USE THE GENERAL JOURNALS TO RECORD YOUR ANSWERS 1. It is the end of Kellco’s fiscal year. You have been given the following adjusted ledger balances. The ledger account balances are the normal balances for each account. Cash $125,000 Accounts Rec. 300,000 Inventory 75,000 Pre-paid expense 38,000 Land 100,000 Equipment 350,000 Accum. Depreciation 80,000 S.T. Notes Payable 150,000 Accounts Payable 125,000 Kelly Capital 175,000 Kelly Drawing 80,000 Income Summary 0 Sales 958,000 Wage Expense 250,000 Fuel Expense 35,000 Insurance Expense 35,000 Utilities Expense 85,000 Depreciation Expense 15,000 Required: Make all the required closing entries. You do not have to prepare a Trial Balance to complete the problem just the closing journal entries. Use the journal paper on the next page to make your journal entries. Page 2 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. DATE ACCOUNT DR CR 2. Dominic Bueno started a delivery business as a sole proprietorship on 7/1/XX. During the month of July the company had the following transactions: 7/1 The owner invested $100,000 in cash into the business checking account. 7/1 Rented a garage with office space for $5,000 per month and paid the first month’s rent by check. 7/2 A new 2 ton delivery truck was purchased by the company. The total purchase price including taxes, license and fees was $115,000. The company paid $15,000 by check as a down payment and signed a long-term note for five years at an interest rate of 9% per year for the balance that was owed. 7/6 The company purchased a desktop computer and a printer for a total price of $1,150 and paid by check for the computer equipment. 7/8 Picked up and delivered machinery for a client. Billed $350 for the delivery service with terms “due on receipt”. 7/10 Received a bill for legal services in the amount of $1,200. Page 3 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. 7/12 Entered into a $125,000 one year contract with a client to provide delivery services. 7/14 Received the amount owed from the 7/8 transaction. 7/15 Picked up and delivered furniture for a client and billed the client $565 with terms of “due on receipt”. 7/15 Wrote a check to Mr. Bueno for personal use in the amount of $2,000. 7/18 Purchased diesel fuel from a bulk fuel distributor on credit. The total amount owed for the fuel was $579 which the company will receive a bill for at the end of the month. 7/21 Delivered machinery under the terms of the contract signed on 7/12. The contract terms required that any amounts owed for delivery services will be billed for at the end of each month with terms of net 30 days. 7/31 Received the bill for the purchase of diesel fuel on 7/18 with terms of net 30 days. 7/31 Received a utility Bill in the amount of $475 and paid the bill immediately by check. 7/31 Billed the client for the delivery service provided on 7/21 in the amount of $2,100. Required: Make the necessary journal entries from the information given. Some dates do not require a journal entry. On dates that do not require an entry say “no entry required”. Omit the journal descriptions. Use the journal paper on the next page to make your journal entries. Date. Account Dr Cr Page 4 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. Page 5 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. 3. You have been given an unadjusted Trial Balance at the end of Alico Inc. FY (12/31/XX): In reviewing the unadjusted Trial Balance, the following information has come to your attention: a. Alico Inc. entered into a six-month contract on 11/1/XX to provide maintenance service for six apartment houses owned by a Real Estate Investment Trust. The total value the contract was $185,000 and required a $20,000 prepayment. On 11/1/XX the bookkeeper debited cash and credited Maintenance Revenue for the $20,000 prepayment. On 12/31/XX 20% of the contracted services had been completed. b. On 8/1/XX a one year fire insurance policy was purchased for $36,000. The bookkeeper debited Prepaid Insurance Expense and credited Cash to record the transaction. No other journal entries had been made for this transaction. c. Wages in the amount of $95,000 had been earned by Alico Inc.' employees but will not be paid until next year. No entry had been made to record this fact. d. On 11/1/XX Alico Inc. lent $50,000 to one of its clients and the client signed a 90 day note receivable on this date with interest and principal due and payable on January 31 of the next year. The interest rate was at 14% per year. At the end of the current year Alico Inc.had earned $1,167 in interest on the note. This amount had not yet been recorded. . e. Depreciation in the amount of $15,000 had not yet been recorded. Required: Make the required adjusting entries on 12/31/XX from the information given above. As a journal description, indicate what accounting principle that would have been violated if the adjusting entry had not been made. Use the journal paper on the next page to make your journal entries. Page 6 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. Date Account Dr Cr ANSWER THE FOLLOWING QUESTIONS ON THE TEST PAPER: 4. Give the assumption or principle that would have been violated if the following entries or information had not been given: a. An Adjustment is made for payroll expense at the EFY eventhough it had not been paid: b. A company was required to revalue all of its assets liabilities and owners equities at the end of the accounting year because it was going to file for bankruptcy and go out of business within a year. c. Changing the method of recognizing depreciation is not allowed from one accounting period to another. Page 7 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. d. An international corporation must record all of its foreign transactions in dollars for United States financial reporting purposes. e. A company records a fixed asset for not only the invoice price but all of the costs that it takes to put that asset into use. HIGHLIGHT THE CORRECT ANSWER IN YELLOW OR CIRCLE IT. (Chose the most correct answer) 5. GAAP requires the use of the accrual accounting system when: a. The IRS requires it if a business is dealing in inventory. b. When a company is publicly owned. c. When a company borrows money for a financial institution. d. none of the abouve 6. A Deferred Revenue is: a. A revenue that has been received and earned. b. An revenue that will be collected in the future. c. An revenue that has been received, but is a liability until earned. d. A future revenue that is listed as an asset. 7. What kinds of accounts are closed at the end of a fiscal year? a. Assets, Liabilities, Owner Equity, Revenue and Expenses. b. Revenue and Expense accounts and temporary Balance Sheet accounts c. All accounts. d. Temporay and perminate Balance Sheet accounts. 8. There are four basic financial statements required by GAAP. They are: a. Balance Sheet, Income Statement, Cash Flow Statement and a Trial Balance. b. Balance Sheet, Income Statement, Cash Flow Statement and a Work Sheet. c. Balance Sheet, Income Statement, Cash Flow Statement and a Statement of Change to Retained Earnings. d. Balance Sheet, Income Statement, Cash Flow Statement and a Post Close Trial Balance. Page 8 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. 9. The Historical Cost Principle states that: a. All financial information must be stated at what the company can realize in value if it sold all of the asset the company owned. b. A revenue is recorded for the amount you paid for it. c. Assets must be recorded at the cost they are acquired for and must be kept at that cost in the accounting system until they are disposed off. d. All of the above. 10 The normal balance of an account for an Owners Equity account would be: a. A debit. b. The same as an Asset Account. c. The amount that was invested by the companies owner. d. A credit. 11. The Industrial Practices Principle states that: a. A company must follow the same rules as other companies. b. If all the companies in an industry violate the same principle then a company in that industry can violate the same principle. c. Require a company to ahear to the priciples even if other companies within the industry are not. d. Allows a company to change the way they are recording a transaction. 12. What is a Current Asset? a. An asset that is about to be sold. b. A fixed asset that has a long life. c. Any asset that has an economic life of over a year. d. An asset the will be consumed within a 12 month period. 13. In Finacial Accounting, cost is divided into 3 major catigories: a. Depreciable assets, Liabilities and Owners Equity. b. Period Costs, Long Term Cost and Short Term Cost. c. Cost of Goods Sold, Cost of Items Purchased and Cost of Inventory. d. Inventoriable Cost, Capital Cost and Period Cost. 14 The Cash basis of accounting can be used: a. in an accrual accounting system. b. by a company that sells merchandise. c. to conform to GAAP d. none of the above. Page 9 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. 15. Define the Cost principle: 16. What is an Accured Revenue? 17. Define the Expense Recognition (Matching) principle: 18. What two accounting principles are most responsible for making adjusting entries 19. List the external users of Financial Statements: 20. Why is accounting important to the business world? Page 10 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. FINANCIAL ACCOUNTING CHART OF ACCOUNTS Prof. R.S. Claire NORMAL BALANCE SHEET ACCOUNTS BALANCE ASSETS Current Assets Cash/Checking Debit S.T. Investments Debit Avaliable for sale Investments Debit Fair Market Value Adjustment Debit/Credit S.T. Notes Rec. Debit Interest Rec. Debit Accounts Receivable Debit Less: Allowance for Bad Debts Credit Inventory Debit Pre-paid expense (Insr., Rent,) Debit Assets Under Consructions Debit Deposits (Security, Equipment, Rent etc.) Debit Operating Assets (Plant & Equip.-Fixed Assets) Land Debit Buildings Debit Less: Accumulated Depreciation-Build. Credit Plant & Equipment Debit Less: Accumulated Depreciation-Plant & Equipment Credit Funiture & Fixtures Debit Less: Accumulated Depreciation-F&F Credit Office Equipment Debit Less: Accumulated Depreciation-Office Equipment Credit Communicaition Systems (Phone, Fax, etc. Debit Less: Accumulated Depreciation-Communication Systems Credit Computer Systems Debit Less: Accumulated Depreciation-Computer Systems Credit Transportation Equip. Debit Less: Accumulated Depreciation-Transp. Equip. Credit Leasehold improvements Debit Other Assets (Intangiable Assets) Goodwill Debit Patends Debit Copyrights Debit Trademarks Debit Water Rights Debit Natural Resourses Mineral Rights Debit Timber Rights Debit Page 11 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. Oil Rights Debit LIABILITIES Current Liabilities S.T. Notes Payable Credit Accounts Payable Credit Credit Card Payable Credit Accured Payables Credit Payroll Payable Credit Interest Payable Credit Un-earned Revenue Credit Cash Dividend Payable Credit Common Stock Dividends to be Distributed Credit Current Por. Of L.T. Debt Credit Long Term Liabilities L.T. Notes Payable Credit Bond Payable Credit Less:Bond Discount Debit Add: Bond Premium Credit OWNERS EQUITY Sole Proprietorship Capital Credit Less: Drawing Debit Partnership/LLP/LLC Capital (for each partner) Credit Less: Drawing (for each partner) Debit Corporation ("C" Corp. & "S" Corp.) Stockholders Equity Preferred Stock Credit Paid in excess of Par-Pref. Stock Credit Common Stock Credit Paid in exess of Par-Common Stock Credit Retained Earnings Credit Cash Dividend Debit Stock Dividend Debit Treasury Stock Debit Paid in capital from T. S. Transaction Credit Accumulated Other Comprehensive Income Unrealized Holding gain/loss on S.T. Investments Debit/Credit Foreign currency translation gains or losses Debit/Credit Pension plan gains or losses Debit/Credit Non-controlling Interest Debit Page 12 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. INCOME STATEMENT STATEMENT, (P&L STATEMENT) NORMAL NORMAL SERVICE INDUSTRY BALANCE MERCHANDISING INDUSTRY BALANCE REVENUE REVENUE Maint. Service Rev. Credit Sales Credit Contracting Serv. Rev. Credit Less: Sales Returns & Allow. Debit Software Devel. Rev Credit Cash (Sales) Discounts Debit Consulting Rev. Credit Quantity Discounts Debit Interest Revenue Credit Repair Reveneue Credit EXPENSES COST OF GOODS SOLD Advertising Debit PERIODIC INVENTORY SYSTEM Auto expense Debit Purchases Debit Bad Debt Expense Debit Less: Purchase Returns ans Allow. Credit Bank charges Debit Purchase Discounts Credit Counsulting Debit PERPETUAL INVENTORY SYSTEM Debit Depreciation exp. Debit Cost of Goods Sold Dues & Subscriptions Debit EXPENSES Frieght in Debit Advertising Debit Fuel exp. Debit Bad Debt Expense Debit Insr. exp. Debit Bank charges Debit Interest exp. Debit Counsulting Debit Bond Interest exp. Debit Depreciation exp. Debit IT-Computer Exp. Debit Dues & Subscriptions Debit Licenses and Fees Debit Frieght in Debit Maint. exp Debit Fuel exp. Debit Marketing exp. Debit Insr. exp. Debit Meals exp. Debit Interest exp. Debit Misc. exp. Debit Bond Interest exp. Debit Office supplies exp. Debit IT-Computer exp. Debit Phone exp. Debit Licenses and Fees Payroll exp. Debit Maint. exp Debit Gross Payroll Exp. Debit Marketing exp. Debit Payroll Tax exp. Debit Meals exp. Debit Professional Services Debit Misc. exp. Debit Rent exp. Debit Office supplies exp. Debit Repair parts Debit Payroll exp. Shipping exp Debit Gross Payroll exp. Software exp Debit Payroll Tax exp. Debit Tax exp. Debit Phone exp. Debit Travel exp Debit Professional Services Debit Uniforms Debit Rent exp. Debit Utilities Debit Repair parts Debit Shipping exp Debit Page 13 of 13 © Copyrighted by Richard S. Claire 6/5/2019. All rights reseved. Tax exp. Debit Travel exp Debit Uniforms Debit Utilities Debit OTHER REVENUE/GAINS Realized Gains from sale of Investments Credit Unrealized Holding Gains on S.T. Investments Credit Interest Income. Credit Invetstment Income Credit Gain on the Disposal of Assets Credit OTHER EXPENSES/LOSSES Unrealized Holding Loss from sale of investments Debit Loss on Disposal of Assets Debit FINANCIAL ACCOUNTING CHART OF ACCOUNTS