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33:010:272 Lecture Notes - Lecture 1: Trial Balance, Financial Statement, Accounts Payable

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erincheetah728
1 Nov 2016
School
Rutgers University
Department
Accounting
Course
33:010:272
Professor
Wassermann

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Document Summary

More debits than credits = normal debit balance. More credits than debits = normal credit balance. How to find retained earnings: net income - dividends (rev - exp - div) Accrued earnings: earnings recorded before money is on hand. Depreciation expense - accumulated depreciation (balance sheet account) - shows how much depreciation was taken on an equipment since it"s inception. 3. helps to prevent or locate errors because the debit and credit amounts can be easily compared. General ledger contains the entire group of accounts owned by a company - asset accounts, liability accounts, stockholder"s equity accounts - cash, supplies, revenues, expenses, etc. Posting - process of transferring amounts from the journal to the ledger accounts (ref # in journal to j# for ledger - separate individual ledger posting for each individual account (asset, liability, etc) 4. incorrect accounts are used in journalizing or posting. 5. offsetting errors are made in recording the amount of a transaction.

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Related Questions

Forten Company, a merchandiser, recently completed itscalendar-year 2015 operations. For the year, (1) all sales arecredit sales, (2) all credits to Accounts Receivable reflect cashreceipts from customers, (3) all purchases of inventory are oncredit, (4) all debits to Accounts Payable reflect cash paymentsfor inventory, and (5) Other Expenses are paid in advance and areinitially debited to Prepaid Expenses. The company's incomestatement and balance sheets follow.

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2015 and 2014

2015

2014
Assets
Cash $ 49,800 $ 74,000
Accounts receivable 65,900 59,000
Inventory 277,000 252,500
Prepaid expenses 1,500 1,700
Total current assets 394,200 387,200
Equipment 158,500 106,500
Accum. depreciation—Equipment (36,375) (46,000)
Total assets $ 516,325 $ 447,700
Liabilities and Equity
Accounts payable $ 54,325 $ 113,000
Short-term notes payable 9,000 8,000
Total current liabilities 63,325 121,000
Long-term notes payable 65,000 48,000
Total liabilities 128,325 169,000
Equity
Common stock, $5 par value 162,500 150,750
Paid-in capital in excess of par, common stock 35,250 0
Retained earnings 190,250 127,950
Total liabilities and equity $ 516,325 $ 447,700
FORTEN COMPANY
Income Statement
For Year Ended December 31, 2015
Sales $ 582,500
Costof goods sold 287,000
Gross profit 295,500
Operating expenses
Depreciation expense $ 20,000
Other expenses 132,000 152,000
Other gains (losses)
Loss on sale ofequipment (5,250)
Income before taxes 138,250
Income taxes expense 24,250
Netincome $ 114,000
Additional Information on Year 2015Transactions
a. Net income was$114,000.
b. Accountsreceivable increased.
c. Inventoryincreased.
d. Prepaid expensesdecreased.
e. Accounts payabledecreased.
f. Depreciationexpense was $20,000.
g.

Sold equipment costing $46,500, with accumulated depreciation of$29,625, for $11,625 cash. This yielded a loss of $5,250.
h.

Purchased equipment costing $98,500 by paying $25,000 cash and(i.) by signing a long-term note payable for thebalance.
j. Borrowed $1,000cash by signing a short-term note payable.
k. Paid $56,500cash to reduce the long-term notes payable.
l. Issued 2,350shares of common stock for $20 cash per share.
m. Declared andpaid cash dividends of $51,700.
Required:

Prepare a complete statement of cash flows using a spreadsheet;report its operating activities using the indirect method.(Enter all amounts as positive values.)

FORTEN COMPANY
Spreadsheet for Statement ofCash Flows
For Year Ended December 31,2015
Analysis of Changes
December 31, 2014 Debit Credit December 31, 2015
Balance sheet—debit
Cash $74,000 $49,800
Accounts receivable 59,000
Inventory 252,500
Prepaid expenses 1,700
Equipment 106,500
$493,700
Balance sheet—credit
Accumulateddepreciation—Equipment $46,000
Accounts payable 113,000
Short-term notes payable 8,000
Long-term notes payable 48,000
Common stock, $5 parvalue 150,750
Paid-in capital in excess ofpar value, common stock 0
Retained earnings 127,950
$493,700
Statement of cash flows
Operating activities
Investing activities
Financing activities
Non cash investing andfinancing activities
Purchase of equipment financedby long-term note payable

1.

Unearned income is a liability.

A) True
B) False

2.

Prepaid expenses are assets.

A) True
B) False

3.

A business with no cash is insolvent.

A) True
B) False

4.

Assets must always equal liabilities plus capital.

A) True
B) False

5.

Assets normally have credit balances.

A) True
B) False

6.

Balance sheets report profitability.

A) True
B) False

7.

All payables are liabilites.

A) True
B) False

8.

FOB destination means buyer pays freight.

A) True
B) False

9.

Accrued revenue, by defintion, is unearned.

A) True
B) False

10.

Inventory is a current asset.

A) True
B) False

11.

Debits reduce liabilites.

A) True
B) False

12.

Sales returns are debited to inventory at cost.

A) True
B) False

13.

Sales minus sales returns, allowances, and discounts equals costof sales.

A) True
B) False

14.

Withdrawals reduce net income.

A) True
B) False

15.

A business with more debt than equity is insolvent.

A) True
B) False

16.

A business with more equity than debt is profitable.

A) True
B) False

17.

Net losses reduce capital.

A) True
B) False

18.

FIFO leaves the most recent costs in inventory.

A) True
B) False

19.

When creditors are paid, cash is always credited.

A) True
B) False

20.

There are two types of journal entires, simple and complex.

A) True
B) False

21.

Trade discounts reduce transportation costs.

A) True
B) False

22.

Cash discounts taken are credited to inventory.

A) True
B) False

23.

Cash discounts given are subtracted from sales.

A) True
B) False

24.

Recording unearned income requires a credit to cash.

A) True
B) False

25.

Journal entries must always contain both debits and credits.

A) True
B) False

26.

All adjusting entries always contain both income statement andbalance sheet accounts.

A) True
B) False

27.

Equity and capital are the same.

A) True
B) False

28.

Balance sheet accounts are either assets or liabilites.

A) True
B) False

29.

Debits reduce assets.

A) True
B) False

30.

when recording income, a revenue account must always becredited.

A) True
B) False

31.

All expense accounts, even prepaid expenses, normally have debitbalances.

A) True
B) False

32.

Accounts payable would be debited to record an expense owed.

A) True
B) False

33.

A seller would record freight costs paid FOB shipping as acredit.

A) True
B) False

34.

When receivables are collected, cash is always debited.

A) True
B) False

35.

When buyers return inventory, sellers credit cost of sales.

A) True
B) False

36.

Copyrights are amortized.

A) True
B) False

37.

Inventory is depleted.

A) True
B) False

38.

Land depreciates.

A) True
B) False

39.

A petty cash shortage would be recorded as a debit to cash shortand over.

A) True
B) False

40.

When notes are collected, cash is debited for their maturityvalue.

A) True
B) False

41.

When reconciling cash, deposits in transit are added to thedepositor's book balance.

A) True
B) False

42.

Trade discounts are recorded on worksheets.

A) True
B) False

43.

Accuumlated depreciation is a contra-asset.

A) True
B) False

44.

Depreciation is an expense that reflects the cost ofuncollectible receivables.

A) True
B) False

45.

Revenue would appear on a post closing trial balance as acredit.

A) True
B) False

46.

Income summary is closed to capital.

A) True
B) False

47.

Adjustments are recorded on worksheets.

A) True
B) False

48.

Journalizing follows posting.

A) True
B) False

49.

All general ledger accounts are adjusted and closed at the endof the accounting cycle.

A) True
B) False

50.

Supplies are assets.

A) True
B) False

Terrific Temps fills temporary employment positions for localbusinesses. Some businesses pay in
advance for services; others are billed after services have beenperformed. Advanced payments are
credited to an account entitled Unearned Fees. Adjusting entriesare performed on a monthly basis.
An unadjusted trial balance dated December 31, 2015, follows. (Bearin mind that adjusting entries
have already been made for the first 11 months of 2015, but not forDecember.)


TERRIFIC TEMPS
UNADJUSTED TRIAL BALANCE
DECEMBER 31, 2015
Cash $ 27,020
Accounts receivable 59,200
Unexpired insurance 900
Prepaid rent 3,000
Office supplies 600
Equipment 60,000
Accumulated depreciation: equipment $ 29,500
Accounts payable 4,180
Notes payable 12,000
Interest payable 320
Unearned fees 6,000
Income taxes payable 4,000
Unearned revenue 20,000
Retained earnings 49,000
Capital stock 25,000
Dividends 3,000
Feesearned 75,000
Travel expense 5,000
Insurance expense 2,980
Rentexpense 9,900
Office supplies expense 780
Utilities expense 4,800
Depreciation expense: equipment 5,500
Salaries expense 30,000
Interest expense 320
Income taxes expense 12,000
$ 225,000 $ 225,000

Other Data
1. Accrued butunrecorded fees earned as of December 31, 2015, amount to$1,500.
2. Records showthat $2,500 of cash receipts originally recorded as unearned feeshad been earned as of December 31.
3. The companypurchased a six-month insurance policy on September 1, 2015, for$1,800.
4. On December 1,2015, the company paid its rent through February 28, 2016.
5. Office supplieson hand at December 31 amount to $400.
6.

All equipment was purchased when the business first formed. Theestimated life of the equipment at that time was 10 years (or 120months).
7.

On August 1, 2015, the company borrowed $12,000 by signing asix-month, 8 percent note payable. The entire note, plus sixmonths' accrued interest, is due on February 1, 2016.
8. Accrued butunrecorded salaries at December 31 amount to $2,700.
9. Estimated incometaxes expense for the entire year totals $15,000. Taxesare due in the first quarter of 2016.

Instructions
a. For each of thenumbered paragraphs, prepare the necessary adjusting entry.(If no entry is required for a transaction/event, select"No journal entry required" in the first accountfield.)

Journal Entry Worksheet

Record the accrued but uncollected fees earned.

Record fees earned as of December 31st.

Record the December insurance expense.

Record the December rent expense.

Record the offices supplies used in December.

Record the December depreciation expense.

Record the interest accrued in December.

Record the salaries accrued in December.

Record the income taxes accrued in December.

Date GeneralJournal Debit Credit
Dec. 31

*Enter debits before credits

1. Fees earned
2. Travel expense
3. Insurance expense
4. Rent expense
5. Office supplies expense
6. Utilities expense
7. Depreciation expense: equipment
8. Interest expense
9. Salaries expense
10. Income taxes expense
. The unadjusted trial balance reportsdividends of $3,000. As of December 31, 2015, have these dividendsbeen paid?
Yes
No