PROJECT – Asynchronous 1 (Chapter 1, 2 and 3)

1. State the accounting equation, and define its components. The basic accounting
equation is:
Assets = Liabilities + Equity
Assets are resources a business owns. Liabilities are creditors' claims on total assets.
Equity is the ownership claim on total assets.
The expanded accounting equation is:
Assets = Liabilities + Share Capital—Ordinary
+ Revenues – Expenses – Dividends
Share capital—ordinary is affected when the company issues new ordinary shares in
exchange for cash. Revenues are the gross increase in equity resulting from
business activities for the purpose of earning income. Expenses are the costs of
assets consumed or services used in the process of earning revenue. Dividends are
payments the company makes to its shareholders.
2, Describe the five financial statements and how they are prepared. An income
statement presents the revenues and expenses, and resulting net income or loss, for a
specific period of time. A retained earnings statement summarizes the changes in retained
earnings for a specific period of time. A statement of financial position reports the assets,
liabilities, and equity at a specific date. A statement of cash flows summarizes information
about the cash inflows (receipts) and outflows (payments) for a specific period of time. A
comprehensive income statement adds or subtracts any other comprehensive income to
net income to arrive at comprehensive Income.

3. BE 234
Listed below in alphabetical order are the statement of financial position items of Rowan
Company at December 31, 2020. Prepare a statement of financial position and include a
complete heading.
Accounts payable $ 19,000
Accounts receivable 25,000
Buildings 96,000
Cash 14,000
Equipment 5,000
Share capital - ordinary 121,000

Solution 234
ROWAN COMPANY
Statement of Financial Position
December 31, 2020
ASSETS
Buildings $
96,000
Equipment 5,000
Accounts receivable 25,000
Cash $ 14,000
 Total assets $140,000

EQUITY AND LIABILITIES

Equity
Share capital-ordinary 121,000
Liabilities
Accounts payable 19,000
Total equity and liabilities $140,000

Ex. 241
Compute the missing amount in each category of the accounting equation.
Assets Liabilities Equity
(a) $279,000 $ ? $143,000
(b) $223,000 $ 79,000 $ ?
(c) $ ? $173,000 $325,000

Solution 241
(a) $136,000 ($279,000 – $143,000 = $136,000).
(b) $144,000 ($223,000 – $79,000 = $144,000).
(c) $498,000 ($173,000 + $325,000 = $498,000).

BE 176
At June 1, 2020, Estrada Industries had an accounts receivable balance of ₤12,000. During
the month, the company performed credit services of ₤30,000 and collected accounts
receivable of ₤32,000. What is the balance in accounts receivable at June 30, 2020?

Solution 176
The balance at the end of the month is ₤10,000, calculated as follows:

Beginning accounts receivable ₤12,000

Add: Credit sales 30,000
Less: Collections (32,000)
Ending accounts receivable ₤10,000

Ex. 198
Transactions for Tom Petty Company for the month of October are presented below.
Journalize each transaction and identify each transaction by number. You may omit journal
explanations.
1. Issued ordinary shares in exchange for $50,000 cash.
2. Purchased land costing $28,000 for cash.
3. Purchased equipment costing $20,000 for $3,000 cash and the remainder on account.
4. Purchased supplies on account for $800.
5. Paid $1,000 for a one-year insurance policy.
6. Received $3,000 cash for services performed.
7. Received $4,000 for services previously performed on account.
8. Paid salaries to employees for $2,500.
9. Paid dividends of $1,000.
Solution 198
1. Cash................................................................................................. 50,000
Share Capital-Ordinary ........................................................... 50,000

2. Land ................................................................................................. 28,000

Cash ........................................................................................ 28,000

3. Equipment ........................................................................................ 20,000

Cash ........................................................................................ 3,000
Accounts Payable ................................................................... 17,000

4. Supplies .......................................................................................... 800

Accounts Payable .................................................................. 800

5. Prepaid Insurance ............................................................................ 1,000

Cash ........................................................................................ 1,000

6. Cash................................................................................................. 3,000
Service Revenue ..................................................................... 3,000

7. Cash................................................................................................. 4,000
Accounts Receivable .............................................................. 4,000

8. Salaries and Wages Expense .......................................................... 2,500

Cash ........................................................................................ 2,500

9. Dividends ......................................................................................... 1,000

Cash ........................................................................................ 1,000

Ex. 205
The trial balance of Drysdale Company shown below does not balance.
DRYSDALE COMPANY
Trial Balance
June 30, 2020
—————————————————————————————————————————
——
Debit
Credit
Cash ................................................................................................ ₤ 2,600
Accounts Receivable ....................................................................... 7,600
Supplies ........................................................................................... 600
Equipment ........................................................................................ 8,300
Accounts Payable ............................................................................ ₤ 9,766
Share Capital-Ordinary .................................................................... 1,952
Dividends ......................................................................................... 1,500
Service Revenue ............................................................................. 15,200
Salaries and Wages Expense.......................................................... 3,800
Maintenance and Repairs Expense ................................................. 1,600
Totals ...................................................................................... ₤26,000 ₤26,918
An examination of the ledger and journal reveals the following errors:
1. Each of the above listed accounts has a normal balance per the general ledger.
2. Cash of ₤170 received from a customer on account was debited to Cash ₤710 and credited
to Accounts Receivable ₤710.
3. A dividend of ₤300 was posted as a credit to Dividends, ₤300 and credit to Cash ₤300.
4. A debit of ₤120 was not posted to Salaries and Wages Expense.
5. The purchase of equipment on account for ₤700 was recorded as a debit to Maintenance
and Repairs Expense and a credit to Accounts Payable for ₤700.
6. Services were performed on account for a customer, ₤310, for which Accounts Receivable
was debited ₤310 and Service Revenue was credited ₤31.
7. A payment on account for ₤225 was credited to Cash for ₤225 and credited to Accounts
Payable for ₤252.
Instructions
Prepare a correct trial balance.

Solution 205
DRYSDALE COMPANY
Trial Balance
June 30, 2020
—————————————————————————————————————————
——
Debit
Credit
Cash [2,600 – 540 (2)] ..................................................................... ₤ 2,060
Accounts Receivable [7,600 + 540 (2)] ............................................ 8,140
Supplies ........................................................................................... 600
Equipment [8,300 + 700 (5)] ............................................................ 9,000
Accounts Payable [9,766 – 477 (7)]................................................. ₤9,289
Share Capital-Ordinary .................................................................... 1,952
Dividends [1,500 + 300 + 300 (3)] ................................................... 2,100
Service Revenue [15,200 + 279 (6)] ................................................ 15,479
Salaries and Wages Expense [3,800 + 120 (4)] .............................. 3,920
Maintenance and Repairs Expense [1,600 – 700 (5)] ..................... 900
Totals ........................................................................................ ₤26,720 ₤26,720

Ex. 253
Indicate (a) the type of adjustment (prepaid expense, unearned revenue, accrued revenue, or
accrued expense), and (b) the accounts before adjustment (overstated or understated) for
each of the following:
1. Supplies of $200 have been used.
2. Salaries of $600 are unpaid.
3. Rent received in advance totaling $300 has been earned.
4. Services provided but not recorded total $500.
Solution 253 (7 min.)
(a) Type of Adjustment (b) Accounts before Adjustment
1. Prepaid Expense Assets Overstated
Expenses Understated
2. Accrued Expense Expenses Understated
Liabilities Understated
3. Unearned Revenue Liabilities Overstated
Revenues Understated
4. Accrued Revenue Assets Understated
Revenues Understated
Ex. 273
The trial balances before and after adjustments for Old Julian Company at the end of its
fiscal year are presented below.
Old Julian Company
Trial Balance
September 30, 2020
—————————————————————————————————————————
——
Before Adjustment After Adjustment
Dr. Cr. Dr. Cr.
Cash $ 15,080 $ 15,080
Accounts Receivable 14,960 16,110
Supplies 2,760 885
Prepaid Insurance 5,800 1,450
Equipment 13,300 13,300
Accumulated Depreciation – Equip $ 5,220 $ 6,960
Accounts Payable 9,860 9,860
Salaries and Wages Payable 2,750
Unearned Service Revenue 2,175 1,150
Unearned Rent Revenue 2,100 525
Share Capital-Ordinary 18,395 18,395
Service Revenue 48,800 50,975
Rent Revenue 1,575 3,150
Salaries and Wages Expense 36,225 38,975
Supplies Expense 1,875
Insurance Expense 4,350
Depreciation Expense 0 1,740 0

$ 88,125 $ 88,125 $ 93,765$ 93,765

Instructions
Prepare the adjusting entries that were made.
Solution 273 (20 min.)
(1) Accounts Receivable .................................................................... 1,150
Service Revenue ..................................................................... 1,150
(To record services not yet billed to customers)

(2) Supplies Expense ......................................................................... 1,875

Supplies .................................................................................. 1,875
(To record supplies expense)

(3) Insurance Expense ....................................................................... 4,350

Prepaid Insurance ................................................................... 4,350
(To recognize period insurance expense)

(4) Depreciation Expense .................................................................. 1,740

Accumulated Depreciation - Equipment .................................. 1,740
(To record depreciation for the period)

(5) Salaries and Wages Expense ....................................................... 2,750

Salaries and Wages Payable .................................................. 2,750
(To record salaries payable)

(6) Unearned Service Revenue .......................................................... 1,025

Service Revenue ..................................................................... 1,025
(To record revenue earned with prior payment)

(7) Unearned Rent Revenue .............................................................. 1,575

Rent Revenue ......................................................................... 1,575
(To record revenue earned with prior payment)

Chapter 4 Multiple Choice:

1. A worksheet is a multiple column form that facilitates the
a. identification of events.
b. measurement process.
c. preparation of financial statements.
d. analysis process.

2. Computing net income on the worksheet occurs in step

a. two.
b. three.
c. four.
d. five.
3. A worksheet can be thought of as a(n)
a. permanent accounting record.
b. optional device used by accountants.
c. part of the general ledger.
d. part of the journal.

4. The Supplies account appears in which of the following debit columns of the
worksheet?
a. Trial balance
b. Adjusted trial balance
 c. Statement of financial position
d. All of these answer choices are correct.

5. When constructing a worksheet, accounts are often needed that are not listed in the
trial balance already entered on the worksheet from the ledger. Where should these
additional accounts be shown on the worksheet?
a. They should be inserted in alphabetical order into the trial balance accounts
already given.
b. They should be inserted in the chart of account order into the trial balance already
given.
c. They should be inserted on the lines immediately below the trial balance
totals.
d. They should not be inserted on the trial balance until the next accounting period.

6. When using a worksheet, adjusting entries are journalized

a. after the worksheet is completed and before financial statements are prepared.
b. before the adjustments are entered on to the worksheet.
c. after the worksheet is completed and after financial statements are prepared.
d. before the adjusted trial balance is extended to the proper financial statement
columns.

7. Assuming that there is a net loss for the period, debits equal credits in all but which
sections of the worksheet?
a. Income statement columns
b. Adjustments columns
c. Trial balance columns
d. Adjusted trial balance columns

8. Adjusting entries are prepared from

a. source documents.
b. the adjustments columns of the worksheet.
c. the general ledger.
d. last year's worksheet.

Chapter 3
1. Monthly and quarterly time periods are called
a. calendar periods.
b. fiscal periods.
c. interim periods.
d. quarterly periods.

2. The time period assumption states that

a. a transaction can only affect one period of time.
b. estimates should not be made if a transaction affects more than one time period.
c. adjustments to the enterprise's accounts can only be made in the time period when
the business terminates its operations.
d. the economic life of a business can be divided into artificial time periods.

3. An accounting time period that is one year in length, but does not begin on January 1,
is referred to as
a. a fiscal year.
 b. an interim period.
c. the time period assumption.
d. a reporting period.

4. Adjustments would not be necessary if financial statements were prepared to reflect

net income from
a. monthly operations.
b. fiscal year operations.
c. interim operations.
d. lifetime operations.

5. Management usually desires ________ financial statements and the taxing

authorities require all businesses to file _________ tax returns.
a. annual, annual
b. monthly, annual
c. quarterly, monthly
d. monthly, monthly

6. The time period assumption is also referred to as the

a. calendar assumption.
b. cyclicity assumption.
c. periodicity assumption.
d. fiscal assumption.
7. In general, the shorter the time period, the difficulty of making the proper adjustments
to accounts
a. is increased.
b. is decreased.
c. is unaffected.
d. depends on if there is a profit or loss.

8. Which of the following is not a common time period chosen by businesses as their
accounting period?
a. Daily
b. Monthly
c. Quarterly
d. Annually

9. Which of the following time periods would not be referred to as an interim period?
a. Monthly
b. Quarterly
c. Semi-annually
d. Annually

10. The fiscal year of a business is usually determined by

a. a government agency.
b. Shareholders.
c. the business.
d. the IASB.