Reference no: EM131121567

PART II

Indicate the best answer for each question in the space provided.(2 points each)

1.      A business purchases land and a building, giving in exchange a note payable for $75,000. This transaction:

a.      increases owners' equity.

b.      increase total assets.

c.      decrease total liabilities.

d.      decreases owners' equity.

e.      none of the above

2.      Sunset Company sells land for cash at a price in excess of its cost. Which of the following is true as a result of this transaction?

a.      Cash is decreased.

b.      Decreases total liabilities.

c.      Total assets are unchanged.

d.      Owners' equity is decreased.

e.      none of the above

3.      The owners' equity of Clean Air, Inc. is $400,000 on December 31, 2007, and is equal to two- fifth  of total liabilities. What is the amount of total assets?

4.      During the current year, the assets of Vitamin  Water increase by $73,000, and the liabilities increased by $34,000. As a result, owners' equity:

a.      increase by $39,000 during the year.

b.      increases by $73,000 during the year.

c.      increases by $107,000 during the year.

d.      increases by $34,000 during the year.

e.      none of the above

5.      During 2007 the assets of Inspiring Sky increased by $30,000, and the liabilities increased by $15,000. If the owners' equity in Blue Sky is $84,000 at the end of 2007, the owners' equity at the beginning of 2007 must have been:

6.  Net income is best described as

a.      Cash receipts less cash payments made during a given accounting period.

b.      The increase in owners' equity resulting from profitable business operations during an accounting period.

c.      The increase in total assets over a given accounting period.

d.      Revenue earned during an accounting period, less any cash payments made during the period.

7.           As of January 30, the trial balance for Huffy Corporation shows revenue of $28,000 and expenses of $5,000. On January 31, the adjusting entry for $2,000 depreciation for January is made, and dividends of $2,000 are declared and distributed. Huffy Corporation's income statement for January reports net income of                           .

8.      Husky Company's revenue for March is $75,000, but only $15,000 cash is collected. Expenses for March are $41,000, of which $28,000 is paid in cash. During March, additional capital stock is issued in exchange for $5,000 cash. Using the accrual basis of accounting, Husky Company's income statement for March reports   

9.      Coco, Inc.'s retained earnings at the beginning of the year were $52,000.  Net income for the year is $51,000, and dividends declared during the year are $5,000. If stockholders' equity at the end of the year is $198,000, what is the amount of capital stock at year-end?

10.    Sea Coast Potters purchased a kiln on February 1 for $48,000 which is guaranteed to have a useful life of 10 years. Assuming adjusting entries are prepared monthly, what is the book value of the kiln on June 30?

11.    The adjusting entry to recognize interest owed by Tiger, Inc., to the bank for May was omitted in month-end procedures. As a result of this error, Tiger's                     

a.      May net income is understated and May 31 liabilities overstated.

b.      May expenses are overstated and May 31 assets overstated.

c.      May expenses are understated and May 31 owners' equity understated.

d.      May net income is overstated and May 31 liabilities overstated.

e.    none of the above

12.    Net income of Mustang Company was $60,000 before any year-end adjusting entries were made. The following adjustments are necessary: portion of fees collected in advance now earned, $3,400; interest accrued on a company savings account, $330; portion of insurance expiring, $500.  Net income reported on the income statement for the current year should be                   .

13.   Retained earnings represent:

a.      Cash available for dividends.

b.      The amount initially invested in the business by stockholders.

c.      Cash available for expansion and growth.

d.      Income which has been reinvested in the business rather than distributed as dividends to stockholders.

14        The term revenue can best be described as the:

a.      selling price of goods and services rendered to customers during a given accounting period.

b.      cash received from selling goods and serving customers during a given accounting period.

c.      net increase in owners' equity during a given period.

d.      "bottom line" in the income statement.

15.    The accountant for the Sun Rise Company forgot to make an adjusting entry to record depreciation for the current year. The effect of this error would be:

a.      an overstatement of net income and an understatement of assets.

b.      an overstatement of assets offset by an understatement of owners' equity.

c.      an overstatement of assets, net income, and owners' equity.

d.      an overstatement of assets and of net income and an understatement of owners' equity.

PART III (60 POINTS)

This is the problem that we have used as a demonstration in our lessons. The following is the post-closing trial balance showing the account balances as of April 30, 2004. Spring Garden Lawn Care Incorporated entered into the following transactions during the month of May.

Transactions for the month of May

1.      Purchased office supplies on credit, $600.

2.      Provided lawn care services to clients and received $16,000 in cash.

3.      Provided lawn care services to clients on credit. Fees of $8,000 will be received in June.

4.      Received $3,000 in cash from several clients in advance for services to be rendered in the future.

5.      Paid $1,200 in cash for May advertising.

6.      Paid $5,700 in cash for employee wages.

Instructions

1. Record the May transactions into a journal.

2. Post the transactions to T ledger accounts(Note: When you are posting transactions to the ledgers, make sure you start with account balances from post-closing trial balance. For example: What would happen to cash balance if you were to post  $5000 debit? The cash balance would be: 25,300 +5,000=$30, 300)

3. Prepare a trial balance.

4. Make adjusting entries for the following:

A1-mount of office supplies left as of May 31 is $700

A2-$1,700 of the unearned fees earned as of May 31

A3-Expired insurance for the month

A4-Expired rent for the month

A5-Depreciation of the building for the month

5. Post the adjusting entries to appropriate ledgers.

6. Prepare adjusted trial balance.

7. Prepare income statement, statement of retained earnings, and balance sheet.

Note: Use the demonstration problem format as shown for Spring Garden Lawn Care Incorporated in LESSONS 2 and 3. Make sure EACH transaction NUMBERED.

Spring Garden Lawn Care Incorporated

Post-Closing Trial Balance