SBE Economics and Business Economics

Accounting I
Tutorial exercises – Week 2

Notes: to help you prepare the exercises, we provide an overview on how each exercise is related to the
LO’s (learning objectives) covered in the textbook. Review the LO’s when you find some concepts or
exercises difficult. Try to make the entire set of exercises and compare your answers with the solutions
during the tutorial. It might be good to take note of things you find difficult so that you can bring this into
the discussion during the tutorial as well.

Exercise Topic Related material

textbook
2-1 Cash receipts and payments versus revenues and expenses Chapter 3 – LO 1
2-2 The accounting cycle Chapter 4 – LO 3 & 4
2-3 Trading firm transactions and inventory measurement Chapter 5 – LO 2 & 3
2-4 Inventory measurement and cost of goods sold Chapter 6 – LO 2
2-5 Estimating uncollectible receivables Chapter 8 – LO 1 & 2
2-6 Depreciation methods Chapter 9 – LO 2

AccountingI_EBE_1.4 2023-2024 Tutorial exercises | Week 2

2-1 Cash receipts and payments versus revenues and expenses

The table below provides some information regarding expenses and revenues that were recorded by a company
in a particular month, as well as accompanying cash flows. As you can see, there is information about the
amounts during and/or at the end of the reporting period. You may assume no opening balances for the given
accounts.

During the period At the end of the period

Cash paid/ Expenses / Prepaid / Payable /
Cash received Revenues Received in advance Receivable
Lease revenues 15,000 11,500 a.
Interest expenses b. 7,200 7,200
Salary expenses 34,000 c. 3,000
Rent revenues d. 42,000 4,000
Transportation expenses e. 26,000 2,000

Required:

Determine the amounts required for the letters a through e to complete the table above.

Hint: this exercise helps you think about the difference between cash flows and recognition of expenses
and revenues. You might want to use the following equation to find the appropriate ‘balance’: profit =
cash flow + ‘accruals’

AccountingI_EBE_1.4 2023-2024 Tutorial exercises | Week 2

2-2 The accounting cycle

Trading firm D and V prepared the following balance sheet as of 1 January 2023.

Balance sheet D and V as of 1 January 2023

(amount x €1 mln)
Property 500 Stockowners’ equity:
Inventory 250 Common stock 150
Accounts receivable 60 Retained earnings 450
Allowance for uncollectible accounts -10 600
Accounts receivable, net 50 Bank loan 150
Cash 20 Accounts payable 70
820 820

The following transactions were completed and registered in 2023 (amounts x €1 mln):

1. Trading goods purchased on account for € 150. The goods have been received.
2. On 1 June 2023 a 3% bank loan was obtained for € 400. Annual interest payment is due on
31 May.
3. Goods sold and delivered on account for € 550. Cost of delivered goods was € 320.
4. Paid € 50 rent for equipment.
5. Paid € 120 wages.
6. Received € 540 in cash from clients (debtors).
7. Paid € 21 dividends in cash.

On 31 December 2023 the controller of the company realizes that there are still some financial
events that need to be accounted for in the financial administration:
8. An addition to the allowance for uncollectible accounts, being 2% of sales during the year.
9. Interest expense for the 3% loan, acquired on 1 June 2023, needs to be registered for the
year 2023.
10. Based on additional information received from clients, the company needs to write off
accounts receivable for € 12 as this amount must be considered uncollectible.

Required:

a. Provide the journal entries pertaining to the 7 transactions (1 till 7).

b. Provide the adjusting journal entries pertaining to the 3 facts as mentioned by the controller
of the company (8 till 10).

You may use the following accounts (see list below) from the company’s general ledger.

Hint: during week 1 we have already discussed the step-by-step logic of recording journal
entries. Have a look again on exercises 1-5, 1-6 and 1-7 and use the same principles in this
exercise.

List of account names (see also balance sheet)

Dividends Bank loan
Rent expenses Sales revenues
Losses on receivables Interest expenses
Cost of goods sold Interest payable
Salary expenses Inventory
Accounts payable Cash
Allowance for uncollectible accounts Accounts receivable

AccountingI_EBE_1.4 2023-2024 Tutorial exercises | Week 2

2-3 Trading firm transactions and inventory measurement

Trading firm Bestina Corp. registered the following transactions in the month October of 2023:

October 2 Purchased and received goods on credit from Thuli Company for € 5,600.
Applicable discount of 2% on purchase price if paid within 30 days.
6 Sold and delivered goods for € 9,100 on account to Libod Erna. The client will
receive a 1% discount if payment is received within 20 days. The carrying amount
of the sold goods was € 6,500.
10 Returned part of the goods purchased on October 2 to Thuli Company. Returned
goods have a value of € 900. Credit note (*) has been received.
14 Accepted a return received from Libod Erna for full credit of € 1,500 (selling price).
Returned goods are restored in inventory for their initial carrying amount of € 980.
Credit note has been sent to Libod Erna.
25 Received the amount receivable from Libod Erna settled for the sale of October 6
and the return of October 14.

(*) A credit note is a document which corrects a mistake on an order or an invoice, or to refund an
amount paid for products or services (for example for returns or defects).

Required:

a. Provide the journal entries for each of the transactions in October as mentioned above. Please use the
account names listed below.

b. We have discussed several accounting principles in the knowledge clips and lecture this week. Which of
the following four principles have you applied in recording the transactions mentioned above? And which
not? Explain your answer.

realization principle matching principle

historical cost principle prudence principle

Hint: you might want to look into the ‘accounting principles’ as discussed in knowledge clip 2.1 to determine
what should be recorded for each transaction (or on each date). This will also help you answer question b.

List of account names

Accounts payable Sales revenues
Accounts receivable Sales returns and -allowances
Cost of goods sold Sales discounts
Cash Inventory
Purchase discounts

AccountingI_EBE_1.4 2023-2024 Tutorial exercises | Week 2

2-4 Inventory measurement and cost of goods sold

A trading firm made the following chronological list of transactions completed in January 2024.

date # of items item price

1-1 Opening inventory 20,000 € 1.20
1-1 Opening inventory 8,000 € 1.25
4-1 Purchase 3,000 € 1.30
7-1 Sale 5,000
9-1 Purchase 4,000 € 1.24
10-1 Sale 1,000
13-1 Sale 15,000
17-1 Purchase 30,000 € 1.15
19-1 Sale 10,000
21-1 Sale 8,000
23-1 Sale 4,000
26-1 Sale 9,000
29-1 Purchase 16,000 € 1.10
31-1 Closing inventory 29,000

Required:

a. Calculate the cost of goods sold for the month January applying periodic weighted
average inventory costing.
b. Calculate the cost of goods sold for the month January applying periodic FIFO
inventory costing.
c. Determine the carrying amount of the closing inventory on January 31 using the FIFO
method again.

Hint: equations might help you:

(opening inventory + purchases) – closing inventory = cost of goods sold

AccountingI_EBE_1.4 2023-2024 Tutorial exercises | Week 2

2-5 Estimating uncollectible receivables

The company Floorexx reported to have an accounts receivable balance of € 540,000 at 1 January 2023.
To recognize expected losses on receivables, the company also reported an allowance for uncollectible
accounts of € 30,000 as of 1 January 2023. These amounts can be considered as normal balances.

During the year 2023 the company recorded the following:

1. Sales on account for € 6,500,000.

2. Sales returns by customers for € 300,000.
3. Received payments from customers (debtors): € 6,100,000.
4. Write-down of uncollectible receivables for € 70,000.

The company foresees that 1% of its yearly net sales on account will be uncollectible.

Required:

a. Provide the journal entries for each of the four facts (1 – 4) as mentioned above. Please use the account
names listed below.

b. Prepare T-accounts for ‘accounts receivable’ and ‘allowance for uncollectible accounts’. Use the following
three steps: (i) take note of the opening balances, (ii) incorporate the journal entries in the T-accounts, (iii)
determine the closing balance of each account.

The company’s controller has taken note of the closing balance of the allowance for uncollectible accounts
and urges management to make an adjusting entry such that this becomes more representative for the
company’s situation. The controller proposes to look into two different methods to calculate the adjustment
to be made and see how these two methods differ in terms of uncollectible accounts expenses.

c. First calculate the additional losses on receivables (uncollectible accounts expenses) the company should
register and / or the desired closing balance for allowance for uncollectible accounts and then provide the
journal entry to record this based on the following two methods:
1. dynamic method: based on a pre-determined percentage of net sales on account; and
2. static method: assuming an aging of the accounts receivable shows that € 32,000 may be
uncollectible

Hint: take note of learning objective 2 in chapter 8 of the textbook.

List of account names

Accounts payable Sales revenues
Accounts receivable Sales returns and -allowances
Losses on receivables Sales discounts
Cost of goods sold Inventory
Cash Allowance for uncollectible accounts
Purchase discounts

AccountingI_EBE_1.4 2023-2024 Tutorial exercises | Week 2

2-6 Depreciation methods

A data science consultancy firm purchased a new data server for € 400,000. The server has an
estimated residual value of € 20,000 and an estimated useful life of four years.

Required:

a. For each of the four years of the server’s useful life, calculate the annual depreciation and the carrying
amount at the end of the year under each of the following depreciation methods:
1. Linear (‘straight-line’).
2. Progressive (‘accelerated’): deprecation 52.7% of carrying amount (bookvalue).

b. 1. Do the two methods differ in their effect on the company’s profitability? Explain.
2. Do the two methods differ in their effect on the company’s operating cash flow? Explain.

Hint: you might want to have a look again at knowledge clip 2.2 (‘Depreciation’) in case you experience
any difficulties with this exercise.

AccountingI_EBE_1.4 2023-2024 Tutorial exercises | Week 2