ACCOUNTING CYCLE PRACTICE PROBLEM The following practice problem is an example of the material that will be tested on the competency exam. The actual exam is not as long as the practice problem and will not have you completing all parts below, but this comprehensive practice problem will prepare you for the Accounting Process Cycle problem in the competency exam. Use the information and worksheets to practice the problem. The answers have been provided. Use the following information and complete the instructions below: For the past several years, John Addams has operated a part-time business from his home. As of April 1, 2002, John decided to move to rented quarters and to operate the business, which was to be known as Addams & Family Inc., on a full-time basis. Addams & Family entered into the following transactions during April: April4 The following assets were received from John Addams: cash, $10,000; accounts receivable, $1,500; supplies, $1,250; and office equipment, $7,500. There were no liabilities received. April4 Paid three months’ rent on a lease rental contract, $4,500. April4 Paid the premium on property and casualty insurance policies for the year, $1,800. April Received cash from clients as an advance payment for services to be provided, $3,000. April7 Purchased additional office furniture on account from Morrilton Company, $1,800. April8 Received cash from clients on account, $800. April 11 Paid cash for newspaper advertisement, $120. April 12 Paid Morrilton Company $800 for debt incurred on April 7. April 15 Recorded services provided on account for the period April 4-15, $2,250 April 15 Paid part-time receptionist for two weeks salary, $400. April 15 Recorded cash from cash clients for fees earned April 4-15, $3,175. April 18. Paid cash for supplies, $750. April 22, Recorded services provided on account for April 18-22, $1,100. April 22. Recorded cash from cash clients for fees earned April 18-22, $1,850. April 25 Received cash from clients on account, $1,600. April 27, Paid part-time receptionist for two week's salary, $400. April 28. Paid telephone bill for April, $130. April 29. Paid electric bill for April, $200. April 29. Recorded cash from cash clients for fees earned April 25-29, $2,050. April 29. Recorded services provided on account for April 25-29, $1,000. April 29: John received $4,500 from the company as his salary. Instructions: (The first transaction has been recorded and posted for you). 1. Record the transactions stated above in good general journal form. 2. Post the transactions to T-accounts. 3. Record and post the following adjustments: a, Insurance expired in April, $150. b. Supplies on hand April 29, $1,020. c. Depreciation for the office equipment in April, $500. d. Accrued receptionist salary on April 30, $20. e. Rent expired in April, $1,500. f. Earned $2,000 of services that were previously paid for on 4/6. 5. Prepare an Income Statement, Statement of Retained Earnings and Balance Sheet. 6. Record and post closing entries. 7. Prepare a post-closing trial balance.Competency Exam Accounting Cycle Process Problem SolutionPeg 4/4 {Cash 10,000 Accounts Receivable 1,500 ‘Supplies 1,250 Office Equipment 7,500 Contributed Capital 20,250 4/4 _|Prepaid Rent 4,500 Cash 4,500 4/4 _|Prepaid Insurance 1,800 Cash 1,800 4/6 _|Cash 3,000 Unearned Revenue 3,000 4/7 _|Office Equipment 1,800 Accounts Payable 1800 4/8 _|Cash 800 Accounts Receivable 800 4/11_|Advertising Expense 120 Cash 120 4/12_|Accounts Payable 800 Cash 800 4/15 _|Accounts Receivable 2,250 Service Revenue 2,250 4/15 |Salaries Expense 400 Cash 400 4/15 |Cash 3,175 Service Revenue 3,1754/18 [Supplies 750 Cash 750 4/22 _| Accounts Receivable 1,100 Service Revenue 1,100 4/22 |Cash 1,850 Service Revenue 1,850 4/25 [Cash 1,600 Accounts Receivable 1,600 4/27 {Salaries Expense 400 Cash 400 4/28 _|Telephone Expense 130 Cash 130 4/29 Utilities Expense 200 Cosh 200 4/29 |Cash 2,050 Service Revenue 2,050 4/29 |Accounts Receivable 1,000 Service Revenue 1,000 4/29 |Salaries Expense 4,500 Cosh 4,500Adjusting Journal Entries Account Title Insurance Expense crag credit @ Prepaid Insurance 150 4/30_|Supplies Expense 980 () Supplies 980 4/30 [Depreciation Expense 500 © ‘Accumulated Depreciation 500 4/30_|Salaries Expense 20 @ Salaries Payable 20 4/30 _|Rent Expense 1,500 © Prepaid Rent 1,500 4/30 _[Unearned Revenue 2,000 3) Service Revenue 2,000Prepaid Insurance 4500 4/4 1,800 4/4 150 AJE (a) 120 4/11 800 4/12 400 4/15 750 4/18 400 4/27 130 4/28 200 4/29 4,500 4/29 Accumulated Depr 800 4/8 1,600 4/25 Accounts Payable Salaries Payable 980 AJE (b) AJE (d) 1,500 AJE (e)Contributed Capital Rent Expense Retained Earnings Salaries Expense 4/15 400 4/27 400 4/29 4,500 AJE (f) Utilities Expense‘Addams & Family Ine. ‘Adjusted Trial Balance For the Year Ended December 31st, 2010 Cash ‘Accounts Receivable Prepaid Rent Prepaid Insurance Supplies Office Equipment ‘Accumulated Depreciation, Equipment ‘Accounts Payable Salaries Payable Unearned Revenue Contributed Capital Retained Earnings Dividends Declared Service Revenue Insurance Expense 150 Depreciation Expense 500 Rent Expense 1,500 ‘Supplies Expense 980 Salaries Expense 5,320 Telephone Expense 130 Utilities Expense 200 Advertising Expense 120 $ 36195 $36,195Addams & Family Inc. Income Statement For the Year Ended April 30, 2010 Revenues Service Revenue $ 13,425 Total Revenues 13,425 Expenses Insurance Expense 150 Depreciation Expense 500 Rent Expense 1,500 Supplies Expense 980 Salaries Expense 5,320 Telephone Expense 130 Utilities Expense 200 Advertising Expense 120 Total Expenses 8,900 INet Income (Loss)Addams & Family Inc. Statement of Retained Earnings For the Year Ended April 30, 2010 Beg Retained Earnings, 4/1/10 Add: Net Income Less: Dividends End Retained Earnings, 4/30/10Addams & Family Inc. Balance Sheet At April 30, 2010 Assets Current Assets Cash Accounts Receivable Prepaid Rent Prepaid Insurance Supplies Total Current Assets Property Plant & Equipment Office Equipment Accumulated Depreciation Property Plant & Equipment, Net Total Assets Liabilities & Stockholders’ Equity Liabilities Current Liabilities Accounts Payable Salaries Payable Total Current Liabilities Unearned Revenue Total Liabilities ‘Stockholders’ Equity Contributed Capital Retained Earnings Total Stockholders’ Equity Total Liabilities & Stockholders’ EquityGeneral Journal eee ey cau CoG 4/30. [Service Revenue 13,425 CIE #1| Insurance Expense 150 Depreciation Expense 500 Rent Expense 1,500 Supplies Expense 980 Salaries Expense 5,320 Telephone Expense 130 Utilities Expense 200 Advertising Expense 120 Retained Earnings 4525 (To close Revenues and Expenses to Retained Earnings) 4/30 CIE #2 paid a dividend during the period, we would simply: Dr. Retained Earnings and Cr. Dividends Declared Remember, dividends are not an expense; they are a distribution to the owner(s). Note, we did record any dividends during the period and therefore do not have an entry to close dividends to retained earnings. If we had declared and‘Addams & Family inc. Post-Closing Trial Balance For the Year Ended December 31st, 2010 Cash ‘Accounts Receivable Prepaid Rent Prepaid Insurance ‘Supplies ion, Equipment ‘Accounts Payable Salaries Payable Unearned Revenue Contributed Capital Retained Earnings Dividends Declared Service Revenue Insurance Expense Depreciation Expense Rent Expense Expense Salaries Expense Telephone Expense olololojojojolo en n N 0 a