1. Assets = Liabilities + Stockholders’ Equity = $23,500 + $56,500 = $80,000
2. Net Income (Loss) = Sales – Expenses = $29,500 – $33,000 = (3,500)
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3. Salaries Expense = 0 + $450 – $175 + $600 + $350 = $1,225 (debit balance)
4. Dt Cash $375
Ct Accounts Payable $375
5. Dt Insurance Expense $3,600 x 5 months / 24 months = $750
Ct Prepaid Insurance $750
6. Supplies expense = Beginning supplies on hand + Purchases – Ending supplies on hand = 0 + 200 – 40 = 160
7. Cash account will be credited for $4,500 (no discount), as the seventeenth day of payment exceeds the discount period (15 days).
8. Current liabilities = Accounts Payable + Unearned Revenue + Wages Payable = $8,500 + $6,000 + $4,500 = $19,000
9. The cost of goods sold for the June 7 sale (per unit) = ($52 x 5 + $55 x 10) / 15 = $54
The cost of goods sold for the June 14 sale (per unit) = ($54 x 3 + $58 x 9) / 12 = $57
Total cost of goods sold for the June 14 sale = 8 x $57 = $456
10. The company’s cost of goods sold = net sales – gross profit = $4,500 – $3,200 = $1,300
11. The inventory turnover = cost of goods sold/ average inventory = $50,000 / (($16,000 + $20,000)/2) = 2.78
12. Segregation of duties deals with establishing procedures for things such as handling of incoming checks, whereas Internal Audit deals with the oversight of the internal control systems.
13. Audit opinion is a written statement to the members of an entity under the audit that comprises an auditor’s opinion on the accuracy and completeness of the company’s financial statements.
14. 7% x $235,000 = $16,450 > $7,250 To record estimated uncollectible accounts, the following journal entry will be made:
Dt Bad Debts Expense ($16,450 – $7,250) = $9,200
Ct Allowance for Doubtful Accounts $9,200
15. Dt Bad Debts Expense ($142,000 x 2%) + $643 = $3,483
Ct Allowance for Doubtful Accounts $3,483
16. Depreciation rate = 2 x (1/5) = 40%
Year Declining Book Value Balance Depreciation Expense
Year 1 $50,000 $20,000
Year 2 $30,000 $12,000
Year 3 $18,000 $7,200
Year 4 $10,800 $800
The asset’s fourth full year of depreciation expense equals to $800.
17. Dt Cash $8,500
Dt Accumulated depreciation $50,000
Ct Truck $56,000
Ct Gain on disposal $2,500
18. Interest second installment = 3% x (210,000 – 7,585 + 210,000×3%) = 6,261
Journal entry for recording the second semiannual payment:
Dt Interest Expense $ 6,261
Dt Mortgage Payable $1,324
Ct Cash $ 7,585
19. Entry for recording the June 30 interest payment on the bonds:
Dt Interest Expense $ 18,500
Dt Premium on bonds payable $1,500
Ct Cash $ 500,000 x 4% = $20,000
20. Preferred stock dividends = 5,000 shares x $15 x 10% = $7,500
Common stock dividends = $20,000 – $7,500 = $12,500
21. The amount that will be credited to Paid-in Capital in Excess of Par Common Stock on the date of declaration = 250,000 x ($11 – $7) = $1,000,000
22. The cash flow from operating activities amounts to Net Income – Increase in Accounts Receivable = $300,000 – ($245,000 – $215,000) = $270,000
23. Cash payments for operating expenses = decrease in accrued expenses + increase of prepaid expenses + operating expenses other than depreciation = $30,000 + $17,000 + $400,000 = $447,000
24. Quick ratio = ($80,000 + $20,000 + $60,000) / $200,000 = 0.8
25. EPS = (Net Income – Preferred Dividends)/ Total Shares Outstanding = ($37,000 – 0)/ 10,000 = $3.70
