Midterm Review Solutions - Exercise 2\u20138 1 Prepaid insurance($12,000 x 30\/36 Insurance expense 2 Depreciation expense 15,000 Accumulated

Midterm Review Solutions - Exercise 2u20138 1 Prepaid...

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Exercise 2–8 1. Prepaid insurance ($12,000 x 30 /36) 10,000 Insurance expense 10,000 2. Depreciation expense 15,000 Accumulated depreciation 15,000 3. Salaries expense 18,000 Salaries payable 18,000 4. Interest expense ($200,000 x 12% x 2 / 12 ) 4,000 Interest payable 4,000 5. Deferred rent revenue 1,500 Rent revenue ( 1 / 2 x $3,000) 1,500 Exercise 2–11 1. Insurance expense ($6,000 x 3 / 12 ) 1,500 Prepaid insurance 1,500 2. Interest expense ($80,000 x 8% 3 /12) 1,600 Interest payable 1,600 3. Deferred rent revenue ($24,000 x 3 / 12 ) 6,000 Rent revenue 6,000 4. Depreciation expense ($20,000 x 3 / 12) 5,000 Accumulated depreciation - building 5,000 5. Salaries and wages expense 16,000 Salaries and wages payable 16,000 Exercise 2–12 Requirement 1 BLUEBOY CHEESE CORPORATION Income Statement For the Year Ended December 31, 2018 Sales revenue $800,000 Cost of goods sold 480,000
Gross profit 320,000 Operating expenses: Salaries $120,000 Rent 30,000 Depreciation 60,000 Advertising 5,000 Total operating expenses 215,000 Operating income 105,000 Other expense: Interest 4,000 Net income $101,000 Exercise 2–12 (continued) BLUEBOY CHEESE CORPORATION Balance Sheet At December 31, 2018 Assets Current assets: Cash $ 21,000 Accounts receivable 300,000 Inventory 50,000 Prepaid rent 10,000 Total current assets 381,000 Property and equipment: Office equipment $600,000 Less: Accumulated depreciation (250,000 ) 350,000 Total assets $731,000 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 60,000 Salaries payable 8,000 Interest payable Note payable 2,000 60,000 Total current liabilities 130,000 Shareholders’ equity: Common stock $400,000 Retained earnings 201,000* Total shareholders’ equity 601,000 Total liabilities and shareholders’ equity $731,000 *Beginning balance of $100,000 plus net income of $101,000.
Exercise 2–12 (concluded) Requirement 2 December 31, 2018 Sales revenue 800,000 Income summary 800,000 Income summary 699,000 Cost of goods sold 480,000 Salaries expense 120,000 Rent expense 30,000 Depreciation expense 60,000 Interest expense 4,000 Advertising expense 5,000 Income summary ($800,000 – 699,000) 101,000 Retained earnings 101,000 Exercise 2–17 Unadjusted net income $30,000 Adjustments: a. Only $2,000 in insurance should be expensed + 4,000 b. Sales revenue overstated 1,000 c. Supplies expense overstated + 750 d. Interest expense understated ($20,000 x 12% x 3 /12) 600 Adjusted net income $33,150 Exercise 2–18 Stanley and Jones Lawn Service Company Income Statement For the Year Ended December 31, 2018 Sales revenue (1) $315,000 Operating expenses: Salaries $180,000 Supplies (2) 24,500 Rent 12,000 Insurance (3) 4,000 Miscellaneous (4) 21,000 Depreciation 10,000 Total operating expenses 251,500 Operating income 63,500 Other expense: Interest (5) 1,500
Net income $62,000 $320,000 cash collected less $5,000 decrease in accounts receivable. Cash 320,000 Accounts receivable (decrease in account) 5,000 Sales revenue (to balance) 315,000 $25,000 cash paid for the purchase of supplies less $500 increase in supplies. Supplies expense (to balance) 24,500 Supplies (increase in account) 500 Cash 25,000 Exercise 2–18 (concluded) $6,000 cash paid for insurance less $2,000 ending balance in prepaid insurance. Insurance expense (to balance) 4,000 Prepaid insurance (increase in account) 2,000 Cash 6,000 $20,000 cash paid for miscellaneous expenses plus increase in accrued liabilities.

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