total Market, and
LCM Valuation.)
Replacement Cost
Market at Year end
Valuation for
2019
Item Quantity Unit Cost When Acquired (FIFO)
A 57 $ 16 $
13
$
13
B 87 $ 31 $
45
$
31
C 17 $ 49 $
53
$
49
D 77 $ 26 $
31
$
26
E 357 $ 11 $
6
$
6
11. Analyzing and Interpreting the Inventory Turnover Ratio (6 points)
Fontaine Inc. is a leading manufacturer of motors. In a recent year, it reported the following
information (dollars in millions):
Net sales revenue $67,101
Cost of sales 52,144
Beginning inventory 1,380
Ending inventory 967
11

1. Determine the inventory turnover ratio and average days to sell inventory for the current year.
2. Explain the meaning of each number.
Particulars Formula Amount
Net Sales revenue 67101
Cost of Sales 52144
Beginning Inventory 1380
Ending Inventory 967
Average Inventory Opening inventory + closing
inventory/2
1173.5
Inventory Turnover Ratio Cost of Goods Sold/Average
Inventories
44.4346
Average Days to Sell
Inventory
365/Inventory Turnover Ratio 8.21432
The Inventory turnover ratio measures the number of times an entity is able to sell its
inventory in a particular. The higher the ratio, the more efficient is the company in a given
financial year. The average days should be lower to ensure that the entity is being more efficient
for a particular period of time.
12. Computing and Recording Cost and Depreciation of Assets (6 points)
Corrin Company bought a building for $79,000 cash and the land on which it was located for
$115,000 cash. The company paid transfer costs of $17,000 ($7,000 for the building and $10,000
for the land). Renovation costs on the building were $30,000.
1. Prepare the journal entry to record the purchase of the property, including all expenditures.
Assume that
all transactions were for cash and that all purchases occurred at the start of the year.
2. Compute straight-line depreciation at the end of one year, assuming an estimated 10-year useful
life and a $12,000 estimated residual value.
3. What will be the net book value of the property (land and building) at the end of year 2?
1 Particulars Amount Amount
Land and building 211000
Cash 211000
2 Year-end Depreciation 7400
3 Value of property at end of year
2
196200
12

13. Recording Depreciation and Repairs (6 points)
Namir Company operates a small manufacturing facility as a supplement to its regular service
activities. At the beginning of 2020, an asset account for the company showed the following
balances:
Manufacturing equipment $120,000
Accumulated depreciation through 2019 51,750
During 2020, the following expenditures were incurred for the equipment:
Routine maintenance and repairs on the equipment $ 1,500
Major overhaul of the equipment that improved efficiency on January 2,
2020
12,500
The equipment is being depreciated on a straight-line basis over an estimated life of 10 years with
a
$5,000 estimated residual value. The annual accounting period ends on December 31.
1. Prepare the adjusting entry that was made at the end of 2019 for depreciation on the
manufacturing equipment.
2. Starting at the beginning of 2020, what is the remaining estimated life?
3. Prepare the journal entries to record the two expenditures during 2020.
1 Particulars Debit Credit
Depreciation 11500
Accumulated
Depreciation
11500
2 9 years
3 Particulars Debit Credit
Repairs and
maintenance
1500
Cash 1500
Manufacturing
equipment
12500
Cash 12500
14. Computing Working Capital; Explaining Working Capital (6 points)
Allen Corporation is preparing its 2019 balance sheet. The company records show the following
selected amounts at the end of the accounting period, December 31, 2019:
Total assets $630,00
13

0
Total noncurrent assets 392,000
Liabilities:
Notes payable (8%, due in 5 years) 15,000
Accounts payable 76,000
Income taxes payable 10,000
Liability for withholding taxes 5,000
Rent revenue collected in advance 8,000
Bonds payable (due in 15 years) 90,000
Wages payable 9,000
Property taxes payable 4,000
Note payable (10%, due in 6
months)
11,500
Interest payable (due in 2 months) 800
Common stock 100,000
1. Compute working capital.
2. Would your computations be different if the company reported $250,000 worth of contingent
liabilities in the notes to the statements? Explain.
1 Particulars Formula Amou
nt
Total current
assets
Total assets - Total non-current
assets
23800
0
Total current
liabilities
12430
0
Working Capital Current assets - current
liabilities
11370
0
2 No
15. Recording a Note Payable through Its Time to Maturity (6 points)
Many businesses borrow money during periods of increased business activity to finance inventory
and accounts receivable. Grabber Inc. is a retailer. Each Christmas season, Grabber builds up its
inventory to meet the needs of Christmas shoppers. A large portion of these Christmas sales are on
credit. As a result, Grabber often collects cash from the sales several months after Christmas.
Assume that on September 1, 2019, Grabber borrowed $4.2 million from Multinational Bank for
working capital purposes and signed an interest-bearing note due in six months. The interest rate
was 6 percent per annum payable at maturity. The accounting period ends December 31.
14

1. Prepare the journal entry to record the note on September 1.
2. Prepare any adjusting entry required at the end of the annual accounting period.
3. Prepare the journal entry to record payment of the note and interest on the maturity date,
February 28, 2020.
Date Particulars Debit Credit
1 01-09-
19
Cash 420000
0
6% Notes Payable 420000
0
2 No journal entry required
3 Date Particulars Debit Credit
28-02-
20
Notes Payable Interest
expense
126000
6% Notes Payable 420000
0
Cash 432600
0
16. Recording Growth in a Savings Account with Equal Periodic Payments (10 points)
On each December 31, you plan to deposit $4,000 in a savings account. The account will earn 9
percent annual interest, which will be added to the fund balance at year-end. The first deposit will
be made December 31, 2019 (end of period).
1. Prepare the required journal entry on December 31, 2019.
2. What will be the balance in the savings account at the end of the 10th year (i.e., after 10
deposits)?
3. What is the interest earned on the 10 deposits?
4. How much interest revenue did the fund earn in 2020? 2021?
Date Particulars Debit Credit
1 31-12-19 Savings account 4000
Cash 4000
2 Balance at the end of
tenth year
9469
3 Interest on 10 deposits 5469
4 In 2020 360
In 2021 392
15

17. Computing the Issue Price of a Bond (6 points)
Franklin Corporation issued a $100,000 bond that matures in five years. The bond has a stated
interest rate of 5 percent. On January 1, 2020, when the bond was issued, the market rate was 8
percent. The bond pays interest twice per year, on June 30 and December 31.
At what price was the bond issued?
Price of bonds 69509
16

18. Recording Bond Issue and First Interest Payment with Discount (5 points)
On January 1, 2020, Tampa Corporation sold a $950,000, 7 percent bond issue (9 percent market
rate). The bonds were dated January 1, 2020, pay interest each December 31, and mature in 10
years.
1. Prepare the journal entry to record the issuance of the bonds.
2. Prepare the journal entry to record the interest payment on December 31, 2020. Use straight-
line
amortization.
3. Show how the interest expense and the bonds payable should be reported on the December 31,
2020,
annual financial statements.
Date Particulars Debit Credit
1 01-01-20 Cash 950000
Bonds Payable 950000
2 31-12-20 Bond Interest Expense 85500
Cash 85500
3 Income statement
Interest expense 85500
Statement of Financial Position
Bonds Payable 950000
19. Reporting Stockholders’ Equity (6 points)
The financial statements for Vetco Publications Corporation included the following selected information:
Common stock $1,900,000
Retained earnings $800,000
Net income $1,200,000
Shares issued 95,000
Shares outstanding 80,000
Dividends declared and paid $1,000,000
The common stock was sold at a price of $22 per share.
1. What is the amount of capital in excess of par?
2. What was the amount of retained earnings at the beginning of the year?
17

3. How many shares are in treasury stock?
4. Compute earnings per share.
1 Amount of capital in excess of par 190000
2 Amount of retained earnings at the beginning of the year 600000
3 None
4 EPS 15
20. Deferred Taxes (6 points)
The balance sheet for Brexit Corp. provided the following summarized pretax data:
Year 2018 Year 2019
Deferred tax liability $548,000 $376,000
Tax expense as reported on the 2019 Income Statement was $300,000.
Calculate the amount of income taxes payable for 2019 ?
Opening Deferred Tax Liability $ 548,000
Tax Expense for the year $ 300,000
Less: Deferred Tax Liability $ 376,000
Income Tax Liabilities for 2019 $ 472,000
18

21. Bond retirement (6 points)
A corporation is “calling” $1,000,000 (face value) of bonds, which still have a $50,000 credit
balance in the discount/premium account. Call feature price is 102% of par.
A. Was there a gain or a loss on the retirement of these bonds ? (2 points) and how
much was it ? (2 points)
B. What call feature price would result in the exact (sizewise) but opposite (gain/loss)
outcome to what you gave as answer to question A above ? (2 points)
A There was a profit on the retirement
of these bonds
Amount of profit 48000
B Amount of loss 48000
Face value of bonds 10000
0
Amount of premium 50000
Call value of bonds 19800
0
Hence, the call price 198%
22. The June 30, 2019, bank statement for Jemma Company and the June ledger accounts for cash
are summarized here:
BANK STATEMENT
Checks Deposits Balance
Balance, June 1, 2019 $ 7,500
Deposits recorded during
September
$25,900 33,400
Checks cleared during
September
$25,400 8,000
NSF checks—Ramon
Jones
$370 7,630
Bank service charges $70 7,560
Balance, June 30, 2019 7,560
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Cash (A)
June 1 Balance 7,500 June Checks written 28,900
June Deposits 28,100
No outstanding checks and no deposits in transit were carried over from May; however, there are
deposits in transit and checks outstanding at the end of June.
Reconcile (show the reconciliation) the bank account. (6 points)
Give journal entries (if any) that should be made as the result of the bank reconciliation. (4 points)
Jemma Company
Bank Reconciliation
Statement
At the end of June 30
Particulars Amount Particulars Amou
nt
As per bank: As per book:
Ending Bank Balance 7560 Ending Bank Balance 6700
Less: Checks
outstanding
500 Less: Bank Service
charges
70
Subtotal 7060 Less: NSF checks- Jones 370
Add: Deposits in
Transit
800
Up-to-date cash
balance
6260 Up-to-date cash balance 6260
B) Journal Entries
Miscellaneous expenses 70
Cash 70
A/R 370
Cash 370
Cash 800
A/R 800
20

23. A company (X) is considering a purchase of another company (Y) whose Assets and Liabilities (in
no particular order) are as listed below (all in $ millions):
Inventory: $140; A/P: $50; Note Payable: $20; Cash: $120; Prepaid Expenses: $10;
A/R: $30; Long Term Debt: $100; Unearned Revenue: $20;
A. By showing the actual accounting bookings for this acquisition, calculate the
goodwill that would be created if Company (X) paid altogether $200 cash for
Company (Y) ($100 immediately and $100 in 6 months). (6 points)
Assets:
Inventory 140
Cash 120
Prepaid Expenses 10
A/R 30
Total Assets 300
Liabilities:
A/P 50
Note Payable 20
Long Term Debt 100
Unearned Revenue 20
Total Liabilities 190
Net Assets 110
Amount paid for
acquisition 200
Goodwill created 90
B. While preparing next year’s financial statements, it is determined that company
(X) overpaid for company (Y) and that half of the Goodwill created should not be
there. Show the accounting entry necessary to eliminate this portion of Goodwill
from company (X)’s Balance Sheet. (2 points)
Particulars Amount
Amoun
t
Impairment of Goodwill 90
Goodwill 90
24. Which of the following would be included in Latimer Company's sales/revenues in 2019? (4
points).
A) Goods shipped from a supplier in 2019 with terms of FOB shipping point. Latimer
received the goods in 2019.
B) Goods shipped to customers in 2019 with terms of FOB destination. The customer
received the goods in 2020.
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C) Goods shipped to customers in 2018 with terms of FOB destination. The customer
received the goods in 2019.
D) Goods shipped to customers in 2018 with terms of FOB shipping point. The customer
received the goods in 2019.
The answer to this Question is C).
25. What is the sequence of a full accounting cycle ? List all steps. (4 points)
The full steps involved in the accounting cycle in a sequential manner are as follows:
1. The transactions are entered into by both the parties.
2. These transactions are then documented to serve as records for the future.
3. The transactions are then Journalized.
4. These are then posted to the specific ledgers.
5. The trial balance is then prepared for all the ledgers.
6. The financial statements are prepared from the trial balance.
22

26. On October 1, 2019, Allen Company borrowed $200,000 on a one-year, 6% note payable. The
principal and interest will be paid on September 30, 2020. As of December 31, 2019, what are the
(related) account balances (list the accounts and amounts, Debits or Credits) after adjusting
entries have been made? (3 points)
Interest Expense $3000 Debit
Note payable $6000 credit
Interest Payable $9000 credit
Prepare the journal entry for September 30, 2020. (5 points)
Debit and credit the accounts affected
30/09/20 Interest expense 3000
Cash 3000
Interest expense 9000
Interest payable 9000
23

Part 2 – ACCOUNTING CYCLE
ADJUSTING ENTRIES AND POSTING TO T-ACCOUNTS (10 points)
If needed, prepare the required adjusting journal entry for each situation as of December 31, 2019
and post them to T- accounts provided. (See the last page for the unadjusted account balances
shown in T-accounts.)
Example.
Dec. 31 Account Name Debit
2019 Account Name Credit
(a) Suppose Dana’s had received a $1,800 shipment of supplies in September 2019. When
counting the supplies on December 31, 2019, Dana’s found only $800 worth of supplies on hand.
(2 points)
Debit and credit the accounts affected.
Dec. 31 Supplies Expenses 1000
2019 Supplies 1000
(b) Suppose Dana’s had paid $12,000 for six months’ rent on November 1, 2019. (2 points)
Debit and credit the accounts affected.
Dec. 31 Rent Expense 4000
2019 Prepaid Rent 4000
24

(c) Suppose Dana’s had paid $6,000 for one year’s insurance on June 1, 2019. (2 points)
Debit and credit the accounts affected.
Dec. 31 Insurance Expenses 3500
2019 Prepaid Insurance 3500
(d) The company had acquired Property, Plant & Equipment costing $40,000 on January 1, 2019.
Suppose that the depreciation on this Equipment was calculated to be $2,000 for 2019. (2 points)
Debit and credit the accounts affected.
Dec. 31 Depreciation Expense 2000
2019 Accumulated Depreciation 2000
(e) On December 1, 2019, the company had sold $500 in gift certificates for decorating services to
a customer. On December 31, 2019, the accountant received an envelope containing $400 worth of
redeemed gift certificates, not yet recorded in the company’s books. (2 points)
Debit and credit the accounts affected.
Dec. 31 Unearned Revenue 400
2019 Decorating Revenue 400
(f) On June 30, 2019, the company invested $20,000 in a certificate of deposit that will yield
(generate) 12% interest at the end of one year. (2 points)
Debit and credit the accounts affected.
Dec. 31 Interest Receivable 1200
2019 Investment Income 1200
25

(g) The company borrowed money (a note payable) from the bank for $30,000 on January 1, 2019,
due with all interest on June 30, 2020. The note payable requires 10% (annual) interest. (2 points)
Debit and credit the accounts affected.
Dec. 31 Interest Expense 3000
2019 Interest Payable 3000
(h) The company calculated its income taxes as $26,110 for the year ended December 31, 2019. (2
points)
Debit and credit the accounts affected.
Dec. 31 Income Tax Expense 26110
2019 Income Tax Payable 26110
(i) On December 15, 2019, the company declared a $750 dividend, payable January 15, 2020. (2
points)
Debit and credit the accounts affected.
Dec. 31 Retained Earnings 750
2019 Dividend Payable 750
Un-adjusted starting balances are given. Post the adjusting entries above to the T-
accounts on the following page. (10 points)
26

Assets Liabilities Stockholders’ Equity, continued
+ Cash –
Unadj. 43,450
+ Supplies –
Unadj. 1,800
1000
+ Accounts Receivable –
Unadj. 4,000
+ Prepaid Rent –
Unadj. 12,000
4000
+ Prepaid Insurance –
Unadj. 6,000
3500
+ Certificate of Deposit –
Unadj. 20,000
+ Interest Receivable –
Unadj. 0
1200
+ Property, Plant &
Equipment –
Unadj. 40,000
– Accumulated Depr. +
0 Unadj.
2000
– Accounts Payable +
250 Unadj.
– Dividend Payable +
0 Unadj.
750
– Unearned Revenue +
400 500 Unadj.
– Notes Payable +
30,000 Unadj.
– Interest Payable +
0 Unadj.
3000
– Income Tax Payable +
0 Unadj.
2611
0
Stockholders’ Equity
– Common Stock +
1,000 Unadj.
– Additional Paid-In
Capital +
9,000 Unadj.
– Retained Earnings +
750 0 Unadj.
– Decorating Revenue +
120,00
0 Unadj.
400
– Investment Income +
1200
+ Wage Expense –
Unadj
.
32,00
0
+ Utilities Expense –
Unadj
.
1,000
+ Telephone Expense –
Unadj. 500
+ Supplies Expense –
1000
+ Rent Expense –
4000
+ Insurance Expense –
3500
+ Depreciation Expense –
2000
+ Interest Expense –
3000
+ Income Tax Expense –
26110
27

ADJUSTED TRIAL BALANCE (5 points)
Prepare the adjusted trial balance as of December 31, 2019.
Dana’s Decorators
Adjusted Trial Balance
December 31, 2019
Debit Credit
Cash 43450
Supplies 800
Accounts Receivable 4000
Prepaid Rent 8000
Prepaid Insurance 2500
Certificate of Deposit 20000
Interest Receivable 1200
Property, Plant & Equipment 40000
Accumulated Depreciation 2000
Accounts Payable 250
Dividend Payable 750
Unearned Revenue 100
Notes Payable 30000
Interest Payable 3000
Income Tax Payable 26110
Common Stock ($1 par value) 1000
Additional Paid-in Capital 9000
Retained Earnings 750
Decorating Revenue 120400
Investment Income 1200
Wage Expense 32000
Utilities Expense 1000
Telephone Expense 500
Supplies Expense 1000
Rent Expense 4000
Insurance Expense 3500
Depreciation Expense 2000
Interest Expense 3000
Income Tax Expense 26110
Totals 193810 193810
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INCOME STATEMENT & BALANCE SHEET
Prepare a classified Income Statement for the full year 2019 and a classified Balance Sheet as of
December 31, 2019.
Dana’s Decorators
Income Statement (7 points)
For the year ended December 31, 2019
Revenues:
Decorating Revenue 120400
Investment Income 1200
Subtotal: 121600
Expenses:
Wage Expense 32000
Utilities Expense 1000
Telephone Expense 500
Supplies Expense 1000
Rent Expense 4000
Insurance Expense 3500
Depreciation Expense 2000
Interest Expense 3000
Income Tax Expense 26110
Subtotal: 73110
Net Income: 48490
29

Dana’s Decorators
Balance Sheet (8 points)
December 31, 2019
Assets
Current Assets
Cash 43450
Supplies 800
Accounts Receivable 4000
Prepaid Rent 8000
Prepaid Insurance 2500
Certificate of Deposit 20000
Interest Receivable 1200
Property, Plant & Equipment 40000
Total Assets 119950
Liabilities
Current Liabilities
Accounts Payable 250
Dividend Payable 750
Unearned Revenue 100
Notes Payable 30000
Interest Payable 3000
Income Tax Payable 26110
Accumulated Depreciation 2000
Stockholders’ Equity
Common Stock ($1 par value) 1000
Additional Paid-in Capital 9000
Net Income 48490
Retained Earnings (750)
Total Liabilities & Shareholders’ Equity 119950
30